Economy

(Reuters) -Oil-and-gas leaders advocated at an industry conference on Monday for a combination of more fossil fuel production and renewable energy sources to reduce reliance on places like Russia as oil prices soared following that nation’s invasion of Ukraine.The CERAWeek energy conference opened in Houston on a day when global crude prices reached levels not seen since the 2008 financial crisis. Buyers are shunning Russian exports of crude and fuel, creating what could be the biggest disruption in global energy supply in decades. Russia exports 4 to 5 million barrels of crude and 2 to 3 million barrels of products daily. [O/R] “This is about how we survive this crisis. There is no capacity in the world in the moment that can replace 7 million barrels of exports,” said OPEC Secretary General Mohammad Barkindo.The CERAWeek conference was originally expected to focus on energy transition technologies and a greater role for renewables. Instead, many participants have focused on energy security and reliability, as many countries, particularly Europe, rely heavily on Russia for fuel.The Portuguese government was discussing “how we can accelerate renewables in Portugal,” said Andy Brown, CEO of Portuguese energy company Galp. “Even before the Russia situation emerged, the market was distressed. Take Russia (energy) out of the equation, then it becomes a crisis.” At a news conference, Barkindo reiterated the need for further investment in oil-and-gas. He and others said lack of investment in previous years had in part led to the market’s tightness. Global benchmark Brent crude briefly surpassed $139 on Monday – not far from its all-time high of $147.50. It closed Monday above $123.”What is happening today in Europe is a big wake-up call to a lot of policymakers if they are serious about security of supply, affordability and of course climate change compatibility,” TotalEnergies CEO Patrick Pouyanne told the CERAWeek conference in Houston.TotalEnergies is one of the few oil majors that has not divested from Russia, though Pouyanne said the company is not investing additional capital in the country. Several speakers addressed Russia’s invasion, beginning with U.S. climate envoy John Kerry, who called Russia’s actions “abhorrent.””This is a defining moment for this century,” Kerry said. He said people must now live with higher energy costs for a time, and that the Biden Administration supports an all-of-the-above energy policy that includes natural gas and nuclear power.Advocates of renewables say the invasion makes the transition to cleaner fuels more desirable, and that additional fossil-fuel investment now will only increase the world’s dependence on oil and gas at a time when the climate continues to warm.Analysts believe high prices could persist for months, as the United States and the European Union are considering an outright ban on buying energy from Russia. Sources said Washington was considering going ahead alone, a step the White House had previously resisted. European countries account for roughly half of Russia’s crude exports, according to the U.S. Energy Information Administration.”We have to talk about diversification, we need more renewable energy in the basket…to have less energy dependence in Europe,” said Josu Jon Imaz, chief executive of Spain’s Repsol (OTC:REPYY).Saudi Arabia, leader of the Organization of the Petroleum Exporting Countries, and Russia are part of a group known as OPEC+ that has been boosting supply by 400,000 bpd every month to restore pandemic-related output cuts dating back to 2020. The United States and others have called for still greater increases from OPEC+, but producers are consistently falling short of targeted increases. On Monday, OPEC+ sources said the oil market’s fundamentals remained sound, downplaying the prospect of any further extra supply.After cutting spending and production during the depths of the COVID-19 pandemic, the industry has been in no shape to match the growth in consumption: The United States is still producing more than a million barrels below its 2019 peak of 13 million bpd. More

