Economy

Looks like I was wrong. (It happens sometimes, for meanings of “sometimes” that include “all too often”.) A tentative deal has emerged from the “quad” inner core of World Trade Organization members — the EU, US, South Africa and India — about an intellectual property waiver for Covid-19 vaccines, a mere 17 months after it was first proposed. I’ll look at the detail once a final version has been agreed. It needs consensus among the full WTO membership but I suspect they’ll come on board. It seems unlikely that WTO director-general Ngozi Okonjo-Iweala would take the risk of publicly welcoming the deal if she thought it was likely to fall apart.The UK, Switzerland and Japan have big pharma industries, but as of Friday it sounded like they were coming around and I’d be surprised if they vetoed a deal signed off by the EU and the US. The UK complained recently about the quad format excluding other countries, but that’s Brexit for you, guys. And guess what? Germany didn’t block it inside the EU after all, despite repeated strident claims of some health campaigners that Berlin was standing in the way.I was sceptical the waiver would happen, not because it’s a terrible idea — while mainly irrelevant, a limited provision might concentrate pharma companies’ minds — but because India likes being ostentatiously obstreperous and crashing all manner of trade discussions to make a point. (My call to the Indian mission in Geneva asking about this remarkable conversion went unanswered last week, as others have since 2020.)According to the leaked draft of the agreement, it’s been drawn to allow India’s pharmaceutical industry to make use of the waiver, but the reaction of Indian NGOs was still pretty negative. However limited the waiver and however disappointed campaigners in general may be, we do at least now have something to work with. And the fact that the agreement appears to contain a review mechanism hopefully means we can have the conversation on a more constructive, fact-based and transparent basis.Today’s main piece is on the perennial suggestion, on this occasion provoked by the US’s extraordinarily aggressive use of financial sanctions against Russia, that the dollar will be dethroned as the dominant international currency. (It will not.) Charted waters is on the impact of the Ukraine conflict on wheat prices in Arab nations. As ever, I’m keen to hear your thoughts, ideas and reactions, and I promise I will read them all even if I don’t immediately reply.Bypassing the buckIt’s a topic that rumbles on continually with sudden eruptions during periods of financial stress or the US imposing sanctions that don’t have universal support — that is, all of them. Will the renminbi, or the euro, or a digital currency or even (God help us) cryptocurrencies supplant the dollar? And even if they don’t, does the fear of over-reach constrain the US from weaponising the dollar for strategic ends?As I’ve said before, the EU’s sanction package is impressive but it’s the US’s control of the dollar payments system that’s enabled it to freeze Russia’s central bank assets and cripple its banks. Naturally, this has caused much whingeing and mewling in countries less committed to punishing Russia, notably in the Middle East, India and China. Any payment to Russia through the dollar system is ultimately at risk. India, a big net energy importer and very much not part of the US-EU coalition, is rapidly increasing its oil purchases from Russia, at knockdown prices, and is thinking of setting up a rouble-rupee exchange. There are also stories that Saudi Arabia will price some oil sales to China in renminbi to avoid the dollar system.I remain highly unconvinced that these moves, if they happen, will set a new international pricing standard that will harm the US currency. “[Random Middle Eastern country] is just about to price oil in [other currency] to destroy the dollar” has been a staple fantasy of the anti-American left for decades. It rather falls down on the point that it’s not the currency used for the actual sale that’s the point — that simply creates a fleeting transactional demand. A sustained fall in demand for dollars would require the country to want to shift its reserves en masse into euros or any other currency.That would mean finding a massive pool of safe liquid euro (or other currency) assets, which hitherto hasn’t existed, and then either buying imports priced in euros rather than dollars or taking on some serious exchange rate risk. Amazingly, no one has wanted to do that yet. And shifting to the euro is difficult enough, but only reserve managers who feel their drab and predictable lives need pepping up by gambling with billions of dollars of public money will really put their funds in renminbi-denominated