Fertilizer prices are at record highs. Here’s what that means for the global economy

         Supply shortages fueled by the Ukraine-Russia conflict, as well as other pre-existing factors, have driven fertilizer prices to record highs. Prices for raw materials that make up the fertilizer market are up 30% since the turn of the year and now exceed those seen during the food and energy crisis in 2008, according to British commodity consultancy CRU. Russia and Ukraine are among the most important producers of agricultural commodities in the world. They export many supplies in the food and fertilizer industries to other countries. Due to the invasion of Ukraine, trade between Russia and the rest of the world has been severely disrupted. 
Since the beginning of 2020, nitrogen fertilizer prices have quadrupled, while phosphate and potash have tripled. While farmers in developed markets have benefitted from high agricultural commodity prices, helping to partly offset high input prices, demand destruction is increasingly likely due to high prices and supply shortings. Economies around the world have been dealing with historically high inflation driven by soaring food and energy prices. The U.N. Food and Agriculture Index shows food prices are at an all-time high. 
The intensity of this supply shock can have big consequences as inflationary pressure can grow and broaden. The food and fertilizer industries have an influence on the industrialization and transport industries too which then lead to even more markets being affected. Shipping and transportation difficulties plus the impact of Russian sanctions on global supply are set to stretch global markets even further like the 2008 global food crisis had. Global food prices before the 2008 crisis shot up quickly and it is quite possible that the food market and other markets can repeat and go through the same crisis that occurred in 2008. The food and fertilizer industries being hurt will affect the global economy.

https://www.cnbc.com/2022/03/22/fertilizer-prices-are-at-record-highs-heres-what-that-means.html

Business Impact from Russia's invasion of Ukrain

 

Business impact from Russia’s invasion of Ukraine

The war has caused a lot of destruction in Ukraine and has consequences on the US as well. Some retailers have temporarily stopped their operations in Russia to show corporate condemnation of the war. Other retailers had to stop their operations in Russia because of sanctions. This could have a lot of influence on businesses around the world. Because of COVID retailers already are in difficult times. Retailers are trying to gauge future demand, so they can have the right amount of stock. However, this will be trickier now, because the war in Ukraine could be the cause of continued disruption in the global supply chain. Companies' costs will likely rise during the war. The increase in cost will come from high oil prices and the extra burdens of the disrupted global supply chain. Most companies pass their increase in cost onto the consumer, this will lead to an increase in prices. One of the retailers that will suffer the most are companies that use a lot of energy because Russia is one of the oil suppliers. Other retailers that will suffer a lot are retailers in food because Ukraine and Russia are major agriculture regions.

https://www.cnbc.com/2022/03/03/ukraine-news-retailers-start-warn-of-business-impact-from-russian-invasion.html 

Scott Rozelle and Natalie Hell, "Invisible China: How the Urban-Rural Divide Threatens China’s Rise"

A wonderful conversation about the growth of the Chinese economy and the importance of education for sustained growth. This conversation relates to our theoretical discussion of one-time vs sustained efforts to increase human growth.

Market Gyrations Ease with Traders Recalibrating Russia Risk

 According to the article by Bloomberg, traders are reevaluating the effect go the Russian-Ukraine War on trading strategies. 

Volatility in both stocks and bonds have fallen in the past few days. Russia has paid off some of its debts using dollars instead of a default, thus avoiding a default on payments. However, the country is till on hooks for more foreign-currency payments, thus maintaining a significant default risk. China has pledge to boost its economy. 

Investors will also be analyzing the effects of the Fed' first rate hike on the U.S. economy, when there is concern regarding a recession following an inverted yield curve for Treasury bonds (this article is only available for Bloomberg Professionals subscribers). 

Commodity linked currencies are in spotlight due to the high price of natural resources. Japan has asked the UAE to increase the export of crude oil, and Australia has stopped exporting shipments of aluminum to Russia.

Officials at the Bank of Russia are looking to purchase domestic sovereign bonds soon in an effort to stabilize the country.

Source: https://www.bloomberg.com/news/articles/2022-03-20/market-palpitations-ease-with-traders-recalibrating-russia-risk?srnd=markets-vp

“Fed Raises Interest Rates For the First Time Since 2018”

Wednesday, March 16, 2022, the Federal Reserve announced short term interest rates would be raised by 25 basis points or .25%. This now brings the Federal Funds Rate to between .25%-.5%. Since inflation is currently so high, the Federal Reserve is hoping that this increase in the interest rate will lower the high demand our economy is currently facing, which will help lower prices and in turn, lower inflation.

