Economy

In 1940, John Maynard Keynes set out “How to pay for the war” in a pamphlet. It is a question western countries should be asking themselves today. They may be trying hard not to be dragged into the fighting themselves, but the war is nonetheless imposing costs on Ukraine’s friends — and nowhere more so than in energy prices. Gas, electricity and fuel prices have soared; traders now warn of a “systemic shortage” of diesel.We are, in other words, already paying the costs of war. These costs are nothing compared with those suffered by the people of Ukraine, of course. They are also smaller than the sufferings of innocent Russians treated by President Vladimir Putin’s mafia regime as human shields against western sanctions, and of poor countries around the world. But the costs for Ukraine’s western friends are nonetheless real and consequential — and include those of welcoming refugees, tackling looming food shortages and managing the recession and supply chain logjams which are surely under way. Energy costs, however, are clearly the most important part.How, then, to pay for the war? Asking the question in this way can, perhaps, focus our minds so that the answer is the one we choose rather than one we passively let happen because we underestimate the scale of the task ahead. What is more, ensuring that we consciously plan how to pay for (our part of) the war in the best possible way also makes it more likely that we will help Ukraine (and therefore ourselves) to win it — because the better we manage the pain of higher energy costs, the easier we shall find it cutting off the oil and gas revenues that finance Russia’s war crimes.While western leaders do not describe them as paying for the war, sky-high energy prices are evidently on top of their minds. Spanish prime minister Pedro Sánchez is leading a campaign to de-link electricity pricing in the EU from the level of gas prices. Belgium’s prime minister Alexander De Croo is calling for a gas price ceiling. The issue will loom large at today’s European Council summit — though perhaps still not large enough. The illusion that only Ukraine is at war is holding back EU countries’ readiness to put their own economies on a war footing.Once we accept that the squeeze on energy and other commodities must, like other costs of war, leave the economy poorer overall, we can distinguish three main ways to allocate the burden. The first is inflation: just let prices rise and sauve qui peut. The second is to take the burden on the fiscal balance sheet, through subsidies paid for with some sequence of government borrowing and tax increases. The third is price controls.The first world war and its aftermath were in many countries paid for in the first way: inflation. The second world war was paid for by a combination of the second and third: significant national indebtedness, certainly, but also price management and the rationing that necessarily comes with it. Inflation was largely repressed through forced saving. It is important to understand Keynes’s argument as to how this repression would happen in Britain’s second world war effort — not just by legally holding prices down (and rationing in the face of the resulting excess demand) but because massive public borrowing diverted private spending power into private savings.Countries around Europe have grasped for a combination of all of these. Inflation in commodity and energy prices, originally because of a lopsided US post-pandemic recovery but intensified by the war, is spreading to most other prices. Governments have offered support packages for energy consumers — UK chancellor Rishi Sunak doubled his to £1bn in Wednesday’s Spring Statement. But they have also acted to manage down prices — Sunak cut fuel taxes, and the examples mentioned earlier show the bigger price control policies pushed by some EU states.The risk today is that politicians are too tempted by the third because they are too worried about public finances. The short-run political gain from putting a lid on energy prices is obvious: it pleases all buyers of energy and puts the cost on somebody other than the government imposing it. But it is a terrible idea. If the reason for high prices is ultimately not enough supply to meet the desired demand, then capping prices will simply make that problem worse, discouraging both supply drives and demand reduction efforts. That also means price regulation by itself cannot ultimately work without resorting to some sort of rationing and enforced efficiency gains.This is particularly important in the EU, which until the war organised much of its policy around its big ambitions for a carbon-free economy. In that context, high energy prices — driven by the high price of gas and other fossil fuels — are a tool to help speed up the green transition, by increasing the rewards for expanding carbon-free electricity supply and for economising energy demand and using energy more efficiently.Everyone understands that shifting away from fossil fuels is also in Europe’s geostrategic interest. Yet, evidently, many leaders see political advantage in blunting the incentive to do so. The inconvenient fact is that capping prices, even reducing them simply by lowering energy taxes, will delay efficiency drives and tilt investment decisions away from non-carbon energy