Economy

Investing.com – A goldilocks jobs report will be needed to fight off stagflation fears, and keep the Federal Reserve on a cautious rate hike path at a time when the Russia-Ukraine conflict has pushed inflation expectations to record levels.The Labor Department will release its jobs report for February on Friday, with economists estimating that about 400,000 jobs were created last month, with the unemployment rate expected to creep below 4%.The monthly jobs report will arrive at a crucial time. Bets on aggressive Fed rate hikes are on the decline. But the prospect of red-hot inflation running even hotter – in the wake of the Russia-Ukraine conflict that has boosted the price of oil, wheat and precious metals – just as economic growth is expected to slow has many on the lookout for stagflation.The five-year breakeven rate on Treasury inflation protected securities – a closely watched gauge of inflation expectations — jumped to 3.23%, a record high.The jobs report will need to strike the right balance between optimism and pessimism to avoid tipping the scale.“This jobs number tomorrow will have to be a pitch perfect,” John Luke Tyner, portfolio manager at Aptus Capital Advisors, said in an interview with Investing.com on Thursday. “If it’s too hot — 600,000 to 700,000 jobs created, and the unemployment rate falling to 3.7% –  then the market is going to take Powell’s words that a 50 bps is on the table at later meetings and then maybe even price in 100 bps by July.”Federal Reserve Chairman Jerome Powell said earlier this week that he would back a 25-basis points rate hike at the March meeting, but said that increased rate hikes were on the table at subsequent meetings if inflation doesn’t subside as expected.“I could see us in a position where the market then starts to revert back to the pricing of those six or seven hikes this year that were taken away by the Russia-Ukraine conflict,” Tyner added.The market-implied expectations for Fed rate hikes for 2022 dropped 112 basis points, down from as much as 162 basis points last month, Bloomberg reported.Weak jobs data that meaningfully undershoot expectations will flag economic growth concerns and add “to the stagflation fears that I think spooks the market,” the portfolio manager said. More

Russia’s invasion of Ukraine threatens to pile further pressure on chip manufacturing as a squeeze on the supply of rare gases critical to the production process adds to pandemic-related disruptions.Ukraine supplies about 50 per cent of the world’s neon gas, analysts have said, a byproduct of Russia’s steel industry that is purified in the former Soviet republic and is indispensable in chip production.Manufacturers have already been reeling from shortages of components, late deliveries and rising material costs, with companies that rely on chips, such as carmakers, facing production delays as a result. Many companies, including US manufacturers Applied Materials and Intel, have said constraints would persist into 2023. Demand for raw materials is also expected to rise by more than a third in the next four years, as businesses such as the world’s biggest contract chipmaker Taiwan Semiconductor Manufacturing Company increase production, said consultancy Techcet. “We are in great trouble. We have no rare gases to sell,” said Tsuneo Date, who runs Daito Medical Gas, a pressurised gas dealer north of Tokyo.When Russia invaded Crimea in 2014, neon prices shot up by at least 600 per cent. Companies have said they can tap into reserves but the rush to find suppliers that are not in eastern Europe is causing shortages and price hikes, not only of neon but also other industrial gases such as xenon and krypton. Forty per cent of the global supply of krypton comes from Ukraine. The price of the gas, which is used in semiconductor production, rose from ¥200-¥300 ($1.73-$2.59) per litre to nearly ¥1,000 ($8.64) per litre by the end of January, according to Date.He added that prices had been rising before the war because of supply chain disruptions but said “the Russian invasion of Ukraine is making the situation worse” and that he had recently been forced to turn down orders from new customers. Companies along the supply chain developed new technologies, diversified sources of neon gas and beefed up reserves after the Crimea crisis, which provided some breathing room. In 2016, the multinational industrial gas supplier Linde invested $250mn in a neon production facility in Texas as customers sought to diversify supplies.Yoshiki Koizumi, president of trade publication Gas Review, said “the supply of neon, xenon and krypton is definitely getting tighter because chipmakers and trading houses are making more orders in expectation that in the future they won’t be able to get as much as they want”.Ke Kuang-han, a semiconductor analyst at consultancy Techcet, said the reaction has been “immediate”, adding: “I’ve heard spot prices have jumped several-fold.”Pricing for neon is agreed through individual long-term contracts with processors and chipmakers and some gas is also traded on the spot market. Several chipmakers and large gas companies in Japan declined to comment on current spot prices. The mitigating efforts had given companies some capacity to manage the disruption in the short term and they hope the conflict would not be prolonged, he added.Deutsche Bank said in a research note that inventory levels in the industry typically last around three to four weeks.Kim Young-woo, a tech analyst at SK Securities in Seoul, said that while South Korean companies such as Samsung and SK Hynix could find replacements for some gases, “supply shortages could be serious for krypton and neon”.Gas mixtures that include neon are used to power lasers for etching patterns into semiconductors. Shifting away from Ukraine is difficult because it has to be refined to a 99.99 per cent purity, a complex process that only a few companies around the world can do — including some based in the Ukrainian port of Odesa.

