Fed Chair Powell notes ‘highly uncertain’ Ukraine impact, but says rate hikes are still coming

Federal Reserve Chairman Jerome Powell still sees interest rate hikes coming, but noted Wednesday that the Russia-Ukraine war has injected uncertainty into the outlook.

Powell said he sees a series of quarter-percentage-point increases coming, though he left open the possibility of moving more aggressively should inflation persist.

In remarks prepared for dual appearances this week before House and Senate committees in Congress, the central bank chief acknowledged the “tremendous hardship” the Russian invasion of Ukraine is causing.

“The implications for the U.S. economy are highly uncertain, and we will be monitoring the situation closely,” Powell said.

“The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain,” he added. “Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook.”

Later, he said the Fed wants to get inflation under control, but “the bottom line is that we will proceed but we will proceed carefully as we learn more about the implications of the Ukraine war on the economy.”

The observations come amid 40-year highs for inflation in the U.S., complicated by a Ukraine war that has driven oil prices to around their highest levels in a decade. Consumer prices increased 7.5% from a year ago in January, and the Fed’s preferred inflation gauge showed its strongest 12-month gain since 1983.

Powell and his fellow policymakers have been indicating for weeks that they plan to start raising benchmark interest rates to tackle inflation. He reiterated the stance Wednesday that the process will involve “interest rate increases,” along with indications that the Fed eventually will start reducing its bond holdings.

“We will use our policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market,” he said. “We have phased out our net asset purchases. With inflation well above 2 percent and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month.”

Powell said the likely path for rate hikes will be increments of a quarter percentage point, though he said he would be open to more aggressive moves if inflation gets worse.

“We’re going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment,” he said under questioning from House Financial Services Committee members. “To the extent that inflation comes in higher or is more persistently high than that, we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.”

Inflation still expected to fall

The Fed will start cutting the size of its asset holdings after rate hikes have begun, he added.

Since the beginning of the Covid pandemic, the Fed has been buying Treasurys and mortgage-backed securities at the fastest pace ever, driving the total holdings on the central bank balance sheet to nearly $9 trillion.

Powell said the reduction will be conducted “in a predictable manner,” largely through allowing some proceeds from the bonds to roll off each month rather than reinvesting them.

On the economy, the chairman said he still expects inflation to decelerate through the year as supply chain issues are resolved. He called the labor market “extremely tight” and noted strong wage gains, particularly for lower earners and minorities.

“We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation,” he said. “We know that the best thing we can do to support a strong labor market is to promote a long expansion, and that is only possible in an environment of price stability.”

Markets have fully priced in a rate increase at the March 15-16 meeting but have decreased expectations for the rest of the year since the Ukraine war began, according to CME group data. Traders are now pricing in five quarter-percentage-point increases that would take the benchmark federal funds rate from its current range of 0%-0.25% to 1.25%-1.5%.

Canadian Companies with Russia ties

https://www.theglobeandmail.com/business/article-canadian-companies-with-russian-operations-stay-put-as-more/

As the list of international companies pulling out of Russia grows longer by the day, Canadian corporations doing business there are grappling with difficult decisions on whether to cut ties with the country outright or stick it out and bear the reputational and operational risk that could follow.

While Canadian companies such as Kinross Gold Corp. K-T +3.93%increase, McCain Foods Ltd. and Canada Goose GOOS-T +3.11%increase are distancing themselves from business in Russia or suspending operations outright in the country, other corporate pillars appear to be pushing on for now, including auto-parts maker Magna International Inc. and convenience store giant Alimentation Couche-Tard Inc. ATD-T +0.49%increase Several smaller companies also sell into the country, including Ski-Doo maker BRP Inc. and label manufacturer CCL Industries Inc.

For all of them, the world has changed with Russia’s invasion of Ukraine. Canada and its Group of Seven allies have condemned what they call an unprovoked attack and slapped Russia with sanctions, including prohibiting transactions with Russia’s central bank. Western leaders have also moved to cut several of Russia’s largest banks off from the international financial system by excluding them from SWIFT, the messaging network that facilitates most global money transfers.

Foreign-based multinationals are increasingly shunning the country. Energy giant Exxon Mobil Corp. said it would exit Russia, while aircraft maker Boeing Co. suspended maintenance and technical support for Russian airlines. Rival Airbus SE stopped sending spare parts.

