U.S. Congress votes to revoke Russia’s trade status, ban oil and gas imports following atrocities in Bucha
Ukraine’s Foreign Minister Dmytro Kuleba met with G-7 and NATO leaders in Brussels, one day after the U.S. announced new penalties on Russia that included a ban on all new investment in the country and sanctions on President Vladimir Putin’s daughters.
“I came here today to discuss three most important things: weapons, weapons, and weapons,” Kuleba said in a tweet.
Reports of rape and torture against civilians by Vladimir Putin’s forces drew strong condemnation from G-7 members, who voted to remove Russia from the U.N. Human Rights Council.
The atrocities also galvanized action in the U.S. where the Congress voted to strip Russia of its most favored nation trading status and to ban its oil and gas imports. U.S. President Joe Biden is expected to quickly sign both into law.
Ukraine’s Foreign Minister Dmytro Kuleba (L) and NATO Secretary General Jens Stoltenberg give a press conference before a meeting of NATO foreign ministers at NATO headquarters, in Brussels, on April 7, 2022.Dursun Aydemir | Anadolu Agency | Getty Images15 MIN AGO
Congress votes to ban oil and gas imports from Russia
The House approved the bill in a 413-9 vote. The Senate passed it unanimously earlier in the day. It will head to Biden’s desk for his signature.
The legislation codifies an executive order Biden issued last month to bar energy imports from Russia. The bill would make it more difficult for a future president to reverse Biden’s action.
Secretary of State Antony Blinken downplayed concerns that the U.S. was withholding weapons explicitly requested by Ukraine.
“They’re coming forward with new systems that they think would be helpful and effective,” Blinken told reporters at NATO headquarters following a two-day ministerial meeting.
“We put our own expertise to bear, especially the Pentagon to help determine what indeed we think could be effective. What Ukrainians will be ready to use as soon as they get it, and what we actually have access to and can get to them in real-time,” he said, adding that the U.S. is working expeditiously to get appropriate weapons to Ukraine quickly.
Blinken’s comments echo those of U.S. Secretary of Defense Lloyd Austin and Chairman of the Joint Chiefs of Staff U.S. Army Gen. Mark Milley. Austin and Milley told lawmakers this week that some weapons systems on Ukraine’s wish list require months of training in order to operate.
Earlier in the day, Ukrainian Foreign Minister Dmytro Kuleba told reporters that he urged allies to catalyze the delivery of their arms commitments.
“Either you help us now, and I’m speaking about days not weeks, or your help will come too late,” Kuleba said.
Canada to Ban Foreigners From Buying Homes as Prices Soar
Canada will ban most foreigners from buying homes for two years and provide billions of dollars to spur construction activity in an attempt to cool off a surging real-estate market.
The measures will be contained in Finance Minister Chrystia Freeland’s budget on Thursday, according to a person familiar with the matter, asking not to be named because the matter is private.
The move signals that Prime Minister Justin Trudeau is becoming more assertive about taming one of the developed world’s most expensive housing markets — and that the government is growing more concerned about the political backlash to inflation and the rising cost of housing.
Home prices in Canada have soared more than 50% over the past two years. The market saw a record monthly increase in February as buyers acted ahead of rate increases by the Bank of Canada, taking the benchmark price of a home to C$869,300 ($693,000).
The foreign-buyer ban won’t apply to students, foreign workers or foreign citizens who are permanent residents of Canada, the person said.
“I don’t think prices are going to fall as a result, though I do think it takes away at least some of the competition in what is the most competitive market in Canadian housing history,” Simeon Papailias, founder of real estate investment firm REC Canada. “I don’t think a two-year band-aid is going to have an impact on what’s a fundamental lack of supply.”
Several billion dollars in Freeland’s budget will be allocated to building affordable housing and to helping local governments update their systems to allow faster construction of new properties.
Yet the government plans other measures that could potentially boost demand, ostensibly to help new home buyers. Freeland will introduce legislation that allows Canadians under the age of 40 to save as much as C$40,000 ($31,900) for a home downpayment within a new tax-exempt vehicle, the person said.
Blind Bidding
During last year’s election campaign, Trudeau’s party also proposed a ban on “blind bidding” for houses — the prevailing system by which offers are kept secret when someone is auctioning a home.