By Gertrude Chavez-DreyfussNEW YORK (Reuters) -Real yields in the U.S. Treasury market have gone even more negative as inflation surged, which is typically viewed as a positive factor for stocks, but Russia’s invasion of Ukraine has placed more emphasis on shedding risk than on the possibility of getting higher returns on Wall Street.The decline in benchmark U.S. real yields, which have been mainly below zero since 2019, suggested that investors are piling into TIPS because of concerns about high inflation. Indeed, the war has propelled global benchmark Brent crude futures to a roughly 14-year high of just under $140 per barrel.U.S. stocks, even with a strong earnings outlook and backed by a robust economy, may not be the best asset to hold during this geopolitical crisis, analysts said, though there was some divide in views.”If all else equal and you sat there and saw that one of the largest countries in the world is attacking a country one-third its size and it has aspirations to reconstitute the old Russian empire, is that really a good backdrop for stocks?” said David Petrosinelli, managing director and senior trader at broker-dealer InspereX in New York. Russian President Vladimir Putin, brushing aside worldwide condemnation of the invasion, which Russia calls a “special operation” vowed to press ahead with his offensive, which he said was going to plan, unless Kyiv surrendered.Since Russia launched the invasion on Feb. 24, the yield on U.S. 10-year Treasury Inflation Protected Securities (TIPS), also called the real yield because it strips out inflation, has fallen about 45 basis points.The 10-year TIPS yield has collapsed by roughly 64 basis points, since the release on Feb. 10 of U.S. consumer price data showing the annual U.S. inflation for January hitting a 40-year high. On Monday, the 10-year real yield dropped to a two-month low of -1.027%. Real yields are an important input to broader financial conditions, and when they are low, that typically underpins U.S. equities.”Equities like many financial assets are evaluated on the present value of their expected future cash flows,” said Tim Wessel, macro strategist, at Deutsche Bank (DE:DBKGn) in New York.”When real yields are falling, that means the expected value of a stock’s future cash flow is going to be higher. If you look at the sector breakdown of equities, if you look at the S&P 500 and compare its returns to big tech stocks or FANG stocks, they outperform the S&P on days when real yields fall,” he added, referring to the growth-stock grouping of Facebook (NASDAQ:FB), now known as Meta, Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google-parent Alphabet (NASDAQ:GOOGL).After a sharp fall to start the year accelerated with Russia-Ukraine tensions, the benchmark S&P 500 has bounced back about 4% from its Feb 24 intraday low. But Wall Street’s fear index, the VIX, has climbed and the market sold off late last week and opened down on Monday.The S&P 500 technology index did slip slightly last week, mainly due to selling on Thursday and Friday. Since its intra-day trough on Feb. 24, that index has actually gained 4.2%.Analysts said aside from the tumble in real yields, U.S. stocks have benefited from the view that the latest geopolitical turmoil means the Federal Reserve would take a gradual approach to tightening monetary policy, starting next week.Fed Chair Jerome Powell said last week he would back an initial quarter percentage-point increase in the Fed’s benchmark rate at the March 15-16 meeting, but held out the prospect of hiking more aggressively this year if inflation does not ease.”This uncertainty is going to cause the Fed to move more slowly, to tighten more slowly and as a result fall behind the curve on inflation, which is positive for risk assets and a support for them,” said Ryan Swift, bond strategist, at BCA Research in Montreal.InspereX’s Petrosinelli thinks though that the risk in equities is in the medium to long term.”The expectations component is really the wild card here,” Petrosinelli said. “We could be sitting at oil of $150 per barrel very, very easily here in the coming days and I’m not saying it’s going to happen. But that can’t be good for stocks.” More

