The United States and NATO say they are confident that Turkey will not impede the membership of Finland or Sweden in their military alliance, despite Ankara,Turkey’s capitol and seat of government, expressing reservations about it.
In a move that could cause major tensions with one of its neighbors, Turkey has set out demands for NATO member countries to end support and sales of arms in retaliation over the current situation with Kurdish groups on their territory.
The foreign minister has said that his talks with Swedish and Finnish counterparts in Berlin have been helpful. They pitched possible solutions to address Turkey’s concerns, which will be considered by Ankara.
“We have photos and videos of the terrorists that you sent us,” said Cavusoglu. “I can even provide proof they are on our territory.”
He said that the Kurdistan Workers’ Party, or PKK as it’s known internationally has been holding meetings in Sweden over recent days. The group is considered by many countries to be a “terrorist” organization but still manages somehow maintain contact with other prominent political parties from around Europe through these secret negotiations.
However, he said that Turkey did not object to the alliance’s policy of open doors. NATO Secretary-General Jens Stoltenberg believes they will be able to address any concerns expressed by Ankara without delaying membership status in regards for application processing timeframes as well as additional protocols needed before becoming an active member state with all rights accorded accordingly.
The United States’ Secretary of State, Antony Blinken has refused to go into detail after closed-door conversations on this issue but echoes NATO’s position that it is “a place for dialogue”.
Finland and Sweden have taken a step in joining NATO to show they are not afraid of Russia’s invasion. This decision breaks away from tradition, which has been non-aligned for many years now but it also means that these two countries may need protection more than ever before.
The Finnish president has confirmed that his country will be applying for membership in the European Union. Sweden’s ruling Social Democrats announced an official policy change. Swedish Foreign Minister Linde announced that her country will be applying for membership in NATO, an organization which has meant peace and security across Europe since 1955. The decision comes following years of deteriorating relations with Russia due to their incursion into Ukraine.
The pressure on Turkey to allow Finland and Sweden into NATO has been immense. With these new members, the alliance would be stronger in the Baltic Sea – which could potentially lead more countries into membership.
If all goes well, approval could come in just a matter of weeks. However, ratification by allied parliaments may take up to one year so it is important for Turkey’s objections not to be insurmountable.
In response to the prospect of joining NATO, Russia has threatened military-technical measures including unspecified “military threats”. However speaking on Saturday Prime Minister Juha Sipilneni said their conversation was measured and did not contain any threatening language or behavior from either side during the discussion over potential actions in the coming days following recent developments involving both countries’ troops near borders with Scandinavia.
In an interview with CNN, President Putin confirmed that he thinks it’s a mistake for Russia to have invaded eastern Ukraine.
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Is a Housing Market Crisis Imminent?
May sales of new single-family homes were 10.7 percentage points above April’s revised total of 629,000. In April, the new housing market plummeted 16.6 percent month-over-month to its lowest level since April 2020. May sales were 5.9% below the May 2021 projection of 740,000.
First-time buyers are being driven out of the market by rising mortgage rates, limited inventory, inflation, and record-high home prices—34% higher than two years ago. Many folks can’t afford a house right now. Average 30-year mortgage rates climbed from 3.1% to 6.28% on June 14.
As consumer prices rise, the Federal Reserve raises its main interest rate, making borrowing more expensive, increasing housing costs, and decreasing spending.
House prices make many homes unaffordable. May 2022 new home sales averaged $449,000. The average monthly sales price was $511,400. The global cost-of-living crisis affects customers’ finances, restricting their ability to acquire new homes.
A housing-market crash?
As demand wanes, the housing market may weaken, prompting some to predict a bubble burst or market crash. Mark Zandi, chief economist at Moody’s Analytics, said he expects a “coast-to-coast” correction this week. During the pandemic, homebuyers were tempted by low mortgage rates. As the market and new-home development recovered from the global financial crisis, purchasers fought for fewer properties.
Home builders are less confident about building new homes due to rising costs and declining buyer demand, which could lead to a scarcity of supply. Many experts doubt the home market will implode like it did in 2008, which would be the worst-case scenario. When “no-doc loans” were still available 14 years ago, applicants were more likely to default.
Zillow economist Nicole Bachaud told Forbes that “lending standards have gotten tighter and credit scores for new mortgages are much higher on average now than they were in the early 2000s.”
“What’s much more likely is a gradual slowdown in the pace of price appreciation where home prices continue growing, just not as fast as they are now,” Bachaud said. Homeowners and lenders are also considerably stronger now than then, with higher property values and more home equity. Both won’t panic over the slowdown. The housing market may “correct” itself more gently, responding to declining demand as home prices fall. First-time purchasers, mostly Millennials, could start buying homes again.
Fannie Mae’s top economist Doug Duncan said, “Mortgage rates have ratcheted up dramatically over the past few months, and historically such large movements have ended with a housing slowdown”. Lending Tree senior economist Jacob Channel told the New York Post that rising interest rates had cooled the housing market. “This current ‘correction’ is neither unexpected nor necessarily a bad thing — especially as it will give some buyers a bit more breathing room when they’re housing hunting,” Channel stated.