Auto maker Ford Motor Co. suspended operations in Russia, and Apple Inc. halted sales of iPhones and other products while condemning Russia’s invasion of Ukraine. International shippers, such as Maersk, Hapag-Lloyd and MSC, have suspended bookings to and from Russia, as the country becomes increasingly shut out of world commerce.

All of that is forcing Canadian companies into a quick rethink of their commitment to Russia. If they stay, they risk being on the wrong side of the moral line their own government has drawn in this conflict. They might also have trouble supporting their Russian operations given the bank controls or difficulties finding supplies to feed operations. But pulling out also comes with cost.

“Truthfully, it’s hard to make the case for staying in Russia right now,” said Yan Cimon, a specialist in international business and strategy at Laval University’s department of management. “Those companies who want to stay in Russia, or could benefit from staying, will find it really hard to take a break and assess the situation and try to put the decision off.”

Russian businessman resigns from board of Winnipeg-based Buhler Industries

Kinross Gold suspending Russian mining operations amid Ukraine invasion

Perhaps no Canadian company has more at stake in the current conflict than Magna. The Aurora, Ont.-based car-parts maker has six manufacturing facilities and roughly 2,500 employees in Russia. The company’s 2020 annual report said it had $120-million in fixed assets in Russia and $345-million in sales from the country, about 1 per cent of the company’s global total.

Magna said the Russian plants make body, chassis, seating and exterior sections of vehicles, but did not specify which car company the parts are for. Magna spokeswoman Louise Colledge said Tuesday the plants are still running and Magna is monitoring the “very dynamic” situation.

“We are liaising with our customers and suppliers on a daily basis in order to review individual programs – our focus is to maintain business continuity,” Ms. Colledge said in an e-mail.

Joseph McCabe, president of AutoForecast Solutions LLC, said all foreign manufacturers with a Russian presence will be affected by this conflict. He said he has no firm confirmation on how severely Magna’s operations will be affected, but expected them to be evaluating temporary and permanent changes to their supply chains. “This action by Russia has put them under a global lens with companies now forced to consider if a full extraction from the jurisdiction is warranted,” he said.

At one time, Russia was seen as a breakthrough market for Magna. Russian oligarch Oleg Deripaska bought US$1.54-billion in shares of the company in 2007 and planned to run it with founder Frank Stronach. Mr. Stronach told shareholders at the time that before the investment, he sought and received a meeting with Russian President Vladimir Putin to get his endorsement of the deal. Mr. Deripaska later sold his shares during the financial crisis in 2008.

Mr. Deripaska was placed on a U.S. sanctions list in 2018 for his ties to the Kremlin. However, he is one of the few oligarchs to publicly break ranks with Mr. Putin over the invasion of Ukraine. On Sunday, Mr. Deripaska released a statement on the Telegram messaging app urging an end to the bloodshed.

Earlier this week, Russia’s central bank introduced new capital controls that required companies operating in the country to exchange 80 per cent of their foreign earnings into rubles, to help prop up the Russian currency. Magna did not respond to questions about whether they were affected by the orders.

Some companies have already pressed pause on their Russian business.

Toronto-based miner Kinross Gold Corp., which has operated in Russia for more than 25 years, said late Wednesday it is suspending operations at its Kupol mine as well as all activities at its Udinsk development project. Kupol, located in a remote area of Russia’s far east, is the gold miner’s most profitable operation, bringing in US$442-million in operating earnings in 2021. The mine is also a big boost to the region: Kinross’s 2020 sustainability disclosure notes the company made $190-million in payments to local governments and the mine contributed between 15 per cent and 20 per cent of the area’s gross domestic product.

Kinross said in a statement it is “deeply concerned about the tragic situation and the extent of casualties and destruction in Ukraine and wishes to express its sympathy and support for the people who are suffering because of the conflict.” It said it is hoping for a peaceful and diplomatic solution.

McCain Foods Ltd., the Canadian frozen French fry giant, began constructing a potato processing plant in 2020 in Russia’s Tula oblast. The company said it paused construction last week and was re-evaluating the future of the project. “A final decision will be taken in the coming days,” Charlie Angelakos, vice-president of global external affairs and sustainability, said in a statement. The company also donated $200,000 for relief efforts in Ukraine.

Canada Goose, maker of luxury parkas, said Wednesday it would suspend all sales in Russia and donate $100,000 for humanitarian aid in Ukraine. “Canada Goose is deeply concerned by the conflict unfolding in Ukraine. We stand with all of those who are impacted by the violence,” the company said in a statement.

