Authored by Mike Shedlock via MishTalk.com,

Christine Lagarde Made 10 Key Points Today and I Agree With All of Them.

As amazing as it sounds, ECB President Christine Lagarde is making sense.

Central Banks in a Fragmenting World

Please consider a speech by Christine Lagarde, President of the ECB, on Central Banks in a Fragmenting World

The global economy has been undergoing a period of transformative change. Following the pandemic, Russia’s unjustified war against Ukraine, the weaponization of energy, the sudden acceleration of inflation, as well as a growing rivalry between the United States and China, the tectonic plates of geopolitics are shifting faster.

We are witnessing a fragmentation of the global economy into competing blocs, with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values. And this fragmentation may well coalesce around two blocs led respectively by the two largest economies in the world.

All this could have far-reaching implications across many domains of policymaking. And today in my remarks, I would like to explore what the implications might be for central banks.

In short, we could see two profound effects on the policy environment for central banks: first, we may see more instability as global supply elasticity wanes; and second, we could see more multipolarity as geopolitical tensions continue to mount.

Today the United States is completely dependent on imports for at least 14 critical minerals. And Europe depends on China for 98% of its rare earth supply. Supply disruptions on these fronts could affect critical sectors in the economy, such as the automobile industry and its transition to electric vehicle production.

In response, governments are legislating to increase supply security, notably through the Inflation Reduction Act in the United States and the strategic autonomy agenda in Europe. But that could, in turn, accelerate fragmentation as firms also adjust in anticipation. Indeed, in the wake of the Russian invasion of Ukraine, the share of global firms planning to regionalize their supply chain almost doubled – to around 45% – compared with a year earlier

This “new global map” – as I have called these changes elsewhere – is likely to have first-order implications for central banks.

One recent study based on data since 1900 finds that geopolitical risks led to high inflation, lower economic activity and a fall in international trade. And ECB analysis suggests similar outcomes may be expected for the future. If global value chains fragment along geopolitical lines, the increase in the global level of consumer prices could range between around 5% in the short run and roughly 1% in the long run.

These changes also suggest that a second shift in the central bank landscape is taking place: we may see the world becoming more multipolar.

During the Pax Americana after 1945, the US dollar became firmly ensconced as the global reserve and transaction currency, and more recently, the euro has risen to second place. This had a range of − mostly beneficial − implications for central banks.

But new trade patterns may have ramifications for payments and international currency reserves.

In recent decades China has already increased over 130-fold its bilateral trade in goods with emerging markets and developing economies, with the country also becoming the world’s top exporter. And recent research indicates there is a significant correlation between a country’s trade with China and its holdings of renminbi as reserves. New trade patterns may also lead to new alliances. One study finds that alliances can increase the share of a currency in the partner’s reserve holdings by roughly 30 percentage points.

All this could create an opportunity for certain countries seeking to reduce their dependency on Western payment systems and currency frameworks – be that for reasons of political preference, financial dependencies, or because of the use of financial sanctions in the past decade.

Anecdotal evidence, including official statements, suggests that some countries intend to increase their use of alternatives to major traditional currencies for invoicing international trade, such as the Chinese renminbi or the Indian rupee. We are also seeing increased accumulation of gold as an alternative reserve asset, possibly driven by countries with closer geopolitical ties to China and Russia.

There are also attempts to create alternatives to SWIFT. Since 2014, Russia has developed such a system for domestic and cross-border use, with over 50 banks across a dozen countries using it last year. And since 2015 China has established its own system to clear payments in renminbi.

These developments do not point to any imminent loss of dominance for the US dollar or the euro. So far, the data do not show substantial changes in the use of international currencies. But they do suggest that international currency status should no longer be taken for granted.

10 Major Points With No Disagreement

1. Weaponization of energy

2. Fragmentation of the global economy into competing blocs

3. More multipolarity as geopolitical tensions continue to mount

4. [Historically] geopolitical risks led to high inflation, lower economic activity and a fall in international trade

5. Significant correlation between a country’s trade with China and its holdings of renminbi as reserves

6. Countries intend to increase their use of alternatives to major traditional currencies for invoicing international trade, such as the Chinese renminbi or the Indian rupee.

7. Increased accumulation of gold as an alternative reserve asset, possibly driven by countries with closer geopolitical ties to China and Russia.

8. Attempts to create alternatives to SWIFT. Since 2014, Russia has developed such a system for domestic and cross-border use, with over 50 banks across a dozen countries using it last year. And since 2015 China has established its own system to clear payments in renminbi.

9. These developments do not point to any imminent loss of dominance for the US dollar or the euro.

10. So far, the data do not show substantial changes in the use of international currencies. But they do suggest that international currency status should no longer be taken for granted.

Amazed if Not Shocked

There is not a single thing above that I disagree with, with plenty of things to cover. I am amazed that any central bank president sees things as I do.

Regarding point 8, the EU attempted to create an alternative to SWIFT to facilitate more cooperation with Iran, but failed.

So it’s not just the BRICs (Brazil, Russia, India, and China) attempting to get around US sanction madness.

Brazil’s President Calls for End to US Dollar Trade Dominance, So What?

Point 9 is also worthy of discussion. I wrote about that on April 14, in Brazil’s President Calls for End to US Dollar Trade Dominance, So What?

The reason for US dollar dominance is simple. Trade is between individuals and corporations, not between nations.

Trade Example

• A Brazilian soybean producer sells soybeans to a merchant in China.

• A Brazilian scooter manufacturer buys Lithium batteries from a Chinese merchant.

• The soybean producer buys nothing from Chinese merchants.

• The Chinese battery producer buys nothing from Brazilian merchants.

Why would the Brazilian soybean producer want to hold yuan, especially given that the yuan doesn’t even float?

Why would the Chinese battery producer want to hold the Brazilian Real?

No one is forcing the soybean producer or the battery producer to do anything. By choice they prefer to trade in dollars, which by the way is instantly convertible to any currency the producers may wish to hedge in.

Need for Cooperation

Lagarde did go on about the need for cooperation. And that discussion was mostly fluff although cooperation is certainly needed.

G20 was functionally broken as a mechanism for most forms of international cooperation well before Russia invaded Ukraine. Rifts between US and China, Canada/ EU/ US and Russia all too big.

Remains useful as a venue for talks, but real cooperation shifted back to the G7

— Brad Setser (@Brad_Setser) April 17, 2023

“Every G20 meeting since the invasion has concluded with no communique.”

“Cooperation has shifted back to the G7”

Really? What Cooperation?

The coordinated immobilization of Russia’s fx reserves was done through the G-7, as were the banking and energy sanctions.

no secret that full US-EU convergence on China has been a bit more difficult

— Brad Setser (@Brad_Setser) April 17, 2023

Weaponizing the US Dollar

The only cooperation we have had was in weaponizing the US dollar. That’s something Lagarde failed to mention. So did Setser.