In addition to this, projections from the Federal Open Market Committee are signaling that interest rates will continue to be increased up to six more times in 2022, which would bring interest rates to around 1.75% higher at the end of 2022 compared to the end of 2021. Because of the current instability in the economy, caused partially by the war in Ukraine and already high inflation at home, this policy is more aggressive than previously considered by the Fed, who in December only projected three rate hikes in 2022, instead of its current projection of six. 

The Fed now projects that inflation will be around 4.3% for 2022, which is higher than previously projected in December (2.6%). In 2023, the Fed predicts inflation to be around 2.7%, and to be 2.3% in 2024, meaning that the Fed expects the rapid inflation we are currently experiencing to slow down over the coming months and years. In order to reach these goals, the Federal Open Market Committee is expecting short term interest rates to be around 2.5%-3% by the end of 2024. 

https://finance.yahoo.com/news/fed-fomc-monetary-policy-decision-march-2022-131719859.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAF_baH9EOX4LipLA10R1ZnkA86BEFv7Vh1ggc0aRV3RnUn_NVjhaT_AsJefF_vfIGOJio-zhcGcRCXKsYd82tS-MQ84PUFD4UU5HGyoo81RDV984kUbh4vt7S4K-Xb-2fptzrny5AhScY_Ivkiu4vL_NAeldpPztUiUHBIpKhuPW

Ukrainian Refugee Crisis and it's costs to European Nations

     Europe is facing a growing refugee crisis on a scale that hasn't been seem since World War 2. Over the past three weeks alone nearly 3 million Ukrainians have fled into nearby European countries because of the Russian invasion of Ukraine. However few Ukrainians are willing to call themselves "Refugees", viewing themselves rather as people seeking temporary shelter, with plans to return to Ukraine either soon, or when the conflict is over entirely. For example, from a report coming from the Romanian government out of 431,000 Ukrainians that have entered Romania since the start of the conflict, only 3,800 have asked for asylum. This could be likely to Europe's recent dealings with asylum seeking refugees and the negative connotations that have formed around the word. Or that most Ukrainians fleeing Ukraine have some sort of skill that can be used to work in the countries that Ukrainians are fleeing too. 

    The economic impact that this crisis will have on the European Union might be catastrophic, at least initially, as seen in the 2015 refugee crisis that saw Europe take in 1.3 million refugees from the middle east. The European Union has already pledged $550 million USD in humanitarian aid for those fleeing the crisis, but experts have estimated that it might take $30 billion USD for the first year alone, to help those fleeing the crisis have food, shelter, and other living arrangements. Dealing with this crisis is going to be a staggering task for the European Union, already strained by the pandemic, supply chain issues, and high inflation.

    Inflation in European Union, or Eurozone is 5.8%, and with the increased and forecasted spending needed to deal with this refugee crisis, inflation is expected to rise to 7%.  Inflation is not the only economic worry, as the labor force might be significantly impacted by the influx of Ukrainian workers. The level of education in the Ukraine is similar to some of the host countries that refugees are fleeing into. It is important to note that a large amount of refugees are going to areas of other countries where they have a network of friends and family that can help them integrate into the local economy. Ukrainian refugees also have a record of previous employment to help them land jobs in their settled area. 

    The labor force is sure to be impacted, as impacts are already being reported. Hard to fill jobs like low paying service workers, and home assistants are already being filled. And the labor market for skilled jobs is becoming more competitive as the supply of labor is increasing. While this problem has not been reported yet, we have analyzed the affect of a higher supply of workers has on a job market, and lower wages are a result of it. The article does not address this directly, but does note that Governments should jump on the crisis quickly before political and social backlash follow the sharp changes caused by the refugees. Only time will tell how long the refugees will be in the eurozone for, or how they will integrate into their new environments.

https://www.nytimes.com/2022/03/16/business/economy/ukraine-refugee-crisis-europe-economy.html

 

Beyond the pump: Record gas prices are pushing up everyday costs, dampening economic recovery

