Economy

Europe’s largest economy was seen paying a high price for its reliance on Russian gas, whose price has soared since Russia attacked Ukraine last month in what it calls a “special military operation”.”This should dampen household consumption and production in energy-intensive industries,” the German central bank said in its monthly report. It estimated the German economy likely stagnated in the first three months of the year and the rebound it had pencilled in for the second quarter would now be weaker than expected due to “foreseeable impairments in foreign trade and increased uncertainty”.Inflation, which hit its highest rate in almost 30 years at 5.1% last month even before the latest surge in fuel prices, was now set to rise further.”The price of food and industrial goods should get a further boost from the fall in wheat exports from Ukraine and Russia and new disruptions to supply chain,” the Bundesbank added. More

Late last week, President Joe Biden and Chinese president Xi Jinping had a high stakes call about the future of Russia’s war in Ukraine. Biden made it clear that if China were to help Russia with economic or military aid, the US would “not hesitate to impose costs,” likely in the form of secondary sanctions, tariffs and the like. It’s a warning well worth making — what China does right now will absolutely set the stage for geopolitics over the next few years.While China hasn’t explicitly helped Russian president Vladimir Putin (aside from doing new gas deals and taking a grain export ban off Russia at the beginning of the war), it also hasn’t condemned Russia. It says it wants a quick end to the “conflict.” But it’s also not using any behind-the-scenes leverage with Russia to end the war, at least not that anyone can see. Indeed, last week I received one of those rather ham-fisted calls from a policy person in the Beijing embassy in London. The person tried to convince me that China really had no influence over Russia, that this wasn’t at all China’s fight, and that only the west could solve things. Maybe, but the whole “we aren’t important enough to exert power on the world stage” thing is not only outdated, but farcical. If any state is a vassal state to China, it’s Russia. Beijing is also pushing a line (via translated documents that are making the rounds among western press and public intellectuals) that the US will be the biggest winner from this conflict. Maybe, but only if Biden is strong enough to call Putin’s bluff, and keep Europe on the same page. That could mean leaning into the idea that Nato aircraft and other forces could be used in Ukraine. I don’t want world war three, for sure. But I also think that every autocrat in the world — especially Xi — is watching what’s happening quite closely. It may be better to call Putin’s bluff sooner rather than later.China has much at stake here. I had a conversation last Friday with China expert Diana Choyleva, the chief economist and founder of Enodo Economics and a respected reader of Beijing’s tea leaves. Her take was that the Chinese and Russians aren’t natural allies, and that Putin had perhaps played Xi with the whole “friendship without limits” deal prior to the war, which now puts Beijing in a bit of a pinch. She also noted that while Americans love underdogs, the Chinese traditionally don’t. Xi might in fact be more willing to support a stronger Russia than the weak one on display now.What’s more, the Chinese perceive Democrats as generally being weaker than Republicans, and America as being in inexorable decline (neither are necessarily true). While Ukraine might present an opportunity for the Chinese to annex Taiwan if there is a sense that the US and Europe are wishy-washy and lack a united front, perhaps Beijing will decide this is the moment to make a move on Taiwan. Better now, that line of thinking goes, than in 2024 when you might have Donald Trump or Mike Pompeo in office.But if President Biden and Europeans together double down, call Putin’s bluff and make it clear to Beijing that there is a new line in the sand, perhaps China leaves the Taiwan issue alone for now, and everyone (except Putin, of course) ends up in a better place. This is, needless to say, an unbelievably high stakes poker game.Richard, do you agree with this analysis? And is it time to take a stronger stand against Russia? Recommended ReadingUniversity of Chicago professor John J. Mearsheimer is gaining steam with his view that the west is itself responsible for Russia’s aggression in Ukraine. I don’t agree, but his views are worth understanding, since his video on the topic has gone viral. FT’s own Martin Wolf summed up the dismal state of the world quite well in last week’s column. China expert Arthur Kroeber also wrote in the FT that we shouldn’t worry that sanctions will somehow allow Russia to circumvent weaponised dollar networks. Fingers crossed that he’s right.Jude Blanchette argues in Foreign Affairs that Xi has bungled foreign policy badly. I would definitely agree — China with a security state in control is both scarier, but less effective, than China with competent technocrats in control. Richard Waters responds I’d love to think you’re right, Rana, and that there’s a way out of this that