It is the US weaponizing the US dollar that directly led to many of the key points that Lagarde made.

What Does China Do With a Dollar That’s No Longer Risk Free? Buy Gold?

On March 18, 2022, I asked What Does China Do With a Dollar That’s No Longer Risk Free? Buy Gold?

The reason for this topic has to do with the Fed’s unprecedented decision co confiscate Russia’s foreign currency reserves. Not only was the action unprecedented, it was illegal.

The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

Nowhere does the act give the Fed the right or power to confiscate the reserves of sovereign nations. But that is exactly what the Fed did.

If the Fed can do this to Russia, who else?

Q&A With Michael Pettis

Mish: Will China now hold more commodities and fewer dollars despite the pro-cyclical nature of it? More Euros or Yen over dollars? More gold?

Michael Pettis:

• “Given that so much of China’s “reserves” are now indirect and held by state-owned banks (all the increase since 2017) it’s hard to say what the currency composition of China’s reserves are.

• “Officially the US dollar is still by far the biggest component, but it is slowly declining.

• “I expect that this will continue as far as the official reserves go but, as you know, the hard part of reducing the US dollar component of your reserves is figuring out what the alternative should be, and with such high and growing reserves (once you include the indirect reserves at the state-owned banks) that is a very difficult question to resolve.”

Yuan Will Not Replace the Dollar

The Yuan Will Not Replace the US Dollar, Nor Will It Be Backed by Commodities

Don’t confuse a diminishing role for the US dollar with it’s demise as the global reserve currency. It’s far too early for that. For further discussion, please see the above link.

Also note my above trade example regarding Brazil’s desire to end dollar dominance. Wishin’ and hopin’ and beggin’ and prayin’ doesn’t do it because trade is not between nations.

Cooperation is Nonexistent or Failed

The imbalances mount. What cooperation there has been, mainly Russia, has failed. It has driven much closer cooperation between China and Russia with Brazil struggling to join that party.

Three Conflicting Goals of Cooperation

1. Reduce dependence on China

2. Avoid protectionism

3. Appease the Greens

Impossible Requirements

1 + 2 is difficult if not impossible. 2 + 3 is difficult if not impossible. 1 + 3 is difficult is not impossible.

1 + 2 + 3 is 100% guaranteed impossible.

As an added bonus, please factor in Taiwan.

Then factor in China’s control of rare earth elements and permanent magnets. The permanent magnets and other rare earth elements are used in cell phones, missiles, wind turbines, and electric vehicles.

Brad Setzer

“The coordinated immobilization of Russia’s fx reserves was done through the G-7, as were the banking and energy sanctions. no secret that full US-EU convergence on China has been a bit more difficult.”

A bit more difficult or impossible given the three conflicting goals and weaponization of the dollar?

The US and G-7 Allies Are Torn Over Dependence on China

This morning, I wrote The US and G-7 Allies Are Torn Over Dependence on China

At the time, I was unaware of Lagarde’s speech.

I am still amazed that she actually seems to understand most of the actual risks although she failed to discuss weaponization of the dollar.

*  *  *

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In an interview with Fox News host Tucker Carlson on Monday evening, Elon Musk discussed the potential threats artificial intelligence poses to humanity. He expressed concerns over AI chatbots being developed with liberal bias and shared plans to create a non-woke chatbot. 

Musk was an early donor of OpenAI’s chatbot ChatGPT and expressed concerns over the direction of AI development. He told Carlson that large-language models were being trained to be “politically correct.” 

“I’m going to start something which I call TruthGPT,” Musk said, “or a maximum truth-seeking AI that tries to understand the nature of the universe.”

Musk also advocated for the regulation of AI. He said, “AI is more dangerous than, say, mismanaged aircraft design or production maintenance or bad car production,” adding, “It has the potential of civilizational destruction.”

In February, Musk tweeted, “What we need is TruthGPT.” 

What we need is TruthGPT

— Elon Musk (@elonmusk) February 17, 2023

Musk told Carlson that Google’s Larry Page once told him about plans to build a “digital god.” 

Elon Musk says Google co-founder Larry Page once told him that he wants to build a “Digital God” using AI. pic.twitter.com/DMvME0ADfa

— Citizen Free Press (@CitizenFreePres) April 18, 2023

Last month, Musk created a new AI company called X.AI Corp, according to the state of Nevada filings. In the same month, he signed an open letter, along with hundreds of other tech experts, urging for an immediate pause of any new chatbots from OpenAI. 

Musk has rolled Twitter into X as his plans to create a so-called “everything app” could soon be a reality. This latest revelation comes after reports of Musk purchasing 1000s of GPUs (critical infrastructure for AI development).

Musk also told Carlson about halving the valuation of Twitter since his takeover last year: 

“We just revalued the company at less than half the acquisition price.”

Musk took Twitter private in a $44 billion deal. The Information recently said the billionaire offered employees new equity grants at around a $20 billion valuation. 

Authored by Ross Muscato via The Epoch Times (emphasis ours),

Rep. Mike Gallagher (R-Wis.), chair of the House select committee on China, has called for the United States to immediately cease funding companies in China that are developing artificial intelligence (AI), the technology bringing about worldwide transformation and disruption.  

Gallagher, a U.S. Marine combat veteran, who has been out front in publicizing and pushing legislation to nullify the threat China and its ruling Chinese Communist Party (CCP) pose to America, is asking for this financial pipeline to be shut down as some of the biggest and most powerful American venture capital (VC) firms, either directly or indirectly, are making significant investments in Chinese AI enterprises.  

The representative also makes this request as global business and thought leaders—among them technology moguls Elon Musk, Apple co-founder Steve Wozniak, and Pinterest co-founder Evan Sharp—have publicly called for a pause on AI development because of the risks and dangers it poses if not checked and not controlled.

“In recent months, we have seen revolutionary advances in artificial intelligence in America, but we are still neck and neck with the Chinese Communist Party when it comes to this critical technology, which could determine geopolitical dominance in the 21st century,” said Gallagher in a statement he sent to The Epoch Times.

“While serious questions remain about the right guardrails to put in place around AI in America, we know that the CCP will use this technology to further repress their own citizens and export their model of techno-totalitarian control around the world. The most obvious next step is to immediately cut off the flow of American capital to Chinese AI companies.”

Prominent American-based VC firms with global reach and that are funding companies in the Chinese AI sector include Tiger Global Management, Silver Lake, and IDG Capital. Sequoia Capital China, an affiliate of Sequoia Capital headquartered in Silicon Valley, backs Chinese AI companies. Money originating in America helps fund the Chinese VCs, Qiming Venture Partner and Matrix Partners China, that hold stakes in the China AI industry.

Referring to Sequoia Capital, Gallagher said: “Surely Sequoia can find other ways to make money than financing freedom’s end.”