 With the recent invasion of Ukraine by Russia many of the NATO members, including the United States have decided to support Ukraine through economic sanctions to avoid any physical implications as much as possible. tithe United States targeted the Russian central bank, mostly through freezing their assets. This caused the ruble to drop 30% relative to the United States dollar. In an effort to mitigate the damage of these sanctions the Russian central bank doubles interest rate to bring in more investment. Russia has a $640 billion stock pile of cash and at least half of that was frozen. This is causing a lot of unrest in the Russian public leading everyone to try to withdraw their money all at once which could have even worse impacts on the economy in Russia. One of the major implications is the price of imports in Russia is soaring which will lower the standard of living. Russia has been preparing for instances such as this by making a lot of their food production domestic, but the farmers that produce this food most likely won’t be able to get new equipment or fix old equipment which could make the measures taken by Russia virtually useless. China could offer support to Russia by letting Russia sell all of their exports to them but they haven’t done so showing that maybe the alliance isn’t very strong.

Economic Impacts of Current COVID Outbreak in China- Worst one since 2020

 A number of China's most popular areas have put back into place business and travel restrictions that were initially lifted in response to cases doubling today, March 15th.  This surge of the Omicron variant serves as the country's worst outbreak since 2020, which is saying something about the severity.

The biggest worry about these re-implemented restrictions is obviously the fact that China's massive economy will slow down and add to the struggles of the ongoing supply-chain issues.  The outbreak is happening at a horrible time, given the fact that the Ukrainian crisis is also in full swing.  Life is becoming increasingly more expensive.

An article by the Washington Post shares comments by Russ Mould, saying that "Investors may have become too complacent over the risks of lockdowns returning once again."  Stockholders run the risk of having put too many eggs into the-pandemic-is-over basket, and may risk losing a lot of money to this outbreak and possibly more to come.  COVID-19 is not quite finished, it seems.

https://www.washingtonpost.com/business/2022/03/15/stocks-market-oil-russia-china-ukraine/

The Fed Hits the Housing-market Wall

Stagflation is a rare economic condition of persistent inflation but low or stagnant consumer demand due to several factors, such as a high unemployment rate. It is an unusual situation because inflation often occurs due to high demand. Stagflation is a condition of slow or stagnant economic growth, but prices continue rising without visible or valid reasons for the inflation. However, other factors can come into play that makes prices rise. A factor that may help explain such an unusual condition is the rare occurrence of disruptions in intricate supply chains. The housing market requires a lot of building materials, but materials may not come as ordered by homebuilders. Supply disruptions cause scarcities in lumber, roofing materials, paint, pipes, etc. Stagflation is a boon to current homeowners who see increases in their home values. The housing market is tight due to long pent-up demand from Covid.

Stagflation is a bane to homebuilders who cannot finish housing projects on time. It is also a curse to all potential homebuyers who have difficulty buying a new home due to rising prices. The Federal Reserve Board (the Fed) is in a grave dilemma. It is like being caught between the devil and the deep blue sea. It is an old saying indicating an awkward situation. The Fed has to choose between two equally unpleasant and unpalatable choices. It can raise bank interest rates to contain rising inflation and hope not to trigger a recession. Or the Fed can opt not to raise interest rates but end up hurting everybody, especially consumers. In a period of stagflation, the courses of action and monetary tools available to the Fed are limited. A policy increasing interest rates may work or may not work. There are no guarantees at all. The Fed is between two equally unpleasant courses of action for which it may get the blame.   

https://www.bloomberg.com/opinion/articles/2022-03-12/fed-s-inflation-fight-stymied-by-stagflation-in-housing-market

The tensions over Kuril islands

 Japan joined other nations in sanctions against Russia. Japan has banned exports of oil refinery equipment to Russia. There are historical tensions between the two countries with their dispute over who owns the Kuril islands. It is one of the world's longest-running territorial disagreements. It was the main reason the countries failed to sign a peace treaty at the end of World War 2. The Kuril islands are surrounded by rich fishing grounds and are thought to have offshore reserves of oil and gas. Russia says it's planning a special economic zone on the islands. In December, Russia deployed coastal defense missile systems near the islands as a show of force on Machua, a deserted volcanic island in the middle of the chain. The sovereignty of the Kuril Islands has been disputed for centuries. The islands were occupied by Soviet forces at the end of World War 2. Japan disputed Moscow's claim of sovereignty over the four southern islands closest to the main Japanese island of Hokkaido. Last month, the discovery of a US. submarine near the Kuril islands during Russian military exercises added to the hostile atmosphere between Russia and the west. Can Russia use its military forces against Japan as it is doing in Ukraine?