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Dow rallies 900 points as investors bet the Fed can slow inflation without causing a recession

Stocks jumped sharply on Wednesday in a relief rally from their 2022 doldrums after the Federal Reserve raised rates by a widely anticipated half percentage point and Chairman Jerome Powell ruled out getting even more aggressive in the central bank’s inflation-fighting campaign.

The Dow Jones Industrial Average rose 932.27 points, or 2.81%, to close at 34,061.06. The S&P 500 gained 2.99% to 4,300.17. The tech-heavy Nasdaq Composite jumped 3.19% to 12,964.86. It was the biggest gain since 2020 for both the S&P 500 and the Dow.

CNBC

The central bank announced that it was hiking its benchmark interest rate 50-basis-points, or 0.5 percentage point, and would start reducing its balance sheet in June. That is the biggest rate increase since 2000 for the Fed, but the move was widely expected by investors.

Stocks moved sharply higher when Powell said the central bank was not considering an even more aggressive hike in future meetings.

“So a 75-basis-point increase is not something that committee is actively considering,” Powell said. “I think expectations are that we’ll start to see inflation, you know, flattening out.”

That statement helped take some of the fear out of the market, said Kim Forrest, founder of Bokeh Capital.

″“I think taking that off the table … was wise and is probably cause for some of the relief,” Forrest said.

The rate hike and rally follow a brutal April for stocks, which dragged the Nasdaq into bear market territory. The S&P 500 entered Wednesday more than 13% below its record high. Both of those indexes hit their lowest levels of the year earlier this week.

Former Goldman Sachs President Gary Cohn told CNBC’s “Closing Bell” that Powell “drove it right down the middle of the road” during his news conference.

“I think the market is starting to say, ‘OK. We’ve got this pretty well priced in.’ I don’t think there’s a lot of surprises out there. We’ve taken a lot of the fluff out of the market. We’ve taken a lot of the hot air out of the market. … We’ve now got some real value,” Cohn said.

Powell said he believed the Fed could slow economic growth without causing a jump in unemployment, citing the high number of job vacancies and strong household balance sheets.

“I would say we have a good chance to have a soft, or soft-ish, landing,” Powell said.

Fed raises rates by half a percentage point — the biggest hike in two decades — to fight inflation

• The Federal Reserve increased its benchmark interest rate by half a percentage point, in line with market expectations.
• In addition, the central bank outlined a program in which it eventually will reduce its bond holdings by $95 billion a month.
• The rate move is the largest since 2000 and is in response to burgeoning inflation pressures.
• Fed Chairman Jerome Powell underlined the commitment to bringing inflation down but indicated that raising rates by 75 basis points at a time “is not something the committee is actively considering.”

The Fed is expected to raise rates by a half point. Investors wonder if it will get more aggressive

• The Federal Reserve is expected to raise interest rates Wednesday for the second time since 2018, boosting the fed funds target rate by a half-percentage point.
• The central bank is also expected to launch a program to reduce its massive bond holdings by $95 billion a month, starting in June.
• The markets are braced for a hawkish Fed, but many investors are wondering if Fed Chair Jerome Powell will signal that the central bank is willing to get even tougher with rate increases.

The Federal Reserve is widely expected to raise its fed funds target rate by a half-percentage point Wednesday, but investors will be more focused on whether it signals it could get even tougher with future rate hikes.

The Fed also is expected to announce the start of a program to wind down its roughly $9 trillion balance sheet by $95 billion a month, starting in June. The 50-basis-point hike would put the fed funds target rate range at 0.75% to 1%. A basis point equals 0.01%.

That target rate after this week’s boost would be well off zero, but way below market expectations for a funds rate above 2.8% by year-end.

TEHRAN, Iran (AP) — The Taliban members who killed her activist husband offered Zahra Husseini a deal: Marry one of us, and you’ll be safe.

Husseini, 31, decided to flee. Through swaths of lawless flatlands she and her two small children trekked by foot, motorcycle and truck until reaching Iran.