leaves everyone in a better place. But unfortunately I just can’t see it. I should stress that I’m no expert on China, but I generally think Beijing has two long-term objectives that come into play at times like this: Try to accelerate the decline of the United States’ global influence, and work towards taking back Taiwan.I think both goals are helped by China sitting back and letting things take their course in Ukraine (so maybe your embassy friend was right about leaving this to the west to sort out — though they were being more than a little bit disingenuous to suggest that China has no interest in the outcome).The US can certainly take credit for its coalition building ahead of the Russian invasion and in its early days. But things can (and probably will) get a lot uglier from here as Putin presses ahead with his brutal bombardment. If the US fails to respond (particularly in the face of increasingly desperate pleas from Ukraine), then its moral leadership suffers. But any military intervention is fraught with problems. I don’t see any reason for China to step in to save the US from this dilemma in any way, and every reason for it to give Putin as much behind-the-scenes support as possible, short of risking US sanctions.Also, watching the US wrestle with this problem only helps China as it games out its position in Taiwan. I’ve got no idea how quickly China would act on any perceived weakness on the US’s part to move on Taiwan. But it seems a complex calculation where many other factors will come into play. Maybe a second Trump presidency would be a better opportunity than you suggest — after all, the man is highly susceptible to flattery and loves a deal, so President Xi might think there is a way to win him around. Or maybe, as he embarks on a third term after this autumn’s Communist Party Congress, we will see a newly confident Xi move quickly to make his mark?As for Putin: Like you, I’m all for calling his bluff sooner rather than later. The problem is, what does it mean to call his bluff? I suspect the united front with Europe wouldn’t survive military intervention by Nato — and anyway, I think the risk of escalation towards a nuclear incident of some sort would be too high.It would be nice to think that the pain from the western economic and financial blockade, along with the awareness that he’s in a military quagmire, would be enough to persuade Putin to seek a compromise. I’ve got no idea — but I find it scary that so much is riding on one man’s psychology. More

Investing.com — Oil prices surge as the EU eyes expanding its sanctions on Russia to include energy. Hopes for peace fade as the Kremlin rules out a meeting between Presidents Putin and Zelenskyy. A Boeing (NYSE:BA) 737 crashes in China – but it’s not a 737 MAX. Aluminum and steel prices surge. Nike (NYSE:NKE) reports earnings and the emerging world’s economic problems start to mount. Here’s what you need to know in financial markets on Monday, 21st March.1. Oil surges as EU eyes expanding sanctions  Crude oil prices surged again after the European Union’s top diplomat, Josep Borrell said that the bloc is ready to discuss including energy in a new round of sanctions against Russia.Energy purchases from Russia had been exempted from previous rounds of EU sanctions due to the lack of short-term alternatives, but the growing horror at Russia’s actions in Ukraine – Borrell accused Russia of “massive war crimes” – and the ease with which Russia avoided default last week appear to be pushing Europe to raise the pressure on the Kremlin, even if that increases the short-term damage to its economy. EU leaders are due to discuss other measures to avert an energy crisis at a two-day meeting that starts on Thursday.Over the weekend, Germany’s vice-chancellor Robert Habeck signed a deal with Qatar to expedite shipments of liquefied natural gas (there were few further details available).By 6:15 AM ET (1015 GMT), U.S. crude futures were up 4.3% at $107.56 a barrel, while Brent futures were up 4.1% at $112.31 a barrel.2. Kremlin says not enough progress for peace talks; China still ambivalentSentiment toward risk assets globally soured after a Kremlin spokesman said that peace talks have not progressed enough for a meeting between the Russian and Ukrainian presidents to take place.The comments come as Russia claimed to have deployed new ‘hypersonic’ missiles in combat for the first time. Reports suggest that Russia has all but secured complete control of the port city of Mariupol, after two weeks of heavy bombardment.The UN High Commission for Refugees now estimates that over 13 million people in Ukraine are in need of humanitarian assistance, with over 3 million having fled to other countries.  