The industry body for the country’s real estate agents has now backed away from its defense of the practice. The Canadian Real Estate Association announced a pilot project Wednesday to display offers in real time on properties listed on its own listing website, Realtor.ca.
“Multiple-offer scenarios have become increasingly commonplace in today’s real estate environment,” Michael Bourque, the association’s chief executive officer, said in a statement. “Canadian property buyers and sellers seek greater confidence in the process.” The pilot will begin in select markets this summer, the press release said.
Blind bidding has been blamed for accelerating price gains in a hot market, with properties sometimes selling for hundreds of thousands of dollars over the asking price. Some believe that secret bidding forces each potential buyer to offer as much as they can.
Federal Environment Minister Steven Guilbeault gave the green light to the Bay du Nord oil project off the coast of Newfoundland and Labrador.
It’s a politically risky move for Prime Minister Justin Trudeau that complicates his efforts to hit aggressive emission targets for the oil and gas sector and could potentially alienate the pro-environment bloc within the governing Liberal Party. Yet Russia’s invasion of Ukraine has also prompted policy-makers to reconsider the importance of the nation’s vast oil reserves to Canada’s economic security.
In the case of Bay du Nord, the government is expected to argue that the project’s emissions are lower than other methods of oil production.
Domestic politics are also at play in the decision. While the Liberals do poorly in Canada’s western oil-producing regions, they place a high value on seats in the Atlantic provinces and several cabinet ministers are from the area.
Stopped trucks, foldable beds for workers: What European businesses face with China’s Covid surge
Shanghai, home to the world’s largest container shipping port, began a two-part lockdown on March 28 and has yet to announce when restrictions will lift.
EU Chamber members estimate Shanghai port volumes are down by about 40% week-on-week, Bettina Schoen-Behanzin, Shanghai chapter chair and a chamber vice president, said Wednesday.
Two days after a lockdown in Shenzhen lifted, EU Chamber South China Chapter Chair Klauz Zenkel said a company he visited still had “many, many foldable beds” — which the business planned to keep on hand because they weren’t sure whether they’d need them soon again.
Oil falls as IEA nations ready big release from reserves
Oil futures fell on Wednesday following a surprising rise in U.S. crude stocks and after news that large consuming nations would also release oil from reserves in conjunction with the United States to counter supply worries.
Member states of the International Energy Agency (IEA) will release 120 million barrels from strategic reserves, including 60 million from the United States, according to two sources familiar with the matter. That U.S. 60 million commitment is part of Washington’s plans to release a million barrels a day for the next six months for a rough total of 180 million barrels.
Crude markets have been through weeks of volatility, with prices surging on supply concerns after Russia’s invasion of Ukraine and subsequent sanctions on Moscow by the United States and its allies.
Lately the market has been pulling back following reserve releases along with expectations that demand in China will slip as a resurgent pandemic has prompted lockdowns of cities including Shanghai.
U.S. crude stocks rose by 2.4 million barrels in the latest week, the U.S. Energy Information Administration said, while analysts had expected a drawdown. Output also rose, hitting 11.8 million barrels a day, most since late 2021, and output is expected to continue rising. The United States also released nearly 4 million barrels from its strategic reserve in the week.
“The SPR release was huge which does raise confidence that they can move a lot out of the reserve on a weekly basis,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.
The United States and its allies on Wednesday prepared new sanctions on Moscow over civilian killings in northern Ukraine, which President Volodymyr Zelenskiy described as “war crimes.” Russia denied targeting civilians.
“These concerns have no doubt fed into the oil price trending higher, with volatility expected to continue as the geopolitical situation unfolds,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
Proposed EU sanctions, which the bloc’s 27 member states must approve, would ban buying Russian coal and prevent Russian ships from entering EU ports.
The head of the EU’s executive Ursula von der Leyen said the bloc was working on additional sanctions, including on oil imports.
Britain also urged G7 and NATO nations to agree a timetable to phase out oil and gas imports from Russia.
Demand worries also mounted after authorities in top oil importer China extended a lockdown in Shanghai to cover all of the financial centre’s 26 million people.
As Canadians face a cost of living crunch, tackling housing affordability is going to be a main feature of Thursday’s federal budget, CTV News has learned.