relative to letting the market work as at present. A recent paper from EU national energy regulators explains this very well.Instead, governments must bite the bullet on option two, even though it is by far the costliest for public finances. That means letting energy prices balance supply and demand but massively increasing fiscal support for those hurt the most and for investment. The right model is to pay households and small businesses an energy subsidy, not linked to their actual use but to cover the cost, above “normal” prices, of stipulated necessary minimum consumption levels. It could be partly financed by carbon and energy taxes — carbon dividends are a good model here — but also by borrowing. Designed well, this brings the best of all worlds: price signals to accelerate the energy transition, shifting the cost towards those who can most easily bear it, and a moderate form of indirect rationing of energy to ensure the strongest needs are provided. People would be able to keep consuming moderate amounts of energy at no greater cost than before, and would be rewarded for finding ways to economise their consumption further.Keynes emphasised that the costs of the war should be managed so as to bring forward rather than delay the goal of greater equality. The same is true today for the goal of a fair transition to a carbon-free economy. But more immediately, the state of the public finances should not be seen as an obstacle to doing the right thing in the conflict with Putin’s Russia. For as Keynes said in 1940 with words that apply as strongly today: “Victory may depend on our making it evident, that we can so organize our economic strength as to maintain indefinitely the excommunication of an unrepentant enemy from the commerce and society of the world.”Other readablesEverything you need to know about the UK’s not-quite-a-Budget Spring Statement.Is China helping Russia protect its foreign exchange reserves from sanctions? Andriy Kobolyev, the former chief executive of Ukraine’s state-owned gas company Naftogaz, explains how Europe could impose energy sanctions on Russia.Numbers newsToday’s purchasing managers’ indices for France and Germany suggest that Putin’s war on Ukraine has not so far slowed down their output growth. More

Rishi Sunak has hinted at further support for households in the autumn after his Spring Statement was criticised for failing to provide enough help for households facing the biggest fall in living standards since records began in 1956.The chancellor said that “of course” the government would do “what it can to help” with gas and electricity bills if the energy regulator, Ofgem, puts up the household price cap in the autumn.“When we get there and see what happens, you know, of course, as I said, we will look at the situation and see what needs to be done,” he told BBC Radio 4’s Today programme.Sunak used Wednesday’s statement to offer some relief to households by raising the threshold at which national insurance has to be paid by £3,000, cutting fuel duty by 5p a litre for a year and proposing a 1p income tax cut in 2024. “Yesterday we announced the tax plan that will provide significant help to people over the coming months and years,” he told Today.But the chancellor is now under growing pressure to unveil a much bigger household rescue package in the autumn amid runaway inflation and higher energy bills.The household energy price cap is already leaping by £693 to £1,971 in April. Estimates released on Wednesday by the UK’s fiscal watchdog, the Office for Budget Responsibility, suggest it could rise to more than £2,800 per household per year from October 1. The cap is reviewed twice a year by Ofgem.A snap YouGov poll taken after Sunak’s Spring Statement found that 69 per cent of people thought he had not done enough to help people with the increased cost of living.The OBR said people would face a 2.2 per cent decline in living standards — disposable household incomes adjusted for inflation — in the coming fiscal year, the biggest fall since records began.It concluded that Sunak’s tax cuts would only offset a quarter of the tax rises announced in last October’s Budget. The overall tax burden would rise from 33 per cent of GDP in 2019 to 36.3 per cent by 2026, the OBR added — the highest level since the 1940s.Wednesday’s tax-cutting measures were dwarfed by previously announced tax rises including a jump in the NICs rate, a looming corporation tax increase and a freeze in income tax thresholds.The Treasury faces major headwinds after spending close to £400bn dealing with the Covid-19 pandemic and now a global spike in the price of wholesale gas, which is driving up energy bills, prices at the petrol pump and inflation. “We are all grappling with global inflation and the response to Putin’s aggression,” Sunak said.Official forecasts predicted that inflation was likely to peak at a rate close to 9 per cent towards the end of the year, far outstripping public sector wages.While Sunak hopes to have headroom for a pre-election income tax cut, he admitted on Wednesday: “We should be prepared for the public finances to worsen, perhaps considerably.”The Joseph Rowntree Foundation think-tank warned that Sunak’s failure to upgrade welfare payments in line with inflation meant an extra 600,000 people will be pulled into poverty.