assets subject to the whims of Chinese capital controls.In any case, the idea of a reserve asset being synonymous with an internationalised currency is a bit outdated. Currency pegs that had to be backed by reserves have substantially been replaced by floating exchange rates. It’s the dollar’s role as a funding and payment currency that really gives it power, and that has such a massive network effect it’s going to take a lot of replacing.You can understand why the US et al would make a big fuss about Russia avoiding its sanctions by flogging knockdown oil to India or cheap gas to China — though I would note in passing that Russia’s imperialist westward surge making it a de facto colony economically dependent on countries to the east would be darkly comic. But even assuming India goes ahead with this swap, it’s not likely to do much to shift the dollar’s pre-eminence more widely. After all, as I said the other week, the EU tried bypassing former US president Donald Trump’s sanctions on Iran by setting up a quasi-barter system called Instex and it’s had almost no impact.As for digital currencies and crypto: with the former, a digital dollar, which will be part of any payments network set up by the leading economies, will have similar advantages over a digital renminbi. And while oligarchs may try using crypto to evade sanctions, the long reach of the US Treasury is coming after them, as it did after Venezuela’s digital currency. It would be very bold to assume that crypto could build a broad role in the global financial system under constant pressure from the US government.Each time the dollar is weaponised like this there’s a flurry of commentary about its international role being jeopardised by politicised misuse. Sure, if the US tries to isolate a really huge economy like China’s then the reward to promoting an alternative will increase. But there’s no sign of it yet. Charted watersIn a globalised world, international conflicts have an impact across the planet. That is obvious to Lebanese bakers, long reliant on Ukrainian wheat, which is now two-thirds more expensive than a year ago.Since the start of March, flour has disappeared from the shops in Lebanon and the price of bread has increased by 70 per cent. The country was caught in a financial crisis before Russia invaded Ukraine — its currency has lost more than 90 per cent of its value since 2019 — but the war has created an additional hardship for citizens struggling to put food on the table.Trade linksAfter doing the Lord’s work tracking China’s (entirely worthless) promises to buy more US exports, the saintly Chad Bown of the Peterson Institute and colleagues are now running a sanctions monitor for actions against Russia.Two of the global gurus of weaponising economic interdependence, Henry Farrell and Abraham Newman, warn in the New York Times of the risks of US over-reach in sanctioning Russia.The Financial Times looks at how the impact on EU and US relations with China of the war in Ukraine has underlined the risks for companies such as Volkswagen in depending on production and sales in authoritarian states.The Biden administration just released 1,358 pages of plans on remaking supply chains, and Todd Tucker of the Roosevelt Institute provides a handy guide.German finance minister Christian Lindner, who doesn’t actually have trade in his brief, has called for new talks over a transatlantic trade deal, apparently undaunted by the miserable failure of the previous attempt.David Frost, who negotiated the Brexit deal for the UK, has done another of his speeches pretending he doesn’t understand what he signed, and someone briefing on behalf of foreign secretary Liz Truss is pretending she’s about to rip up the Northern Ireland Protocol. Steve Peers of the University of Essex has the rebuttal to Frost’s rebuttal of a rebuttal to his speech. More

China will also take targeted measures to boost market confidence and keep capital market development stable and healthy, according to the State Council meeting chaired by Premier Li Keqiang. The meeting also said the government will properly handle problems from capital market operations, and will create a stable, transparent and predictable market climate. China attaches great importance to the impacts brought by the changing global capital market to the Chinese capital market, the cabinet said, adding it will roll out policies to stabilize the economy and stimulate market vitality as much as possible. ($1 = 6.3552 Chinese yuan renminbi) More