Underscoring the challenges, the White House has warned semiconductor makers to diversify their supply chains after Russia’s invasion. ASML, a Dutch company that makes machines used to manufacture chips, said it was looking for sources of neon outside of Ukraine. Japanese chipmakers Renesas and Rohm said they either found supplies from other markets, such as China, or had stockpiled inventories of neon.Samsung and SK Hynix, the world’s two largest memory chipmakers, “have plants in China so they will have little trouble getting the gases for chip production there”, Kim said. The companies said the war’s impact on their chip sales would be minimal in the short term.But in a note published shortly before the invasion, analysts at TrendForce warned that even if alternative sources are secured “product certification will take several months or even more than half a year”, causing “scarcity”.They warned that “the automotive industry, which requires large quantities of power management chips and power semiconductors, will face a new wave of material shortages”.Akira Minamikawa of market research firm Omdia said that all products using chips would be affected because only the most cutting-edge semiconductors did not require neon in their production. “It’s not like neon is used in chips for cars but not for smartphones.”

Video: Russia’s invasion of Ukraine: what next? | FT Live

Reporting by Antoni Slodkowski and Eri Sugiura in Tokyo, Song Jung-a and Edward White in Seoul and Eleanor Olcott in London More

BENGALURU/JOHANNESBURG (Reuters) – Currencies are in for a bumpy ride with already heightened volatility expected to increase over the next three months in the wake of Russia’s invasion of Ukraine, according to a Reuters poll of analysts who forecast more pain for the battered rouble.Volatility spiked on Wednesday to levels not seen since the start of the COVID-19 pandemic, according to Deutsche Bank (DE:DBKGn). That trend is expected to continue in the near term, with over 90% of respondents to an additional question in the Feb. 28-March 3 poll of currency strategists expecting volatility to either increase or increase significantly in the coming three months.”It will be a higher volatility period just because the issues under discussion haven’t been under discussion in a generation and in some places in a lifetime,” said Steve Englander, head of G10 FX strategy at Standard Chartered (OTC:SCBFF). Since Russia invaded Ukraine on Feb. 24, money has been siphoned away from riskier assets into safer havens, including the dollar, the Japanese yen and the Swiss franc, as well as currencies linked to commodity markets.While the yen and franc were expected to be in demand in the short term they were forecast to weaken marginally against the greenback over the 12-month horizon as neither currency carries an interest rate edge.The U.S. Federal Reserve is set to begin raising rates at its meeting this month from near-zero, delivering at least 125 basis points of tightening by year-end, according to a separate Reuters poll. [ECILT/US]”The traditional safe havens…are doing OK but not brilliant when under tensions, and underperforming badly when tensions ease because, in a way, they have nothing to offer. They don’t have any rates,” said Englander.INVASION’S WIDER FX IMPLICATIONS UNCLEARMedian forecasts of over 60 respondents showed little change in analysts’ expectations compared with the February poll, suggesting many forecasters have not yet worked out the wider FX market implications of armed conflict in Europe. “We have a very, very wide range of geopolitical outcomes here, which the market is not pricing for correctly,” said Michael Every, global strategist at Rabobank.”The risks in play here in the background transcend anything to do with where the euro/dollar is trading.”So far, analysts expect the euro, which hit a 21-month low on Wednesday, to recoup its 2.5% losses for the year and gain more than 1.0% over the next 12 months.The yen and the franc are also forecast to trade slightly lower in a year, and commodity currencies to outshine them.The Aussie dollar and Kiwi dollar are expected to gain over 2.3% and 6.0%, respectively, and the Canadian dollar over 2.5%.The Russian rouble hit a record low on Thursday, shedding over a third of its value this year, as stinging Western sanctions pummeled Russia’s financial system.Asked how low the rouble would fall to this month, 11 strategists returned a median of 125/$. Forecasts ranged from 120-150/$.Russia’s neighbour Turkey, where President Tayyip Erdogan has been urging the central bank to cut interest rates to fight inflation now running at 54%, has been battered by a currency crisis that saw the lira lose nearly half its value last year.The lira was forecast to plunge another 20% in the next 12 months.(For other stories from the March Reuters foreign exchange poll:) More

