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Markets

World stocks clamber off 18-month lows, but markets on recession watch

 

  • S&P futures up 1.13%, European stocks gain 0.96%
  • MSCI Asia ex-Japan +1.8%, Nikkei +2.64%
  • Worries over inflation, tightening policy remain
  • Dollar hovers near 20-year highs on safe-haven demand

LONDON/SHANGHAI, May 13 (Reuters) – World stocks rose from the previous day’s 18-month lows and the dollar pulled back from 20-year highs on Friday, though investors remained nervous about high inflation and the impact of rising interest rates.

Markets are becoming anxious about the possibility of recession, with the S&P getting close to a bear market on Thursday, at nearly 20% off its January all-time high.

In an interview late on Thursday, US Federal Reserve Chair Jerome Powell said the battle to control inflation would “include some pain.” Powell repeated his expectation of half-percentage-point interest rate rises at each of the Fed’s next two policy meetings, while pleading that “we’re prepared to do more.” read more

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The war in Ukraine has aggravated supply chain disruptions and inflationary pressures already in place after more than two years of the COVID-19 pandemic, but stocks enjoyed a bounce on Friday.

“There’s an awful lot of negative sentiment out there, we’re looking at a 40% chance of recession,” said Patrick Spencer, vice chairman of equities at Baird Investment Bank.

“A lot of fund managers have cut their equity allocations and raised cash, though we think this is a correction rather than a bear market.”

MSCI’s world equity index (.MIWD00000PUS) rose 0.32% after hitting its lowest since November 2020 on Thursday, though it was heading for a 4% fall on the week, its sixth straight week of losses.

S&P futures bounced 1.13% after the S&P index dropped 0.13% overnight, with the index also eyeing a sixth straight week of declines.

S&P 500 set for a sixth straight week of falls

European stocks (.STOXX) rallied 0.96% and Britain’s FTSE 100 (.FTSE) gained 1.17%.

The US dollar eased 0.22% to 104.54 against a basket of currencies, but remained close to 20-year highs due to safe haven demand.

Russia has bristled over Finland’s plan to apply for NATO membership, with Sweden potentially following suit.

Moscow called Finland’s announcement hostile and threatened retaliation, including unspecified “military-technical” measures. read more

The dollar rose 0.36% to 128.76 yen , while the euro gained 0.3% to $1.0408, recovering from Thursday’s five-year lows.

Cryptocurrency bitcoin also turned higher, cracking through $30,000 after the collapse of TerraUSD, a so-called stablecoin, drove it to a 16-month low of around $25,400 on Thursday. read more

“Some traders may see the sharp fall this month as an opportunity to buy the dip, but given the hugely volatile nature of the coins, the crypto house of cards could tumble further,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown .

The moves higher in equities were mirrored in US Treasuries, with the benchmark US 10-year yield edging up to 2.9221% from a close of 2.817% on Thursday.

The policy-sensitive 2-year yield was at 2.6006%, up from a close of 2.522%.

“Within the shape of the US Treasury curve we are not seeing any particularly fresh recession/slowdown signal, just the same consistent marked slowing earmarked for H2 2023,” Alan Ruskin, macro strategist at Deutsche Bank, said in a note.

German 10-year government bond yields edged up to 0.9250%.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was up almost 2% from Thursday’s 22-month closing low, trimming its losses for the week to less than 3%.

Australian shares (.AXJO) gained 1.93%, while Japan’s Nikkei stock index (.N225) jumped 2.64%.

In China, the blue-chip CSI300 index (.CSI300) was up 0.75% and Hong Kong’s Hang Seng (.HSI) rose 2.71%, encouraged by comments from Shangahi’s deputy mayor that the city may be able to start easing some tough COVID restrictions this month. read more

“We had some pretty big moves yesterday, and when you see those big moves it’s only natural to get some retracement, especially since it’s Friday heading into the weekend. There’s not really a new narrative that’s come through,” said Matt Simpson, senior market analyst at City Index.

Oil prices were higher against the backdrop of a pending European Union ban on Russian oil, but were still set for their first weekly loss in three weeks, hit by concerns about inflation and China’s lockdowns slowing global growth.

US crude rose 0.75% to $106.97 a barrel, and global benchmark Brent crude was up 1.05% at $108.58 per barrel.

Spot gold , which had been driven to a three-month low by the soaring dollar, was up 0.2% at $1,824.61 per ounce.