(Reuters) -Atlanta Federal Reserve Bank President Raphael Bostic said Monday he has penciled in a total of six interest rate hikes this year and two for 2023, fewer than most of his colleagues as he worries about the effects of Russia’s invasion of Ukraine on the U.S. economy.”Getting the high rates of inflation under control is the top concern for me for 2022,” Bostic said in remarks prepared for delivery to the National Association for Business Economics, noting also that it is critical to address the significant imbalance between labor supply and demand. But, he added, “the elevated levels of uncertainty are front forward in my mind and have tempered my confidence that an extremely aggressive rate path is appropriate today.” The Fed last week raised interest rates in its first rate increase since 2018, hiking them from near-zero in a bid to tame inflation that is currently running above 6%, three times the central bank’s target. Most Fed policymakers see rates rising to at least 1.9% by the end of the year, a pace equivalent to a quarter point increase at each of the year’s six remaining Fed meetings, with four more expected next year.Bostic said he sees the Fed’s neutral rate at 2.25% and cannot predict with much certainty if his own forecast on rate hikes this year will hold.”It could go faster than that if developments occur in such a way that it seems that that’s warranted or it could go slower. I am truly observing and adapting in real time because it just seems there is so much going on,” Bostic said. “The world is continually surprising me.” Bostic said Monday the job market is tight, noting it is “critical” to restore balance to labor supply and demand. But he added that he believes current high wage growth, which overall is still below the rate of inflation, reflects employers trying to keep employees from falling behind on pay rather than a permanent feature of the labor market.The Atlanta Fed chief said the conflict in Ukraine will put further upward pressure on prices for commodities like oil and wheat but also more broadly as businesses retool their supply chains. Both conditions will likely exacerbate already intense inflation pressure; on the other hand, the risks “go both ways,” with uncertainty fed by conflict likely to reduce economic activity, he said. “Should demand falter in the face of economic uncertainty or removal of monetary policy accommodation, then the appropriate path may be shallower than I currently project,” Bostic said. “But there are other developments, such as shifts in supply strategies, that could mean higher costs and thus motivate a steeper policy path than I expect.”Bostic’s remarks came at the start of a conference just hours before Fed Chair Jerome Powell is also expected to speak, and investors will be watching closely for fresh clues on the likely rate path ahead. More

WASHINGTON (Reuters) -The White House invited executives from an array of U.S. industries and businesses, including energy, food, and banks, to a briefing Monday on the Russia-Ukraine conflict, a White House official said.The White House officials and Cabinet members will discuss supply chain issues surrounding Russia’s Feb. 24 invasion of Ukraine and ways to lessen the economic shocks, a source familiar with the plan told Reuters.The off-the-record briefing will be led by National Economic Council Director Brian Deese, national security adviser Jake Sullivan, Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo, the White House official said. The meeting will include representatives from Pattern Energy, Invenergy, ExxonMobil (NYSE:XOM) Corp, ConocoPhillips (NYSE:COP), Visa Inc (NYSE:V) JPM), Bank of America Corp (NYSE:BAC), Land O’Lakes Inc, Cargill Inc, Dow Inc and U.S. Steel, the official said on condition of anonymity.President Joe Biden and his fellow Democrats have been pushing the chief executives of major oil companies to increase production amid rising prices at the gas pumps. Biden has blamed the latest spike on Russia’s invasion of Ukraine. The United States has imposed several rafts of sanctions on Russia over its attack, including an immediate ban on Russian oil and other energy imports.U.S. consumer prices, including for rent and food, have also surged, and inflation is poised to accelerate even further as Russia’s war against Ukraine drives up the costs of crude oil and other commodities.The conflict has added to the trade chaos that followed the global economy’s emergence from COVID-19 pandemic lockdowns. Asia-Europe routes have been worst hit by issues, including acute port congestion and cargo disruption, due to the closure of Russian airspace, a JPMorgan analysis showed. More