From moving to make it illegal for foreigners to buy any residential properties in Canada for the next two years, to rolling out a tax-free savings account for first-time buyers, the government is looking to make good on a series of 2021 Liberal campaign commitments in the 2022 budget.
Coming at a time of considerable economic and international instability, Deputy Prime Minister and Finance Minister Chrystia Freeland appears to have focused considerably in this budget on what the government can do to counter the housing crunch, the lack of inventory, and the skyrocketing prices. Click Link Above
A fertilizer shortage, worsened by war in Ukraine, is driving up global food prices and scarcity
A fertilizer shortage has added to growing concerns about the Ukraine war’s impact on the price and scarcity of certain basic foods.
Combined, Russia and Belarus had provided about 40% of the world’s exports of potash, according to Morgan Stanley. Russia’s exports were hit by sanctions. Further, in February, a major Belarus producer declared force majeure — a statement that it wouldn’t be able to uphold its contracts due to forces beyond its control.
Russia also exported 11% of the world’s urea, and 48% of the ammonium nitrate. Russia and Ukraine together export 28% of fertilizers made from nitrogen and phosphorous, as well as potassium, according to Morgan Stanley.
Disruptions of those shipments due to sanctions and war has sent fertilizer prices skyrocketing. High grain prices are rising even more. WATCH NOWVIDEO03:53The global shortage of fertilizer is a huge problem, says CF Industries Holdings CEO
“It is a huge problem,” said CF Industries CEO Tony Will in a recent CNBC appearance. He said global fertilizer supplies are very tight. CF manufactures and distributes fertilizers.
“It’s a confluence of factors, unprecedented demand coupled with a huge fall off in supply availability, only just exacerbated by the war in Ukraine and what’s going on with exports coming out of Russia and Ukraine,” Will added.
A contributor to higher costs and shortages
“All of this is a double whammy, if not a triple whammy,” said Bart Melek, global head of commodity strategy at TD Securities. “We have geopolitical risk, higher input costs and basically shortages.”
“Agriculture is absolutely going to get hit. In the case of Canada, it’s good for Saskatchewan, which is the largest producer of potash in the world, but farmers are going to get hurt because per acre they’re going to pay a lot more,” Melek said. “They’re going to get lower yield simply because they’re economizing, particularly in emerging markets.”
Grain shortages will drive up the cost of basic foods and other commodities. “That’s going to lead to higher input costs for producing everything from grains, wheat and corn. The input costs are higher now because you’re going to have scarcity that bids the price up as well,” Melek said. Meanwhile, prices for cows, steers and pork bellies have also climbed significantly, he added.WATCH NOWVIDEO02:33We’re not just concerned about food prices but also availability, says Ospraie’s Anderson
Some fertilizers have more than doubled in price. For instance, Melek said potash traded in Vancouver was priced at about $210 per metric tons at the beginning of 2021, and it’s now valued at $565. He added that urea for delivery to the Middle East was trading at $268 per metric ton on the Chicago Board of Trade in early 2021 and was valued at $887.50 on Tuesday.
Will said CF Industries is running its plants around the clock, foregoing some maintenance and trying to expedite shipments to areas in need. “There are no new tons to make. It’s just a matter of trying to get them there as quickly as we can into the marketplace,” he said.
Just as the price of fertilizers has jumped, the price of agricultural commodities has also been soaring, amid fears of shortages.
“We are absolutely facing a problem of catastrophic proportion here,” said Will. “Not only is the issue lack of availability and affordability of nutrients and inputs, but Russia and Ukraine have historically exported about 30% of the global wheat trade and 20% of global corn trade.” He added that there are stocks of those commodities that are not getting out to the market because the Black Sea is closed.
Rising prices for wheat, corn and soy
Wheat futures for July were down slightly Wednesday. They rose about 4% Tuesday on worries about Ukraine but also on worse-than-expected U.S. crop conditions. Corn futures prices are up nearly 30% year-to-date and inched downward Wednesday on the Chicago Board of Trade. Soybean futures were also slightly lower.
Morgan Stanley expects grain prices to remain above last year’s levels until 2023.
“Before the Ukraine war, the dry weather in [Latin America] took inventories to levels that would already keep grain prices high,” wrote the Morgan Stanley analysts in a report.
