IMF’s Georgieva says border migration is helping US outperform Europe; UK car insurance prices finally falling – as it happened

Time to wrap up… here’s today’s main stories so far:

The price of cocoa has hit a new record high today, pushed up by escalating worries over shrinking supplies due to crop failures in west Africa.

The London cocoa price hit £9,477 per ton today, as industry data showed a drop in production.

“Grindings” — beans processed by the industry to eventually be turned into chocolate — fell by 2.5% in the first three months of the year. That could show that weaker production is resulting in fewer beans reaching the market.

Coffee also hit new highs, with the robusta coffee price climbing to a record $4,292 per ton.

Gareth Redmond-King, head of international programme at the Energy and Climate Intelligence Unit (ECIU) says:

“The cost of our morning coffee is soaring as climate change hits crops in Brazil and Vietnam. The UK imported a billion pounds worth of coffee in 2023; just over half in raw coffee beans, and the rest as roasted coffee.

“But 97% of all coffee globally is grown in countries vulnerable to climate impacts. More than half the coffee beans we imported last year came from Brazil and Vietnam - worth £198m and £87m respectively. Between them they also supply half the beans imported by EU nations to make roasted coffee we also import.

Back in Washington, the IMF is warning Asia’s central banks not to follow the US Federal reserve too closely.

The Fund’s advice is that Asian central banks should focus on domestic inflation and avoid tying their policy decisions too closely to anticipated moves by the U.S. Federal Reserve.

Otherwise, it fears, central banks could undermine price stability in their own countries by following the Fed too closely.

The IMF’s staff analysis showed that U.S. interest rates have a “strong and immediate” impact on Asian financial conditions and exchange rates, Krishna Srinivasan, director of the lender’s Asia and Pacific department, said today.

Srinivasan explained:

“Expectations about Fed easing have fluctuated in recent months, driven by factors that are unrelated to Asian price stability needs.

“We recommend Asian central banks to focus on domestic inflation, and avoid making their policy decisions overly dependent on anticipated moves by the Federal Reserve.

Predictions that the Fed will not cut interest rates as soon, or as sharply, as expected have pushed up the US dollar against Asia-Pacific currencies such as the yen (which has hit a 30-year low) and the won.

New jobless claims data today has shown that the US labour market remains in good shape.

The number of Americans filing new claims for unemployment benefits was unchanged at 212,000, last week, which is a historically low level.

That suggests the increase in migration identified by Kristalina Georgieva today is not leading to an increase in unemployment.

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Georgieva also says that the Middle East conflict has led to a growth downgrade for the region.

Gaza’s economy has been wiped out, she warns, while the West Bank has been severely impacted.

Ukraine needs $42bn of budget support this year as it continues to resist Russia’s invasion, IMF chief Kristalina Georgieva says.

Georgieva also told reporters in Washington that global support for Ukraine remains firm, and that the war needs to end; it is both a human tragedy and a drag on global growth prospects, she says.

Kristalina Georgieva also warned that the twenties has already been a turbulent decade, in which the global economy was hit by multiple shocks— including the Covid-19 pandemic, a cost-of-living crisis, war and conflict, and climate disasters.

International Monetary Fund chief Kristalina Georgieva also called for China to boost domestic demand for goods and services, including health care.

This, she told reporters in Washington, would help bolster its growth prospects.

Georgieva today’s news conference that China needed to give consumers more confidence and more things to buy and get the social safety nets to work more effectively.

She said the world’s second largest economy also needed to resolve problems in its property sector, which would help restore consumer confidence.

Over in Washington, IMF managing director Kristalina Georgieva has said that the high levels of migration across the US border is helping America’s economy to outpace Europe.

Asked why the US economy has performed better than Europe, at the Fund’s annnual meeting in Washington today, Georgieva cited three factors that distinguish the US.

First, the force of innovation – in the US it’s easier to turn innovative ideas into business development and then scaled up into successful businesses. There’s still “work to be done” to unleash innovation in Europe, she says, citing the costs of patents in Europe vs the US.

The second factor, Georgieva says, is the influx of workers into the US, which makes it easier for firms to find staff and puts downward pressure on wages.

[That spike in migration to unprecedented levels at the southern border is a major political issue, and likely to dominate the presidential election this autumn].

Georgieva explains:

Second, the US is benefitting from abundant labour coming across the border.

It creates a domestic political problem, and not everyone who crosses the border adds positively to the economy.

But that labour supply also gives to the US another comparative advantage; wages are not pushing up, because there is no strong pressure because of a lack of labor on wage growth.

The third factor in the US’s favour is that it has benefitted from more favourable energy prices than Europe, where natural gas prices soared after Russia’s invasion of Ukraine in 2022.

Georgieva also reveals that the issue of productivity dominates her thinking; she says:

I wake up in the middle the night and think, how we can help our members lift their productivity?