As Afghanistan plunged into economic crisis after the United States withdrew troops and the Taliban seized power, the 960-kilometer (572-mile) long border with Iran became a lifeline for Afghans who piled into smugglers’ pickups in desperate search of money and work.

But in recent weeks the desert crossing, long a dangerous corner of the world, has become a growing source of tension as an estimated 5,000 Afghans traverse it each day and the neighbors — erstwhile enemies that trade fuel, share water and have a tortured history — navigate an increasingly charged relationship.

In past weeks, skirmishes erupted between Taliban and Iranian border guards. Afghans in three cities rallied against Iran. Demonstrators hurled stones and set fires outside an Iranian Consulate. A fatal stabbing spree, allegedly by an Afghan migrant, at Iran’s holiest shrine sent shockwaves through the country.AFGHANISTANAs Iran-Taliban tensions rise, Afghan migrants in tinderboxCombat death puts spotlight on Americans fighting in UkraineBiden seeks $33B for Ukraine, signaling long-term commitmentPowerful explosion at Kabul mosque kills at least 10 people

Political analysts say even as both nations do not want an escalation, long-smoldering hostilities risk spiraling out of control.

“You have one of the world’s worst-simmering refugee crises just chugging along on a daily pace and historical enmity,” said Andrew Watkins, senior Afghanistan expert at the United States Institute of Peace. “Earthquakes will happen.”

The perils are personal for Afghans slipping across the border like Husseini. Since the Taliban takeover, Iran has escalated its deportations of Afghan migrants, according to the U.N. migration agency, warning that its sanctions-hit economy cannot handle the influx.

In the first three months of this year, Iran’s deportations jumped 60% each month, said Ashley Carl, deputy chief of the agency’s Afghanistan mission. Many of the 251,000 returned from Iran this year bear the wounds and scars of the arduous trip, he said, surviving car accidents, gunshots and other travails.

Roshangol Hakimi, a 35-year-old who fled to Iran after the Taliban takeover, said smugglers held her and her 9-year-old daughter hostage over a week until her relatives paid ransom.

“They would feed us with polluted water and hard, stale bread,” she said. “We were dying.”

The lucky ones land in the jumble of Tehran, squeezing into dank and crowded alleyways. Iran estimates at least a million Afghans have sought refuge in the country over the last eight months.

Like many, Husseini lives in legal limbo, vulnerable to harassment and exploitation. Her boss at the tailor’s shop refuses to pay her salary. Her landlord threatens to kick her out. She can barely cobble together enough cash to feed her children.

“We have nothing and nowhere to go,” she said from a cramped room in southern Tehran, furnished with just a donated gas heater, chairs and a few velour blankets.

As more Afghans arrive, helping them gets harder. Iranian Foreign Ministry spokesman Saeed Khatibzadeh lamented last month that “waves of displaced Afghans cannot continue to Iran” because Iran’s “capacities are limited.” Iran’s youth unemployment hovers over 23%. Iran’s currency, the rial, has shriveled to less than 50% of its value since 2018.

“The biggest challenge is that Iran is not ready for the new situation of refugees,” Tehran-based political analyst Rea Ghobeishavi said of the increasing friction between Afghans and Iranians.

Iran has grown more anxious as a string of bloody attacks in Afghanistan targeting the country’s minority Hazara Shiites makes clear that extremist threats proliferate despite Taliban promises to provide security.

“There are reports that some extremists are entering Iran easily with refugees,” said Abbas Husseini, a prominent Afghan journalist in Tehran, describing mounting paranoia in Iran.

Last month, Iran’s most sacred Shiite shrine in the northeastern city of Mashhad turned into a scene of carnage when an assailant stabbed three clerics, killing two — a rare act of violence at the compound. The attacker was identified in media as an Afghan national of Uzbek ethnicity.