Friday’s February employment report is expected to show the economy added 440,000 jobs and unemployment fell to 3.9%, according to Dow Jones.
Wage growth is expected to be a strong 5.8% year-over-year, a number carefully watched because inflation has been running hotter than expected.
The jobs data is the final major labor report ahead of the Federal Reserve’s March 15-16 meeting, where it is expected to raise interest rates.

A worker drills plywood on a single family home under construction in Lehi, Utah, on Friday, Jan. 7, 2022.
George Frey | Bloomberg | Getty Images

The economy was likely to have added jobs at a healthy pace in February and wages gains were strong.
The February employment report, released at 8:30 a.m. Friday, is the final monthly employment data the Federal Reserve will consider before it meets March 15 and 16. The central bank is widely expected to raise interest rates at that meeting in its first hike since 2018.

Economists expect 440,000 jobs were created in February, according to Dow Jones. That compares to 467,000 in January. Wages were expected to rise by 0.5% or 5.8% year-over-year, and the unemployment rate is expected to fall to 3.9%, off 0.1 percentage points, according to Dow Jones.
“The labor market is tightening pretty fast, and there’s no end in sight to strong wage growth,” said Ethan Harris, head of global economics at Bank of America. “It’s still going to be a very tight labor market…and our guess is wage inflation stays close to 6% throughout the year.” Wage growth was 5.68% year-over-year in January.
The Fed’s dual mandate is full employment and price stabilization. The central bank is hitting its goal on employment, but it is expected to battle rising inflation with a series of interest rate hikes. The first of those hikes is expected to be a quarter point increase in March and then as many as six more over the course of this year.
“For the Fed, this just keeps them on track,” said Harris.
Economists are keeping a close eye on wages, as inflation is running hot and is expected to go even higher with the recent jump in oil prices after Russia’s Ukraine invasion. The consumer price index jumped 7.5% on a year-over-year basis in January and is expected to be even higher in February when it is released next week.

There is a concern that if wage gains are too strong that they begin to feed a wage and price spiral.
But rising wages are a driver of economic growth since they can support the consumer. Michael Gapen, chief U.S. economist at Barclays, said he had expected to see households pulling funds from savings this quarter to support consumption, but rising wages could reduce the hit to savings.
“It’s going to come from labor market income rather than just drawdown,” he said. “You want the labor market to kick off solid income growth.”
Economists said job growth was likely to come from a broad range of industries. There were expected to be gains in leisure and hospitality.

