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Slowing growth to the rescue

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Good Morning. Who cares Elon Musk will buy Twitter, the whole thing is silly and annoying, let’s all do our best to ignore. So this is the American economy, and more on Russian oil, down below.

Also, we take Monday off. While we are not, try other good FT newsletters, like Moral Money (Sign Up) Here) And working on it (Here). Send us an email: robert.armstrong@ft.com and ethan.wu@ft.com.

A little less demand would be really good right now

If the measure of economic resilience is low unemployment, the U.S. economy is growing by leaps and bounds. Yes, talk of a recession is everywhere, but not because of a clear sign of stagnation, but because the labor market is so strong that a Federal Reserve recession may be The only one who can bring inflation under control.

But there are signs that the economy is slowing down, even though policy tightening has barely begun. Maybe this will be good news. If growth slows down by itself – if, specifically, demand slows down by itself – the Fed may not have to resort to shock tactics. The worst consequences, such as a deep recession or a collapse in housing or the stock market, may simply be avoided.

There is no doubt that growth is slowing in the world. As our friend Edward al-Husseini of Colombia Threadneedle noted in a recent letter to clients, in recent weeks German economists slashing Their forecast for the growth of the country, because of the impact of the war; The World Trade Organization has cut the world Trade Forecasts due to war and Cubid; And the International Monetary Fund is cutting Also his forecast. But much of it has to do with supply constraints that curtail growth, which is unlikely to help inflation. What is needed is a cooler demand:

In this regard, note that as low as unemployment is, the real growth of U.S. gross domestic product is barely alarming. Here’s the first quarter of the Atlanta Fed Appreciate:

And some of the softness in this chart may reflect a moderating demand. After years of cohesive consumers spending their stimulus tests ordering fries on Amazon, it was a relief to see pretty soft Retail sales Report for March. The main figure, a 0.5 percent increase from February, is distorted by a huge 9 percent increase in gas station sales. Remove them, and retail sales are down 0.3%. And once inflation is taken into account, the picture looks weaker, as Andrew Hunter of Capital Economics points out:

The rise in prices suggests that consumption fell again last month in real terms, by about 0.2%. And while it will still leave growth in the first quarter as a whole close to 3.5% on an annualized basis, it provides a weak starting point for the second quarter. More generally, although the impact on energy prices in real income may ease over the coming months, we expect a slowdown in employment growth to keep consumption growth relatively restrained.

The retail report is in line with the 0.4% decline in February in real personal consumption expenditure.

The obvious place to look for lower demand is housing, where the expectation of tightening the Fed has been enough to push mortgage rates to 5 percent. Because the U.S. housing supply is unusually tight, it is not entirely clear how much higher-cost costs will affect sales volumes, and therefore all activities, from buying furniture to renovating, related to buying homes. But there will be some impact.

Beyond that, there is something like a portfolio of data and anecdotes that point to softer demand. We are already Write On the drop in trucking and shipping rates in the US. Shipping across the Pacific is coming Cheaper Also, and maybe not all is due to the locks in China.

The US does not necessarily need shrinking demand. In areas like investments that can damage productivity in the long run. Gentle growth enough to pause supply pressures will be just the thing. A small, calm slowdown may be our best way to avoid a big, disgusting slowdown. (Armstrong II)

No, Russia can not just send its oil to China

It is often argued that if Europe and the US do not buy Russian oil, someone else will buy, and therefore the sanctions on Russian energy exports will be useless. China is the most frequently mentioned replacement buyer.

This is probably wrong. A few days ago we ran this chart:

A $ / barrel line chart showing Russian oil is also discounted in Asia

The blue and green lines show you that since the invasion of Ukraine, raw Ural Rossi has been sold in the ballet tubes or in the Black Sea at a huge discount – 20-25 percent – to the Brent Index in Europe. The dark blue and pink lines show something more interesting. The Russian oil flowing through the Taishet pipeline in eastern Siberia to Cosmino on the Sea of ​​Japan is sold at a big discount to local alternatives. The largest buyer of this crude oil from Eastern Siberia is the Chinese refineries.

We know that the discount has nothing to do with low Chinese demand because of Cubid, because China does not buy crude oil from the Middle East and Africa at similar discounts. We also know that Espo’s Chinese imports have not increased significantly. What’s going on? One analyst I spoke with argued that the threat of future sanctions is affecting:

When other Chinese and Asian refineries think of raw aspao for May loading, they will get it by the end of May or maybe even early June. So now they have to consider what the world will look like by early June. Can there be secondary sanctions? Can they still rent a tanker ready to travel to Cosmino? Will this tanker still get insurance? Will there be a bank that will still receive a letter of credit? A lot can change between now and early June.

It seems to me that the gross discount assumption simply reflects compensation for taking these risks.

If Espo is kept artificially / too cheaply, you would suspect that the volume of Chinese imports from Cosmino has increased sharply. This has not happened, so basically, the assumption is a result of market forces, and seems to be necessary to maintain quantity stability.

Moreover, it is unlikely that Russia will be able to engineer a long-term change in buying patterns so that China buys Russian output, and output from the Middle East and Africa shifts towards Europe. Here’s Bill Paran-Price, CEO of energy consulting firm Enverus:

Yes, the Chinese will see a commercial opportunity and I expect them to take more Russian barrels. But I think Chinese support for Russia is more cynical and opportunistic than strategic. If they can buy a few more barrels, they will, if they need them. But the idea that China will make a long-term strategic decision to change its oil supply mix is ​​a hoax.

Will they be willing to violate their agreements with Abu Dhabi or Saudi Arabia? These contracts are strategic. Saudi Arabia is very focused on China because it is a growing market, unlike the US and Europe. They will be very competitive in defending this relationship.

China can not solve Russia’s oil export problem.

One good read

Great cover connect In this weekend’s FT magazine, about the inheritance crisis facing Japanese small businesses.

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