US ECONOMY & POLITICS

Fed Steps Up Deliberations on Shrinking Its $9 Trillion Asset Portfolio – Wall Street Journal, 1/24/2022

• Federal Reserve officials are set to resume discussions this week over how fast they will shrink their nearly $9 trillion bond portfolio when the time comes, which would serve as a tool for tightening monetary policy as they try to curb high inflation.
• Officials are on track at their meeting Tuesday and Wednesday to approve a final tranche of bond purchases, allowing them to end the stimulus program by March—when they are likely to raise interest rates to cool the economy, according to their recent public comments.
• The Fed’s asset portfolio, sometimes referred to as its balance sheet, has more than doubled since March 2020. The Fed bought nearly $1.5 trillion in Treasurys in March and April 2020 to prevent turmoil in the market for U.S. government debt from igniting a broader financial meltdown, when the coronavirus pandemic triggered a dash for dollars.
• After the Fed completed a similar round of bond-buying stimulus in 2014, it kept its holdings steady by reinvesting the proceeds of maturing securities into new ones for more than 2½ years before slowly and gradually allowing more securities to mature without any reinvestments, shrinking the balance sheet.
• Fed Chairman Jerome Powell and several colleagues have indicated such a turn from expanding the portfolio to contracting it is likely to be measured in months and not years this time around.

Rate-Hike Bets Show Traders Doubt Fed Will Ride to Rescue on Equities – Bloomberg, 1/24/2022

• Interest-rate markets remain resolute in anticipating that the Federal Reserve will plow on with increasing borrowing costs even as riskier assets tumble globally and geopolitical discord ramps up.
• Swap markets show a quarter-point Fed rate increase is priced in for March and close to a full percentage point is in the market for the whole of 2022.
• The gap between 2- and 10-year securities touched as little as 70 basis points, a level last seen in late 2020.
• The yield on the two-year Treasury, a tenor that’s closely linked to central bank expectations, remained near its level from the end of last week even as fears around Russia and other issues weigh on equity futures. The government is slated to auction two-year notes later in the day.

Red-Hot Inflation Grips Pockets of U.S. Midwest and South With Rates Over 9% – Bloomberg, 1/24/2022

• The American heartland has become an inflation hotbed, highlighting how difficult it will be for U.S. policy makers to cool decades-high inflation that is gripping the economy.
• Small towns in the Midwest and South are among the hardest hit, with consumer prices rising 9% or more — faster even than the red-hot national average of 7%.
• The state with the most small cities registering inflation of at least 8% last quarter was Wisconsin, a place better known for its cheese and factories than high living costs. A close second was Texas, where several oil towns experienced a surge in prices at the end of the year.
• The findings are based on data from Moody’s Analytics, which include 400 metro regions. Zooming in on cities with fewer than 200,000 people provides a more detailed account than government figures, which break down consumer prices in about two dozen large cities, obscuring the local experience of more rural and suburban Americans.

U.S. Food Supply Is Under Pressure, From Plants to Store Shelves – Wall Street Journal, 1/24/2022

• The U.S. food system is under renewed strain as Covid-19’s Omicron variant stretches workforces from processing plants to grocery stores, leaving gaps on supermarket shelves.
• In Arizona, one in 10 processing plant and distribution workers at a major produce company were recently out sick. In Massachusetts, employee illnesses have slowed the flow of fish to supermarkets and restaurants.
• Food-industry executives and analysts warn that the situation could persist for weeks or months, even as the current wave of Covid-19 infections eases. Recent virus-related absences among workers have added to continuing supply and transportation disruptions, keeping some foods scarce.
• Now some executives say supply challenges are worse than ever. The lack of workers leaves a broader range of products in short supply, food-industry executives said, with availability sometimes changing daily.
• In-stock levels of food products at U.S. retailers hit 86% for the week ended Jan. 16, according to data from market-research firm IRI. That is lower than last summer and pre-pandemic levels of more than 90%.
• Sports drinks, frozen cookies and refrigerated dough are especially low, with in-stock levels in the 60% to 70% range. In-stock rates are lower in states such as Alaska and West Virginia, IRI data show.

EUROPE & WORLD

Omicron Slows Europe’s Economy but Supply-Chain Strains Ease – Wall Street Journal, 1/24/2022

• Rising infection rates driven by the faster-spreading Omicron variant of Covid-19 led to economic slowdowns in Europe, Japan and Australia as 2022 got under way, but a further easing of supply-chain strains helped support factory activity.
• In the eurozone, data firm IHS Markit’s composite Purchasing Managers Index–which measures activity in both the manufacturing and services sectors–fell to 52.4 from 53.3 to hit an 11-month low.
• However, the economic slowdown was entirely confined to the services sector, while manufacturing output rose at the fastest rate in five months.
• Japan and Australia also saw sharp slowdowns in services activity, although in contrast with Europe, they led to a decline in overall economic activity.
• Eurozone businesses reported that worker absences due to infection were a drag on activity in both services and manufacturing, but they also reported a  further easing in supply-chain problems, and a slowdown in the rate at which their raw material and input costs were rising.
• However, they themselves raised their prices at the fastest pace on record, an indication that consumer-price inflation is set to remain high over coming months.