LONDON (Reuters) – The path to permanent joint bond sales by euro zone governments will be long and bumpy, but Russia’s invasion of Ukraine may have helped clear the way.The conflict has prompted European countries to pledge more investment in defence and developing renewable energy, expenditure many argue will be best met if the burden is shared. The European Union is already issuing joint bonds for an 800 billion euro ($879 bln) post-COVID recovery fund, but has not mentioned plans for more debt, let alone making the existing facility permanent.Yet the notion of a permanent scheme has resurfaced in markets and its potential significance is not lost on investors; without considering it an immediate prospect, many are buying bonds from countries that would benefit the most, such as Italy.Christian Odendahl, chief economist at the Centre for European Reform, sees the war, which Moscow calls a “special military operation”, as a turning point of sorts for Europe, even if the road remains unclear.It would affect European “integration as much or more as the COVID crisis helped propel a joint fiscal capacity and borrowing, which were both unthinkable when corona was still a beer,” Odendahl said. Proponents argue that joint bonds would be a powerful signal of European cohesion. They would lift the euro’s profile and expand the European pool of top-rated securities, allowing them to compete with U.S. Treasuries as global reserve assets.With Germany alone pledging a 100 billion euro military upgrade, spending needs will be colossal. If all European NATO members commit to spending 2% of GDP on defence, overall expenditure will rise by a quarter, the biggest boost in three decades, JPMorgan (NYSE:JPM) estimates. According to BofA, that could require another 150-200 billion euros of combined euro area spending in 2022-23 alone.Slashing Russian gas ties, as the European Commission plans, could add over 130 billion euros this year to the bloc’s already red-hot energy bill, Reuters Breakingviews calculations show.While more indebted EU states will be reluctant to shoulder those costs alone, the joint bond debate also speaks to shifts triggered by the COVID meltdown. It brought recognition — even among more frugal nations — of fiscal policy’s key role during times of crisis.The argument now goes that like COVID, the war is an exogenous shock affecting all EU states, making a joint response more effective than a series of uncoordinated national efforts.The latest crisis matches COVID as a catalyst for deeper integration, Commerzbank (DE:CBKG)’s head of rates Christoph Rieger said, adding that “a permanent joint EU debt capacity is becoming more likely longer-term”.NORTH AND SOUTHFrance is leading calls for new EU debt, while Germany and other richer bloc members oppose any move toward a fiscal union, with shared borrowing and spending.They argue that the Next Generation EU (NGEU) — the recovery fund, bonds sales for which started last year — mostly remains unused, with just 74 billion euros disbursed so far.As it stands, recovery fund borrowing ends in 2026 and the last bonds mature in 2058. But while the fund sets a precedent, it is not an ordinary tool, says Francesco Papadia, a former market operations director-general at the ECB and now a senior fellow at the Bruegel Institute. “(Joint bonds) will be possible only in exceptional circumstances, like the present ones … when it will be seen as indispensable to effectively deal with the crisis,” Papadia said, adding he does not believe this is yet clear of the war. ING analysts suggest lighter kinds of joint borrowing could be more acceptable to the “frugal” nations, for instance modelled on the EU’s SURE unemployment scheme.PRICINGBond markets’ recent behaviour demonstrates how the joint fund has boosted the bloc’s resilience.Bond spreads, the premia investors demand to hold debt from a weaker country like Italy or Spain, usually widen in times of trouble. But since the Feb. 24 invasion, 10-year Italian spreads have narrowed 26 basis points.In other words, Italian premia have eased despite the war, and at a time when the European Central Bank plans to cut back the stimulus which is a key support plank for southern Europe.The lesson from 2020 is that the ECB can halt spread widening — but a real turnaround was down to the EU’s response, Citi analysts noted.The NGEU’s creation pulled the Italian/German spread around 33 bps tighter than it otherwise would have been, BofA reckons.Italian and Greek spreads snapped in 10 bps after recent media reports flagged the possibility of a new joint EU bond scheme. “The more the market understands that there is political capital for this to happen every time the EU is thrown a challenge, the more it will believe the EU … will eventually get to fiscal union.” Peter Chatwell, head of multi-asset strategy at Mizuho, said. More