Labour said the tax cuts in the Spring Statement were nowhere near enough to offset the cost of living crisis.“Ordinary families, disabled people and pensioners are facing really difficult choices,” said Rachel Reeves, shadow chancellor. “Mums skipping meals so that their children don’t. Families struggling to buy new school shoes and uniforms for their children. Older people hesitating about putting on the heating because they’re worried about the cost.”But with ongoing volatility in the market price of wholesale gas, Sunak said it was worth waiting until closer to the next Ofgem announcement before making another intervention.“We will have to get to that point, we will see where we are,” he said on Thursday. “If there is a significant problem the government will always do what it can to help. I’ve demonstrated that repeatedly over the past few years.” More

Good morning. Today is the first edition of what we hope will become a long-running regular feature in this newsletter: collaborations with our favourite experts on markets, finance and economics. The idea is to introduce Unhedged readers to the best thinkers in our field, and introduce ourselves to new audiences.Ethan and I are frankly not quite sure why our first collaborator would agree to work with us. Adam Tooze is a serious big shot. He is a Columbia professor and a powerful writer on political economy, with books on Covid, the financial crisis, both the world wars, and more. His Chartbook newsletter is a must-read for its combination of deep historical context and granular attention to economic data and the news of the day.Our collaboration with Adam will run today and on the next two Thursdays. Today’s topic: China under pressure. Recent events have raised (not for the first time) questions about the sustainability of the Chinese economic model. Can China make the adjustments necessary to sustain growth, and should global investors go along for the ride? Adam thinks that, with a few provisos, that the answer is yes. Ethan and I think, with a stipulation or two, the answer is no. To lay out these views, we’ve traded places: Adam gives his view below. To see the Unhedged view, follow this link over to Chartbook. And tell us who got it right: [email protected] and [email protected] Tooze: China’s economic transformationThe common starting point for Chartbook and Unhedged is the view that as far as the world economy and financial markets are concerned China remains the big story.This is not to say that Russia’s invasion of Ukraine is not a dramatic shock and the risk of escalation is not terrifying. The impact on energy and food prices will be felt worldwide. But China is a whale. A serious crisis and long-term slowdown there will affect every market and practically every economy worldwide. China is also far more deeply financially interconnected with the rest of the world economy than Russia and Ukraine. China’s economic growth is the driver of what it still the primary geopolitical antagonism in the 21st-century world, that between Beijing and Washington.So the question of China’s growth prospects is a vital one both for policymakers and investors. And this is particularly urgent in light of the signs of serious stress in China’s economy and financial markets.As you can read over at Chartbook today, Robert and Ethan take a pessimistic line heavily informed by the thinking of Michael Pettis and George Magnus.Their view of the short-term is relatively sanguine. As they put it to me in an exchange of emails:The government will apply monetary, fiscal, and regulatory solution adequate to prevent a crisis. Risk of a crisis, financial or economic, is quite low for now.Their pessimism concerns the medium-term growth prospects. Following Pettis, Unhedged sees no way in which China can hit its 5.5 per cent goal without continually piling on more debt. Add demographic headwinds into the mix and they reach a grim conclusion: In the longer term they foresee Chinese growth progressively slowing and its economic relations with the West increasingly been dominated by geopolitical factors, a scenario sketched by Martin Wolf earlier this week.Now, if that becomes the prevalent view — and it is certainly a view gaining significant traction — it has huge implications. The policy world has been buzzing for a while with talk of a fundamental realignment. Are we now about to witness a real economic uncoupling between China and the West?That would be a historic break in global economic development. Look back in 20 years’ time and this moment will stand out as an inflection point.To say the least, this is a big macro call. So, let us stand back a bit to take in the scene.