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Reporting by Andrew Galbraith; Editing by Simon Cameron-Moore, Lincoln Feast and Kim Coghill

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Internet

US joins 55 nations to set new global rules for the internet

WASHINGTON, April 28 (Reuters) – The United States and 55 other nations on Thursday signed a political commitment to push rules for the internet that are underpinned by democratic values, at a time when the US has accused Russia of wielding internet disruptions as a part of its escalating attacks on Ukraine.

The commitment, called the “Declaration for the Future of the Internet” – the first such effort of its kind – protects human rights, promotes free flow of information, protects the privacy of users, and sets rules for a growing global digital economy among steps to counter what two Biden administration officials called a “dangerous new model” of internet policy from countries such as Russia and China.

The United States is witnessing a global trend of rising digital authoritarianism, with countries such as Russia having acted to repress freedom of expression, censor independent news sites, interfere with elections, promote disinformation, and deny their citizens other human rights, the officials said.

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“Look at what…Russia is doing, some of the steps China is taking, and I think we see this as a response to these kind of ‘splinternet’ tendencies by a number of authoritarian countries around the world,” one of the officials said, referring to a characterization of the internet as splintering and dividing due to various factors, such as politics.

Since its invasion of Ukraine, Russia has launched cyberattacks, including hacking into a satellite internet provider’s network at the beginning of the invasion. The administration officials said the new effort is not an attempt to address cyber warfare.

The declaration is a modified version of the White House’s efforts from last year to rally a coalition of democracies around a vision for an open and free web.

The countries joining the US include Australia, Argentina, Belgium, Canada, Denmark, Georgia, Germany, Greece, Israel, Italy, Japan, Netherlands, the United Kingdom and Ukraine.

The effort will be launched virtually at the White House on Thursday by Biden’s national security adviser, Jake Sullivan, at 7:30 am ET (1130 GMT).

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Reporting by Nandita Bose in Washington; Editing by Leslie Adler

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Technology

Google unveils new 10-shade skin tone scale to test AI for bias

A Google employee speaks at the company’s annual I/O developer conference at the Shoreline Amphitheater in Mountain View, California, US, May 11, 2022. Google/Jana Asenbrennerova/Handout via REUTERS

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OAKLAND, Calif., May 11 (Reuters) – Alphabet Inc’s (GOOGL.O) Google on Wednesday unveiled a palette of 10 skin tones that it described as a step forward in making gadgets and apps that better serve people of color.

The company said its new Monk Skin Tone Scale replaces a flawed standard of six colors known as the Fitzpatrick Skin Type, which had become popular in the tech industry to assess whether smartwatch heart-rate sensors, artificial intelligence systems including facial recognition and other offerings show color bias.

Tech researchers acknowledged that Fitzpatrick underrepresented people with darker skin. Reuters exclusively reported last year that Google was developing an alternative. read more

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The company partnered with Harvard University sociologist Ellis Monk, who studies colorism and had felt dehumanized by cameras that failed to detect his face and reflect his skin tone.

Monk said Fitzpatrick is great for classifying differences among lighter skin. But most people are darker, so he wanted a scale that “does better job for the majority of the world,” he said.

Monk through Photoshop and other digital art tools curated 10 tones – a manageable number for people who help train and assess AI systems. He and Google surveyed around 3,000 people across the United States and found that a significant number said a 10-point scale matched their skin as well as a 40-shade palette did.

Tulsee Doshi, head of product for Google’s responsible AI team, called the Monk scale “a good balance between being representative and being tractable.”

Google is already applying it. Beauty-related Google Images searches such as “bridal makeup looks” now allow filtering results based on Monk. Image searches such as “cute babies” now show photos with varying skin tones.

The Monk scale also is being deployed to ensure a range of people are satisfied with filter options in Google Photos and that the company’s face-matching software is not biased.

Still, Doshi said problems could be seen into products if companies do not have enough data on each of the tones, or if the people or tools used to classify others’ skin are biased by lighting differences or personal perceptions.

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Reporting by Paresh Dave; Editing by David Gregorio

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Categories
Business

Siemens to leave Russia due to Ukraine war, take hefty charge

  • Siemens to leave Russia after 170 years
  • Russia makes up around 1% of total revenues
  • Shares fall after earnings miss
  • CEO condemns the war in Ukraine

ZURICH, May 12 (Reuters) – Siemens (SIEGn.DE) will quit the Russian market due to the war in Ukraine, it said on Thursday, taking a 600 million euro ($630 million) hit to its business during the second quarter, with more costs to eat.