The Threat of the CCP and AI

Members of Congress, from both parties, are sounding the alarm on the danger of the United States funding AI development in a country ruled by the Chinese Communist Party (CCP), a growing adversary to the United States, and which is acting increasingly menacingly to its neighbors in the Pacific.

Read more here…

We have said previously on more than one occasion that the bear market rally just won’t end until Wall Street’s two bearish cosplayers, Marko Kolanovic and Mike Wilson, throw in the towel and turn bearish…

Rally won’t end until Wilson and Marko turn bullish

— zerohedge (@zerohedge) February 7, 2023

… and sure enough, one day after both of these broken records published their latest weekly doom and gloom performance art meant solely to get institutional and retail investors to sell to their flow desks, futures have melted up even more, with spoos now trading a 2+ month high.

US equity futures were set to hold onto Monday’s sharp hour bounce as investors awaited a slew of earnings:  contracts on the S&P 500 rose 0.4% by 7:00a.m. in ET while Nasdaq 100 contracts outperformed, rising 0.7%. Johnson & Johnson, Goldman Sachs Group Inc. and Netflix Inc. are among those reporting later.

In premarket trading, Riot Platforms led fellow cryptocurrency-exposed stocks higher in US premarket trading as Bitcoin rebounded to inch closer to the $30,000 mark. Here are some other notable premarket movers:

• Bank of America rose 2% after reporting solid earnings which beat on the top and bottom line.
• Alibaba shares rise in US premarket trading after Reuters reported that Chinese regulators are expected to cut a fine on Ant Group to $700 million from an initially planned amount of more than $1 billion.
• Gamida Cell rose as much as 81% in premarket trading on Tuesday, poised to set a second consecutive intraday record, after the FDA approved its cell therapy Omisirge for patients with blood cancers to reduce the risk of infection following stem cell transplantation.

The irony is that it is not just Marko and Mike that are dodecatupling down on bearishness as stocks melt up: so is everyone else. As Bloomberg notes, traders are “scaling the towering monolith of skepticism that currently comprises Wall Street’s view of markets takes uncommon courage” and the more the S&P 500 goes up — and it’s risen 6% in a month — the less people trust it. Hedge funds have been loading up bets against US stocks, and a model kept by Goldman Sachs shows mutual fund and futures-market outflows suggest that rather than rise, the index should have been down 3% over the past three months.

“Being bullish today is a very lonely proposition,” said Eric Diton, president and managing director of the Wealth Alliance. It is, also, very profitable and as we have repeatedly warned readers, positioning is so bearish that stocks have no choice but to melt up. Moreover, investor allocation to equities relative to bonds has dropped to its lowest level since the global financial crisis as worries about a recession take hold, according to Bank of America Corp.’s global fund manager survey.

And that’s why futures at 4,200 are a lock: because with everyone bearish, and nobody left to sell – or short – what comes next is another rolling short squeeze.

Traders are also anticipating the end of Federal Reserve policy tightening and are hoping for a milder-than-expected economic slowdown, optimism that has boosted equities this year. “If interest rates go down to the extent that’s priced into the forwards, we’re not going to get on top of inflation,” Euan Munro, chief executive officer at Newton Investment Management, said on Bloomberg Television.  “Inflation is going to be quite hard to beat and will require interest rates to be held higher for a lot longer.”

European stocks are ahead with the Stoxx 600 up 0.5%, led by gains in the banks, mining and travel sectors. Here are the most notable European movers:

• Demant rises as much as 8.1% after the Danish company posted first-quarter results ahead of expectations and boosted its FY guidance, with its Hearing Aids unit delivering a strong beat
• Sika shares gain as much as 3.9% after the Swiss builder boosted sentiment by confirming its guidance and giving a positive indication on margin, according to Baader
• Entain shares jump as much as 4.8% after the UK-based gambling company reported an increase in first-quarter net gaming revenue, with most analysts seeing in-line results
• Moneysupermarket shares gain as much as 2.7% as analysts said the trading update from the price-comparison platform was robust, driven by strength for its Insurance segment
• IntegraFin shares rise as much as 6.8%, the most since November, as analysts said the investment platform’s fiscal 2Q results look robust, prompting an upgrade from Numis
• Volex shares rise as much as 19%, the most since April 2022, after the power products producer said its performance has been ahead of expectations
• ALK-Abello falls the most since November 2007, after the Danish allergy medicines maker reported considerably smaller tablet sales in Europe than expected in a preliminary earnings release
• Ericsson shares fall as much as 8.1%, their biggest intraday decline since January, after the 5G networking equipment-maker gave a tepid outlook for the second quarter
• Wise shares fall as much as 16% after the money-transfer firm reported worse-than-expected total payment volume, attributing a drop in volume per customer to slower growth among frequent users
• THG shares slide as much as 18%, the biggest intraday decline since Jan. 17, after the online retailer reported a bigger-than-estimated drop in first-quarter revenue
• TUI shares fall as much as 6.1% in Frankfurt after a take-up of the company’s rights offering that Louis Capital Markets said looks weak at first glance

Earlier in the session, Asian stocks were mixed as investors digested an uneven set of Chinese economic data, which showed further signs of recovery with some patches of weakness. The MSCI Asia Pacific Index was up 0.1% as of 5 p.m. in Hong Kong, with gains in industrial and financial shares offsetting losses in technology stocks. Benchmarks in Japan advanced, while those in Hong Kong, Taiwan and South Korea fell. Chinese shares eked out small gains as the economy grew at a faster pace than expected in the first quarter. The overall market reaction was muted as tepid property investment figures suggested the housing market remains a drag on the economy. A wave of insider selling of shares also weighed on sentiment.

“From the looks of it most of the major numbers beat estimates, especially GDP and retail sales,” said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. “But property investment is still lagging and misses expectations, which echoes with broader concerns that the property market rebound could be a short-lived one as investments are not picking up.” The latest US earnings season has failed to impress investors so far, with an unexpected expansion in New York state manufacturing activity turning the focus to the Federal Reserve’s policy path. Richmond Fed President Thomas Barkin said he wants to see more evidence that US inflation is easing back to the central bank’s goal of 2%. Europe and the US are going into a slight slump, and China is probably seeing growth pick up, Eva Lee, head of Greater China equities at UBS Global Wealth Management, said on Bloomberg Television. It is an ideal scenario for people to “maybe reallocate a little bit more weighting onto China versus last year or last few years,” she said.