WASHINGTON (Reuters) -With inflation at a four-decade high, a U.S. government report shows corporate America has used its clout in the labor market to keep wages 20% lower than they should be, the White House said on Monday.The report, prepared by the Treasury Department with help from the Justice Department, Labor Department and Federal Trade Commission (FTC), found companies had the upper hand in setting wages because they generally knew more about the labor market than workers do.Further, workers may not be able to move or to afford an extended job search in order to find better-paid work.”These conditions can enable firms to exert market power, and consequently offer lower wages and worse working conditions, even in labor markets that are not highly concentrated,” the report said.U.S. Treasury Secretary Janet Yellen told a White House forum highlighting the report that workers are often at a disadvantage due to required non-compete or non-disclosure agreements; collusion between employers to keep wages low; or a lack of transparency that keeps workers unaware of prevailing wage rates.”Ultimately these conditions cumulatively yield an uneven market where employers have more leverage than workers,” she said. “This is what economists mean when we refer to monopsonistic power” among buyers of labor.The White House event featured several workers who complained about unfair employment practices at prior jobs.One of the speakers was a temporary worker at Alphabet (NASDAQ:GOOGL)’s Google, Shannon Wait, who said she was let go from her $15 per hour job for complaining on social media about a broken company-issued water bottle.Google officials did not immediately respond to requests for comment. Wait eventually won a settlement with Google which allows workers to discuss working conditions, according to the Communications Workers of America.The report discusses ways that firms can hold down wages, including conspiring with other companies to avoid hiring each other’s workers and requiring employees to sign non-compete agreements that prevent them from leaving for higher wages.The report cited a paper that found one-in-five workers is currently covered by a non-compete agreement, meaning they cannot leave to work for a competitor. “A careful review of credible academic studies places the decrease in wages at roughly 20% relative to the level in a fully competitive market. In some industries and occupations, like manufacturing, estimates of wage losses are even higher,” the report said.The U.S. unemployment rate fell to a two-year low of 3.8% in February but hourly earnings were flat, partly because the return of workers to lower-paying industries offset wage increases in some sectors as companies competed for scarce workers.Antitrust enforcement efforts usually focus on prices companies charge for goods and services. Antitrust enforcers have brought labor antitrust cases in the past, and the Trump Administration’s Justice Department brought one against a no-poach agreement between rail equipment suppliers in 2018, but they remain rare. More

NEW YORK (Reuters) -Procter & Gamble Co is ending all new capital investments in Russia and “significantly reducing” its portfolio to focus on basic hygiene, health and personal care items, CEO Jon Moeller said in a letter to employees posted on its website on Monday. Big investors such as New York State’s pension fund are telling companies they should consider pausing operations in Russia as Russia invades neighboring Ukraine.Cincinnati, Ohio-based P&G is also suspending all media, advertising and promotional activity, Moeller said in the post. The company said on its website that its Russian division makes Tide detergent, Pampers diapers and Gillette razors.P&G has 2,500 direct employees in Russia and 500 in Ukraine, according to a spokesperson. Moeller said in the blog post that the company “proactively suspended” operations in Ukraine and is providing evacuation support, financial assistance, food and shelter to help employees. P&G’s business in Russia and Ukraine accounts for less than 2% of the company’s global sales, a spokesperson said. P&G had $76.1 billion in global net sales in its last fiscal year. More

In a first pass at gauging the economic impact from the Ukraine invasion, forecasters say the U.S. will grow more slowly with higher inflation, Europe’s economy will flirt near recession and Russia will plunge into a deep, double-digit decline.
The CNBC Rapid Update, the average of 14 forecasts for the U.S. economy, sees GDP rising by 3.2% this year, a modest 0.3% markdown from the February forecast, but still above-trend growth as the US continues to bounce back from the Omicron slowdown. Inflation for personal consumption expenditures, the Fed’s preferred indicator, is seen rising by 4.3% this year, 0.7 percentage points higher than the prior survey in February.

Arrows pointing outwards

CNBC Rapid Update

Forecasters cautioned, however, that much remains unknown about how the U.S. economy will respond to an oil shock that has seen crude prices surge quickly above $126 a barrel and the national average gasoline price over $4 per gallon. Most see risks to their forecasts skewed toward higher inflation and lower growth.
A complete removal of Russian oil from global supply could mean a far more grim outcome, economists said.
“…The consequences of a complete shut-off of Russia’s 4.3 (million barrels per day) of oil exports to the US and Europe would be dramatic,” JPMorgan wrote over the weekend. “To the extent that this disengagement gathers steam, the size and length of the disruption — and thus the shock to global growth— will build.”
The CNBC Rapid Update shows U.S. growth accelerating to 3.5% in the second quarter from 1.9% in the first. But that second quarter estimate is down 0.8 percentage points from the prior survey. So the economy is still seen bouncing back from the omicron wave, but not as strongly as inflation takes a bigger bite.
Inflation estimates are 1.7 percentage points higher for this quarter and 1.6 percentage points for next. Inflation is expected to decline from 4.3% this year to 2.4% by year-end.