In the following days, a surge of videos agitating against Afghan refugees flooded Iranian social media. Impossible to authenticate, the grainy clips — footage showing Iranians insulting and beating up Afghans — have been dismissed as misleading in Iran but in Afghanistan have dominated headlines, stoking public fury.

Demonstrators attacked the Iranian Consulate in the western city of Herat with stones and protested at Iran’s Embassy in Kabul. “Stop killing Afghans,” pleaded protesters in the Afghan capital. “Death to Iran,” chanted crowds in Herat and the southeastern Khost province. Iran suspended all of its diplomatic missions in Afghanistan for 10 days.

Even as the gate of its consulate smoldered, Iran’s special envoy for Afghanistan deflected. Hassan Kazemi Qomi blamed the escalating tensions on a vague “enemy” seeking to subvert the nations’ relations. Afghan Foreign Minister Amir Khan Muttaqi raised his concerns with the Iranian ambassador.

“The ill-treatment of Afghan refugees in Iran adversely affects relations between the two countries … allowing antagonists to conspire,” Muttaqi was quoted as saying.

His careful tone betrays a troubled history.

In 1998, Iran nearly went to war against the Taliban after 10 of its diplomats were killed when their consulate was stormed in the northern city of Mazar-e-Sharif. But after the U.S.-led invasion, Tehran’s Shiite leaders grew wary of the American military presence on their doorstep and took a more pragmatic stance toward the Sunni militant group.

Now, analysts say, with both nations severed from the global banking system and starved for cash, they have come to depend on each other. Neither wants to see tensions mount further.

“Through neighbors, Iran can sanctions-bust, exchange currency, barter and keep its economy alive,” said Sanam Vakil, deputy director of Chatham House’s Middle East and North Africa Program.

But the neighbors nearly came to blows last week when Taliban guards tried to pave a new road across the border. Iranian guards went on high alert. The vital crossing closed.

Aware of the stakes, the countries are vigorously pursuing diplomacy. Last week, Khatibzadeh promised Tehran would accredit Taliban diplomats for the first time to help process the mountains of consular cases. Taliban officials visited the capital to discuss Iran’s treatment of Afghan refugees.

Many of those refugees fleeing Afghanistan’s repression and destitution harbor humble dreams: of scraping by as construction laborers, factory workers and farmhands in Iran.

Others, like Hakimi’s 9-year-old daughter Yasmin, hope to continue on to Europe. She fantasizes about Germany. Her father, a police officer killed by the Taliban in Logar province, instilled in her the importance of an education, she said.

“We don’t want to have a bad future,” Yasmin said from her dilapidated Tehran apartment. “We want to become literate people, like my father.”

EU energy ministers meet to discuss Russian gas, sanctions

European Union energy ministers will meet Monday to discuss Russia’s decision to cut gas supplies to Bulgaria and Poland, and debate planned new sanctions over Moscow’s war on Ukraine.

The 27 nation-bloc has imposed five rounds of sanctions on Russian officials, oligarchs, banks, companies and other organizations since Russian troops invaded Ukraine in February.

The European Commission is working on a sixth round of measures which could include oil restrictions, but Russia-dependent countries like Hungary and Slovakia are wary of taking tough action.

Germany believes it could cope if supplies of Russian oil were cut off due to an embargo or action by Moscow. Economy Minister Robert Habeck said that Russian oil now accounts for 12% of total imports, down from 35% before the war, and most of it goes to the Schwedt refinery near Berlin.

Habeck acknowledged that losing those supplies could result in a “bumpy” situation for the capital and surrounding region, with price hikes and shortages, but that wouldn’t result in Germany “slipping into an oil crisis.”

Still, Habeck added, “other countries aren’t so far yet and I think that needs to be respected.”RUSSIA-UKRAINE WARLive updates l Finland ends deal for Russian nuclear plantEU energy ministers meet to discuss Russian gas, sanctionsUkraine city awaits 1st evacuees from Mariupol steel plantFigure skating body details proposal to hike age limit to 17

The commission, the EU’s executive branch, could announce it new sanction proposals later this week. The measures would have to be approved by the member countries – a process that can take several days.