The German industrial and technology group became the latest multinational to announce losses linked to its decision to leave Russia following the Feb. 24 invasion, which Moscow calls a “special military operation”.

Several companies, from brewers Anheuser-Busch InBev (ABI.BR) and Carlsberg to sportswear maker Adidas (ADSGn.DE), carmaker Renault and several banks have been counting the cost of suspending operations in or withdrawing from Russia. read more

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Siemens Chief Executive Roland Busch described the conflict as a “turning point in history.”

“We, as a company, have clearly and strongly condemned this war,” Busch told reporters.

“We’re all moved by the war as human beings. And financial figures must take a back seat in the face of the tragedy. Nevertheless, like many other companies, we’re feeling the impact on our business.”

During the second quarter Siemens incurred 600 million euros in impairment and other charges mostly recorded in its train-making mobility business subsequent to sanctions on Russia, Siemens said.

Busch said further impacts were to be expected, mainly from non-cash charges related to the winding-down of legal entities, revaluation of financial assets and restructuring costs.

“From today’s perspective, we foresee further potential risks for net income in the low- to mid-triple-digit million range, although we can’t define an exact timeframe,” he added.

Siemens shares dropped 5% in early trading as the company missed analysts’ expectations for second-quarter profit.

The Munich company employs 3,000 people in Russia, where it has been active for 170 years. It first went to Russia in 1851 to deliver devices for the telegraph line between Moscow and St Petersburg.

The country now contributes about 1% of Siemens’ annual revenue, with most of the present day business concerned with maintenance and service work on high-speed trains.

Its sites in Moscow and St Petersburg are now being ramped down, Busch said.

The costs weighed on Siemens’ second quarter earnings, with net income halved to 1.21 billion euros ($1.27 billion), missing analysts’ forecasts of 1.73 billion.

The company posted industrial profit of 1.78 billion euros, down 13% from a year earlier and also missing forecasts.

But demand stayed robust, with orders 22% higher on a comparable basis and revenue 7% higher.

As a result it confirmed its full-year outlook, with comparable revenue growth of 6% to 8% for the full year, with a downturn in mobility expected to be compensated by faster growth in factory automation and digital buildings.

JP Morgan analyst Andreas Willi described the results as “mixed with strong orders, industry leading growth in automation and strong cash conversion.”

($1=0.9508 euros)

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Reporting by John Revill; Editing by Kim Coghill and Clarence Fernandez

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Markets

Explainer: China’s Xiaomi battles probes in key India market

A man walks past a logo of Xiaomi, a Chinese manufacturer of consumer electronics, outside a shop in Mumbai, India, May 11, 2022. REUTERS/Francis Mascarenhas

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NEW DELHI, May 12 (Reuters) – Chinese smartphone giant Xiaomi Corp (1810.HK) faces legal headaches in India as a federal financial crime-fighting agency and tax authorities investigate its business practices.

Xiaomi denies wrongdoing. But it recently hit the headlines with accusations that its executives faced intimidation from Indian enforcement officials, drawing public rebuttals from the agency and words of support from China.

Here are details of the tussles in one of Xiaomi’s key markets:

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WHAT’S THE ROYALTY CASE ABOUT?

India’s financial crime-fighting agency, the Enforcement Directorate, has been investigating Xiaomi since February. On April 30, the agency said the smartphone maker had illegally transferred funds abroad to three entities, including one from a Xiaomi group entity, “in the guise of royalty” payments.

It seized $725 million from the local bank accounts of Xiaomi, though an Indian court has put that decision on hold following a legal challenge by Xiaomi. read more

The Chinese company says its royalty payments were all legitimate and were for the “in-licensed technologies and IPs” used in its Indian products.

In its court filings, Xiaomi says that such payments were made to firms including US chip giant Qualcomm Inc (QCOM.O) and that relevant disclosures had been made to Indian authorities. read more

“PHYSICAL VIOLENCE” THREATS

Xiaomi’s Indian court filing revealed the company had alleged its top executives faced “physical violence” threats and coercion by the Enforcement Directorate.