***Let’s start with the point on which Chartbook and Unhedged agree. Despite the $300bn mega-bankruptcy of Evergrande, the risk of an immediate 2008-style crisis in China is slight.But rather than moving on to focus on the medium-term prospects, let us linger over the significance of this point. What China is doing is, after all, staggering. By means of its “three red lines” credit policy, it is stopping in its tracks a gigantic real estate boom. China’s real estate sector, created from scratch since the reforms of 1998, is currently valued at $55tn. That is the most rapid accumulation of wealth in history. It is the financial reflection of the surge in China’s urban population by more than 480mn in a matter of decades.Throughout the history of modern capitalism real estate booms have been associated with credit creation and, as the work of Òscar Jordà, Moritz Schularick and Alan M. Taylor has shown, with major financial crises.Real estate booms don’t generally end in a whimper. They end in a bang. They end with major banking crises.So, if we are agreed that Beijing looks set to stop the largest property boom in history without unleashing a systemic financial crisis, it is doing something truly remarkable. It is setting a new standard in economic policy.What should western investors think about that? Frankly it is not easy to tell because investors have never had to deal with a regime that has attempted anything like it.Is this perhaps what policy looks like if it actually takes financial stability seriously? And if we look in the mirror, why aren’t we applauding more loudly?Add to real estate the other domestic factor roiling the Chinese financial markets: Beijing’s remarkable humbling of China’s platform businesses, the second-largest cluster of big tech in the world. That too is without equivalent anywhere else.The Biden administration and Congress are now talking about big tech, but so far the results are modest. The EU is a serious regulator, but it is nowhere near as menacing as Beijing.If you went all-in on China tech stocks, this is going to hurt. But that is the point. Beijing’s aim is to ensure that gambling on big tech no longer produces monopolistic rents. Again, as a long-term policy aim, can one really disagree with that? So we have two dramatic and deliberate policy-induced shocks of the type for which there is no precedent in the West. Both inflict short-term pain with a view to longer-term social, economic and financial stability.Then there is demography. For obvious reasons, demography is normally treated as a natural parameter for economic activity. But in China’s case the astonishing fact is that the sudden ageing of its workforce is also a policy-induced challenge. It is a legacy of the one-child policy — the most gigantic and coercive intervention in human reproduction ever undertaken.So, Beijing’s challenge right now is to manage the fall out from the two most dramatic development policies the world has ever seen, the one-child policy and China’s urbanisation, plus the historic challenge of big tech — less a problem specific to China than the local manifestation of what Shoshana Zuboff calls “surveillance capitalism”.So, yes, Beijing has its hands full. That creates turbulence for investors. And, no, Xi’s regime has not yet presented a fully convincing substitute plan. But, as Michael Pettis has forcefully argued, China has options. There is an entire range of policies that Beijing could put in place to substitute for the debt-fuelled infrastructure and housing boom.First and foremost China needs a welfare state befitting of its economic development. As Brad Setser explained before he disappeared into the boiler room of the Biden administration, rebalancing the Chinese economy needs to start with a stronger domestic safety net.China needs to spend heavily on renewable energy and power distribution to break its dependence on coal. If it needs more housing, it should be affordable. All of this would generate more balanced growth. 5 per cent? Perhaps not, but certainly healthier and more sustainable.Nor is Beijing unaware of these options. Indeed they have been repeatedly mapped out. If it has not so far pursued an alternative growth model in a more determined fashion, some of the blame no doubt falls on the prejudices of the Beijing policy elite. But even more significant are surely the entrenched interests of the infrastructure-construction-local government-credit machine, in other words the kind of political economy factors that generally inhibit the implementation of good policy.The problem is only too familiar in the West. In Europe and the US too, such interest group combinations hobble the search for new growth models. In the United States they put in doubt the possibility of the energy transition, the possibility of providing a healthcare system that is fit for purpose and any initiative on trade policy that involves widening market access.Ultimately political economy determines the conditions for long-run growth. So if you had to bet on a regime, which might actually have what it takes to break a political economy impasse, to humble vested interests and make a “big play” on structural change, which would it be? The United States, the EU or Xi’s China?