The energy ministers will also look at what steps to take should Russia ramp up its pressure by cutting gas supplies to other countries.

The EU imports around 40% of the gas it consumes from Russia, but some member countries are more heavily dependent on Russian supplies than others.

In a move last week branded in Europe as “blackmail,” Russian energy giant Gazprom cut supplies to Bulgaria and Poland. It came after Russian President Vladimir Putin said that “unfriendly” countries must start paying for gas in rubles, Russia’s currency.

Bulgaria and Poland have refused to do so, like most EU countries. More Gazprom bills are due on May 20, and the bloc is wary that Russia might turn off more taps then. Russia rejects the claims of blackmail and says that Bulgaria and Poland missed their payment deadlines.

The commission has warned that companies which comply with the terms of Putin’s decree insisting that companies convert euros to rubles through two accounts at Gazprombank would contravene the bloc’s sanctions.

Despite the pressure, Europe does have some leverage in the dispute since it pays Russia $400 million a day for gas, a huge dent in Moscow’s coffers should it opt for a complete cutoff.

Off the Dutch North Sea coast, meanwhile, a fuel tanker stood idle at anchor after port workers in Amsterdam said they would not unload its cargo of Russian diesel. The Marshall Islands-flagged Sunny Liger was initially scheduled to unload in Sweden, but dockers there refused to carry out the work.

Dutch port employees who are members of the FNV dockers’ union say they also refused to unload the tanker out of solidarity with their Swedish colleagues. Union spokeswoman Asmae Hajjari told NOS Radio 1 over the weekend that “the ship is not welcome.”

Asia-Pacific stocks lower as data show Chinese factory activity contracted in April

• Asia-Pacific stocks slipped on Monday.
• Chinese economic data released over the weekend showed a contraction in April factory activity.
• Markets in Hong Kong, mainland China, Singapore and Taiwan were closed on Monday for a holiday.

Finland has walked a political tightrope between Moscow and the West for decades. But that could be about to end

Finland could be about to announce that it’s joining the military alliance NATO — in what would mark a dramatic U-turn for its foreign policy and potentially anger Russian President Vladimir Putin.

The Nordic nation shares a 808-mile land border with Russia and has carefully walked a foreign policy tightrope between Moscow and the West for many decades. Finland adopted a neutrality policy during the Cold War, meaning it would avoid confrontation with Russia. And in the early stages of World War II, the Finns successfully repelled a Soviet invasion in what became known as the “Winter War.”

But its long-standing neutrality, cherished by many Finns, could be about to end due to Russia’s unprovoked invasion of Ukraine.

Jacob Kirkegaard, a senior fellow at the German Marshall Fund of the United States, told CNBC that Finland’s accession to NATO would put an end to the idea of “forced neutrality between East and West.”

“This highlights how Russia’s atrocious actions in Ukraine have forced previous neutral countries to commit fully to NATO in the ‘you are either fully with us, or we will not protect you’,” he said.

Russia has repeatedly stated that it’s against any enlargement of NATO, which was one of the reasons given by the Kremlin for its invasion of Ukraine. Volodymyr Zelenskyy, the president of Ukraine, had been vocal about his desire to join the alliance before the invasion, but has since conceded that it’s now unlikely.

Public opinion

So far, NATO nations (with 30 members in total) have supported Ukraine with military equipment, but they have refused to send troops as this would effectively put Russia and the West at war. One of the guiding principles of NATO is that an attack on one member is considered an attack on all of them.

“I won’t give any kind of timetable when we will make our decisions, but I think it will happen quite fast,” Finland’s Prime Minister Sanna Marin said last week, adding that her country’s NATO membership would be decided “within weeks.”