Japanese stocks rose for an eighth day, following US peers higher, driven by gains in banks and insurers. A strong start to the US earnings season and better-than-expected New York factory activity continue to boost global investors’ sentiment.  The Nikkei advanced 0.5% to 28,658.83 as of the market close in Tokyo, reaching the highest since August 2022. The Topix rose 0.7% to 2,040.89 to the highest since March 9. Nippon Telegraph & Telephone contributed the most to the Topix’s gain, increasing 2%. Out of 2,158 stocks in the index, 1,581 rose and 470 fell, while 107 were unchanged. “Japanese stocks are strong due to easing fears of a worsening US economy and a weaker yen,” said Tetsuo Seshimo, a portfolio manager at Saison Asset Management. 

Australian stocks declined weighed by declines in energy and consumer staples stocks. The S&P/ASX 200 index fell 0.3% to close at 7,360.20. Most Asian stocks dropped as investors focused on patches of weakness in China’s economic data even as the overall picture was solid. Australia’s central bank discussed the case for raising interest rates by 25 basis points at its April meeting before deciding there was a stronger argument to pause its almost yearlong tightening cycle and wait for more data on the economy’s outlook.

India’s benchmark indexes dropped for a second straight day on Tuesday while small and midcap gauges extended their winning run as investors rotated allocations from frontline stocks to shares that had trailed their larger peers in recent months. The S&P BSE Sensex fell 0.3% to 59,727.01 in Mumbai, while the NSE Nifty 50 Index declined by a similar measure. Meanwhile, the continued rally in BSE’s small and midcap gauges is the longest run of advances since 2018 and 2014, respectively. Reliance Industries contributed the most to the Sensex’s decline, decreasing 1.1%. The company will be reporting its March quarter earnings after the close of trading on Friday. Out of 30 shares in the Sensex index, 13 rose, while 17 fell

In rates, Treasuries climbed led by the short-end and US stock futures advanced, pointing to a positive cash open. Gilt futures gap lower before extending declines while the British pound is among the best-performing G-10 currencies after data showed UK wages rose more than expected in February. UK two-year yields are up 6bps at 3.67% while cable gains 0.5% as the figures firmed up bets on a 25bps hike by the Bank of England in May. Bunds fall in sympathy with German two-year yields up 1bps at 2.89% while US yields edge lower. US economic data includes housing starts and building permits for March, while Fed’s Bowman discusses digital currencies

In FX, the Bloomberg Dollar Index is down 0.3%. Australia’s dollar rose after minutes of the Reserve Bank’s April meeting showed members discussed a quarter point hike before deciding on a pause. China’s “retail sales and quarterly GDP numbers have both exceeded expectations, hence the small pop higher in AUD even though industrial production and fixed asset investment have somewhat underwhelmed versus expectations,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney. The pound was the second best performer among G10 peers after UK wage growth accelerated unexpectedly, fueling inflation concerns.

In commodities, crude futures decline with WTI falling 0.3% to around $80.60. Spot gold rises 0.3% to around $2,002.

Bitcoin is firmer rising 1.2% and at the top-end of the sessions parameters, but is yet to regain the USD 30k mark after eclipsing it and subsequently losing the figure last week.

To the day ahead now, and data releases include UK unemployment for February, the German ZEW survey for April, US housing starts and building permits for March, and Canada’s CPI for March. From central banks, we’ll hear from the Fed’s Bowman, the ECB’s Centeno, and Bank of Canada Governor Macklem. Finally, today’s earnings include Johnson & Johnson, Bank of America, Netflix, Lockheed Martin, Goldman Sachs, BNY Mellon, United Airlines and Western Alliance Bancorp.

Market Snapshot

• S&P 500 futures up 0.1% to 4,183.00
• MXAP little changed at 163.55
• MXAPJ down 0.3% to 528.06
• Nikkei up 0.5% to 28,658.83
• Topix up 0.7% to 2,040.89
• Hang Seng Index down 0.6% to 20,650.51
• Shanghai Composite up 0.2% to 3,393.33
• Sensex down 0.5% to 59,613.52
• Australia S&P/ASX 200 down 0.3% to 7,360.18
• Kospi down 0.2% to 2,571.09
• STOXX Europe 600 up 0.2% to 467.86
• German 10Y yield little changed at 2.49%
• Euro up 0.4% to $1.0974
• Brent Futures down 0.2% to $84.59/bbl
• Gold spot up 0.4% to $2,003.15
• U.S. Dollar Index down 0.37% to 101.72

Top Overnight news from Bloomberg

• China reports bullish Q1 GDP (+4.5% vs. the Street consensus +4% and vs. +2.9% in Q4) and March retail sales (+10.6% Y/Y vs. the Street +7.5%), but March industrial production falls short (+3.9% vs. the Street consensus of +4.4%) and property investment continued to contract. BBG
• Geopolitical rifts caused by rivalry between the US and China could push up inflation by 5 per cent and threaten the leading positions of the dollar and euro, Christine Lagarde has warned. FT
• A Chinese laboratory conducting advanced coronavirus research faced a series of biosafety problems in November 2019 that drew the attention of top Beijing officials and coincided with the Covid pandemic’s emergence, according to a new report being released by Senate Republicans on the pandemic’s origins. The report charts a confluence of unexplained events in that month and concludes the pandemic more likely began from a lab accident than naturally, via an animal infecting humans. WSJ
• Japan will stay the course to reach the central bank’s 2% inflation target by continuing monetary easing even though it may take time, Governor Kazuo Ueda said on Tuesday, signaling his stance to maintain loose conditions. RTRS
• Corporate insolvencies rose 16 per cent last month from a year earlier in England and Wales as businesses contended with soaring costs and a weakening economy. Registered company insolvencies climbed to 2,457 in March from the same month a year ago and 83 per cent higher than in February 2020, before the Covid-19 pandemic, the Insolvency Service on Tuesday said. FT
• UK wage growth jumps above expectations in Feb, raising inflation concerns (wages ex-bonus payments rose 6.6% in Feb vs. the Street consensus of +6.2%). BBG 
• While the data are still very preliminary, weak tax collections so far in April suggest an increased probability that the debt limit deadline will be reached in the first half of June. We have been projecting that Treasury could operate without a debt limit increase until early August. GIR
• Saudi Arabia and the UAE are buying Russian energy products at depressed prices for domestic consumption and exporting their own oil at market rates. WSJ
• JBHT reported a miss both Q1 EPS and revenue at 1.89/$3.23B (vs. the Street consensus of 2.01/$3.39B) and mgmt. on the call said the economy was in a “freight recession”. RTRS

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mostly subdued and failed to benefit from the slew of data from China including stronger GDP growth with the mood tentative across global markets ahead of upcoming earnings releases stateside. ASX 200 was dragged lower by underperformance in energy and consumer stocks, while the RBA Minutes reaffirmed the potential for future rate increases as the central bank noted it is important to be clear that policy may be tightened again to curb inflation in a timely manner and that inflation is still too  high. Nikkei 225 was kept afloat following reports that the BoJ is mulling CPI projections for FY25 of between 1.6%-1.9% which would remain below the 2% price goal and support the case for a delayed exit from easy policy. Hang Seng and Shanghai Comp were contained as participants reflected on the somewhat varied data releases from China in which GDP Q/Q matched estimates and Y/Y growth topped forecasts, while Industrial Production and Fixed Asset Investments printed below expectations, but Retail Sales surged by a double-digit percentage.