“The supply chain issues are still an issue impeding manufacturing but less so particularly in the vehicle sector. They do seem to be getting their production schedules back up,” said Mark Zandi, chief economist at Moody’s Analytics. “Construction seems more problematic. There’s a record number of homes in the pipeline. They just can’t seem to get anything across the finish line.” He said the industry has been impacted by parts shortages and labor shortages.
Tom Simons, money market economist at Jefferies, said the labor market continues to be plagued by a shortage of supply.
“One thing that’s a limiting factor is supply of labor. We should still see that reflected in strong wage numbers. It’s going to be reflected in another dip in unemployment,” said Simons.
Simons said he also is watching wage gains. “It is a big deal in terms of just trying to conceptualize how well the consumer can keep up with inflation,” said Simons. “The labor market is so tight, and there’s still pent up demand for various things. It seems reasonable that wages will continue to climb as employers compete to secure workers.”

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Jerome H. Powell, the Federal Reserve chair, told senators on Thursday that policymakers were prepared to rein in inflation as they tried to fulfill their price stability goal — even if that came at an economic cost.“We’re going to use our tools, and we’re going to get this done,” Mr. Powell told the Senate Banking Committee.Mr. Powell has signaled that the Fed is poised to raise interest rates by a quarter percentage point at its meeting that ends March 16, and follow up with additional rate increases over the next several months. Fed officials are also planning to come up with a strategy for shrinking their vast holdings of government-backed debt, which will increase longer-term interest rates.The suite of policy changes will be an effort to weigh on demand, tamping down price increases that are running at their fastest pace in 40 years. The Fed aims for 2 percent price gains on average over time, but inflation came in at 6.1 percent in the year through January.Asked if the Fed was prepared to do whatever it took to control inflation — even if that meant temporarily harming the economy, as Paul Volcker did while Fed chair in the early 1980s — Mr. Powell said it was.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“I knew Paul Volcker,” he said during his testimony. “I think he was one of the great public servants of the era — the greatest economic public servant of the era. I hope that history will record that the answer to your question is yes.”Mr. Volcker’s campaign against double-digit price increases pushed unemployment above 10 percent in the early 1980s, hurting the economy so severely that wages and prices began to slow down.But central bankers are hoping they can engineer a smoother economic cool-down this time.They are reacting much faster to high inflation than officials did in the 1960s and 1970s, and data suggests that consumers and businesses, while cognizant of inflation, have not yet come to expect rapid increases year after year. By cooling off demand a little, the Fed’s policies may work together with easing supply chain problems to bring inflation down without tossing people out of jobs.“Mortgage rates will go up, the rates for car loans — all of those rates that affect consumers’ buying decisions,” Mr. Powell said of the way higher rates would work. “Housing prices won’t go up as much, and equity prices won’t go up as much, so people will spend less.”The goal is to allow factories and businesses to catch up so shoppers are no longer competing for a limited stock of goods and services, creating shortages that enable companies to raise prices without scaring voracious buyers away.Inflation F.A.Q.Card 1 of 6What is inflation? More

Argentina has secured a $45bn deal with the IMF to restructure debt from its record 2018 bailout, just weeks before a deadline for repayments it would struggle to make from fast-dwindling reserves. The IMF said in a statement on Thursday that the new 30-month extended fund facility programme outlined in the agreement would “address the country’s most-pressing economic challenges” and improve public finances.Argentina’s congress and the IMF board must approve the details of the arrangement. Those details were not immediately available, although the fund said it “seeks to durably address persistent high inflation through a multipronged strategy involving a reduction of monetary financing of the fiscal deficit, and a new framework for monetary policy implementation to deliver positive real interest rates”.Both sides have been anxious for a deal to restructure approximately $45bn in debt owed to the international lender from a record $57bn that Argentina originally agreed to borrow from the fund in 2018 under the previous centre-right government of Mauricio Macri. Martín Guzmán, Argentina’s finance minister and chief IMF negotiator, said the deal would be sent to the lower house of Congress as early as next week. If approved, payments to the fund would begin in 2026 and end with full repayment by 2034. Securing a simple majority in congress for the deal will be a major challenge for President Alberto Fernández, whose ruling leftwing Peronist coalition lost key seats during midterm elections last year. The agreement with the IMF, the outline of which was first presented in January, has exposed deep rifts within the governing coalition, a combination of moderates aligned with the president and a radical wing led by Cristina Fernández de Kirchner, the country’s influential vice-president and former leader.