Opinion polls show that since Russia’s invasion of Ukraine on Feb. 24, a majority of Finns are now in favor of joining NATO. Former Finnish Prime Minister Alexander Stubb said Thursday that “definitely” Finland would be applying for NATO membership in mid-May. Finland’s position on NATO is a direct result of Ukraine war, says NATO chief

NATO would likely benefit from Finland’s geographical location and military capabilities. Its secretary general, Jens Stoltenberg, has already said the country would be warmly welcomed.

Risks

But, at the same time, Helsinki is also aware of the risks in joining the alliance.

In a report to the Finnish Parliament in mid-April, the country’s Foreign Ministry said: “If Finland applied for NATO membership, it should be prepared for extensive efforts to exercise influence and risks that are difficult to anticipate, such as increasing tensions on the border between Finland and Russia.”

Russia has said that it would have to “rebalance the situation” if Finland’s NATO membership were to go ahead.

Perhaps, even more importantly, Finland’s bid to join NATO could also push Sweden to do the same.

Speaking earlier this week, alongside her Finnish counterpart, Sweden’s Prime Minister Magdalena Andersson said her country was doing the same analysis as Finland.

“Finnish entry into NATO will see also traditionally more reluctant Sweden join at the same time. This ends several centuries of neutrality for Sweden and adds to NATO a major military power and arms producer,” Kirkegaard also said.

It’s not just Russia – China’s also contributing to higher inflation worldwide, report says

Russia is guilty of creating a food security crisis and higher energy prices through its war with Ukraine, but China has — under the radar — also taken actions in three areas that are exacerbating inflation worldwide, said the Peterson Institute for International Economics.

“Russia’s war in Ukraine has taken a shocking toll on the region,” wrote PIIE analysts Chad Bown and Yilin Wang. “It has also contributed to a global food crisis, as Russia is blocking vital fertilizer exports needed by farmers elsewhere, and Ukraine’s role as the breadbasket for Africa and the Middle East has been destroyed.”

“But there is another, unappreciated risk to global food security,” they wrote in a note last week.The trouble with China is that it continues to act like a small country … they can also be beggar-thy-neighbor, with China selecting the policy that solves a domestic problem by passing along its cost to people elsewhere.Chad Bown and Yilin WangPETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS ANALYSTS

The analysts singled out restrictions and tariffs imposed by China in two major commodities — fertilizer and pork.

China’s curbs have extended beyond food. The Asian giant, one of the world’s biggest steel producers, has also slapped on restrictions on the material, the Washington-based think tank noted.

All those moves have led to higher prices elsewhere, even as they benefited China’s own people, according to the report.

“The trouble with China is that it continues to act like a small country. Its policies often have the desired effect at home — say, reducing input costs to industry or one set of Chinese farmers or by increasing returns to another,” the analysts wrote.

“But they can also be beggar-thy-neighbor, with China selecting the policy that solves a domestic problem by passing along its cost to people elsewhere,” they added.

Fertilizer

Prices of fertilizer in China and around the world started rising last year, as a result of strong demand and higher energy prices, but have since pushed even higher following the Russia-Ukraine war.

Last July, authorities ordered major Chinese firms to suspend exporting fertilizer “to ensure the supply of the domestic chemical fertilizer market,” PIIE noted. By October, as prices continued to rise, authorities started mandating additional scrutiny on exports.

The curbs have continued through this year, and are set to last till at least after the end of summer, Reuters reported.

“This combination of nontariff barriers led Chinese fertilizer exports to decline sharply. With more production kept at home, Chinese fertilizer prices leveled off and have since even started to fall,” the analysts wrote.WATCH NOWVIDEO03:53The global shortage of fertilizer is a huge problem, says CF Industries Holdings CEO

That was in stark contrast to the situation worldwide, where fertilizer prices continued to soar more than twice the levels seen a year earlier, the think tank said.

China’s share of global fertilizer exports was 24% for phosphates, 13% for nitrogen and 2% for potash — before the restrictions, according to PIIE.

PIIE analysts said that China’s decision to take fertilizer supplies off world markets only “pushes the problem onto others.”