Top Asian News

• Chinese Finance Ministry official said there are positive changes in the property market but the market is still recovering gradually, while they will accelerate issuance and use of special local government bonds in H2.
• China stats bureau said the international environment is still complex and growth of external demand remains uncertain, while it added that constraints of domestic market demand and insufficient demand still exist but noted that demand for production has basically rebounded, according to Reuters.
• Chinese officers are accused of interfering with dissidents’ meetings on US technology platforms
• Citigroup raises its China 2023 GDP forecast to 6.1% (prev. 5.7%).
• RBA Minutes from the April Meeting stated that the board considered a rate hike at the April meeting before deciding to pause, while it agreed there was a stronger case to pause and reassess the need for tightening at future meetings. RBA said it is assessing data on inflation, jobs, consumer spending and business conditions, as well as noted that updated RBA forecasts in May will help assess when and how much more tightening is needed. Furthermore, RBA said it is important to be clear that policy may be tightened again to curb inflation in a timely manner and noted that inflation is still too high.
• BoJ’s Ueda says there is no immediate need to review the 2013 joint statement with the government, positive signs are emerging in prices and wage growth. Will achieve inflation target, although it may take time.
• India is weighing a revamp of income tax with a focus on capital gains, according to Bloomberg; could streamline capital gains and income tax rules with law changes in 2024.

European bourses are firmer across the board and were resilient to softer than expected ZEW numbers with earnings in full-focus, Euro Stoxx 50 +0.6%. Sectors have a positive tilt, with Banks, Basic Resources and Travel/Leisure outperforming with the latter assisted by a well-received H1 update from easyJet while Telecoms lag on Ericsson’s downside as they expect to remain cautious. Stateside, futures are in the green with the NQ +0.6% outperforming a touch as yields ease off highs while the broader focus is firmly on upcoming bank earnings. Airbus (AIR FP) has informed airlines of delivery delays for the A320neo-family jets slated for delivery in 2024, according to Reuters sources; several hundred jets are set to be postponed by around three months.

Top European News

• EU Commission President von der Leyen says they must be more assertive on trade defense tools, now discussing outbound investment screening.
• French Finance Minister says France will accelerate debt-cutting plans.

FX

• Buck backs off after making a solid start to the week, with the DXY losing grip of 102.000 and sight of 21 DMA at 102.210.
• Aussie outpaces fellow G10s in wake of hawkish RBA minutes, as AUD/USD eyes 200 DMA at 0.6750.
• Kiwi up in slipstream and back on a 0.6200 handle against Greenback pre-NZ CPI.
• Pound perks up on the eve of UK CPI as hot wages put Cable back above 1.24.
• Euro shrugs off weak ZEW metrics amidst a broad Dollar downturn but is facing more decent option expiries at 1.10000.
• PBoC set USD/CNY mid-point at 6.8814 vs exp. 6.8828 (prev. 6.8679)

Fixed Income

• Bunds bounce firmly within 133.49-86 range as the 10-year yield holds around 2.5% and the latest German ZEW survey disappoints in terms of sentiment and expectations.
• Gilts pare some declines between 101.11-56 parameters as the 2053 DMO sale is covered 2.5x.
• T-note idles inside a 114-13/08 band ahead of US housing data, Fed Discount Rate meeting minutes and Bowman.

Commodities

• Crude benchmarks are subdued despite the downbeat USD, firmer tilt to stocks and Chinese data; desks highlight the progress between Iraqi and Kurdish governments in negotiations may be capping any upside.
• Nat Gas prices are contained after the marked rally seen stateside yesterday amid forecasts for colder-than-usual weather.
• Metals remain underpinned by the waning USD with Spot Gold holding at USD 2k/oz, while industrial metals benefit from Chinese GDP though LME Copper is struggling to retain the USD 9k handle.
• Brazil’s March oil and gas production fell 11.95% M/M, according to oil regulator ANP cited by Reuters.
• Committee of ministers in Chile approved an environmental permit for Anglo American’s (AAL LN) Los Bronces project.

Geopolitics

• G7 Foreign Ministers communique said they condemn in the strongest possible terms Russia’s war of aggression against Ukraine which constitutes a serious violation of international law including the UN Charter, while it noted that Russia’s irresponsible nuclear rhetoric and threats to deploy nuclear weapons in Belarus are unacceptable. The communique also stated there is no legal basis for China’s expansive maritime claims in the South China Sea and they oppose China’s militarisation activities in the region, according to Reuters.
• Taiwan is to buy 400 US anti-ship missiles intended to repel China in a deal which is Taiwan’s first for land-launched harpoon missiles, according to Bloomberg.
• Russian Defence Ministry said two Russian strategic bombers carried out routine flights over the Okhotsk and Bering Sea, according to Tass.
• Russian Defence Ministry says Russia-Chinese cooperation serves to stabilise the global situation, should help each other in military issues. Remarks which were subsequently echoed by China.
• Russian Kremlin says President visited Kherson and Luhansk regions on Monday; is not aware of any peace plan for Ukraine proposed by France.
• Japan’s Defence Ministry has scrambled jet fighters to Russian reconnaissance aircraft over the Seas of Japan

US Event Calendar

• 08:30: March Building Permits MoM, est. -6.5%, prior 13.8%, revised 15.8%
• 08:30: March Building Permits, est. 1.45m, prior 1.52m, revised 1.55m
• 08:30: March Housing Starts MoM, est. -3.5%, prior 9.8%
• 08:30: March Housing Starts, est. 1.4m, prior 1.45m

DB’s Craig Nicol concludes the overnight wrap

I was back in the office yesterday after skiing. Was a good trip and one where it felt like the batton was being passed. For the sake of my knees I shouldn’t really ski much anymore (they are sore now) but we did our first family day at the end of the holiday as the twins graduated from a first week of ski school and Maisie could ski again after her hip disease (Perthes). At least I can say I had one day with all of them before I fall apart and retire ungracefully. We will see. Maisie had her latest scan yesterday on our return and relative to the diagnosis we first had nearly 2 years ago she’s made close to the best possible progress she could have made. At the start of the process that ended up with a big operation and 14 months in a wheelchair, they were worried we would have to manage her hip and the pain carefully through childhood and for her to have a hip replacement as soon as she was fully grown. However the scan yesterday showed that the hip ball has now regrown back as normal as it could be given the circumstances. The doctor said she may not now need a hip replacement until she’s nearer 50! She’s not out of the woods yet but it’s gone as well as it could have at this stage and is now worth all the sacrifices. So I may have knee replacements at a younger age than she has her hip done, albeit 40 years apart. Anyway for all the happiness, all I can say is that it’s now good to be back and away from all the noise, fights, tears and tantrums.