The company alleged Indian agents multiple times questioned Xiaomi’s global vice president and former India head, Manu Kumar Jain, as well as current Chief Financial Officer Sameer BS Rao, and warned them of “dire consequences” if they did not submit statements as desired by the agency. read more

The Reuters report revealing those accusations sparked a response from the federal agency, which called Xiaomi’s allegations “untrue and baseless” and said executives had been deposed “voluntarily in the most conductive environment”.

China’s foreign ministry in Beijing also reacted, asking New Delhi to carry out investigations into compliance with laws and to ensure Chinese companies were not discriminated against. read more

OTHER TAX PROBES, CHINA SCRUTINE

Chinese companies have struggled to do business in India since 2020, when a border clash occurred between the two nations. India has cited security concerns in banning more than 300 Chinese apps since then, including popular ones, such as TikTok, and tightened norms for Chinese companies investing in India.

Xiaomi’s India offices and manufacturing units were raided in December in a separate ongoing investigation over alleged income tax evasion.

And in another case in January, India’s Revenue Intelligence wing asked Xiaomi to pay $84.5 million for allegedly evading some import taxes.

Xiaomi has expressed concerns in its latest court filing against the Enforcement Directorate, saying the agency’s action “creates an atmosphere of distrust and the image of the country suffers in international circles.”

INDIA KEY MARKET FOR XIAOMI

Xiaomi also sells other tech gadgets, including smart watches and televisions, and has a lot riding on the Indian market.

The company is best known, however, for its affordable smartphone price range that has helped it grow rapidly in India. In March, the company told analysts it retained “the #1 position in India for 17 consecutive quarters.”

Its market share has quadrupled from just 6% in 2016 to 24% last year, making it the Indian market leader, according to Counterpoint Research.

The company has 1,500 employees in India and provides a source of income for at least 52,000 workers employed by its third-party manufacturers, it said in its court filing.

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Reporting by Munsif Vengattil and Aditya Kalra in New Delhi; Editing by Kim Coghill

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Business

Stocks in a tailspin, dollar soars as hard landing fears grow

A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai, India, February 1, 2020. REUTERS/Francis Mascarenhas

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  • World stocks drop to 1-1/2 yr low, down almost 20% YTD
  • Europe opens down 2% US equity futures struggle
  • Dollar hits 2yr highs on AUD, NZD
  • Bitcoin tumbling, hits new 16-month low
  • Copper buckles to lowest since October

LONDON, May 12 (Reuters) – Shares sank to a 1-1/2 year low on Thursday and the dollar hit its highest in two decades, as fears grew that fast-rising inflation will drive a sharp rise in interest rates that brings the global economy to a standstill.

Those nerves and the still-escalating war in Ukraine took Europe’s main markets down more than 2% in early trade and left MSCI’s top index of world shares (.MIWD00000PUS) at its lowest since late 2020 and down nearly 20% for the year.

The global growth-sensitive Australian and New Zealand dollars fell about 0.8% to almost two-year lows. The Chinese yuan slid to a 19-month trough while the dollar powered to its highest level since late 2002.

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Nearly all the main volatility gauges were signaling danger. Bitcoin was caught in the fire-sale of risky crypto assets as it fell another 8% to $26,570, having been near $40,000 just a week ago and almost $70,000 just last November.

“We have had big moves,” UBS’s UK Chief Investment Officer Caroline Simmons, said referring as well to bond markets and economic expectations. “And when the market falls it does tend to fall quite fast.”

Data on Wednesday had shown US inflation running persistently hot. Headline consumer prices rose 8.3% in April year-on-year, fractionally slower than the 8.5% pace of March, but still above economists’ forecasts for 8.1%. read more

US markets had whipsawed after the news, closing sharply lower, and futures prices were pointing to another round of 0.2%-0.7% falls for the S&P 500, Nasdaq and Dow Jones Industrial later.

“We’re now very much embedded with at least two further (US) hikes of 50 basis points on the agenda,” said Damian Rooney, director of institutional sales at Argonaut in Perth.

“I think we were probably delusional six months ago with the rise of US equities on hopes and prayers and the madness of the meme stocks,” he added.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 2.3% to a 22-month low overnight. Japan’s Nikkei (.N225) fell 1.8%.

Treasuries were bid in both Europe and Asia, especially at the long end, flattening the yield curve as investors braced for near-term hikes to hurt long-run growth – an outcome that would most likely slow or even reverse rate hikes.

The benchmark 10-year Treasury yield had dropped in the US and fell a further 7 bps to 2.8569% on Thursday. The gap between the highly rate-rise sensitive two-year yields and 10-year ones narrowed 4.2 bps .