NATO to Send Ships, Jet Fighters to Eastern Europe Amid Standoff With Russia – Wall Street Journal, 1/24/2022

• NATO allies are bolstering the alliance’s eastern flank in response to Russia’s military buildup around Ukraine, as the European Union set out plans for loans and grants for Kyiv worth more than $1.3 billion.
• The moves are part of sharpening efforts by the U.S. and its allies to gird for what they believe could be an imminent military invasion of Ukraine, which Russia denies it is planning.
• NATO said allies were putting forces on standby and sending ships and jet fighters to its northeastern and southeastern member countries.
• Denmark said it was dispatching a frigate to the Baltic Sea and would send four F-16 jet fighters to Lithuania. Spain is sending ships to join NATO forces in the Black and Mediterranean Seas and is considering sending jet fighters to Bulgaria. The Netherlands is deploying two F-35 jet fighters to Bulgaria from April. France has said it could send troops to Romania.

No respite for China’s stressed out supply chains as Covid-zero and new year holidays take a toll – CNBC, 1/24/2022

• Covid lockdowns, quarantines and restrictions are causing a backlog in some of China’s major ports, resulting in “chaos” and pushing up air freights by as much as 50% in some cases, analysts tell CNBC.
• Ahead of the extended Lunar New Year holiday in China, air freight rates have spiked and some shipping firms have suspended services, putting the spotlight on overwhelmed supply chains again.
• China’s key priority right now is to limit the spread of Covid cases ahead of next month’s Winter Olympics and the upcoming Lunar New Year, he added. However, the ensuing curbs at ports have also let to some “chaos.”
• Cases have been reported in the key port cities of Shenzhen, Tianjin and Ningbo, as well as the industrial hub of Xi’an, sparking lockdowns and other curbs.
• The capital of Beijing reported its first locally transmitted omicron infection on Jan. 15. On Sunday, less than two weeks before the Winter Olympics, Beijing’s authorities introduced new restrictions to contain a recent outbreak after nine locally transmitted cases were found in Beijing a day earlier.

Evergrande Asks Overseas Creditors for More Time – Wall Street Journal, 1/24/2022

• China Evergrande Group asked international creditors to give the giant property developer more time to get a grip on its complicated financial situation, and warned that drastic legal action could be destabilizing.
• The plea came days after a group of international bondholders threatened to enforce their legal rights against Evergrande, saying they had been unable to engage substantively with the troubled Chinese real-estate company for months.
• Advisers to some Evergrande bondholders last Thursday released a statement accusing the developer of withholding crucial information about its liabilities and failing to engage, despite statements to the contrary.
• The developer said it is working with its advisers to communicate with overseas debt holders and has told creditors that it was sparing no effort to evaluate its situation, stabilize its business, and formulate a comprehensive restructuring plan.

Philips expects summer recovery from supply chain woes – Reuters, 1/24/2022

• Dutch health technology company Philips said on Monday it expects sales to recover strongly in the second half of the year, while a steep decline due to global shortage of parts is likely to persist in the coming months.
• Philips earlier this month warned that supply chain woes would hit profit and a ventilator recall needed to be expanded, sending its shares down over 15% on their worst day on the financial markets in decades.
• “We expect to start the year with a comparable sales decline, followed by a recovery and strong second half of the year,” Chief Executive Officer Frans van Houten said in a statement.
• This should lead to between 3% and 5% growth in comparable sales in 2022, with a 40 to 90 basis points improvement in the adjusted earnings before interest, tax and amortisation (EBITA) margin, he added.
• The Amsterdam-based company said its comparable sales fell 10% in the fourth quarter of 2021, while adjusted EBITA dropped 35% to 647 million euros, in line with provisional numbers released on Jan. 12.

Factmonster – TODAY in HISTORY

• Roman emperor, Gaius Caesar, better known as Caligula (meaning Little Boot—he used to wear military boots as a child), was murdered. (41)
• Gold was first discovered in California, in Sutter’s mill. When President Polk announced the news in December, the gold rush began. (1848)
• The Casablanca Conference with Franklin D. Roosevelt and Winston Churchill concluded. (1943)
• Japanese soldier Shoichi Yokoi was discovered in Guam, having spent 28 years hiding in the jungle thinking World War II was still going on. (1972)
• The Department of Homeland Security, under Tom Ridge, became a cabinet department. (2003)