“The war adds uncertainties related to Ukrainian corn/wheat supply, and, more important to fertilizer use and global yields,” they said. “Due to this, our base crop price scenario implies a 2-3% reduction of yields in higher-cost regions, with risks of larger disruptions depending on fertilizer availability and weather.”
The Morgan Stanley analysts said they expect higher prices in 2022 and 2023, but after that they expect inventories should normalize with more supply from Latin America. They also anticipate prices will align closer with production costs and drop 15% to 20% below longer-term soy and corn contracts.
Melek said corn rose 57% in 2021, and it could be volatile this year, averaging up 25% higher on the year. Live cattle prices rose 19% last year and could gain another 15% in 2022. Wheat was up 27% in 2021 and could tack on another 22% this year, he said.
Melek said the high prices are being driven by tight supplies and shortages.
“We’re talking about an erosion of food security on a scale we have not seen for a long time, and I think it will touch people in the lower income distribution in North America,” he added. Melek said farmers are likely to consider rotating in less fertilizer-intensive corps and will economize on the amount of nutrients they use.
“Consumers are going to make choices too,” he said.
Fertilizer production relies on natural gas, and that has made a difference to U.S. producers. The biggest buyers of the top three types of fertilizers are Brazil, India, the U.S. and China, according to Morgan Stanley.
“Being a North American producer is huge for us. We pay somewhere in the neighborhood of $5 to $6 per million British thermal unit [MMBtu] of natural gas,” CF’s Will said. “Europe pays $35 to $38 per MMBtu…That is a huge spread between low cost production, and it’s one of the reasons why fertilizer price is what it is. It’s not only a lack of availability, but the high-cost producers are very high cost.”
For some farmers, the high-priced or unavailable fertilizer will mean crops may not get as much nourishment this year. In turn, yields could be lower.
“In close contact with a number of our customers in Latin America, we’re going to begin exporting on a humanitarian basis just to get nutrients down there to a region that is a rich growing area but also starved for nutrients right now,” said CF’s Will.
Fed officials plan to shrink the balance sheet by $95 billion a month, meeting minutes indicate
Federal Reserve officials discussed how they want to reduce their trillions in bond holdings at the March meeting, with a consensus amount around $95 billion, minutes released Wednesday showed.
Officials “generally agreed” that a limit of $60 billion in Treasurys and $35 billion in mortgage-backed securities would be allowed to roll off, phased in over three months. That total would be about double the rate of the last effort, from 2017-19, and represent part of a historic switch from ultra-easy monetary policy.
In addition to the balance sheet talk, officials also discussed the pace of interest rate hikes ahead, with members leaning toward more aggressive moves.
At the meeting, the Fed approved its first interest rate increase in more than three years. The 25 basis point increase — a quarter percentage point — lifted the benchmark short-term borrowing rate from the near-zero level where it had been since March 2020.
The minutes, though, pointed to potential rate hikes of 50 basis points at upcoming meetings, a level consistent with market pricing for the May vote. In fact, there was considerable sentiment to go higher last month. Uncertainty over the war in Ukraine deterred some officials from going with a 50 basis point move in March.
“Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes said.
The minutes were “a warning to anyone who thinks that the Fed is going to be more dovish in their fight against inflation,” said Quincy Krosby, chief equity strategist at LPL Financial. “Their message is, ‘You’re wrong.’”
Indeed, policymakers in recent days have grown increasingly strident in their views about taming inflation.
Governor Lael Brainard said Tuesday that bringing prices down will require a combination of steady hikes plus aggressive balance sheet reduction. Markets expect the Fed to hike rates a total of 250 basis points this year.
The Fed’s relative hawkishness extended to the balance sheet talk. Some memissuesbers wanted no caps on the amount of monthly runoff, while others said they were good with “relatively high” limits.
The balance sheet rundown will see the Fed allowing a capped level of proceeds from maturing securities to roll off each month while reinvesting the rest. Holdings of shorter-term Treasury bills would be targeted as they are “high valued as safe and liquid assets by the private sector.”
While officials did not make any formal votes, the minutes indicated that members agreed the process could start in May.