In Europe, Germany’s 10-year yield, the benchmark for the bloc, fell as much as 12 bps to 0.875%, its lowest in nearly two weeks.

“I think a lot of it is catch up from what happened yesterday, and also there’s still a lot of negative sentiment in the US Treasury curve,” said Lyn Graham-Taylor, senior rates strategist at Rabobank.

SELL IN MAY

The rates outlook is driving up the US dollar and taking the heaviest toll on riskier assets that shot up through two years of stimulus and low-rate lending.

The Nasdaq (.IXIC) is down nearly 8% in May so far and more than 25% this year. Hong Kong’s Hang Seng Tech index (.HSTECH) slid 1.5% on Thursday and is off more than 30% this year.

Cryptocurrency markets are also melting down, with the collapse of the so-called TerraUSD stablecoin highlighting the turmoil as well as the selling in bitcoin and next-biggest-crypto, ether. read more

A weakening growth picture outside the United States is battering investor confidence, too, as war in Ukraine threatens an energy crisis in Europe and lengthening COVID-19 lockdowns in China throw another spanner into supply chain chaos.

Nomura estimated this week that 41 Chinese cities are in full or partial lockdowns, making up 30% of the country’s GDP.

Heavyweight property developer Sunac (1918.HK) said it missed a bond interest payment and will miss more as China’s real estate sector remains in the grip of a credit crunch. read more

The yuan fell to a 19-month low of 6.7631 and has dropped almost 6% in under a month.

The Australian dollar fell 0.8% to a near two-year low of $0.6879. The kiwi slid by a similar margin to $0.6240, though the euro and yen held steady to keep the dollar index just shy of a two-decade peak.

Sterling was at a two-year low of just under $1.22 as well as economic data there caused worries and concerns grew that Britain’s Brexit deal with the EU was in danger of unraveling again due to the same old problem of Northern Ireland’s border. read more

In commodity trade, oil wound back a bit of Wednesday’s surge on growth worries.

Brent crude futures fell 2.3% to $104.93 a barrel, while highly growth-sensitive metals copper and tin slumped over 3.5% and 9% respectively. That marked copper’s lowest level since October.

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Additional reporting by Tom Westbrook in Singapore; Editing by Kim Coghill

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Categories
Business

EXCLUSIVE Google paying more than 300 EU publishers for news, more to come

BRUSSELS, May 11 (Reuters) – Alphabet (GOOGL.O) unit Google has signed deals to pay more than 300 publishers in Germany, France and four other EU countries for their news and will roll out a tool to make it easier for others to sign up too, the company told Reuters.

The move to be announced publicly later on Wednesday followed the adoption of landmark EU copyright rules three years ago that require Google and other online platforms to pay musicians, performers, authors, news publishers and journalists for using their work.

News publishers, among Google’s fiercest critics, have long urged governments to ensure online platforms pay fair remuneration for their content. Australia last year made such payments mandatory while Canada introduced similar legislation last month. read more

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“So far, we have agreements which cover more than 300 national, local and specialist news publications in Germany, Hungary, France, Austria, the Netherlands and Ireland, with many more discussions ongoing,” Sulina Connal, director for news and publishing partnerships, said in blogpost seen by Reuters and expected to be published later on Wednesday. The blog did not say how much publishers were being paid.

Two-thirds of this group are German publishers including Der Spiegel, Die Zeit and Frankfurter Allgemeine Zeitung.

“We are now announcing the launch of a new tool to make offers to thousands more news publishers, starting in Germany and Hungary, and rolling out to other EU countries over the coming months,” Connal said in the blogpost.

The tool offers publishers an extended news preview agreement that allows Google to show snippets and thumbnails for a licensing fee.

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Reporting by Foo Yun Chee; Editing by Lisa Shumaker

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Economy

Why are food prices going up? Key questions answered

Elena Rodriguez cuts vegetables in the soup kitchen where she works in Pamplona Alta, a low-income neighborhood on the outskirts of the Peruvian capital where soaring food prices are placing animal proteins out of reach for the most vulnerable residents, in Lima, Peru April 11 , 2022. REUTERS/Daniel Becerril

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CHICAGO, May 10 (Reuters) – Why are food prices rising?