And 100 business leaders wrote an open letter to the federal government urging Ottawa to step up sanctions on Russia and pledging, as business leaders, to unwind commercial relationships with the country. The signatories included John Chen, executive chairman of BlackBerry Ltd., and Walied Soliman, chair of Norton Rose Fulbright Canada LLP.

CCL Industries Inc. is another Canadian company with operations in Russia. The Toronto-based label maker has five factories in Russia that employ 428 people and manufacture labels for consumer packaging, pharmaceutical and food and beverage companies, some for products within Russia. The company said it brings in $70-million in sales in the country, a small share of its $5.7-billion in annual global revenue.

“[These are] crazy times,” CCL chief executive officer Geoffrey Martin said on a call last week to discuss the company’s earnings. “On behalf of all those people, we know perfectly well that none of them had anything to do with the situation that’s unfolded in the Ukraine, and they have our continuing support.”

At Couche-Tard, a similar concern for its Russian-based employees is playing out as it weighs its next move. The Laval, Que.-based company, which controls the Circle K chain, has 38 stores and more than 320 employees in Russia, part of its global footprint of 14,200 outlets.

“As our people are our number one priority, we are following the situation closely and continue to support our team members inside and outside Russia,” said Couche-Tard spokeswoman Jennifer Vincent. “At this point, we have made no plans to change our operations.”

Restaurant Brands International Inc., a fast-food chain that owns properties that include Tim Hortons, said it has 800 Burger King locations in Russia, all of which are owned and operated by local franchisees. The company said it had watched the attack on Ukraine “with horror” and is insisting that its Russian franchisees abide by international sanctions, including those imposed by Canada. The parent company’s statement came after its master franchisee in the country told Russian state-owned news agency RIA Novosti that Burger King continues to operate in Russia and plans to expand this year by opening more locations. Burger King Russia’s communications director told RIA the company considers Russia a strategic market.

Oil giant BP PLC, Russia’s biggest foreign investor, led the Western-company exodus this past weekend with its announcement that it would abandon its stake in Russian oil giant Rosneft, a decision that could cost it as much as US$25-billion in writedowns. Rival Shell PLC followed, citing Russia’s “senseless act of military aggression” as it cut ties with state-controlled Gazprom.

Calfrac Well Services Ltd., which has yet to report full-year 2021 results, said in its third-quarter report that its revenue from its Russian operations in the first nine months in 2021 was $94.1-million – 28 per cent higher than in the first three quarters of 2020. The company had $745-million in total revenue during those nine months of 2021. The company told The Globe it had no comment on its Russian operations.

Meanwhile, a Russian businessman has stepped down from the board of Buhler Industries Inc., a Winnipeg-based farm equipment company. In a statement on Wednesday, Buhler said its board has accepted Konstantin Babkin’s resignation as a director. He is well-known for publicly supporting Mr. Putin.

Other Canadian companies doing business in Russia could face mounting pressure to explain their stance on the country in the days ahead, especially if they’re traded publicly.

“We expect companies to act prudently and diligently, as they have a fiduciary duty to do,” said Willie Gagnon, director of Quebec investor-rights group Médac. He also urged companies to “pay particular attention to their social responsibility, beyond their legal obligations, in these tragic circumstances.”

Some companies have seen their exposure to Russia shrink over the years. BRP Inc., the Canadian maker of snowmobiles and watercraft, has sold into Russia for almost 30 years. BRP CEO José Boisjoli has travelled frequently to Russia in the past to boost business, and delegations from Russia have also travelled to Quebec to study how to replicate the province’s 35,000-kilometre network of snowmobile trails.

With a solid snowpack and an enthusiastic base of customers for power sports vehicles, Russia was BRP’s third-largest market after the United States and Canada as of 2014. Its importance to BRP declined in the years afterward.

Since the conflict in Crimea and the international sanctions that followed, BRP sales in Russia now represent less than 5 per cent of total sales, said company spokeswoman Biliana Necheva. National Bank analyst Cameron Doerksen pegs it more precisely at 1 per cent.

Gordon Johnston, CEO of Edmonton-based engineering firm Stantec Inc., told analysts asking about its exposure to the Russia region in recent days that it pulled out of Ukraine late last year as tensions increased. It had a project in Ukraine but wrapped it up last month after a meeting with its customers.

OpSens Inc., a Quebec City maker of fibre-optic sensors used in the medical and oil and gas industries, has sold some wares in Russia in the past and was eyeing the country as a market to develop until the war began. Now, it’s off the radar completely, CEO Louis Laflamme said.