When there is less fertilizer, less food is grown, and that “could hardly come at a worse time” given that the Russia-Ukraine war is already threatening global food supply, they added. Russia and Ukraine are major exporters of crops such as wheat, barley, corn and sunflower oil.

“At such a critical moment, China needs to do more — not less — to help overcome the potential humanitarian challenge likely to arise in many poor, fertilizer- and food-importing countries,” the report said.

Steel

Steel prices in China and around the world accelerated in the last couple of years as the country announced it would bring down its steel domestic production in order to meet decarbonization goals.WATCH NOWVIDEO02:23China’s steel exports could decline amid road to net-zero emissions: Tata Steel

In order to bring down surging prices domestically, authorities last year lifted a ban on steel scrap imports. They also implemented a few rounds of export restrictions, and increased export taxes on five steel products.

By March this year, China’s steel prices were 5% lower than before the restrictions.

“But as in the case of fertilizer, these decreases came at the expense of the rest of the world, where prices outside of China remain higher,” said the PIIE analysts. “The concern is the widening of the wedge between the world and Chinese prices of steel that has emerged since January 2021.”

Pork

The story of higher pork prices globally began in 2018, when China — which then produced half the world’s pork supply — saw its hog population hit by a major outbreak of African swine fever.

That compelled the country to cull 40% of its herd, which caused its pork prices to more than double by late 2019. World prices followed suit, jumping 25% as China imported more pork and pulled supplies off markets, according to PIIE.

“China reduced the price pressure at home beginning in 2019 by tapping into imports before more recently shutting them down. These policies affected the rest of the world,” PIIE analysts wrote.We’re not just concerned about food prices but also availability, says Ospraie’s Anderson

Beijing also cut tariffs on pork imports in 2020, which likely caused consumers elsewhere to suffer higher prices as a result as supply fell, said the think tank.

However, authorities raised those tariffs again this year as the swine fever problem eased.

“A potential unintended benefit will be reaped if, in the current environment of high global meat prices, China’s tariff unexpectedly frees up world supplies and helps mitigate pressure on pork prices facing consumers outside China,” the report said.

Agnico Eagle reports ‘exceptional’ first quarter results, sees continued strength ahead

As investors work out whether they’re more concerned about inflation or interest rates, it’s been a wild ride for miners such as Toronto-based Agnico Eagle Mines Ltd., which reported first quarter results on Thursday afternoon.

The company, the top gold producer in Canada, reiterated production in 2022 should surge to at least 3.2 million ounces — up 60 per cent from the 2 million ounces record set in 2021 — despite lingering effects from COVID-19 that caused workforce disruptions at the start of the year.

It also announced adjusted earnings per share in the first quarter of 61 cents, beating consensus estimates of 39 cents, which Fahad Tariq, an analyst at Credit Suisse, attributed to “fundamentally … higher revenue and lower depreciation.”

Agnico’s freshly minted chief executive Ammar Al-Joundi, who took over in February after the unexpected departure of chief executive Tony Makuch barely two weeks into the job, called the results “stellar.”

“The first quarter, we think, is our weakest quarter, and the first quarter was a good quarter,” Al-Joundi said in an interview on Friday morning. “So we see continuing strength through the rest of the year.”

Challenges in the first quarter came from labour disruptions from the Omicron variant of COVID-19, higher-than-expected inflation, and costs from integrating Kirkland Lake Gold’s operations and workforce after the $13.5-billion acquisition closed in February.

Al-Joundi added Agnico’s costs came in lower than expected, which he called “exceptional” given inflation pressures, with the company reporting all-in sustaining costs at US$1,079.

The first quarter, we think, is our weakest quarter, and the first quarter was a good quarterAMMAR AL-JOUNDI

Despite gold prices remaining elevated at US$1,907 per ounce, investors have oscillated between jazzed and non-plussed. Agnico’s share price has slid 14.8 per cent since April 18 from $83.97 to $71.52 per share as of April 28, but it bounced 5.76 per cent higher on Friday to $75.64.

