March 29, 2020

Covid-19 crisis could trigger global food shortage, UN warns

While people rushed to stock up on toilet paper and other supplies as the coronavirus crisis escalated, some countries decided to enforce protectionist measures, including export bans for certain products, to satisfy growing domestic demand.

“The worst that can happen is that governments restrict the flow of food,” Maximo Torero, chief economist of the UN Food and Agriculture Organization, told the Guardian, adding that we may face the consequences of these steps soon.

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For example, Russia halted exports of buckwheat and other grains for 10 days starting from March 20. Neighboring Kazakhstan followed suit and introduced restrictions on shipments of wheat flour, buckwheat, sugar, several types of vegetables, and sunflower oil.

The UN official warns that protectionist measures and trade barriers only make the situation worse, creating “extreme volatility.”

Another problem is that some countries now lack the workforce to harvest the crops due in part to border closures and domestic lockdowns. As the coronavirus sweeps through Europe, farmers in France, Spain, and Italy complain that fruits and vegetables are quickly ripening and will be left to rot if the situation does not change, according to Bloomberg. Strawberry and asparagus growers are already unable to pick their crops, while everything from salad greens and tomatoes, to onions and peas could be next in line.

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“Coronavirus is affecting the labour force and the logistical problems are becoming very important,” Torero said as cited by the Guardian. He added that special policies should be introduced to keep the food supply chain operating.

In order to not waste tons of harvest, Germany, which lacks around 300,000 workers, has created a special website to bring together struggling farmers and those who can help. Students and those forced to quit their jobs, for example in the service sector, are welcome to join the initiative. A similar platform was reportedly launched in Austria.

Average citizens themselves are contributing to the looming shortages by hoarding food in amounts they can’t even eat before it expires. Panic buying only deepens the crisis, the UN Food and Agriculture Organization said, advising people to avoid wasting food.

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6 years of economic war toughened Russia to deal with oil market chaos

In a recent report, rating agency Moody’s said the Russian economy is less vulnerable to oil market shocks triggered by the coronavirus outbreak and the row between Moscow and Riyadh.

“Russia is best-prepared of all the oil-producing countries, as our economy has been living in an economic war mode for 6 years,” the president of the Russian-Asian Union of Industrialists and Entrepreneurs, Vitaly Mankevich, told RT.

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Analysts say that flexible exchange rates allow Russian oil companies, which enjoy relatively low production costs (around $15-20 per barrel), to offset the decline in revenue. While analysts believe crude prices are unlikely to break that low threshold, they say that a drop below $40 per barrel is already bad for the Russian economy, while $30 is even worse.

“It will be a disaster [for the Russian economy] if oil companies become unfeasible, that is, when oil prices drop lower than 15 dollars per barrel,” Sergey Suverov, chief analyst with Premier BCS, said in an interview with RT.

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While Russia’s budget spending has not eclipsed revenues since 2017, the fall in oil prices and the fallout of the pandemic will result in a budget deficit of up to two percent or even more if the situation deteriorates, according to Mankevich. Russia’s fiscal breakeven oil price (at which the country can balance the budget) is $42.5 per barrel, but the gap can be filled thanks to its reserves.

Russia’s sovereign wealth fund can support the economy for two to four years depending on the situation, analysts believe. Gold and foreign currency reserves, which currently exceed $580 billion, can hold even longer, according to Mankevich. However, he warned that the holdings can almost be cut in half to $300 billion if there are two or three years of low oil prices.

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US faces DEFICIT of GOLD amid coronavirus market rout – media

While dealers are reportedly out of the coveted commodity, and some were even forced to shut down. Swiss bank Credit Suisse, which has been minting gold bullions since the middle if the nineteenth century, has asked customers not to ask for them. 

Sinking global economy  cheap crude take big bite out of Russia’s forex reserves Sinking global economy cheap crude take big bite out of Russia’s forex reserves

Earlier this week, the US Mint, which sells bullion coins to official distributors, was reported as saying that the virus may delay sales and delivery of its products, with its director David Rider asking clients to be patient. 