“Even if the conflict disappeared tomorrow with a wave of a magic wand, there will be a long-term impact for any prospective business for companies like ours,” Mr. Laflamme said. “It’s just too risky and unpredictable. I’m not a political expert but it’s 2022. I would have naively thought the world was past a time when we sent tanks in to solve problems.

Stock futures inch lower as Russia-Ukraine tensions weigh

PUBLISHED WED, MAR 2 20226:07 PM ESTUPDATED 2 HOURS AGO

U.S. stock index futures were modestly lower during overnight trading Wednesday, after the major averages finished the day higher despite escalating tensions between Russia and Ukraine.

Futures contracts tied to the Dow Jones Industrial Average declined 28 points. S&P 500 futures shed 0.11%, while Nasdaq 100 futures dipped 0.2%.

During regular trading on Wednesday the Dow advanced nearly 600 points, or 1.79%, snapping a two-day losing streak. The S&P 500 gained 1.86%, while the Nasdaq Composite added 1.62%. It was the tech-heavy index’s fourth positive session in the last five.

Wednesday’s rally was broad based, with all eleven S&P 500 sectors advancing. Visa was the sole Dow component to decline, with the other 29 stocks in the benchmark index finishing the day in the green. Caterpillar was the top gainer, rising more than 5%.

Markets have been volatile in recent sessions as investors assess risks to the U.S. economy fueled by Russia’s war in Ukraine.

“The situation is very fluid on the ground in Ukraine. …We don’t know where the ultimate bottom in the market may be, but we continue to believe the U.S. economy will have above-average growth this year,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

Despite Wednesday’s advance all three major averages are down more than 4% over the last month, with the Nasdaq Composite still in correction territory. Ed Moya, senior market analyst at Oanda, said that volatility is likely here to stay.

“Risk appetite will struggle to fully return until a true end in the war in Ukraine is in sight,” he said. “Wall Street wants to take a break from the defensive playbook and hold off overloading on utilities, healthcare and consumer staples stocks,” Moya added.

Wednesday’s broad market strength came despite the continued jump in oil prices, which is contributing to inflation fears across the economy. West Texas Intermediate crude futures, the U.S. oil benchmark, topped $112 per barrel during Wednesday’s session, a price last seen in May 2011.

Amid rampant inflation Federal Reserve Chairman Jerome Powell said that he remains committed to easing cost pressures through rate hikes, despite the uncertainty unfolding in Ukraine.

“We’re going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment,” he said under questioning from House Financial Services Committee members.

“To the extent that inflation comes in higher or is more persistently high than that, we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings,” he added. Powell will testify again tomorrow before the Senate Banking Committee.

The yield on the benchmark U.S. 10-year Treasury advanced Wednesday to about 1.9%, after dipping below 1.7% during the prior session.

A strong private payrolls report on Wednesday also boosted sentiment on Wall Street. On Thursday weekly jobless claims will be posted, with economists calling for a print of 225,000, according to estimates from Dow Jones.

The reading comes ahead of February’s highly-anticipated jobs report, which will be released Friday. Economists are expecting 440,000 jobs to have been added during the month. January’s report showed an increase of 467,000.

Services PMI and ISM Services readings will also be released Thursday morning.

On the earnings front several retailers are set to post results ahead of the opening bell, including Big Lots, BJ’s Wholesale, Burlington Stores and Kroger. Broadcom, Costco and Gap are on deck for after the market closes.

10 Top Potash Countries by Production

Sanctions against Russia may produce investment opportunities

https://investingnews.com/daily/resource-investing/agriculture-investing/potash-investing/top-potash-countries-by-production/

Canada leads the top potash countries by production, but what are the other major producers? This list outlines the top 10.

The top potash countries by production have weathered the COVID-19 storm that plagued many commodities in 2020, and robust demand has pushed prices higher and higher in 2021.

In fact, bullish sentiment in the potash industry has major market participants such as BHP (NYSE:BHP,ASX:BHP,LSE:BLT) investing billions in new potash production.

That’s welcome news for the sector — many potash-mining operations have closed in recent years, and some are waiting on the sidelines for better days and improvements in the potash price.

“World potash consumption was estimated to have been about the same as in 2019 at about 41 million tons of K2O,” according to a US Geological Survey (USGS) report. “Asia and South America were the leading consuming regions. World consumption of potash was projected to increase slightly in 2021, with Asia and South America as the leading regions for growth.”