It mimics a broader trend sweeping across the gold industry. Gold hit an all-time high in August 2020, briefly breaking more than US$2,000 per ounce before settling to a range between US$1,700 and US$1,900 per ounce. But investors’ shine for gold mining companies quickly wore off and throughout much of 2021 share prices traded at levels similar to where they were when gold prices, and their profits, were much lower.

That all appeared to change in late January when Russian troops gathered on the borders of Ukraine and eventually invaded the country. Amid subsequent western sanctions against Russia, and the trade disruptions it caused, gold prices shot back above US$2,000 per ounce in March.

Despite the fluctuations, gold remains far above the US$1,150 to US$1,300 per ounce range that dominated from roughly 2014 to 2019.

Nonetheless, the price of the VanEck Gold Miners ETF, a basket of the world’s largest gold miners, has been up and down. After peaking at US$42.94 per share in late July 2020, it slid down to US$29.30 — a 30 per cent drop, and around where it stood for most of 2019 when gold prices were hundreds of dollars lower.

But as Russian invaded Ukraine earlier this year, the index surged back up to US$40.86 in early April, only to spend the last few weeks sliding. It’s down 16.7 per cent to US$35.41 as of April 29.

Similarly, Agnico’s share price has gyrated, hitting a high of $109.74 in November 2020 before sliding all the way down to $59.04 as of Jan. 22. In recent weeks, it had been rising again but is down 15 per cent this month.

The fluctuating price of gold is largely tied to a stronger U.S. dollar and the potential for “aggressive rate hikes” by the central bank in the U.S., Credit Suisse analyst Tariq said.

“As we have written previously, weekly gold price oscillations seem to depend on which macro factors investors are focusing on that week — interest rates or inflation,” he wrote.

Gold typically benefits as a safe-haven asset in times of inflation, but that can be offset if the the U.S. dollar value rises with increased interest rates.

Agnico said it managed to keep inflation down by hedging its purchases of currencies and diesel, the fuel that powers much of its operations.

Weekly gold price oscillations seem to depend on which macro factors investors are focusing on that week — interest rates or inflationFAHAD TARIQ

“These hedges have partially mitigated the effect of inflationary pressures to date and are expected to provide a degree of protection against inflation for the 2022 sealift diesel costs,” the company said in a press release.

Al-Joundi said the company expected inflation to be around three to five per cent as 2021 ended, but the rate has been closer to five to seven per cent in the first few months of 2022. He said he believes inflation will probably end up around seven to 10 per cent.

“One of the big advantages we have is 40 per cent of our costs are labour,” he added, “and labour hasn’t seen the same inflation as consumables.”

Agnico’s merger with Kirkland Lake Gold helped propel its guidance for 2022 gold production to record highs, but because the deal only closed in February, the quarter results do not reflect a fully merged company.

Kirkland’s chief executive Makuch was originally slated to be CEO of the merged company, but quickly departed with no reason offered. Still, Al-Joundi, Agnico’s longtime chief financial officer and heir-apparent to the CEO spot before the merger, told shareholders “the integration has gone exceedingly well.”

Indeed, in the wake of Makuch’s departure, the company bumped up its estimates for pre-tax savings from general and administrative corporate synergies, from US$145 million in the first five years to US$200 million, and from US$320 million over the next decade to US$400 million.

Meanwhile, estimates for operational synergies from the merger remain unchanged at about US$1.1 billion over the next decade.

It declared a 40 cents dividend.

Though Agnico announced lower first quarter net income of $109.8 million, down from US$145.2 million last year, it said its results were affected by COVID-19 challenges, inflationary cost pressures and costs related to the Kirkland Lake merger.

On the positive side, the company said the effects of COVID-19, which had caused it to send its Nunavummiut workforce home in December 2021 to prevent the inadvertent spread of the virus into the local community, were easing. After consulting with the government, Agnico began returning its workforce in mid-March.