***On balance, if you want to be part of history-making economic transformation, China is still the place to be. But it is undeniably shifting gear. And thanks to developments both inside and outside the country, investors will have to reckon with a much more complex picture of opportunity and risk. You are going to need to pick smart and follow the politics and geopolitics closely.Investing in the old model of growth in China is no doubt a dubious proposition. You have to ask what motivated all the smart folks at Western banks and asset managers to continue to build their positions in Evergrande even in 2021.If on the other hand you want to invest in the green energy transition — the one big vision of economic development that the world has come up with right now — you simply have to have exposure to China, whether directly or indirectly by way of suppliers to China’s green energy sector. China is where the grand battle over the future of the climate is going to be fought. It will be a huge driver of innovation, capital accumulation and profit, the influence of which will be felt around the world. Significantly, it is one key area that both the Biden administration and the EU would like to “silo off” from other areas of conflict with China.***In the meantime, I worry that we may be too focused on the medium-term. Given the news out of Hong Kong and mainland China, Covid may yet come back to bite us.Here too China is boxed in by its own success. It has successfully pursued a no-Covid policy, but due to the failing of the rest of the world, it has been left to do so in “one country”. That now comes with serious costs. Authorities in Shanghai are frantically denying rumours of a citywide lockdown.Anyone who shows any schadenfreude at this situation demonstrates only that they have learned nothing. A Hong Kong-style outbreak could mean a terrible toll of excess deaths and the risk of incubating new and more dangerous variants. Until China finds some way to contain the risks, this is a story to watch. A dramatic Omicron surge across China would upend the entire narrative of the last two years, which is framed by Beijing success in containing the first wave.One good readNo, really, read Chartbook! More

Some of the world’s most respected oil traders have predicted crude prices could climb beyond $200 a barrel this year owing to a growing international boycott of Russia and a lack of alternative sources of supply. Pierre Andurand, one of the sector’s best-known hedge fund managers, said supplies of Russian oil into Europe would disappear in the aftermath of Vladimir Putin’s invasion of Ukraine, leading to a lasting reshaping of global energy markets.“Wakey, wakey. We are not going back to normal business in a few months,” he told the FT Commodities Global Summit in Lausanne. “I think we’re losing the Russian supply on the European side for ever.” Crude could even hit $250 barrel this year, double current levels, he said.Other veterans of the oil market speaking at the conference agreed that Russian crude and refined products such as diesel would not return to the European market any time soon, even if a ceasefire with Ukraine were agreed. Analysts have estimated as much as 3mn barrels a day of Russian oil could be lost from the market.Doug King, head of RCMA’s Merchant Commodity Fund, predicted that oil prices would soar to between $200 and $250 a barrel this year. “This is not transitory. This is going to be a crude supply shock,” he said.Brent, the international oil marker, hit $122 a barrel on Wednesday ahead of a meeting between EU and Nato leaders in Brussels on Thursday that may result in fresh sanctions on Russia. Prices stretched as high as $139 immediately after the invasion of Ukraine, and even after the pullback from there, they stand 90 per cent above their level at this point last year.“I don’t think given the way things are going, this is a temporary problem,” said Alok Sinha, global head of oil and gas at Standard Chartered. “You now have to deal with this as a long term issue which means you need to find alternative supply growth.”Daniel House, senior crude trader at Socar, the Houston-based trading division of Azerbaijan’s national oil company, said the US shale oil industry was unlikely to ride to the rescue by cranking up production to pull prices down.[Even] if they wanted to speed up, it’s a 12-month process,” he said, adding that some producers could take as long as 18 months to bring on new oil. “The cavalry is not coming as quickly as it did when we had previous incentives for them to grow”.The US shale industry was once known for its debt-fuelled production binges but executives have since pledged not to outspend cash flow and burn through capital on costly projects.