Global food prices started to rise in mid-2020 when businesses shut down due to the COVID-19 pandemic, straining supply chains. Farmers dumped out milk and let fruits and vegetables rot due to a lack of available truckers to transport goods to supermarkets, where prices spiked as consumers stockpiled food. A shortage of migrant labor as lockdowns restricted movement impacted crops worldwide.

Since then, there have been problems with key crops in many parts of the world. Brazil, the world’s top soybean exporter, suffered from severe drought in 2021. China’s wheat crop has been among the worst ever this year. Concerns about food security, heightened during the pandemic, have led some countries to hoard staples to ward off future shortages, limiting supplies on the global market.

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Russia’s invasion of Ukraine in late February dramatically worsened the outlook for food prices. The UN food agency said prices hit an all-time record in February and again in March. Russia and Ukraine account for nearly a third of global wheat and barley, and two-thirds of the world’s export of sunflower oil used for cooking. Ukraine is the world’s No. 4 corn exporter. The conflict has damaged Ukraine’s ports and agricultural infrastructure and that is likely to limit the country’s agricultural production for years.

Some buyers are avoiding buying grains from Russia due to Western sanctions.

Indonesia banned most exports of palm oil in late April to ensure domestic supplies of cooking oil, cutting off supplies from the world’s largest producer of the edible oil used in everything from cakes to margarine. read more

What food prices are rising the most?

Throughout the pandemic, high vegetable oil prices have helped drive up broader food costs. Cereal prices also hit a record in March, a result of limited shipments of corn and wheat during the Ukraine war. read more

Dairy and meat prices reached a record in April, according to the UN food agency, reflecting continually increasing global demand for protein and high prices for animal feed – mainly corn and soybeans. In addition, bird flu in Europe and North America impacted egg and poultry prices. read more

In US inflation data for March, the index for meats, poultry, fish and eggs increased 14% from a year ago while beef rose 16%.

When will food prices come down?

It is hard to say, given that agricultural production depends on hard-to-predict factors like weather. UN Secretary-General Antonio Guterres said in early May the problem of global food security could not be solved without restoring Ukrainian agricultural production and Russian food and fertilizer output to the world market. read more

The World Bank forecasts wheat prices could rise more than 40% in 2022. The Bank expects agricultural prices to fall in 2023 versus 2022. But that depends on increased crop supplies from Argentina, Brazil and the United States – by no means guaranteed.

The sharp rise in fertilizer prices, as avoid buying from major producers Russia and its ally Belarus, could discourage countries farmers from applying adequate crop nutrients to their fields. That could bring down yields and result in lower production, prolonging the crisis. As the climate warms, extreme weather is becoming more common – posing another risk to crop production. read more

Who is most affected?

Food prices in March accounted for the greatest share of US inflation since 1981, according to Fitch Ratings, while shop prices in Britain emerged in April at the fastest rate in more than a decade. But the people most impacted by higher food prices live in the developing world, where a larger percentage of incomes is spent on food.

The Global Network Against Food Crises, set up by the United Nations and the European Union, said in an annual report that Russia’s invasion of Ukraine poses serious risks to global food security, especially in countries facing a food crisis including Afghanistan, Ethiopia, Haiti, Somalia, South Sudan, Syria and Yemen. read more

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Reporting by Caroline Stauffer in Chicago Editing by Matthew Lewis

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Economy

Four Russian governors resign as sanctions bite

A general view shows the city center and Stalin-era skyscrapers in Moscow, Russia May 18, 2020. REUTERS/Maxim Shemetov

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May 10 (Reuters) – Four Russian regional governors resigned on Tuesday as the country braces for the impact of economic sanctions.

The heads of the Tomsk, Saratov, Kirov and Mari El regions announced their immediate departures from office, while the head of Ryazan region said he would not run for another term.

Elections are scheduled to take place in all five regions in September.

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Though Russian regional governors are elected, they are politically subordinate to the Kremlin. Several of the outgoing governors represent regions where the ruling bloc United Russia took weak vote shares in parliamentary elections last year.

Unpopular governors are regularly removed from office, often submitting their resignations in clusters in the spring months.

Ilya Grashchenkov, head of the Center for the Development of Regional Politics think tank in Moscow, said the Kremlin was removing weak governors amid a worsening economic outlook for the country, driven by Western sanctions.

Grashchenkov said: “There’s a need to restructure the economy, especially in those regions where Western economic influence had been significant. These governors need to be replaced by younger alternatives.”