Hopes that China may broker a peace, or at least not give Russia the support that it needs to sustain its offensive, live on after China said it will do “everything possible” to de-escalate the situation. Beijing still refuses to join international condemnation of the invasion, however.3. U.S. stocks set to open lower; Boeing eyed after 737 crashU.S. stock markets are set to open lower, as the weekend’s news flow failed to give enough reason to make further advances after the best week in several months for risk assets. The three main cash indices had gained by between 5.5% and 10.5% last week.By 6:15 AM ET, Dow Jones futures were down 142 points, or 0.4%, while S&P 500 futures were down 0.2% and Nasdaq 100 futures were down 0.4%.Stocks likely to be in focus later include Boeing, after a 737 airliner – not one of the 737 MAX range – operated by China Eastern Airlines (NYSE:CEA) crashed, killing 132 people. Boeing stock was down 6% in premarket.After the closing bell, Nike will report earnings.Fed Chairman Jerome Powell will address a conference of economists at 12 PM ET, while Atlanta Fed President Raphael Bostic speaks at 8 AM ET.4. Metals volatility continuesAluminum prices rose another 3.6% after Australia said it will ban the export of alumina to smelters in Russia. The move threatens to curtail the output of a metal that is widely used in packaging and other industries. Smelting capacity is concentrated in Russia due to the relatively low cost of electricity there.Other metals’ prices, however, were in risk-off mode, with Nickel Futures again catching the eye as the London Metals Exchange was once more forced to suspend trading of its futures contract after it hit a 15% circuit breaker.Platinum group metals also rose on fresh fears for Russian supplies to world markets and hot-rolled steel prices in Europe hit a record 1,400 euros ($1,550) a ton, but copper prices eased, reflecting concerns about global growth.5. Emerging markets problems mount as Egyptian currency devalues, Sri Lanka seeks bailoutThe strains of war and a global monetary tightening cycle are taking an increasing toll on emerging markets.Egypt’s central bank allowed its currency to devalue by 13% against the dollar while raising interest rates by a full percentage point. The country of 105 million people faces a sharp deterioration in its terms of trade due to its dependence on foreign oil and wheat (it sources 80% of the latter from Russia and Ukraine).Egypt was reported last week to be eyeing a fresh support package from the International Monetary Fund.Also in trouble is Sri Lanka, which has asked the Chinese government for $2.5 billion in credit support, according to Chinese officials, in addition to seeking funds from India and the IMF.(CORRECTION: The original version of this article stated the estimated number of refugees from Ukraine wrongly. The article has now been corrected) More

The Malaysian Semiconductor Industry Association on Monday said it was deeply concerned with the raising of the monthly minimum wage to 1,500 ringgit ($356.89) from May 1 from the current 1,200 ringgit.President Wong Siew Hai in a statement said the increase was “too much too soon” and companies had insufficient time to adjust wage structures and make productivity improvements to stay competitive.Malaysia is a key manufacturer of chips, accounting for more than a tenth of a global trade worth over $20 billion.The industry associations also warned the increase comes amid surging raw material and commodity prices, as well as labour shortages that were already adding to cost pressure.They urged the government to consider a gradual wage increase over three years instead.The Federation of Malaysian Manufacturers (FMM), which represents over 11,300 companies, said on Sunday the wage hike would affect manufacturers’ payroll cost, business costs and potentially derail business and economic recovery.”Such a steep increase would have an undesirable impact on their business recovery,” FMM President Soh Thian Lai said in statement.FMM said foreign workers would also have to be paid the new minimum wage.Malaysia, a key manufacturing hub that relies heavily on migrant workers in factories and plantations, has seen its companies come under scrutiny from allegations of forced labour practices that include unpaid wages.Officials have acknowledged excessive overtime hours, unpaid wages, lack of rest days and unhygienic dormitories which analysts and consultants have said needed to be addressed or the country risked losses in its export-reliant economy.($1 = 4.2030 ringgit) More

Hong Kong has eased its rigid border controls after the restrictions put in place to control the Chinese territory’s worst coronavirus outbreak battered the economy and prompted residents to flee the city.Carrie Lam, the city’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. The changes will take effect on April 1.“Hong Kong’s isolation requirements for inbound travellers . . . could in turn adversely effect the local business environment, especially when the rest of the world has been moving towards relaxing [Covid policies],” Lam said on Monday. “There is a need for the economy to move forward.”The decision will cheer international business, which has argued Hong Kong’s stringent controls undermined the city’s status as a global financial hub. “The measures are the sign we have all been waiting for,” Frederik Gollob, chair of the European Chamber of Commerce in Hong Kong, said. “[But] the decision comes at an almost too late stage . . . We need to see the recovery plan to avoid further damage, as the damage has already happened big time.”Gollob said most companies in his chamber were struggling to hang on to staff and many were considering leaving Hong Kong.Property tycoons, bankers and academics had warned that the restrictions had caused a brain drain and damaged the city’s economy. The territory recorded a net loss of 65,295 residents last month and an additional 40,920 by mid-March.Paul Chan, the city’s financial secretary, said on Sunday that restrictions would drive the economy back into contraction.