King said oil prices in the futures market would need to rise significantly before the US shale industry could increase production and deliver the cash returns expected by investors. The contract for US benchmark WTI, for delivery in December 2024, was trading below $80 a barrel on Wednesday.Ben Luckock, co-head of oil trading at Trafigura, predicted a peak Brent crude price of $150 a barrel this summer and warned that developing economies with less ability to reduce fuel taxes would be hardest hit.“Whilst the US, western Europe and wealthier countries in the world will be able to afford some of these tax breaks, print some money . . . those poorer nations won’t have the same toolbox,” he said. “These are going to be the people who suffer first and these are some of the unintended consequences of the policies that are likely to come.” More

The writer is co-founder and co-chair of Oaktree Capital ManagementPowerful investment themes sometimes emerge in a link between seemingly unconnected events. The breakout of war in Ukraine has revealed such a theme, and I believe it is one that investors should heed.At a recent meeting of the Brookfield Asset Management board that I sit on, a discussion of Europe’s reliance on Russian energy commodities triggered an association with another aspect of international affairs: offshoring. At first glance, these two issues may seem to have little in common. But, as I wrote in my latest memo, I think juxtaposing them is informative.The desire to punish Moscow for its unconscionable behaviour is complicated enormously by Europe’s heavy dependence on Russia to meet its energy needs: it supplies roughly one-third of Europe’s oil, 45 per cent of its imported gas and nearly half its coal.Thus, the sanctions on Russia include an exception for sales of energy commodities. In effect, we are determined to influence Russia through sanctions — just not the potentially most effective one, because it would require substantial sacrifice in Europe.Europe appears to have allowed its dependence on energy imports to increase so greatly (especially those from Russia) because it wanted to be more ecologically responsible at home. Security does not seem to have received much consideration.But choosing to rely on a hostile neighbour for essential goods is like building a bank vault and contracting the mob to supply it with guards. The downside of Europe’s reliance on Russian oil and gas has made its way into the consciousness of many people only recently. But the negative effects of the other subject I focused on — offshoring — have been on people’s minds for much longer.Over recent decades, many industries moved a significant percentage of their production offshore, bringing down costs by using cheaper labour. This process boosted economic growth in the emerging nations where the work was done, increased savings and competitiveness for manufacturers and importers, and provided low-priced goods to consumers.But offshoring also led to the elimination of millions of US jobs and the hollowing out of the manufacturing regions and middle class of our country.Moreover, the supply chain disruption that has resulted from the Covid-19 pandemic has revealed the vulnerabilities created by offshoring. Supply has been unable to keep pace with elevated demand as economies have recovered.Semiconductors present an outstanding example of this trend. By 2020, the US and Europe were responsible for only 20 per cent of global semiconductor production, down from roughly 80 per cent in 1990. The world is dependent on Taiwan Semiconductor Manufacturing Company and South Korea’s Samsung for advanced chips. And the ongoing shortage in such chips has highlighted the danger of this.So what is the connection between Europe’s energy emergency and the chip shortage? While they differ in many ways, both are marked by inadequate supply of an essential good demanded by countries or companies that permitted themselves to become reliant on others.Europe’s importation of oil and gas from Russia has left it vulnerable to a hostile, unprincipled nation (worse in this case, to an individual). Offshoring similarly makes countries and companies dependent on their positive relations with foreign nations and the efficiency of our transportation system.The recognition of these negative aspects of globalisation is causing the pendulum of companies’ and countries’ behaviour to swing back toward local sourcing.If the pendulum continues to move for a while in the direction I foresee, there will be ramifications for investors. Globalisation has been a boon for global gross domestic product, the economies it has lifted and the companies that benefited from reduced costs by buying abroad.The swing away will be less favourable in those respects. However, it may improve importers’ security, increase the competitiveness of onshore producers and the number of domestic manufacturing jobs, and create investment opportunities in the transition.For how long will the pendulum swing away from globalisation and towards onshoring? The answer depends on how the current situations are resolved and on which force wins: the need for dependability and security or the desire for cheap sourcing. After many decades of globalisation and cost minimisation, I think we are about to find investment opportunities in the swing towards reliable supply. More

Russia’s invasion of Ukraine will reshape the world economy and further drive up inflation by prompting companies to pull back from their global supply chains, BlackRock’s Larry Fink has warned.“The Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades,” Fink wrote in his annual chairman’s letter to shareholders of BlackRock, which oversees $10tn as the world’s largest asset manager. While the immediate result has been Russia’s total isolation from the capital markets, Fink predicted “companies and governments will also be looking more broadly at their dependencies on other nations. This may lead companies to onshore or nearshore more of their operations resulting in a faster pull back from some countries.”“A large-scale reorientation of supply chains will inherently be inflationary,” Fink wrote, in a wide-ranging 10-page letter that also addressed the invasion’s effect on the energy transition and cryptocurrencies, and updated investors on BlackRock’s business lines and the reopening of its main offices.The letter did not mention any specific country that would be hurt by the shifts, but Fink wrote that “Mexico, Brazil, the United States, or manufacturing hubs in southeast Asia could stand to benefit”. Other investors have argued that the last group could substitute for China, where BlackRock last year launched a set of retail investment products. Fink has advocated for companies in which BlackRock invests to do more to address climate change. His letter predicted that the Russian invasion will affect the transition to cleaner energy. Initially, the search for alternatives to Russian oil and natural gas “will inevitably slow the world’s progress toward net zero [emissions] in the near term,” he wrote.“Longer-term, I believe that recent events will actually accelerate the shift toward greener sources of energy” because higher prices for fossil fuels will make a broader range of renewables financially competitive, he wrote.Though climate activists want investors to shun fossil fuels entirely, Fink rejected this approach, as he did in his January letter to chief executives. “BlackRock remains committed to helping clients navigate the energy transition. This includes continuing to work with hydrocarbon companies,” he wrote. “To ensure the continuity of affordable energy prices during the transition, fossil fuels like natural gas will be important as a transition fuel.”In one of his first comments on cryptocurrencies, Fink drew attention to the Ukraine war’s “potential impact on accelerating digital currencies . . . A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption.”