The U.S. Federal Reserve raised interest rates last week and signalled a string of future moves, just days after the ECB said it was in no hurry to raise its record-low deposit rate, even while it continues to unwind exceptional stimulus. “Our two economies are in a different place in the economic cycle, even before the war in Ukraine,” Lagarde told a financial conference. “For geographical reasons, Europe is way more exposed (to the war) than the U.S..”Soaring energy costs have already pushed euro zone inflation to a record-high 5.9% last month and the rate could hit 7% in the months ahead, well above the ECB’s 2% target.With food prices also expected to jump, the inflation surge will cut deep into households’ purchasing power and the ECB has cut its growth projections, with some policymakers arguing that an even worse outcome is already more likely.Lagarde said the U.S. economy is less reliant than Europe’s on commodity imports and its trade will also be less affected, so that the two central banks will need to move out of sync. “Our monetary policies won’t be running on exactly the same rhythm,” she said. As a consequence of the war, Europe will need to speed up the greening of its economy to reduce its reliance on energy from Russia, its biggest supplier of natural gas.This transition will be inflationary in the short- to medium-term, Lagarde warned, although the long-term impact of the transition will be to weigh on prices. “In the short, medium term, it will be of an inflationary nature. Whereas in the long term, forces on prices will be rather deflationary, she said. More

Ukraine has rejected Russia’s ultimatum to surrender Mariupol, leaving hundreds of thousands of residents trapped in the besieged port city.Russia’s military gave fighters in the southern city until 5am to lay down their arms and warned local officials they would face “military tribunals” if they resisted.The strategically important city on the Sea of Azov, with a prewar population of 460,000, has been the subject of a brutal aerial assault for the past three weeks that has left residents without water, electricity, gas or food.Witnesses who have escaped talk of post-apocalyptic scenes of stray dogs eating the remains of bombing victims that lay unburied on the street. “It is hell on earth,” said one former resident.The city’s theatre was bombed last week, where hundreds of women and children were suspected to be hiding, and it remains unclear how many people were killed or injured in the attack. On Sunday a school was bombed where 400 residents were believed to be sheltering.Ukraine’s defence minister today praised the fighters in Mariupol and said their defence was helping to slow the Russian advance to other parts of the country. Russia “no longer dreams of capturing Kyiv”, Oleksii Reznikov said in a statement. The UK Ministry of Defence said Russia had been forced to “change its operational approach and is now pursuing a strategy of attrition” after failing to make any sizeable gains in the in the first month of the military campaign.Capturing Mariupol would give the Russians control of the whole northern coast of the Sea of Azov, cutting Ukraine off from a crucial conduit to the Black Sea and enabling Moscow to form a land corridor to Crimea, the peninsula it illegally annexed from Ukraine in 2014.

In other developments: As many as 10mn people have fled the fighting in Ukraine, the UN refugee agency said in its latest estimate. More than 3.2mn refugees have been forced to escape Ukraine, while an additional 6.5mn people have been displaced internally.China’s ambassador to Washington said yesterday that Beijing “will do everything” to de-escalate the war in Ukraine but stopped short of condemning Russia. Joe Biden on Friday warned his counterpart Xi Jinping there would be “consequences” if Beijing provided military aid to the Kremlin.Businesses that have announced their withdrawal from Russia face dilemmas about their people, assets and liabilities as well as their short- and long-term options in the country.The conflict has exposed the heavy bet Germany, Italy and other European countries made on Russian oil and gas. Can they now wean themselves off it? Countries across the Arab world, dependent on Russia and Ukraine for grains and vegetable oil, are fearing food insecurity and political instability. America’s Ukraine diaspora is mobilising with packages and prayers. The war has been a call to action for communities across the country.Opinion: The former head of the US Cybersecurity and Infrastructure Security Agency argues that as Russia’s economy deteriorates, its cyber checks and balances may evaporate.Keep up with the latest developments from Ukraine on our live blog and follow Russia’s invasion in maps. Send your feedback on this newsletter to [email protected]. Here’s the rest of today’s news — GordonFive more stories in the news1. Berkshire Hathaway to pay $12bn for Alleghany Warren Buffett has dipped into Berkshire Hathaway’s $150bn cash pile with a $12bn deal for Alleghany, an insurance-to-toy manufacturing conglomerate.2. Passenger plane crashes in southern China China Eastern Airlines’ flight MU5735, with 132 people on board, has crashed in southern China in what threatens to be the country’s worst air disaster in recent years. The flight was travelling from Kunming to Guangzhou and the plane was a Boeing 737-800, according to flight tracking websites.2. Hong Kong suspends trading in Evergrande Shares in the world’s most indebted property developer were suspended today pending the release of “inside information”. The company borrowed more than $20bn in dollar-denominated bonds3. Hong Kong eases travel curbs Carrie Lam, Hong Kong’s leader, said she would lift a flight ban from nine countries, including the US and UK, for Hong Kong residents and allow those travellers to quarantine in a hotel for seven rather than 14 days.5. Bill Gross warns Fed rate rises will ‘crack the US economy’ The founder of investment house Pimco told the Financial Times he believes inflation is approaching troubling levels but that the US central bank will not be able to implement higher policy rates to contain it.The day aheadEU foreign and defence ministers meet The group of EU foreign and defence ministers will discuss deploying further sanctions against Russia when they meet in Brussels today with their Ukrainian and Moldovan counterparts. Valentina Pop, editor of Europe Express, has more.Monetary policy Jay Powell, US Federal Reserve chair, is due to speak at a National Association for Business Economics conference on “sustainable and inclusive growth”, where he is expected to comment on interest rates and inflation. US stock set to flatline After recording their biggest weekly advances since November 2020, stocks today are due to open little changed. The rally which was driven by signs of peace talk progress between Russia and Ukraine has faded in the first trading session of the week.Biden’s Supreme Court nominee faces confirmation hearing Ketanji Brown Jackson will be questioned by the 22 members of the Senate judiciary committee as the hearing begins to vet the appeals court judge who could become the first black woman to sit on America’s highest court.What else we’re reading The global economy’s growing risks This was supposed to be the year the world economy recovered from the shock of Covid-19. But Russia’s invasion of Ukraine and new outbreaks of coronavirus in China are threatening the expected rebound.How Big Tech lost the antitrust battle with Europe Brussels is set to finalise stringent legislation targeting Silicon Valley giants, disabling their strategy to dominate markets and capture billions of euros in revenues, despite desperate lobbying that has fallen on deaf ears.Will AI turbocharge the hunt for new drugs? Artificial intelligence has been primarily used as a tool to save scientists’ time, accelerating this notoriously slow discovery process. But advocates of AI say its wider use during the crisis is just the start of a revolution in drug discovery.Citi recruits’ future of work trade-off A new hub for fledgling investment bankers that Citigroup is setting up in Málaga is innovative — and its progress will be keenly watched. But ensuring it thrives will require some serious management effort.The strange death of the salutation If the opening salutation is fading, it is probably no surprise after two harried pandemic years, followed by headlines of a third world war. Firing off an email without an opening greeting is becoming more common but is still unwise, writes Pilita Clark. TelevisionOur critic’s selection of the latest in home viewing includes the Apple TV Plus series that recounts the rise and almost-fall of WeWork and a documentary about the collapse of the planned European Super League. More

The Danish economy was set for a rapid recovery after the pandemic this year but the boom will now be dented as the uncertainty stemming from Russia’s invasion of Ukraine takes it toll. “Denmark’s direct trade with Russia is limited. However, the Danish economy is also indirectly affected by countries such as Germany and Finland which trade more with Russia,” the ministry said in a statement Denmark’s economy this year is now seen as growing 2.2% in a mild scenario, 1.6% in a medium scenario and 0.0% in the toughest scenario, the ministry said, underlining that the projections are still uncertain. The ministry in December forecast economic growth of 2.8% this year. Inflation is expected to increase to 4.5% in the medium scenario up from the 2.2% seen in the December forecast. The Danish central bank last week said it expects the economy to grow 2.1% this year, down from an earlier prediction of 3.1% growth. More