Arrows pointing outwards

CNBC Rapid Update

Overall, U.S. economic growth is seen enduring.
“Energy prices are spiking, and they may remain higher persistently, but I expect much of the run-up seen in recent days to recede within a few months, which means mainly a short-term impact on growth and inflation,” said economist Stephen Stanley, with Amherst Pierpont. “Consumers have massive liquidity, income growth, and wealth to draw on.”
One factor that makes this price shock different from others is how much oil the U.S. produces. With U.S. production and demand in rough balance, money is transferred from consumers to producers inside the economy, rather than from the U.S. to foreigners. That will hit individual American families and certain regions of the country harder, but boost the profits of U.S. energy companies.

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Oil companies, in turn, will likely boost growth by using profits to increase drilling.
Still, some are pessimistic that the drag from higher prices will lead to a bigger drag on U.S. growth. “The US is on the cusp of a recessionary inflation, with energy and now food prices potentially soaring significantly further,” said Joseph Lavorgna of Natixis.

Europe to be hit harder

Most agree that effect will be worse in Europe.
Barclays marked down its growth forecast for Europe this year to 3.5% from 4.1% last month.
“Soaring commodity prices and risk aversion in financial markets are the main contagion channels, implying a global stagflationary shock, with Europe being the most exposed region” the investment bank said.

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JPMorgan took off nearly a full percentage from European growth this year, and now forecasts GDP will increase by 3.2%. But the second quarter has been filled in at zero.
Russia is forecast to get hit hardest of all. JPMorgan forecasts a 12.5% decline in GDP as the country’s economy buckles under the weight of unprecedented sanctions that have frozen its $630 billion in foreign exchange reserves and cut its economy off from the rest of the world.
The Institute for International Finance sees a 15% contraction, double the decline from global financial crisis. “We see risks as tilted to the downside. Russia will never be the same again” wrote IIF’s Chief Economist Robin Brooks.

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BRASILIA (Reuters) -Brazilian President Jair Bolsonaro on Monday threw his weight behind measures to tamp down domestic fuel prices after the Ukraine conflict sent oil prices to their highest levels since 2008, adding to pressure on state-run oil company Petrobras.A government official told Reuters on condition of anonymity that the Bolsonaro administration is studying a fuel subsidy program. The economy ministry is against such a measure, the source said, but is not involved in deciding the pricing policy of Petroleo Brasileiro SA, as the state firm is officially known.The mines and energy ministry said its staff was meeting with presidential aides and economy ministry officials later on Monday to discuss what can be done about fuel prices.The economy ministry declined to comment on potential fuel subsidies. Petrobras and the president’s office did not immediately respond to requests for comment.Russia’s invasion of Ukraine, which Moscow calls a “special operation,” has sent global crude prices soaring, adding to double-digit inflation in Latin America’s largest economy ahead of a presidential election in October.Petrobras shares fell almost 8% in Sao Paulo, as the benchmark stock index slid around 3%.In a radio interview earlier on Monday, Bolsonaro called for the end of a fuel pricing policy in which Petrobras, which holds about 80% of Brazil’s refining capacity, aims for local parity with global prices.Bolsonaro called the rules whereby Petrobras sets local fuel prices based on international energy and currency markets “wrong laws designed a long time ago that cannot continue.” Last week, he said that Petrobras, which in 2021 smashed its all-time record for annual profit and dividend payouts, should reduce its profit to soften the blow of soaring oil prices.LEADERSHIP CHANGEBolsonaro’s criticism adds to pressure on Petrobras, where minority shareholders have pressed for a free hand in setting fuel prices. The company racked up huge losses under previous governments when forced to import and sell fuel at a discount.Over the weekend, Brazil’s government appointed former Petrobras executive Rodolfo Landim to chair the oil producer’s board, replacing Admiral Eduardo Bacellar Leal Ferreira who told Reuters on Saturday that he planned to step down as chairman of the company “to spend more time with my family.”The pressure to hold prices down was a factor in Ferreira’s decision to step down, two people close to pricing discussions told Reuters. Petrobras was planning to seek government approval this week to raise prices at its Brazil refineries, the people said.Brazilian newspaper O Estado de S.Paulo was the first to report on Monday that the government was mulling fuel subsidies, saying that a plan to compensate Petrobras for keeping down wholesale prices could be announced this week. The newspaper, citing unnamed participants in the discussions, reported that dividends from Petrobras could be used to fund the subsidies. Proposals to subsidize fuel prices with government funds have met resistance from the economy ministry, which sees little benefit from a subsidy program that could threaten compliance with key fiscal rules.Brent crude briefly hit $139.13 a barrel and U.S. West Texas Intermediate (WTI) rose to $130.50 on Monday, their highest levels since July 2008, as the United States and European allies eyed a Russian oil import ban and prospects for a return of Iranian crude to the global market dimmed. More