While the IMF does not require any congressional approval to finalise the deal, Argentine law requires it.Argentina was due to repay the IMF $19bn this year under the terms of the original deal, including a $2.8bn instalment due on March 22, which analysts say it could not afford to make without a fresh deal.Net central bank reserves have fallen into negative territory by some calculations after the government paid more than $1bn in principal and interest to the fund in February. Inflation is running above 50 per cent a year. Presidential spokeswoman Gabriela Cerruti said the main point of disagreement with IMF officials in Washington had been over how fast to raise energy prices, which are heavily subsidised in Argentina, accounting for roughly $11bn last year. For some consumers, electricity and gas prices will rise 150 per cent under the terms of the new deal, she said, which will be unpopular among opposition lawmakers who must approve the deal. “The tariff issue was one of the most discussed and intensely negotiated,” Cerruti told a press conference in Buenos Aires on Thursday.Fernando Iglesias, an opposition lawmaker, described the agreement as “a time bomb”. Economists have expressed scepticism about whether a divided and unpopular government facing elections next year will be able to deliver on its commitments and pass regular fund reviews. More

Even countries with limited trade relationships are intertwined in capital markets in today’s world. Could the Russia sanctions change that?The United States, Europe and their allies are not launching missiles or sending troops to push back against Russia’s invasion of Ukraine, so they have weaponized the most powerful nonmilitary tool they have available: the global financial system.Over the past few days, they have frozen hundreds of billions of dollars of Russian assets that are held by their own financial institutions; removed Russian banks from SWIFT, the messaging system that enables international payments; and made many types of foreign investment in the country exceedingly difficult, if not impossible.The impact of this brand of supercharged economic warfare was immediate. By Thursday, the value of the Russian ruble had reached a record low, despite efforts by the Bank of Russia to prop up its value. Trading on the Moscow stock market was suspended for a fourth day, and financial behemoths stumbled. Sberbank, Russia’s largest lender, was forced to close its European subsidiaries after running out of cash. At one point, its shares on the London Stock Exchange dropped to a single penny.There’s more to come. Inflation, which is already high in Russia, is likely to accelerate along with shortages, especially of imported goods like cars, cellphones, laptops and packaged medicines. Companies around the world are pulling investments and operations out of Russia.The sanctions “are severe enough to dismantle Russia’s economy and financial system, something we have never seen in history,” Carl B. Weinberg, chief economist at High Frequency Economics, wrote this week.Russia had been working to “sanction proof” itself in recent years by further paring down its financial ties to the West, including reducing its dependence on the U.S. dollar and other common reserve currencies. It built a fat reservoir of foreign exchange reserves as a bulwark against hard times, trying to protect the value of its currency. It also shifted its holdings sharply away from French, American and German assets and toward Chinese and Japanese ones, as well as toward gold. Its banks, too, tried to “reduce the exposure to risks related to a loss of U.S. dollar access,” the Institute of International Finance said in a February report.But the disaster now rippling through the nation’s banks, markets and streets is evidence that autonomy is a myth in a modern globalized world.The United Nations recognizes roughly 180 currencies, but “the reality is most global payments are still intermediated through a Western currency-dominated financial system,” said Eswar Prasad, a professor of international trade policy at Cornell University.Most of global commerce is carried out in dollars and euros, making it hard for Russia to avoid the currencies. And as much as half of the $643 billion in foreign exchange reserves owned by the Russian central bank is under the digital thumb of central and commercial banks in the United States, Europe and their allies.“They control the wealth of the world,” even the parts that they don’t own, said Michael S. Bernstam, a research fellow at the Hoover Institution at Stanford University.While there has been speculation that Russia could mute the fallout of the sanctions by using its gold reserves, turning to Chinese yuan or transacting in cryptocurrency, so far those alternatives seem unlikely to be enough to forestall financial pain.“When the world’s biggest economies and deepest and most liquid financial markets band together and put this level of restrictions on the largest Russian banks, including the Russian central bank, it is very difficult to find a way to significantly offset large parts of that,” Janet L. Yellen, the Treasury secretary, told reporters on Wednesday. “I believe these will continue to bite.”The sanctions may come with a longer-term cost. The West’s overwhelming control could, in the long run, encourage other nations to create alternative financial systems, perhaps by setting up their own banking networks or even backing away from reliance on the dollar to conduct international transactions.A market in Moscow this week. Inflation, already high, is likely to accelerate from shortages created by sanctions.Sergey Ponomarev for The New York Times“I would liken them to very powerful antibiotics,” said Benn Steil, a senior fellow at the Council on Foreign Relations. “If they’re overprescribed, eventually the bacteria become resistant.”Other countries, like Iran, North Korea and Venezuela, have experienced these sorts of financial penalties before, losing their access to SWIFT or to some of their foreign exchange reserves. But the array of restrictions has never been slapped on a country as large as Russia.During congressional testimony this week, Jerome H. Powell, the Federal Reserve chair, was asked how easily he thought China and Russia could create an alternative service that could undermine the effectiveness of SWIFT sanctions in the future.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

