In November 2021, the World Food Programme warned that 45 million people across 43 countries faced severe food shortages, and many now fear that high inflation will be the catalyst that tips these communities into a full-blown famine.
It is estimated that 15 million more people are currently facing starvation than before the COVID-19 pandemic, and the numbers keep rising. When we look at hunger in general, more than 811 million people go hungry on a daily basis, this equates to roughly 10.3% of the global population. In addition, an estimated 14 million children under the age of five, worldwide, suffer from severe acute malnutrition, also known as severe wasting. Yet only 25% percent of acutely malnourished children have access to lifesaving treatment.
One might think that it is a production problem, but a report by Action Against Hunger recently noted that the global food supply is more than sufficient, and that the reasons for hunger across the world are:
- Acute levels of poverty among rural populations;
- Conflict, with the report citing that in 2020 conflict was the leading cause of hunger for 99.1 million people across 23 countries;
- The difficulties in transporting and distributing goods across rural regions.
Not only does hunger come with a cost to life, but there is also an economic cost attached to people not being able to get a regular meal. In 2015, the UN estimated that it would cost $267 billion annually to solve global hunger by 2030. This number, however, has grown exponentially over the past seven years. The Food and Agriculture Organization found that there is a correlation between increased levels of hunger and a decline of economic growth in countries. And when looking at the cost of hunger across certain regions, a study conducted by the Council on Hemispheric Affairs revealed staggering numbers. A hungry population costs Malawi an estimated $600 million per annum, Ethiopia loses $4.7 billion per annum, and Sudan $2 billion per annum.
Kieran McConville, of humanitarian organisation, Concern Worldwide, said, “Seen through a purely economic lens, the continuing prevalence of global hunger is bad for business. It inhibits productivity, slows economic growth, and places unnecessary burdens on health and education systems.”
DATA IN A NUTSHELL
The S&P Global Eurozone Manufacturing Purchasing Managers Index (PMI) fell to 54.4 in May, down from 55.5 in April, and below market forecasts of 54.9. New orders fell for the first time since June 2020 and the levels of outstanding business rose at the slowest rate since August 2020. On the price front, input cost inflation eased to its lowest level since February, while output costs also slowed.
United Kingdom (UK) S&P Global/CIPS Flash Manufacturing PMI fell to a 16-month low of 54.6 in May, down from 55.8 in April, and below market forecasts of 55. Output growth also slowed, and the latest increase in production volumes was the joint-weakest since October 2021, due to supply chain disruption, the war in Ukraine and rising inflation. Meanwhile, export orders also fell the most since June of 2020.
Minutes of the May Federal Open Market Committee (FOMC) meeting, released by the Fed, indicated that most Fed policymakers judged that 50 basis point interest rate hikes would likely be appropriate at the next two meetings. Participants also noted that a restrictive stance in policy may become appropriate, depending on the evolving economic outlook, which is currently viewed as highly uncertain.
Meanwhile, the US economy contracted an annualised 1.5% quarter-on-quarter in the first three months of 2022, slightly worse than initial estimates of a 1.4% decline, with the biggest drag coming from trade. Imports surged more than initially anticipated, led by non-food and non-automotive consumer goods. Fixed investment growth was revised lower but remained robust, while housing investment grew much less than initially forecast.
EQUITIES IN THE GREEN
The Dow Jones Industrial Average opened more than 250 points higher on Thursday, bolstered by strong results from the retail sector. Macy’s profits and sales outperformed forecasts, while the company reiterated its 2022 sales outlook and raised its profit outlook. In addition, Dollar Tree and Dollar General also exceeded earnings estimates. Meanwhile, the S&P 500 gained more than 0.5%, as traders continue to digest the latest Fed minutes. Slower growth and inflationary pressures remain concerns.
Major stock indices in Europe edged higher on Thursday, with Frankfurt’s DAX adding 0.6% and the regional STOXX 600 gaining 0.2%, as oil and gas stocks drove gains, amid cautious trades following the release of the Fed minutes. On corporate updates, the European Union (EU) has cleared the acquisition of Europcar by a consortium partly owned by Volkswagen.
The minutes from the Fed also helped the FTSE 100 higher on Thursday, in line with its European peers. Meanwhile, the UK’s finance minister, Rishi Sunak, is expected to announce fiscal support to households hit by rising costs, partly funded by a windfall tax on oil & gas companies’ profits. On the earnings front, United Utilities dropped more than 5% after posting a drop in full-year profits.
The Nikkei 225 Index shed 0.27%, while the broader TOPIX Index crept up 0.05% in mixed trade on Thursday, as losses among chip-related stocks capped gains originating from economic reopening and travel. Markets are also homing in on an expected announcement from Prime Minister Fumio Kishida about plans to resume accepting foreign tourists in June, further relaxing Japan’s border controls.
WHEAT PRICES RETREAT
Chicago wheat futures fell toward $11 per bushel, the lowest level in two weeks and more than 10% below the record 14-year high of $12.80, amid easing supply concerns. Russia said it will open safe corridors every day to allow foreign ships to leave Black Sea ports, as well as the Sea of Azov port, thus allowing commercial shipping at Ukrainian ports again after three months of fighting. North American producers are also expected to divert farming capacity from corn to wheat after a deal to increase trade between China and Brazil pushed down corn prices. However, wheat production is expected to fall by 35% this marketing year to 21.5 million tons in the Ukraine, due to direct destruction or logistical problems from the war.
Brent crude futures edged up toward $115 per barrel on Thursday, extending a cautious rally this week, driven by signs of ongoing supply tightness, while the EU continues to haggle with Hungary over plans to ban oil imports from Russia. Official data showed a larger-than-expected drawdown in US crude inventories last week, due to soaring exports, highlighting a tight global market.
Gold prices fell below $1,850 an ounce on Thursday, extending losses from the previous session, following the release of the Fed minutes. The minutes supported the dollar, pressuring greenback-priced bullion further. Meanwhile, Fed officials expressed concern that tighter policy could cause instability in both the Treasury and commodities markets. The minutes cautioned about “the trading and risk-management practices of some key participants in commodities markets that were not fully visible to regulatory authorities”.
DOLLAR STAGES A RECOVERY
The dollar recovered from its lowest levels in a month, with the dollar index consolidating to around the 102 mark, as investors reassessed the outlook of tightening monetary policy from the US Fed. The most pronounced buying activity was against the euro, as investors took a breather after a recent rally that sent the euro to highs not seen in a month.
The euro extended gains to above $1.07, its highest level in four weeks, after European Central Bank President, Christine Lagarde, said the Central Bank is likely to exit negative interest rates by the end of the third quarter. Europe’s common currency, however, is still not far from a five-year low of $1.035, reached during trade last week, as the invasion of Ukraine by Russia deepened the energy crisis, bolstered inflation, and continues to slow growth.
The pound weakened to below $1.25 from an over two-week high of $1.26 hit earlier in the week, after the latest PMI data showed the economy slowed down sharply in May, as inflationary pressure rose to unprecedented levels. In addition, business optimism dropped to its lowest level for two years, amidst a shortage of skilled staff, weaker orders, and worries about the cost of doing business. Last week, a strong labour market, coupled with rising retail sales, boosted expectations that the Bank of England will raise interest rates further. However, the consumer price report which showed inflation has hit a 40-year high, raised concerns about how far the Central Bank would be able to hike rates without triggering a recession.
The pound started the day trading at 1.2597/$ and 1.1745/€.
Written by Citadel Global Director, Bianca Botes
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