BUENOS AIRES (Reuters) – Argentine bonds fell on Monday as a new $45 billion deal with the International Monetary Fund (IMF) started to move through Congress, with the crisis in Ukraine hitting investor sentiment as well as doubts about the country’s economic outlook.Argentina agreed on a 30-month extended fund facility (EFF) with the IMF late last week, replacing a failed 2018 program, which pushes repayments back until 2026-2034. It needs approval from the IMF board and Argentina’s Congress.Economy Minister Martin Guzman addressed lawmakers on Monday, warning that blocking the bill would be “destabilizing” for Argentina and lead to default to the IMF.”It would generate a situation of deep exchange rate stress with inflationary and negative consequences on economic activity, employment and poverty,” he said.Opposition lawmakers have indicated they will support part of the bill to refinance the debt, though have threatened to vote against the economic plan. It is unclear whether that would be acceptable to the IMF, which wants broad support for the deal.”We have a point of agreement, not to push the country into default,” an opposition legislator told Reuters, referring to the center-right opposition coalition. He asked not to be named.”We also agree on endorsing the refinancing of the debt with the IMF but we don’t endorse the economic program.”Most analysts still expect Congress to approve the bill despite the pushback, which would help Argentina avert a default on billions of dollars of repayments to the IMF due this year amid soaring inflation and low reserve levels.However, bonds have dropped steadily since late last week, with Russia’s invasion of Ukraine compounding investor concerns that the grains-producing country will not be able to meet the economic targets from the deal and revive its embattled economy.The South American country’s bonds were down on average 1.2%, with some bonds like the Bonar 2030 30 cents on the dollar, a reflection that many investors are pricing in a future default.”Investors first want to see that the economic goals can be met. Then we’ll see about bond prices recovering,” said Antonio Aracre, an analyst at Syngenta, citing Argentina’s mottled history of some 22 IMF bailouts.Local brokerage StoneX said in a note that capital outflows from emerging market funds had also impacted Argentine debt, “nullifying the positive effect of the IMF staff agreement”.’LIGHT DEAL’ Barclays (LON:BARC) said in a note that the agreement should help reduce pressure on parallel currency exchange rates, where dollars are around twice as expensive as the official rate, and overall uncertainty about policy-making.”But it is not an inflation stabilization plan, and is unlikely to deliver reserves accumulation,” it added.Delphos Investment said that the deal would help lay the foundations for a gradual process of fiscal consolidation and accumulation of reserves, though added it was “not very ambitious” in terms of more lasting structural changes.”Now we know the details of the agreement with the IMF, there is little doubts that it is a light deal. Nonetheless, it will not be easy to meet the terms of the agreement,” said Roberto Geretto of local investment firm Fundcorp.The deal comes with an economic plan that sets out targets for growth, slowly lowering inflation, moving towards positive interest rates, building up foreign currency reserves and cutting central bank funding to the Treasury.”There are reforms that are intended to improve economic growth and reforms that are intended to improve fiscal solvency,” said Daniel Artana at the FIEL Foundation.”The government has not advanced on either of the two fronts, beyond the fact that it has made a commitment to reduce subsidies for electricity and gas rates.”^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^GRAPHIC-Argentina: Economic Targets https://tmsnrt.rs/3sG3w77GRAPHIC-Argentina’s USD bond prices (Interactive version) https://tmsnrt.rs/3FzHvdHGRAPHIC-Argentina’s USD bond prices https://tmsnrt.rs/3fz89ZsBREAKINGVIEWS-Argentina and the IMF: Hope trumps experience Argentina agrees $45 bln IMF debt deal that targets energy subsidies ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ > More