PARIS (Reuters) – All the main candidates are now on the starting line for France’s April presidential election, after Emmanuel Macron confirmed on Thursday that he was running for a second term.* WHO WILL WIN?Macron is the favourite in opinion polls. But the projected margin is narrower than when he was elected in 2017 and he is facing stiff competition from the right.Even if he succeeds, Macron will need his centrist La Republique en Marche (LaRem) party – which has failed in all recent local elections – and its allies to win a parliamentary election in June if he is to have a strong platform to implement his policies. * WHAT TO WATCH FOR: – The race between Valerie Pecresse of the conservative Les Republicains and the far-right’s Marine Le Pen and Eric Zemmour to be Macron’s challenger in the likely second-round run-off.- Will Macron trip up and lose his lead? In 2017, the early favourites lost the election to then-outsider Macron.- Voter uncertainty. Opinion polls show many are unsure who they will vote for, and turnout could be lower than usual, adding more uncertainty.* WHAT WILL THE ELECTION BE FOUGHT OVER?- The election campaign starts amid a war in Ukraine. Polls show that could impact the vote’s outcome, with initial surveys indicating a boost for Macron.- Immigration and security issues had long been at the forefront of the political debate, but opinion polls show purchasing power as one of voters’ top concerns. – Economic recovery, and whether it holds. Opinion polls show voters are unhappy with Macron’s economic policy, but unemployment is at its lowest in years and those surveyed don’t think any of his opponents would do better. * WHY DOES IT MATTER?- Russia’s invasion of Ukraine has sent shockwaves through Europe and beyond. The winner of France’s election will have to deal with the fallout.- Now that Britain has left the European Union, France is the bloc’s main military power. It’s also the undisputed second biggest economy in the EU, and Angela Merkel’s exit as German chancellor has given Macron a more prominent role in Europe.- The next president will face soaring public deficits to tackle the impact of the pandemic, a pension system many say needs reforming, and moves to re-industrialise France.* KEY DATES April 10 – Presidential election first roundApril 24 – Second round held between the top two candidates if none wins a simple majority of votes cast in the first round.May 13 – The latest day the new president takes office. June 12 and 19 – Parliamentary election. More