The shortages have forced gold-hungry bankers and brokers in the US to look at neighboring Canada as a possible source, bombarding the Royal Canadian Mint with requests to boost production, according to the WSJ. The Canadian company said that the demand had reached “unprecedented levels,” but it seems that it is unlikely to meet it, as the mint is currently understaffed due to the Covid-19 prevention measures.

“It’s absolutely crazy what’s going on,” Ludwig Karl, a board member of Swiss Gold Safe, a company that stores precious metals among other prized assets, told Bloomberg. “Right now, if somebody wants to buy gold, I wish them all the best in finding it. Most of the bullion dealers are closed.”

Gold futures enjoyed their largest daily dollar gain on Monday, rising over $80 an ounce, according to MarketWatch, and rose beyond $1,692 per ounce on Tuesday. However, the precious metal gave up the gains later in the week, ending slightly above $1,630 an ounce; analysts expect the prices to rise further.

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Russia says OPEC+ deal revival possible if other countries join in

In an interview to Reuters, the sovereign wealth fund chief said that coronavirus epidemic has become a “perfect storm” to trigger a new global financial crisis that will result in recession. To offset the economic fallout of the outbreak, countries should unite, including in imposing new output curbs to end the oil market turbulence.

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Russia, which is not a member of the the Organization of the Petroleum Exporting Countries (OPEC), was one of the key supporters of the production cut pact with the alliance, Dmitriev stressed, adding that the deal brought more than 10 trillion rubles (nearly $127 billion) to the country’s budget. Earlier this month Moscow and the OPEC kingpin, Riyadh, failed to agree on a new deal, sending oil prices to multi-year lows.

“It was not Russia that made decision to boost output and withdraw from the OPEC+, but we [the RDIF] believe that we can back to the deal,” Dmitriev said, adding that Russia maintains dialogue with Saudi Arabia, as well as with some other nations.

“We see that if the number of OPEC+ members will increase and other countries will join there is a possibility of a joint agreement to balance oil markets,” he added without elaborating which countries could join the deal.

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Meanwhile Saudi Arabia said it had no contact over the possibility of a new agreement on oil production caps, as well as enlargement of the deal, at least at the energy ministers level.

Oil prices have been tumbling since the beginning of the month as the failure of Vienna talks was taken as the beginning of a full-scale oil price war — the claim that was later denied by Moscow. Both benchmark brands, WTI and Brent, were trading lower on Friday, ending the week at $21.51 per barrel and $27.95 per barrel respectively.

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OneWeb files for bankruptcy, unable to secure financing amid coronavirus chaos

The London-based venture, as well its affiliates, filed for Chapter 11 bankruptcy on Friday, saying that the proceedings are aimed at pursuing “a sale of its business in order to maximize the value of the company.”

Since the beginning of the year, OneWeb had been trying to get more investment. The company says that is was close to obtaining the necessary financial support, but talks failed due to market turbulence triggered by the coronavirus outbreak.

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“Our current situation is a consequence of the economic impact of the Covid-19 crisis,” OneWeb CEO Adrian Steckel said.

While the statement does not directly point at any particular investor that turned its back on the satellite internet provider, earlier reports said its largest backer, Softbank, which had already invested $2 billion in the company, refused to provide more capital. Market rout has apparently spooked other investors, such as Qualcomm, Airbus, Virgin Group, Coca-Cola, and Intelsat among others.

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Bankruptcy filings shows that OneWeb owes by far the most money (more than $238 million) to Arianespace, its launch partner. Qualcomm, Deloitte and Deutsche Bank are also among top five largest creditors with unsecured claims.

Russian state space corporation, Roscosmos, is one of OneWeb’s contractors. OneWeb has already put 74 satellites in low Earth orbit, a small part of its hundreds-strong network to provide global internet coverage, with last two launches carried from the Baikonur Cosmodrome. The latest mission, carrying 34 satellites aboard a Russian Soyuz rocket, was successfully launched on March 21.