“Hong Kong’s economy will inevitably fall into negative growth in the first quarter of the year, with the unemployment rate further deteriorating rapidly,” he said.Lam had previously argued that the controls were needed to convince the mainland to reopen the border but last week signalled a change of direction.“I have a very strong feeling that people’s tolerance [is] fading,” she said. “I have a very good feel that some of our financial institutions are losing patience about this sort of isolated status of Hong Kong and Hong Kong is an international financial centre.”Allan Zeman, a hospitality magnate and government adviser, described Monday’s announcement, which lifted restaurant stocks, as vital. “We’re back in business . . . I’ve seen it before [during the 1997 handover of Hong Kong from the UK to China] people left, then after people came roaring back, Hong Kong’s strength will always be there,” he said.

Cases are falling after the city reported more than 1mn Covid infections since the fifth wave struck in late December, with at least 5,600 fatalities, surpassing the official toll in mainland China. Beijing has also been struggling to contain the country’s biggest outbreak since Wuhan and by Sunday had recorded about 132,000 Covid infections and 4,600 deaths after reporting few infections in the first two years of the pandemic.“[Health] experts also believe that the peak has passed and infections are on a decreasing trend,” Lam added. As the outbreak spiralled out of control, the government suggested a citywide lockdown and mass testing of the entire population, sparking a wave of panic buying. A policy where Covid-positive children could be separated from their parents in hospitals spooked residents further.The government said on Monday the unprecedented testing exercise would now be put on hold but “if the time is right” it could still be conducted.Face-to-face schooling will resume in stages from April 19 and most social distancing measures will be maintained until April 20. More

The president is targeting shipping companies that have jacked up prices during the pandemic, but critics say bigger economic forces are at work.With inflation surging at its fastest pace in 40 years, President Biden has identified a new culprit that he says is helping fuel America’s skyrocketing prices: The ocean vessels that ferry containers stuffed with foreign products to America’s shores each year.Shipping prices have soared since the pandemic, as rising demand for food, couches, electronics and other goods collided with shutdowns at factories and ports, leading to a shortage of space on ocean vessels as countries competed to get products from foreign shores to their own.The price to transport a container from China to the West Coast of the United States costs 12 times as much as it did two years ago, while the time it takes a container to make that journey has nearly doubled. That has pushed up costs for companies that source products or parts from overseas, seeping into what consumers pay.Mr. Biden has pledged to try to lower costs by increasing competition in the shipping industry, which is dominated by a handful of foreign-owned ocean carriers. He has cited the industry’s record profits and directed his administration to provide more support for investigations into antitrust violations and other unfair practices.Congress is also considering legislation that would hand more power to the Federal Maritime Commission, an independent agency that polices international ocean transportation on behalf American companies and consumers.The bill, which has bipartisan support, would authorize the commission to take action against anticompetitive behavior, require shipping companies to comply with certain service standards and regulate how they impose certain fees on their customers. Mr. Biden is pushing lawmakers to add a provision that would allow the commission and Justice Department to review applications for new alliances between companies for antitrust issues, and reject those that are not in the public interest.The House passed its version of the bill in December; it must be reconciled with a Senate version.But it’s unclear to what extent more government oversight and enforcement will actually bring down shipping costs, which are being driven in large part by soaring consumer demand and persistent bottlenecks. Global supply chains are still plagued by delays and disruptions, including those stemming from the Russian invasion of Ukraine and China’s broad lockdowns in Shenzhen, Shanghai and elsewhere.“As a standard matter of economics, if you have inelastic supply and experience a surge in demand, you will see a rise in prices,” said Phil Levy, the chief economist at Flexport, a logistics company.The effect is expected to worsen in the coming months. Shipping rates typically take 12 to 18 months to fully pass through to consumer prices, said Nicholas Sly, an economist at the Federal Reserve Bank of Kansas City.