He told investors that owing to increasing client interest, BlackRock was studying digital currencies and the underlying technology.Fink commiserated with his shareholders over a rocky start for financial markets this year, in which BlackRock shares are down nearly 20 per cent. “I share your disappointment in our stock’s performance year-to-date. But we’ve faced challenging markets before. And we’ve always managed to come out better and more prepared on the other side,” he wrote.He also noted that the company is coming off “the strongest organic growth in its history” in 2021 when buoyant markets and rising interest in alternative assets and exchange traded funds brought $540bn of net inflows.Looking ahead, Fink made clear that BlackRock wants employees back in the office but will not be among those employers who insist on a complete return to pre-pandemic norms. “Working together, collaborating and developing our people in person is essential for BlackRock’s future,” he wrote. “There are certain conversations that can’t be replicated on a video call . . . We lose the space, the creativity, and the emotional connectivity that come from being together in person”. “At the same time, we recognise the pandemic has redefined the relationship between employers and employees. To retain and attract best-in-class diverse talent, we need to maintain the flexibility of working from home at least part of the time,” he said. More

“Concerns that inflation and economic risks at home can intensify simultaneously are mounting as uncertainty in external conditions heightens,” Rhee Chang-yong, a veteran International Monetary Fund official, said in a written speech.His remarks come a day after the presidential office nominated Rhee as the new central bank chief.The uncertainty in external conditions Rhee mentioned includes a quicker normalisation in Federal Reserve’s monetary policy, economic slowdown in China due to the fast-spreading Omicron coronavirus variant and the Ukraine war.”I will elaborate my ideas on the policy and organisational management through the upcoming parliamentary hearing session,” Rhee said. More

TOKYO (Reuters) -Bank of Japan policymakers agreed that consumer inflation may overshoot their expectations if companies pass on rising costs quicker than forecast, minutes of the central bank’s January meeting showed on Thursday.One member said consumer inflation may temporarily hit 1.5%, while another projected a brief rise near the central bank’s 2% target as companies pass on rising raw material costs to households, the minutes showed.”Many companies are feeling the limit of sticking to a business model that was effective deflation. As they change their price-setting behaviour, inflationary pressure may heighten,” one member was quoted as saying.”We’re seeing stock prices rise for companies that hike prices,” another member said. “Price hikes may broaden, and heighten medium- to long-term inflation expectations.”The remarks underscore the increasing attention the BOJ policymakers was putting on rising inflationary pressures, even as they commit to keeping monetary policy ultra-loose to support a fragile economic recovery.Many members said they were closely watching wages, as they make up a big component of service costs and determine to what extent households would swallow price hikes, the minutes showed.”Nominal wage growth must exceed 2% for Japan to stably meet the BOJ’s price target,” one member was quoted as saying.”To change corporate and household perception on future price moves, it’s important to maintain our current powerful monetary easing,” another member said.At the Jan. 17-18 policy meeting, the BOJ raised its inflation forecasts but maintained its massive stimulus with price growth still distant from its 2% target.Japan’s core consumer prices rose 0.6% in February from a year earlier, marking the fastest pace in two years but still well below the BOJ’s 2% target as weak household spending discourages firms from passing on soaring raw material costs.While many analysts expect rising fuel costs to push up core consumer inflation near 2% in coming months, there is uncertainty on whether the increase will be sustained as slow wage growth weighs on consumption.The BOJ has repeatedly stressed its resolve to maintain its massive stimulus for the time being, even as other major central banks eye an exit from crisis-mode policies. More