While I’ve been away it’s clear the story has been a steady recovery back towards, and in some cases better than, pre-SVB levels. For me the script remains the same as it has been for the last couple of years. This is a boom/bust US cycle and we’re getting closer to the bust part. We’ve highlighted H2 2023 as the likely bust part for the past year or so and nothing has really deviated us from that regardless of the good or bad news along the way. However I doubt big banks will be at the epicentre of it as a lot has positively changed in their fundamentals since the GFC. So a retreat from peak financial pessimism makes sense. However things will continue to fall off the wheel in the broader financial system as the lagged impact of tighter monetary policy continues to bite as it does in virtually every hiking cycle. So we’re in the early days of the monetary policy lag still in my opinion.

On a similar note, this morning my credit team have published a strategy update entitled “Squeeze Before The Storm” (link here). The piece suggests that global credit markets may see a continued rally as investors price in a soft-landing. The belief is that March’s banking crisis will not accelerate the end of the US or European credit cycle. Hence, we retain our spread targets and believe credit will remain resilient through the spring, especially in €IG. However, the negative impacts of tighter Fed & ECB policy are still in the process of damaging growth, keeping us on track for decompression & material spread widening by the end of 2023. See the piece for more.

While we distance ourselves from the SVB shock, the last 24 hours has continued to see sovereign bonds selling off as investors continue to dial back the chances of rate cuts this year. This got an added kicker yesterday from some solid US data that offered fresh hope of the economy’s resilience. In particular, the Empire State manufacturing survey for April came in at a 9-month high of 10.8 (vs. -18.0 expected), and the new orders subcomponent was at a one-year high of 25.1. In the meantime, the NAHB’s index of homebuilder sentiment rose for a fourth straight month in April, recovering further after a run of declines throughout 2022.

This growing optimism around the economy’s near-term performance means that investors are now almost fully pricing in another Fed rate hike at their meeting on May 3. In fact, futures took the chances up to 88% yesterday, which is their highest since the SVB collapse. And looking further out, the rate priced in by the December meeting rose +7.7bps to 4.56%, which is likewise a post-SVB high. In many respects, what we’ve seen so far is reminiscent of the Fed ‘pivot’ trades over the last 18 months, when investors would dial back the prospect of rate hikes and grow hopeful about a dovish shift in response to some shock, before ratcheting them even higher still as both the economy and inflation proved resilient. Now obviously we’re still some way from the pre-SVB situation, when terminal rate pricing got all the way to 5.69% (vs. 5.10% now), but the direction over the last month has been progressively higher since the turmoil subsided.

Fed speakers have also grown more ambivalent after initial calls for caution shortly after the SVB and Signature bank failures. Yesterday, Richmond Federal Reserve President Barkin (non-voter) said that he wanted “to see more evidence that inflation is settling back to our target,” and that the “labor market has moved from red-hot to merely hot.”

With investors becoming more sceptical that the Fed will cut rates anytime soon, Treasuries sold off most of the day, with the 2yr yield up +9.3bps to 4.189%. That’s their 7th increase over the last 8 sessions, taking yields up to their highest closing level in over a month. The range has been from 5.07% to 3.77% from just before the SVB news hit to now. And the 10yr yield was also up +8.0bps to 3.59% (same range is 4.055% to 3.305%). 10yr yields actually peaked as House Speaker McCarthy was giving a speech on the debt ceiling which we expand on below. Meanwhile in Europe, the direction of travel was the same albeit with smaller moves, as yields on 10yr bunds (+3.3bps), OATs (+1.5bps) and BTPs (+0.7bps) were all higher. One factor influencing that was the perception that 50bps still remained on the table for the ECB’s May meeting, with Latvia’s Kazaks saying that a 50bps move “is not an option that can be ignored.”

Whilst there was a clear movement on the rates side yesterday, equities held fairly steady and the S&P 500 (+0.33%) posted a modest rise. State Street (-9.18%) was the worst performer in the index, which came as they reported more outflows than expected, while competitor Charles Schwab announced outflows that were “as-expected” and rallied +3.94%. Despite State Street’s drop, banks (+2.10%) outperformed along with other cyclicals, while megacap tech stocks saw large declines thanks to the rates moves as the FANG+ Index fell -0.25%. Back in Europe, the STOXX 600 (-0.01%) was just worse than unchanged but broke a run of 5 consecutive gains.

Overnight in Asia, equities in the region are trading mixed following a decent Q1 GDP beat from China. The YoY figure came in at 4.5% (vs 4.0% median estimate on Bloomberg), supported by strong retail sales growth in particular in a sign of a more consumer-led post-covid recovery. However, we also saw soft industrial production (YoY 3.9% vs 4.4% expected) and fixed asset investment data for March, in contrast to a retail sales beat (10.6% vs 7.5%). So this has highlighted an uneven recovery at this stage. Net net this left Chinese stocks roughly flat (CSI 300 +0.08%), putting them ahead of most of the rest of the region, with the Hang Seng (-0.78%) and the Kospi (-0.34%) in the red so far. Japanese equities are the main outperformer, with the Nikkei rising +0.49%. US equity futures are flat (S&P 500 -0.04%) and Treasury yields are down by c -1bps across the curve.

Another important story coming up is with regards to the US debt ceiling, which is something that remains in the backdrop as we come closer to the so-called “X-date” when the government would no longer be able to meet its obligations; potentially over the summer. Today is the deadline for most of the US to file taxes, and so we should have a better idea of what that “X-date” is soon. Those payments will filter down to the Treasury’s operating budget and then attention will turn to another reporting of tax revenue in June. Yesterday saw House Speaker McCarthy give a speech at the New York Stock Exchange, where he said that “a no string-attached debt limit increase will not pass” and called for spending cuts. At the moment, the next step in the process will likely be for the Republicans to vote on a bill that raises the debt ceiling. That isn’t going to pass in the Democratic-controlled Senate, but the logic is to demonstrate what Republicans are prepared to back as McCarthy looks to negotiate an increase in the limit with the White House.

To the day ahead now, and data releases include UK unemployment for February, the German ZEW survey for April, US housing starts and building permits for March, and Canada’s CPI for March. From central banks, we’ll hear from the Fed’s Bowman, the ECB’s Centeno, and Bank of Canada Governor Macklem. Finally, today’s earnings include Johnson & Johnson, Bank of America, Netflix, Lockheed Martin, Goldman Sachs, BNY Mellon, United Airlines and Western Alliance Bancorp.