“The goods that are being affected by shipping costs today are really the goods that consumers and American households are going to be buying many months from now, and that’s why those costs tend to show up later,” he said.Some of the price increases from late last summer have yet to work their way through into consumers, he said, and the conflict in Ukraine is causing further disruptions.Shipping prices have already skyrocketed so high that, for some products, they have erased companies’ profit margins.The cost to ship a container of goods from Asia to the U.S. West Coast surged to $16,353 as of March 11, nearly triple what it was last year, according to data from Freightos, a freight booking platform. While supply chain congestion showed some signs of easing in January and February, the Russian invasion of Ukraine has quickly worsened the situation along with lockdowns in China that have closed factories and warehouses.Analysts at Capital Economics, in a research note on Wednesday, said that it was still possible for China to suppress coronavirus infections without causing widespread disruption to global supply chains. “But the risk that global supply chains links within China get severed is the highest that it has been in two years,” they said.American businesses that use ocean carriers have been pushing for additional oversight of what they say is an opaque, lightly regulated industry.One of the main complaints among importers and exporters is that ocean carriers are charging customers huge and unexpected fees for delays in picking up or returning shipping containers, which are often mired in congestion in the ports or in warehouses. American farmers, who have struggled to get their goods overseas, say that ocean liners have refused to wait in port to load outgoing cargo or skipped some congested ports entirely. As a result, some have periodically been unable to get their products out of the United States.Eric Byer, the chief executive of the National Association of Chemical Distributors, said American companies were having trouble getting chlorine to clean swimming pools, citric acid to make soft drinks and phosphoric acid to add to fertilizer through American ports.“It’s taking weeks upon months, and they’re getting nickelled and dimed on costs. There are a lot of fees that are being imposed on products waiting in the San Pedro Bay,” he said, referring to the body of water outside the busy California ports of Los Angeles and Long Beach.“It’s been a lot of turmoil and challenges, a lot of unreliability,” said Patti Smith, the chief executive of DairyAmerica, which exports milk powder to foreign factories to be made into baby formula. Her company has sometimes been unable to get its products out of West Coast ports, she said, and has racked up extra warehousing costs and unexpected fines because of the delays.While Ms. Smith said she supported the administration’s efforts to enhance oversight of the shipping industries, she wasn’t sure that would do much to bring down overall prices.“I wouldn’t say it would necessarily lower prices. I think it might put prices more on a level playing field,” she said.The White House insists that its efforts can drive down costs, portraying the measures Mr. Biden announced as a way to calm skyrocketing inflation, which has become a huge economic concern among voters. Consumer prices surged 7.9 percent in the year to February, a 40-year high.American demand for foreign products, and for space on container ships, shows little sign of easing.Erin Schaff/The New York TimesThe White House has pointed to rapid consolidation in the industry over the past decade as a driver of higher prices, saying that three global shipping alliances now control 80 percent of global container ship capacity, and increased shipping costs would continue to fuel inflation. “Because of their market power, these alliances are able to cancel or change bookings and impose additional fees without notice,” the administration said in a fact sheet.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

Good morning. Last week ended up being the strongest for stocks since late 2020. Feeling reassured? Today, one big pitfall of rising rates and the little-aired bear case for oil. Email us: [email protected] and [email protected] rates and housing marketsMarkets were pleased with the Federal Reserve’s interest rate hike last week. But how far can the Fed go? Here is a scary prediction from Bill Gross, the erstwhile bond king:The founder of investment house Pimco told the Financial Times this week he believes inflation is approaching troubling levels but the US central bank will not be able to implement higher policy rates to contain it.