The Russian economy is set to contract by 8.8% in 2022, the economy ministry has said. read more

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Reporting by Reuters; Editing by Alison Williams

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Markets

Analysis: Pain not over for US bond market but some see yields nearing their peaks

An eagle tops the Federal Reserve building’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst

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NEW YORK, May 10 (Reuters) – Interest rate jitters keep hammering the US bond market but some investors are starting to think a possible slowdown in price pressure as well as support from yield-seeking buyers could soon put a ceiling – or at least a pause – on rising yields.

US Treasuries have had their worst start to the year in history and the selloff in parts of the curve continued last week after the US Federal Reserve hiked its benchmark overnight interest rate by 50 basis points and announced it would begin to trim its balance sheet next month to counter unabated inflation.

Yet for some investors most of the inflation-driven weakness in bond markets has been priced in and, while there is still room for upside, yields could start subsidizing soon, as financial conditions tighten on the back of the Fed’s actions.

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“We’re probably getting closer to the peak in terms of yields,” said John Madziyire, a senior portfolio manager and head of US Treasuries and Inflation within Vanguard’s Fixed Income Group.

“Yields can still go higher as a function of the fact that volatility is so high, but we’re probably getting close to a point where we’re pricing in the highs in yields and buyers will start being more attracted to buying at these levels ,” he said.

Yields of 10-year US government bonds – a benchmark for mortgage rates and other financial instruments – hit a fresh high of 3.2% on Monday, a level last seen in November 2018. If it breaks above 3.26% it will pierce those 2018 highs and be at 2011 levels.

Brian Reynolds, chief markets strategist at Reynolds Strategy, pointed to 2018 and 2011 as “two highly emotional events in bond market history,” with 2018 marking investors being “frightened that the Fed was going to tighten to infinity” while 2011 was the year when the United States lost its triple-A rating.

Yields had already blasted past expectations. A March 29-April 5 Reuters poll showed that fixed income experts projected the 10-year bond will rise to 2.60% in a year. read more

After hitting 3.2% on Monday, however, yields have fallen back to around 3% in a flight to safety, as stocks plummeted due to concerns about rising interest rates and an economic slowdown in China after a recent rise in coronavirus cases.

“The momentum in the upwards push in interest rates seems to be slowing a bit,” said Mike Vogelzang, chief investment officer at CAPTRUST, also pointing to relatively stable yields on two-year US government bonds, with prices having seemingly reflected the Fed’s planned rate hikes this year.

Two-year yields, which are particularly sensitive to changes in monetary policy, have inched lower since the Fed hiked rates last week, and the yield curve between two-year notes and 10-year bonds has been steepening sharply, from 18.9 basis points before the Fed’s hike to 44 basis points on Monday.

That part of the curve inverted in late March and then in April, sending a warning sign for investors that a recession could follow. read more

“The curve was pretty flat a month ago and it’s now steepened out … generally a steeper curve is healthy,” said Eric Stein, co-head of Global Fixed Income and chief investment officer at Morgan Stanley Investment Management.

“We’re starting to get to the conditions in place for yields to stop continuing to go up,” Stein said, pointing to a tightening of financial conditions and lower inflation expectations as measured by Treasury Inflation-Protected Securities. read more

Breakeven inflation rates, indicating the market’s expectations for future inflation, have plummeted. The 10-year breakeven inflation rate – an indicator of future inflation – declined to 2.79% on Monday, further retreating from a 3.14% hit last month, the highest since at least September 2004.

Fed Chair Jerome Powell said last week policymakers were ready to approve half-percentage-point rate hikes at upcoming policy meetings in June and July.

For Jimmy Lee, chief executive officer of The Wealth Consulting Group, a wealth management firm, demand for 10-year notes will likely increase should they hit a 3.5% yield over the next two months.

“The pain is probably not over yet, but I’m sensing that we’re getting close,” he said.

“Between now and after those two hikes, I think there’s going to be some potential buying. I think fund managers are seeing value that they haven’t seen in a long time.”

For CAPTRUST’s Vogelzang, however, there is no sign in the market that an upper limit in yields is about to be reached, and the Fed’s balance sheet runoff, expected to start next month, could add further pressure.

“There’s too many outcomes that can take place that could really leave you in a bad spot,” he said.

(This story corrects the last sentence to say “many” instead of “may.”)

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Reporting by Davide Barbuscia in New York Editing by Megan Davies and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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