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World economy has entered a recession ‘as bad or worse’ than the global financial crisis – IMF chief

Georgieva said she expects the recession to be “quite deep.” Recovery is projected for 2021, but only if the virus can be contained, she said.

She said countries needed to step up their response measures aggressively, adding that the IMF has received a large number of requests for emergency financing. Georgieva said the international body has received pledges from Britain, Japan, and China for a “catastrophic containment and relief trust” for the poorest countries and that she hopes more will follow.

A key concern about a long- lasting impact of the sudden stop of the world economy is the risk of a wave of bankruptcies and layoffs that not only can undermine the recovery but can erode the fabric of our societies.

She predicted that emerging markets will need assistance of $2.5 trillion, and that estimate is “on the low end.” A practical approach will be needed to prevent indebted countries from “falling off the cliff,” she said.

Speaking about the US in particular, Georgieva said it will be absolutely necessary to cushion the world’s biggest economy and said the $2 trillion package of measures already agreed on by the Trump administration was a welcome step.

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She said it is important to protect workers and families from sudden loss of income, and that it is also critical to protect companies.

The IMF boss also confirmed the body is working closely with the World Health Organization (WHO) to raise global production of critical medical equipment. She said China is an important source of health supplies and is stepping up production.

She predicted that the global recovery will be staggered, much like the way the pandemic hit countries one after the other.

Global confirmed cases of the Covid-19 virus surpassed 550,000 on Friday, with more than 25,000 deaths, according to a Johns Hopkins University tally. Europe is the current epicenter of the pandemic, with countries including Italy, France, Spain, and the UK in national lockdown mode in a bid to contain the spread.

The WHO said this week that the US, which has more confirmed cases than any other individual country, has the potential to become the next epicenter.

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Wall Street stocks tumble as US overtakes China in highest number of Covid-19 infections

The Dow Jones Industrial Average tanked more than 900 points at the opening, ending a three-day rally on Wall Street. Both the SP 500 and the Nasdaq Composite are also down around three percent.

The US Labor Department reported on Thursday a record number of jobless claims which surged to 3.28 million. The number eclipsed the Great Recession peak of 665,000 in March 2009 and the all-time mark of 695,000 in October 1982.

The US government’s long-anticipated $2 trillion stimulus package is due to be passed after the Senate approved the bill late Wednesday. The economic relief plan includes direct payments to Americans as well as loans to businesses that were forced to close due to the nationwide lockdown in an effort to contain the virus outbreak.

President Donald Trump said on Friday the US and China are “working closely together” in the fight against the virus.

“China has been through much has developed a strong understanding of the Virus,” Trump said on Twitter. “We are working closely together. Much respect!”

After the huge rally of the past three days, the Dow is still on track for its best week since 1938. As for the broader SP 500, it may have its best week since 2009.

“We believe medium-term risks are skewed to the downside after this rally,” Barclays’ chief US equity strategist, Maneesh Deshpande, told CNBC. “Two other uncertainties facing investors (the length of the economic quarantine required to contain the virus and the ultimate economic damage) remain unresolved.” Deshpande added: “Bear market ‘head-fake’ rallies are not uncommon.”

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Drum roll please! And the BIGGEST WINNER of the deadly global virus is…

However, not everyone is losing money, analysts say, pointing to large e-commerce firms that are making money out of the crisis as people are confined to their homes.

According to Morgan Stanley analysts, American retailers are experiencing a real boom. In the first weeks of March, retail sales of food products increased sharply by eight percent, which is an unprecedented growth for such business. Moreover, it is possible that growth will continue at double digits, the bank predicts.

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Rating agency Moody’s said that “retailers such as supermarkets, pharmacies, shops and grocery stores are going to benefit, as consumers will stock up on food and other necessities.” It added that retailers who had developed an online sales platform before the crisis have benefited greatly. Thanks to this, operating income at food stores such as Whole Foods (owned by Amazon), Walmart, and Kroger has grown significantly as consumers try to avoid shopping.