Steve Dukes, CEO at Confused.com, says:

“While the cost of car insurance may have dropped at the beginning of this year, customers are still paying historically high prices for their car insurance. Premiums are still more expensive year-on-year, so as an industry, there’s still an important role to play in helping customers to understand where they could be saving money.”

Today’s report also highlights that the deployment of vehicles with advanced technology will put upward pressure on premiums (as high-tech cars are more expensive to fix).

Today’s report shows that the South West of England continues to be the cheapest region for car insurance, with average premiums now costing £606.

But Inner London was the most expensive region with average prices at £1501, even though car insurance premiums here fell by £106 in the last three months.

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The surge in UK car insurance premiums may finally be fading, bringing some relief to squeezed motorists.

Data published by Confused.com and insurance broker WTW shows that comprehensive car insurance premiums fell fallen by 5% (£54) during the last three months, with UK motorists now paying £941 on average.

Although that’s a quarterly fall, it’s still an awful lot more than a year ago. In Q1 2023, the average premium was £657, meaning they’re still 43% higher than a year ago!

Tim Rourke, UK head of P&C pricing, product, claims and underwriting at WTW, says:

“After a series of record highs in 2023 took car insurance premiums into uncharted territory, the latest pricing data suggests the relentless rise in prices may finally be turning a corner.”

We reported last month that UK car insurance premiums jumped by 34% in 2023, as motor insurers more than passed on the rising cost of claims.

Morgan Stanley has pushed back their forecast for the first Bank of England interest rate cut to June, from May, following yesterday’s inflation report.

They expect the BoE to cutting in June (as opposed to May previously) and to deliver 75 basis points of cuts this year (three quarter-point cuts, in June, August, November).

They also argue that March’s inflation report, showing the CPI index fell to 3.2% from 3.4% in February, doesn’t change “the fundamental picture” that price pressures are subsiding.

They add:

Given Governor Bailey’s comments at the IMF following the pay and inflation data, we think that the core of the MPC likely agrees with our initial take – these data should not fundamentally alter one’s stance on the economic outlook.

Fresh questions over BP’s low carbon ambitions have emerged today with a major shakeup of the oil company’s executive team, including the resignation of its gas and renewables boss.

BP’s head of natural gas and low carbon energy, Anja-Isabel Dotzenrath, will step down after just over two years after she joined the company to spearhead the green agenda set out by BP’s former boss Bernard Looney.

The new CEO, Murray Auchincloss, said she will be replaced by BP “lifer” William Lin who joined the company almost three decades ago and currently serves as head of the company’s regions, corporates & solutions division.

At the same time BP’s head of innovation and technology, Leigh-Ann Russell, will also leave to take up an external job opportunity, the company said.

Auchincloss set out his plans for a smaller leadership team as he aims to simplify BP’s management structure in a cost-cutting drive which will reportedly include cutting over a tenth of the workforce in its electric vehicle charging business and pulling out of several markets.

He said earlier this year that BP’s destination was unchanged but that it would get there as a much simpler and more pragmatic company, and at the pace that society demands.

Giacomo Romeo, an analyst at Jefferies, said that the shakeup confirmed its view that we could see more changes around BP’s strategy for low carbon businesses as the company seeks a more “pragmatic approach” to the energy transition.

In a memo to staff, Dotzenrath said:

“After a rewarding career of over 30 years in energy, I am at a point where I need to devote more time to my family.”

“I firmly believe we have the right asset footprint and pipeline, partnerships, financial strength and most importantly the right team to deliver.”

Germany’s central bank is hopeful that Europe’s largest member will avoid falling into recession, after a pick-up in activity at the start of this year.

The Bundesbank has predicted this morning that the German economy probably expanded in the first quarter, thanks to an unexpected boost from industry and construction.

The Bundesbank had previously predicted that GDP would shrink in the first three months of 2024, which would have put Germany into a technical recession (two quarterly contractions in a row), after it shrank in Q4 2023.

But today, the Bundesbank declares that Germany’s economic situation has brightened somewhat, meaning there may have been a slight increase in growth in Q1 2024.

It warns, though, that the outlook remains poor, saying:

“There is still no evidence of sustained improvement for the German economy.

Demand for industrial products from Germany and abroad remains weak and continues to decline.”

UK companies trimmed their job adverts last week.

The total number of online job adverts on 12 April 2024 decreased by 2% when compared with the previous week, the Office for National Statistics reports today. That left the total 19% lower than a year ago.

The oil price has eased to its lowest level since the start of April.

Brent crude is down 0.7% today at $86.66 per barrel, adding to a heavy drop yesterday.

Last Friday, Brent traded as high as $92 per barrel, as investors braced for Iran to take military action against Israel.

Joshua Mahony, chief market analyst at Scope Markets, says the slump in oil prices is helping to lift sentiment in the markets today, adding:

The risk of an escalation between Israel and Iran appears to be easing with each passing day, while yesterday’s fourth consecutive weekly gain for US crude inventories has signalled an oversupply despite a recent decline in US output.