Environmentalists are up in arms over apparent slack added to the Group of Seven’s energy and environmental goals, after ministers decided that the ‘war in Ukraine and its effects on oil and gas’ warrant breaking what are supposed to be ‘firm commitments’ that climate advocates say are necessary to limit global warming.

Most notably, the ministers left the door open to new investment in natural gas and ongoing use of fossil fuels.

The G7 ministers also concluded their conclave on Sunday without setting a deadline for halting new coal investments, though they did pinky-swear to ‘work toward’ cleaning emissions from power generation and reducing vehicle emissions by 2035.

“It falls short of being the clarion call to action that was needed,” said Alden Meyer, a senior associate at climate change think tank E3G during a Twitter Spaces conversation, adding that the G7 undermines its global authority “every time they allow carve-outs on issues like international fossil fuel finance.”

The G7, the seven most developed countries, consider themselves stewards of the global effort to reduce greenhouse glasses – and their communique ‘sets the tone for negotiations around energy and climate among the Group of 20 countries and at the UN climate summit — COP28 — in Dubai in November,’ Bloomberg reports.

The new statement seemed to weaken at least one previous commitment, climate activists said.  At last year’s meeting, the group’s promise was specific: to halt “new direct public support for the international unabated fossil fuel energy sector by the end of 2022, except in limited circumstances clearly defined by each country that are consistent with a 1.5°C warming limit.”

But now, with the war in Ukraine and its effects on oil and gas supplies stretching into a second year, the group said “investment in the gas sector can be appropriate to help address potential market shortfalls,” as long as they’re “implemented in a manner consistent with our climate objectives and without creating lock-in effects.” -Bloomberg

French Energy Minister Agnes Pannier-Runacher pushed back at critics, saying that the new language was actually more strict than what was originally envisioned, and that it “implicitly means that we cannot invest in the exploration of new gas capacity.”

She also told reporters on Saturday that while the highlight of this year’s negotiations was an agreement to phase out ‘unabated’ fossil fuels more rapidly, the group “could not reach an agreement on exiting coal by a specific date.”

The final language was said to have been crafted to appease Japan, which hosted the meeting, as well as Germany’s Deputy Energy Minister Patrick Graichen, which called the group’s position “carefully balanced.”

That said, the G7 meeting did result in several commitments – including a plan to boost solar capacity by more than 1,000 gigawatts, and offshore wind generation to 150 gigawatts across member nations by the end of the decade, a move which would triple solar power and increase offshore wind capacity seven-fold.

“The G-7 are confirming that solar and wind are in line for takeoff,” said Dave Jones, head of data insights at energy think tank Ember said in the same Twitter Spaces, adding that the commitments show “very clearly that wind and solar are the biggest and cheapest tools in the toolbox to reduce emissions this decade.”

The group also acknowledged, but did nothing about, a plan to collectively cut vehicle emissions by at least 50% by 2035.

By Simon White, Bloomberg markets live reporter and analyst

The market is anticipating one more hike from the Fed, but the short-term interest rates curve intimates there are rapidly diminishing benefits to higher rates, while their adverse costs continue to rise.

Barring the unexpected, it looks as if the Fed will raise rates 25 bps at its May meeting. However, the battle the Fed has fought with the curve has reached the point where raising rates again will have a negligible additional impact on quelling inflation, while the costs could still have an undesired negative impact.

The fed funds curve is now almost completely negatively inverted. What this means is that one more hike will be minimally transmitted along the curve out to longer maturities where it would be able have a greater impact on constraining inflation.

Indeed, this is the first time that the very front of the fed funds curve has been inverted in the run up to the last hike. Thus each previous tightening cycle the Fed’s last hike has had more ex ante demonstrable benefits.

Given the shape of the curve, and the stubbornness of the pricing in of a “Fed pivot,” another hike would raise only the spot rate. The size of the pivot would probably deepen as the market assumed that the economic harm from higher rates would need to be addressed by greater cuts. Of course, if the Fed communicated the hiking cycle had a lot more to go, the curve would capitulate, but this is highly unlikely given we are teetering on the edge of a recession.

This has been the story all cycle. The Fed’s hawkishness was met by a higher expected peak rate, but that peak was brought forward, and the subsequent pivot made deeper. The market signally ignored the Fed’s evangelism for “higher for longer.”

Raising rates will increase the amount the Fed pays on reserve balances and on the RRP. This is great for larger banks who have a surfeit of reserves; it’s also good for money market funds and their clients (ZH: this is precisely what we have been warning about since last July).

But it means more stress for smaller banks who are not flush with reserves, some of which are still paying through the Fed’s target range for them. It will also at the margin further stress the hold-to-maturity portfolios of many, again smaller, banks. Moreover, it keeps pressure on rising interest-rate costs for the government.

Overall, if the next Fed hike was a trade for the central bank, it looks like one with poor risk-reward.

Authored by Naveen Athrappully via The Epoch Times (emphasis ours),

A new study could open the path for easier and earlier screening for Alzheimer’s disease, with the possibility of detecting the incurable neurodegenerative disease up to a decade in advance.

Early detection of Alzheimer’s disease is critical for effective treatment. However, there are no reliable methods for such detection at present. The study, done by researchers from Sweden’s Karolinska Institutet and published April 12 in Alzheimer’s & Dementia—the journal of the Alzheimer’s Association—involves analyzing a type of glycan structure in the blood called bisected N-acetylglucosamine. This glycan structure is linked to the level of tau, a protein playing a key role in the development of severe dementia.

Glycans are sugar molecules found on the surface of proteins and are one of the major building blocks of life.

Identifying bisected N-acetylglucosamine can give doctors a pathway toward spotting individuals with a higher risk of Alzheimer’s. In fact, the study could open a way for a simple screening procedure capable of predicting the onset of Alzheimer’s 10 years in advance.

At the onset of Alzheimer’s, neurons in the brain die. Ensuring that treatment begins early when not many neurons have died is crucial to reversing Alzheimer’s.

In the study, researchers measured the blood glycan levels of participants. They found that individuals with matching levels of glycans and tau were more than twice as likely to develop Alzheimer’s-type dementia.

“We demonstrate in our study that blood levels of glycans are altered early during the development of the disease,” said Robin Zhou, first author of the study as well as a medical student and affiliated researcher at the Department of Neurobiology, Care Sciences and Society (NVS) at Karolinska Institutet, according to an April 12 press release.

“This could mean that we’ll be able to predict the risk of Alzheimer’s disease with only a blood test and a memory test.”

Read more here…

Authored by Gergorz Adamczyk via Remix News,

The European Commission has slammed Poland and Hungary’s ban on Ukrainian food imports, saying member states cannot make such decisions regarding trade policy.