“I suspect you can’t get above 2.5 to 3 per cent before you crack the economy again,” [Gross] said. “We’ve just gotten used to lower and lower rates and anything much higher will break the housing market.”Singling out housing makes sense. As we’ve discussed, house prices and rents are very high. Roaring demand, driven partly by demographics, is paired with meagre supply. The inventory of existing homes for sale hit an all-time low in January and has hardly recovered. Homebuilders are rushing to get fresh inventory on the market, but are constrained by shortages of labour and building materials. The best fix would be building more homes. Until then, higher rates are bound to cause problems. Chunkier mortgage payments will limit demand, but also encourage homeowners to cling on to their current, cheap mortgages. That will further limit the supply of existing homes, notes Aneta Markowska of Jefferies.Though the Fed has only started tightening, mortgage rates weren’t inclined to wait for the starter pistol, kicking off a fierce climb in late December:The impact on the market is already evident. February data from the National Association of Realtors found existing-home sales falling 7 per cent month-on-month. Here’s NAR’s head economist, Lawrence Yun, on Friday:Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases. Some who had previously qualified at a 3 per cent mortgage rate are no longer able to buy at the 4 per cent rate.Monthly payments have risen by 28 per cent from one year ago — which interestingly is not a part of the consumer price index — and the market remains swift with multiple offers still being recorded on most properties.Strategas’s Don Rissmiller and Brandon Fontaine point out that policy rates around 1-2 per cent were enough to clip housing demand in 2018-19. The median Fed projection is right in that range, around 1.9 per cent by the end of the year. This time around, though, consumer debt is higher. Mortgage debt as a share of real GDP has risen 6 percentage points to 55 per cent, since the last rate-hiking cycle peaked in late 2018. If history repeats, stumbling house demand could show up as weaker output growth. Ian Shepherdson of Pantheon Macro explains the mechanics well:A sustained drop in home sales — new home sales will fall too — would be a direct drag on GDP growth, at the margin, via downward pressure on residential investment, and all the services — legal, removals, and others — directly tied to sales volumes. It would also depress retail spending on building materials, appliances, and household electronics.The nightmare scenario is that the Fed ends up with an inverse Goldilocks situation: rates high enough to hurt growth through the housing market, but too low to get inflation under control. This is far from guaranteed. US fundamentals could prove sturdy enough to support housing demand. But Gross’s warning is important. As rates rise, watch housing. (Ethan Wu)A lonely oil bearMost people think, with reason, that oil is going to be expensive for a while. Russia is at war and faces tightening sanctions. Global demand is strong. And both the big US producers and the Opec countries are demonstrating some production discipline, despite prices rising from $75 to over $100 this year.Ed Morse, head of the commodities team at Citi, stands well outside this consensus. How far outside? Here are his price projections compared to the prices implied by the futures market:If Morse turns out to be right, it will matter far beyond oil markets. Oil near $60 later this year might be enough to slow the expected upward march of interest rates, with significant effects on prices all across markets. And Morse has made correct contrarian calls in the past, proving prescient about the 2008 and 2014 price collapses. Morse’s laid out his bearish view for me on Friday. It rests on 4 main planks:Current high demand is evidence of a recovery, not secular strength in the economy. “We think the demand surge is a return to normal after a deep recession rather than a precursor of sustained demand,” Morse says. “Gas and oil demand did not move very much between 2015 in 2019, despite some increases in emerging markets, because of developed markets and China.” Morse points out that the Chinese do not tend to use cars for long-haul travel, and like electric vehicles, explaining the low oil intensity of China’s growth. He expects this to continue. Overall, Morse thinks that the hydrocarbon-intensity of the global economy is declining in a straight line, in developed and emerging markets alike. Nothing can stop that trend for long. The only oil markets where he sees rising demand in the long term are jet fuel and petrochemical feedstock.My brilliant colleague Derek Brower (nb: he made me write that) of FT’s Energy Source newsletter (it actually is pretty good, sign up here) thinks that Morse may be on to something here with his China point. “Barrel counters say Chinese demand is already looking a bit toppy, especially at $100-plus oil . . . that said, hunting for the peak in Chinese oil demand has been something of a Moby-Dick endeavour in recent years, and we’ve seen false signs of it before.”The war in Russia is unlikely to disrupt supply as much as the markets expect. “What we are seeing is self-imposed restrictions [on buying Russian oil]. Some people, even in government, think that because of these restrictions exports are about to tumble. And it is true that auctions are shutting down. But if you look at ship loadings, there are buyers. We know there is enough lifting [tanker-filling] capacity there.” Morse believes, in short, that the market is not cynical enough about Russian oil, which is selling