Looking at supply, the USGS states that world potash capacity is projected to rise to 69 million metric tons (MT) in 2024 from 64 million MT in 2020. The increase is expected to come mainly from muriate of potash from new mines and expansion projects in Belarus, Canada, and Russia

The USGS estimates that global annual potash production reached 43 million MT in 2020. So what were the top potash countries by production last year? Read through the list below to find out the answers.

1. Canada

Mine production: 14 million MT

Leading the list of the top potash countries by production is Canada. The nation is the world’s largest potash producer, with potash production growing by 1.7 million MT in 2020 over 2019 production levels.

Nutrien (TSX:NTR,NYSE:NTR), the largest potash company, is based in the Canadian prairie province of Saskatchewan. The company is the result of a 2018 merger between two crop nutrient companies, Potash Corporation of Saskatchewan and Agrium. The partnership has been described as creating “a global agricultural giant” valued at nearly US$44 billion.

2. Russia

Mine production: 7.6 million MT

In 2020, potash production in Russia was up from 2019’s output of 7.34 million MT, helping the country to overtake Belarus as the world’s second largest potash producer. Uralkali (MCX:URKA) is Russia’s premier potash company, as well as one of the world’s leading potash producers, accounting for roughly 20 percent of global supply. The company has five mines and seven ore treatment and processing mills.

3. Belarus

Mine production: 7.3 million MT

Potash production in Belarus dropped slightly by 50,000 MT from 2019 levels to total 7.3 million MT in 2019. Output in the Eastern European country has been on an upward trajectory since 2016, when its potash production total came in at 6.4 million MT.

Belarusian Potash Company is the country’s largest industry operator. Since Uralkali pulled out of Belarusian in 2013, its former partner, state-owned Belaruskali, has had a rocky road to recovery. Belaruskali has six mines and four processing factories.

4. China

Mine production: 5 million MT

China is another of the top potash countries by production. Output in the Asian nation has remained relatively the same from 2016 to 2020, at around 5 million MT. Potash is extremely vital in China — the country is the largest consumer of potash fertilizer, accounting for approximately 20 percent of world potash consumption. China’s domestic demand for potash fertilizer is overtaking its homegrown potash supply, making the country reliant on potash imports, especially for muriate of potash.

5. Germany

Mine production: 3 million MT

In Germany, potash production has remained relatively stable, ranging from 2.7 million MT to 3 million MT between 2016 to 2020. K+S (ETR:SDF) is one of Germany’s leading potash miners and has a number of projects, operating six mines in three districts of Germany.

6. Israel

Mine production: 2 million MT

Annual potash production in Israel has remained unchanged for the past few years, totaling about 2 million MT since 2017. The country is sixth in terms of potash production, and it also hosts the world’s sixth largest potash-producing company: Israel Chemicals (TLV:ICL).

The company produces roughly a third of the world’s bromine, which is often extracted from the same salt water and brine deposits that produce potash.

https://www.cnbc.com/2022/03/01/stock-market-futures-open-to-close-news.html

Stock futures slipped early Wednesday morning as oil prices continued to surge amid the ongoing conflict between Russia and Ukraine.

Futures tied to the Dow Jones Industrial Average shed 61 points, or 0.18%. S&P 500 and Nasdaq 100 futures also dipped 0.28% and 0.37%, respectively. All three futures contracts had earlier traded in positive territory.

The moves downward in futures came as oil prices continued to trek upward. Both U.S. crude and international benchmark Brent crude futures rose more than 7% each.

https://www.theglobeandmail.com/business/international-business/article-asian-shares-slip-oil-above-110-as-russia-sanctions-bite/

Asian stocks came under renewed pressure on Wednesday and the price of oil surged past $110 per barrel as investors fretted about the impact of aggressive sanctions against Russia over its invasion of Ukraine.

In Australia, the benchmark ASX 200 index was 0.2 per cent higher despite the risk-off mood elsewhere as rising commodity prices lifted miners’ shares.

“The Russia-Ukraine conflict will probably continue to dominate markets for the foreseeable future. The announcement yesterday that Russia will not pay coupons to foreign holders on its government debt should push investors further into safe-havens,” ING analysts said in a note.

As global sanctions against Moscow tighten, the United States banned Russian flights using American airspace, following similar moves by the European Union and Canada.

U.S. President Joe Biden announced the ban during his State of the Union speech on Tuesday, in which he also said Russian President Vladimir Putin would “pay a continuing high price over the long run” for the invasion of Ukraine.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.46 per cent with China’s blue-chip CSI300 index 1.05 per cent lower.

Japan’s Nikkei fell 1.81 per cent.