(Reuters) -Russia’s invasion of Ukraine has dashed any hope U.S. consumers might have had for relief from sky-rocketing inflation, with gasoline prices in the last week surging by the most in nearly 17 years and costs of other goods like food ready to march higher as well.Even before the invasion, the U.S. inflation report for February was set to show prices rising at their fastest pace in 40 years. The data, due to be released on Thursday, will likely show only a preliminary impact from the swelling in U.S. oil prices, which briefly climbed above $130 a barrel on Monday, but the spike is expected to drive overall inflation higher in coming months.”There had been expectations that February would be the high point for year-over-year headline inflation, but the Ukraine shock is already sending gas prices higher in March,” said Tim Duy, an economist at SGH Macro Advisors.The development also comes at a perilous time for the Biden administration, already under fire for soaring costs for rents, electricity and food as the economy grapples with the impact of the COVID-19 pandemic, in which demand has outstripped supply.Federal Reserve policymakers will also be keenly watching the reading, which will arrive just under a week before they gather for their next policy meeting. The U.S. central bank is widely expected to raise its benchmark overnight interest rate by a quarter of a percentage point on March 16 as it begins a tightening cycle meant to bring down inflation without derailing the economic expansion.Fed Chair Jerome Powell said last week that the central bank will act cautiously given the uncertainty of the impact of the war in Ukraine, but persistently high inflation will weigh as policymakers sketch out their forecasts at their meeting for the path of rate hikes in the months ahead.Economists polled by Reuters forecast the Consumer Price Index to have climbed 7.9% on a year-on-year basis in February, up from 7.5% in January. The monthly rate is forecast to have risen 0.8% after increasing 0.6% in the prior month.Gasoline prices increased nearly 6% in February, which would add around 0.2 percentage point to the headline number last month, but the bigger effects are still to come.The average U.S. price for regular unleaded gasoline on Monday was $4.065 a gallon, according to automobile club AAA, only about 5 cents shy of the record high. The increase over the last week of about 45 cents a gallon was the largest since 2005, it said.Russia is the world’s biggest exporter of oil and gas and a mooted ban on oil imports from that country pushed the price of Brent crude briefly above $139 a barrel on Monday.By Oxford Economics’ estimates, the surge in oil prices would add around 0.6 percentage point to the March inflation reading, but that could be easily outstripped in the coming months.Powell said last week that the Fed estimates as a rule of thumb that every $10 increase in the price of oil adds 0.2 percentage point to inflation and subtracts 0.1 percentage point from economic growth. Investment banks say crude prices could approach $200 a barrel this year if Russian supply evaporates, with dire consequences for the global economy.NIGHTMARE SCENARIOThis week’s inflation reading could show a temporary softening in food inflation in February compared to January, but any let-up is set to be short-lived.A pickup in demand for hospitality services as the economy rebalances after the disruption from the Omicron variant of COVID-19 could drive services prices higher, including for restaurants and other food-away-from-home categories, economists at Barclays (LON:BARC) noted, while the worsening war in Ukraine will now also disrupt supply chains.Russia and Ukraine export more than a quarter of the world’s wheat and Ukraine is a major corn exporter. Supply chain disruptions could add between 0.2 to 0.4 percentage point to headline inflation in developed economies in the next few months, according to Capital Economics, with higher costs for food-at-home categories persisting through the year.All of it could add up to the Fed’s nightmare scenario of inflation expectations becoming unanchored just as the central bank is being blown off course from the faster pace of rate hikes that were anticipated before the Russian invasion.”The tentative peaking of inflation expectations could be at risk, with this oil price shock possibly spilling over into higher inflation expectations in the coming months,” Deutsche Bank (DE:DBKGn) economists said. “Along with a broadening of price pressures and a tight labor market leading to accelerating wages, a renewed rise in inflation expectations could add to concerns that elevated inflation pressures are likely to prove to be far more persistent.” More