at a $30 discount, finding its way to market one way or another. Russian production is indeed rising, for now. Much will depend on how hard the US and other western nations are willing to squeeze. If sanctions persist, the departure of global capital and expertise will start to degrade Russian capacity, too; but that is a long-term issue. US shale fields are going to produce more than the market expects. “In US shale we have an accelerating rate of rig utilisation — we have private sector companies going all out for drill baby drill,” he says, waving away the common refrain that the big publicly traded US producers, such as Pioneer and Devon, prefer higher returns to higher production. Sixty per cent of new drilling is at private companies funded by private equity, he says. PE sponsors, having suffered through some hard times, are eager to get out of the business, and the best way to do that is to quickly push their projects to the high cash flow stage, and then sell them to larger producers. Nor does Morse buy the argument the labour and equipment supplies limit production growth in the US. “There is a good 100 high-quality rigs available. There are good fracking crews available. If they need manpower, they’ve just got to pay more”. At the same time, the productivity of each well is increasing.Producers around the world are responding to higher prices with production. Canada, Guyana, Brazil, Argentina and even Venezuela are signalling increased output. And then there is the possibility that Iran returns to the market later in the year.Morse is a voice in the wilderness for now. But as we have learned repeatedly recently, at this weird moment, it is crucial to listen to dissenters. One good readIn his first official FT column, Stephen Bush asks how the UK can create an immigration policy that isn’t actively terrible. More

Chipmakers’ multibillion-dollar expansion plans will be constrained by a shortage of critical equipment over the next two years as the supply chain struggles to step up production, according to one of the industry’s most important suppliers.The warning comes from Peter Wennink, chief executive of ASML, which dominates the global market for the lithography machines used to make advanced semiconductors.“Next year and the year after there will be shortages,” Wennink said. “We’re going to ship more machines this year than last year and . . . more machines next year than this year. But it will not be enough if we look at the demand curve. We really need to step up our capacity significantly more than 50 per cent. That will take time.”ASML’s machines are used to etch circuits into silicon wafers. “It is the single most critical company in the semiconductor supply chain,” said Richard Windsor, tech analyst at Radio Free Mobile. “It is the printing press of silicon chips.” Wennink said ASML was assessing with its suppliers how to increase capacity. It was not yet clear the scale of investment required, he said. ASML has 700 product related suppliers, of which 200 are critical.His comments come as the semiconductor industry accelerates investment in new production to meet a global shortage of chips and surging demand. Analysts expect the market to double to $1tn by 2030. Intel last week said it would invest roughly €33bn in manufacturing and research in Europe, rising to €80bn by the end of the decade, depending on demand. It has also announced plans to invest $40bn to expand chip manufacturing in the US.The US chipmaker is racing to catch up with the industry leader, Taiwan’s TSMC, which is investing more than $100bn over the next three years. Samsung has said it will invest $150bn by the end of the decade to expand production, part of an estimated Won510tn ($421bn) to be invested by more than 150 South Korean companies, according to the government.The US and Europe are also planning tens of billions in support for chip manufacturing, in an attempt to reduce their reliance on Asian manufacturers.Pat Gelsinger, chief executive of Intel, acknowledged that the equipment shortage posed a challenge for the company’s expansion plans. He said he was in direct contact with Wennink on the shortages, and Intel had sent its own manufacturing experts to the company to help accelerate production. “Today this is a constraint,” he told the Financial Times. But he stressed that there was still time to resolve the issue. It would take two years to build the shell of the chip factory. “Then you start to fill it with equipment in year three or four,” he said.Wennink agreed there was still some time to expand capacity in the supply chain, as many of the new manufacturing facilities would not come on line before 2024. But this would not be simple. For example, the most complex component of ASML’s equipment was the lens, made by German manufacturer Carl Zeiss. “They need to make significantly more lenses,” Wennink said. But first the company would have to “build clean rooms; they need to start asking for permits; they need to start organising the building of a new factory. Once a factory is ready, they need to order the manufacturing equipment; they need to hire people. And then . . . it takes more than 12 months to make the lens.”Additional reporting by Joe Miller More