Of all these retailers, “Amazon, I would say, is the strongest,” Gary Korolev, sovereign US private equity manager, told RIA Novosti.

He noted that Amazon offers a range of basic-needs’ products and services for customers locked at home, such as entertainment (movies, books), food delivery and essential goods. At the same time, it is Amazon that has the most developed network of delivery centers throughout America, Korolev said. The company, which is currently experiencing rapid growth, plans to hire 100,000 new workers to collect, pack and deliver orders.

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In a memo to Amazon employees last week, Amazon CEO Jeff Bezos said that “my own time and thinking is now wholly focused on Covid-19 and on how Amazon can best play its role.”

On Wednesday, attorneys of 32 US states asked Bezos to tighten control over price inflation for essentials on his platform. According to the research group US PIRG, prices for one out of six products sold directly through Amazon rose 50 percent during the epidemic. In some cases, the price has grown tenfold. Thus, the price for a bottle of sanitizer, has skyrocketed from $25 to $250. Bezos gave his assurance that he was taking all the necessary measures to prevent price inflation.

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Sinking global economy & cheap crude take big bite out of Russia’s forex reserves

According to the latest data released by the country’s central bank, the reserves stood at $551.2 billion as of March 20, down from $581 billion a week earlier. The regulator explained the decline with negative revaluation. 

The nation’s forex holdings faced almost a similar drop in October 2008, when the reserves shrank by $30.6 billion to $487 billion. Another steep decline occurred in the beginning of 2009, as $30.3 billion vanished from Russia’s coffers as the consequences of the financial crisis were still wreaking havoc around the globe. 

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Despite the steep fall, the international reserves that are comprised of stocks of monetary gold, foreign currencies and Special Drawing Right (SDR) assets, are still above the target of half a trillion dollars set by the central bank several years ago.

Analysts earlier stressed the accumulated funds can shield the Russian economy from any turbulence in the global energy and stock markets. Some predicted that Moscow can survive up to two years with extremely low oil prices, while they still expect that the market is set to stabilize in the next few months.

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European stocks crash as spread of coronavirus explodes across continent

Britain’s FTSE 100 was plummeting more than five percent during early afternoon trading in London. Stock markets in Germany and France are down over three and four percent, respectively.

The market fall comes as EU leaders fail to come to an agreement over the economic response to the coronavirus pandemic. During a video conference summit on Thursday, the leaders of the 27-member bloc argued over how to pull their economies through the crisis, with Italy accusing other member states of having a timid response to the unprecedented economic shock.

Italy’s prime minister, Giuseppe Conte, has called for “extraordinary and exceptional measures” to help Europe’s battered economies. Along with France, Spain, and seven other Eurozone countries, Italy wants a “European recovery bond,” also known as ‘coronabonds’, EU-backed debt to lift member states out of recession and increase spending on healthcare.

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The European Commission president, Ursula von der Leyen, criticized the EU member states for “looking out for themselves” during the early phases of the crisis. “When Europe really needed an all-for-one spirit, too many initially gave an only-for-me response. And when Europe really needed to prove that this is not only a fair weather union, too many initially refused to share their umbrella,” she told the European parliament in Brussels on Thursday during a session to vote through emergency measures.

The overall number of deaths in Europe due to coronavirus has exceeded 14,000 since the first recorded fatality in France on February 15. The majority of deaths have occurred in Italy, with 8,215. March 26 was the deadliest day so far in Europe, with 1,918 virus-related deaths recorded in 26 different European countries.

Spain and Germany are also among the world’s worst-hit countries in terms of infection levels. Spain follows Italy as the fourth most infected country, with the number of infection cases at 57,786 and 4,365 deaths. The total amount of confirmed cases in Germany grew from 36,508 to 42,288 over a single day. The nation’s death toll is now 281.

Europe accounts for more than half of coronavirus infections worldwide with almost 280,000 cases. The total number of Covid-19 infections in the world stands at 537,436 people.

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