The leader of the ruling conservative Law and Justice party (PiS), Jarosław Kaczyński, announced over the weekend that a range of agricultural products such as grain, fruits, dairy, vegetables and poultry meat would be stopped from entering Poland from Ukraine. The decision has come as a result of the glut of grain from Ukraine and the flood of Ukrainian products onto the Polish market. In addition, Hungary and Slovakia have enacted similar measures, and there are reports that Romania and Bulgaria may also close their border to certain Ukrainian food imports.

“Bulgarian interests must be protected. Moreover, now that two countries have already acted in this way, if we do not react, the accumulations on Bulgarian territory could become even bigger,” Bulgaria’s acting Agriculture Minister Yavor Gechev said.

If Hungary, Slovakia, Romania, and Poland all block Ukrainian food product transit, it would effectively result in a geographical blockade in Europe, as the four countries border Ukraine.

Despite the growing crisis affecting Central and Eastern European countries, the European Commission argues that trade policy is the exclusive competence of the European Union and that “unilateral actions are unacceptable.” It also asserted that in difficult times, it was important to maintain coordination and unity in EU actions.

According to commercial television station Polsat News, the matter has already been the subject of calls between European Commission President Ursula von der Leyen, Polish Prime Minister Mateusz Morawiecki and Ukrainian PM Denys Shmyhal.

Hungarian Minister of Agriculture István Nagy announced on Saturday that Hungary will also temporarily ban the import of grain and oilseeds from Ukraine, as well as several other agricultural products, after Poland announced its ban.

According to the ministry’s statement, the continuation of the current market trends would cause such serious damage to Hungarian agriculture that extraordinary measures must be taken to prevent them. He added that Ukrainian agriculture uses production practices no longer allowed in the European Union resulting in extremely low production costs. Ukraine was also given duty-free access to the European market, with free trade opportunities for grain and oilseeds, as well as large quantities of poultry, eggs and honey, making it impossible for Hungarian and Central European farmers to compete.

Nagy stressed that the restriction on imports into Hungary is temporary and will last until June 30, 2023, which may be enough time to take meaningful and lasting EU measures for a lasting solution.

According to the statement, the agricultural sector expects the EU to ensure fair market conditions for European agriculture. The Hungarian government will always stand by Hungarian farmers and will protect Hungarian agriculture, the minister said.

Despite several affected member states’ demands for a Union-level solution, the EU has so far done nothing to rectify the situation.

The Ukrainian Ministry of Agriculture has expressed disappointment at Poland’s decision and stated that the decision was contrary to the agreement between the two countries. The statement went on to acknowledge that Polish farmers were in a difficult situation, but that “the situation of Ukrainian farmers was the most acute of all.”

A statutory instrument banning the import of chosen products from Ukraine was introduced by the Polish minister of development and technology, Waldemar Buda. He tweeted that “in answer to questions that are arising, the ban is of a comprehensive nature including the transit of such goods through Poland.”

W związku z pojawiającymi się pytaniami, zakaz ma charakter pełny, łącznie z zakazem tranzytu przez PL.
Kwestia tranzytu będzie przedmiotem dyskusji ze stroną UA na temat zbudowania szczelnego systemu i gwarancji wyłącznie przejazdu produktów przez PL. https://t.co/jfPs9CFmvd

— Waldemar Buda (@waldemar_buda) April 16, 2023

The transit will be a subject of discussion with Ukraine regarding tightening the system to establish “guarantees that these products will not remain in Poland.” The goods that have been banned include grain, sugar, fruits and vegetables, wines, meat, dairy products and poultry. 

Last year, the Russian naval blockade of Ukrainian grain shipments caused global wheat prices to rise by 60 percent in three months. The food crisis was mainly a concern for poorer countries in Africa and Asia, so Western countries have used every means possible to get supplies out of Ukraine. However, many of those supplies have remained in Europe, leading to drastic reductions in wheat prices.

Countries neighboring Ukraine set up solidarity corridors to transport grain to EU ports by boosting rail transport capacity. At the same time, the European Union abolished import tariffs against Kyiv so that the crops were freely flooding into Europe at depressed prices.

Ukraine’s imports of grain to the EU were 287,000 tons in 2021, rising to nearly 2.9 million tons in 2022.

Russia’s defense ministry has revealed details of ongoing snap live-fire military exercises which kicked off April 14. President Putin also hailed the drills as a success at a moment most forces are concentrated in Ukraine. Defense Minister Sergey Shoigu said Monday that the surprise combat readiness check of Russia’s Pacific Fleet has involved over 25,000 servicemen being placed on high alert.

“They’re engaged in fire drills and tactical exercises, while also working on improving interactions between different branches of the military,” Shoigu said. He also revealed that in total 167 ships, 12 submarines, and 89 planes and helicopters are taking part in the large-scale exercises.

Shoigu specified that during the drills Russia’s nuclear-capable long-range strategic bombers will “fly over the central part of the Pacific Ocean to imitate strikes against groups of enemy ships.”

These drills which are far away from the frontlines of the Ukraine war are likely an attempt to demonstrate to the West that Russia still has immense military capability in different theatres. The Associated Press detailed the expanse of the drills as follows:

The Defense Ministry has declared that sectors in the southern part of the Sea of Okhotsk, the Peter the Great Bay of the Sea of Japan and the Avacha Bay on the southeastern coast of the Kamchatka Peninsula would be closed to sea and air traffic for the duration of practice torpedo and missile launches and artillery exercises.

The ministry said that the drills were intended to “test the Pacific Fleet’s readiness to repel aggression.” The ministry described the briefing as a show of Russia’s “voluntary transparency.”

Shoigu said at a moment that the Ukraine ground and air war still rages that “nobody has aborted the task of developing the navy” and declared that the “final stage” of the drills will kick off Tuesday. He previously noted that the combat readiness checks are all about “boosting the ability of the armed forces to execute the tasks of repelling aggression by a potential enemy from maritime directions.”

On Monday President Putin praise the “high level” performance of the Russian navy and armed forces in the exercise, saying that more such drills will be held.

Interestingly, multi-national drills are also kicking off in Sweden this week, per a description in Russian state media: 

The Aurora-23 international military exercise – the largest over the past 25 years – began in Sweden on Monday. It will last until May 11, with the United States, Britain, Finland, Poland, Norway, Estonia, Latvia, Lithuania, Ukraine, Denmark, Austria, Germany and France taking part, the Swedish Defense Ministry said.

The purpose of the exercise is to “improve the combat readiness of the armed forces” in the event of a hypothetical armed attack on Sweden.

“The exercise is one of the main tools of enhancing, testing and demonstrating combat readiness,” the Defense Ministry said. “Together with military units from our partner countries, we strengthen security while enhancing Sweden’s operational capabilities.”

The exercise will take place in the air, on land and at sea. Some 26,000 troops from all military units, mainly in the south of Sweden and also on the island of Gotland will take part.

With this, it looks like the West is using the opportunity to flex its military might in these annual drills as well, at a moment the Ukraine conflict shows no signs of abating.