Whether the runoff actually will hit $95 billion, however, is still in question. MBS demand is muted now with refinancing demand low and interest rates rising. Officials acknowledged that passive runoff of mortgages likely may not be sufficient, with outright sales to be considered “after balance sheet runoff was well under way.”
Also at the meeting, Fed officials sharply raised their inflation outlook and lowered their economic growth expectations. Surging inflation is the driving factor behind the central bank tightening.
Markets were looking to the minutes release for details about where monetary policy heads from here. Specifically, Fed Chairman Jerome Powell said in his post-meeting news conference that minutes would provide details on the thinking about balance sheet reduction.
The Fed expanded its holdings to about $9 trillion, or more than double, during monthly bond purchases in the wake of the pandemic crisis. Those purchases ended only a month ago, despite evidence of roaring inflation higher than anything the U.S. had seen since the early 1980s, a surge that then-Chairman Paul Volcker quelled by dragging the economy into a recession.
Stocks fall for a second day as rates jump, with the Fed set to tighten policy aggressively
Stocks dipped for a second day on Wednesday and rates soared to new heights as investors bet the Federal Reserve is about to aggressively tighten policy to fight inflation, and in turn slow the economy.
The Dow Jones Industrial Average traded 170 points lower, or 0.5%. The S&P 500 slid 1%, and the Nasdaq Composite pulled back by 2% after shedding about 2.3% on Tuesday.
Investors awaited minutes from the Fed’s most-recent meeting, which are slated for release at 2 p.m. The minutes could impact investors’ outlook and offer new clues on the Fed’s plan to reduce its balance sheet. At its March meeting, the Fed hiked rates for the first time in more than three years and indicated six more increases were coming in 2022.
The minutes come as comments from Fed officials put pressure on stocks.
The 10-year Treasury yield jumped above 2.65% on Wednesday, hitting a three-year high and continuing its rapid climb this week. The rate ended Monday at 2.40%.
Philadelphia Federal Reserve President Patrick Harker said that he is “acutely concerned” about rising inflation, noting that he expects “a series of deliberate, methodical hikes as the year continues and the data evolve.”
His comments come less than a day after Fed Governor Lael Brainard indicated support for higher interest rates and said a “rapid” reduction of the central bank’s balance sheet could come as soon as May. Brainard’s remarks pushed stocks lower in the previous session.
“It is of paramount importance to get inflation down,” Brainard said during a Minneapolis Fed webinar. Brainard has been nominated to be vice chair of the Federal Open Market Committee. San Francisco Fed President Mary Daly echoed similar sentiments toward inflation on Tuesday.
“What that means for the markets are continued volatility around the uncertainty to higher rates and lower-income cash flow stocks, growth type stocks probably continuing to get discounted as rates rise,” Cliff Corso of Advisors Asset Management told CNBC’s “Worldwide Exchange.”
Tech shares fell again on Wednesday following Tuesday’s losses, as investors rotated out of the group and braced for higher rates to slow the economy. Apple, Microsoft, Amazon and Tesla contributed to the sector’s decline and the Nasdaq’s fall. Chipmakers Nvidia and Marvell Technology also continued their descent, falling 7% and 5%, respectively.
As the Fed hikes rates, investors have begun searching for stocks with stable profits and shying away from those offering future growth. That includes the utilities, health care and consumer staples sectors — which continued to climb Wednesday, with Amgen and Johnson & Johnson rising about 2%. Consumer staples such as Walmart, Coca-Cola and Procter & Gamble also inched slightly higher.
“Today and yesterday you’re really starting to see the equity market catch up with the bond market,” said Chris Zaccarelli, CIO at Independent Advisor Alliance. “And by that, I mean equities are starting price in a more aggressive Fed. You’re starting to see a bid for safety, you’re seeing that classic risk-off move.”
Earnings ahead
Traders were also bracing for the start of the corporate earnings season.
Goldman Sachs chief U.S. equity strategist David Kostin said Wednesday on CNBC’s “Squawk on the Street” that stocks with “resilient margins” are better prepared to weather the current environment. That includes names such as Alphabet and Nike — which have maintained “high and stable margins” even amid the pandemic, he said.
“Overall, the U.S. equities market maybe has 5% upside from these likes between now and the end of the year,” he said. “Should we be going into a recession it will be meaningful downside, but that’s not the base case right now.”