Federal Reserve Could Raise Its Benchmark Rate 75 Basis Points
On Wednesday, the President of the Federal Reserve Bank of Cleveland, Loretta Mester, stated that if the current state of the economy has not changed by the time the Federal Reserve Board of Governors meets in July to determine the next move in monetary policy, she will be advocating for an increase of interest rates of 75 basis points.
In recent months, one of the most important factors driving market activity has been the Federal Reserve’s plan to continue its path of monetary tightening. This comes as the Fed looks to take aggressive action to rein in skyrocketing inflation, despite acknowledging the risk that steeper interest rate rises will increase the likelihood of an economic recession.
Inflation is currently at a 40-year high, so the Federal Reserve decided to raise its benchmark interest rate by 75 basis points earlier this month. This was the largest rise in the rate since 1994.
Mester, who is a voting member of the Federal Open Market Committee, stated that the meeting in July will likely entail a dispute among FOMC policymakers over whether to opt for 50 basis points or 75 basis points. Mester is a member of the Federal Open Market Committee.
She stated in a recent interview that “If conditions were exactly the way they were today going into that meeting — if the meeting were today — I would be advocating for 75 because I haven’t seen the kind of numbers on the inflation side that I need to see in order to think that we can go back to a 50 increase.”
Mester stated that she will be doing an analysis of the current supply and demand situations in the coming weeks prior to the meeting in order to establish the most desirable course of action regarding the tightening of monetary policy.
The present goal range for the federal funds rate is between 1.5 and 1.75 percent; however, according to the “dot plot” of individual FOMC members’ views, the Fed’s benchmark rate will be 3.4% by the end of the year.
Mester said, “I think it’s really important that we do that, and do it expeditiously and do it consistently as we go forward, so it’s after that point where I think there is more uncertainty about how far we’ll need to go in order to rein in inflation.” “I think getting interest rates up to that 3-3.5 percent, it’s really important that we do that, and do it expeditiously and do it consistently as we go forward.”
U.S. markets dropped significantly on Tuesday following the release of a dismal reading of consumer confidence. The reading, which came in at 98.7 instead of the Dow Jones consensus estimate of 100, added to the unease that investors already felt regarding the sluggish growth of the economy and the potential compounding effect of aggressive monetary policy tightening.
Mester said that the experience of consumers with inflation, which reached 8.6 percent at the headline level in May, was “clouding” their confidence in the economy. In May, the headline inflation rate was 8.6 percent.
She stated that the Federal Reserve is “on a path now to bring our interest rates up to a more normal level and then probably a little bit higher into restrictive territory, so that we can get those inflation rates down so that we can sustain a good economy going forward.”
“Job one for us now is to get inflation rates under control, and I think right now that’s coloring how consumers are feeling about the economy and where it’s going.”
Mester agreed that there is a possibility of a recession as the Fed moves forward with its program of tightening. As a result of the Federal Reserve’s efforts to reduce demand and bring it closer to constrained supply, her baseline projection is for growth to be slower this year, below what she refers to as “trend growth.” She sets the value of “trend growth” at 2%.
She stated, “I expect to see unemployment rates rise over the next two years to a little above 4% or 4.25%, and again that’s still very good labor market conditions.”
“So we’re in this transition right now, and I think that’s going to be a painful one in some respects and it’s going to be a bumpy ride in some respects, but it’s very necessary that we do it to get those inflation numbers down.”
Wheat Producers are Helping to Bring Down Food Prices
It has been four months since Russia invaded Ukraine, which caused trade flows to be disrupted and caused futures’ prices to rise. The fear of a grain crisis is slowly giving way to the hope that important producers will harvest large enough harvests to help repair war-torn reserves. This is essential for the production of wheat, which is needed to feed the world’s population, corn, which is needed to feed hogs, chickens, and cattle, and oilseeds, which are needed to make food.
“Supply may not be as impaired as we think because other areas will compensate for any losses from Ukraine, and it is happening across the board,” said Marc Ostwald, global strategist at ADM Investor Services in London.
It is anticipated that Australia, which is one of the top exporters of wheat, will produce another massive crop this year. On the other hand, corn is piling up outside bins in the principal growing region of Brazil. The worry that spring weather problems would drastically cut down on the amount of land used for growing grain and soybeans in North America has dissipated.
The Bloomberg Agriculture Spot Subindex is on course to have its worst monthly loss since 2011. Concerns about decreasing grain and oilseed supplies, as well as fears that an economic downturn could reduce demand, have pushed crop futures lower from recent highs. While such improvements often take time to reach grocery shelves, Darden Restaurants Inc., owner of the Olive Garden and LongHorn Steakhouse restaurants, reports that chicken and beef prices are cooling slightly.
Fuel pump costs will also have a significant impact on the direction of food inflation for the rest of the year. According to Joe Glauber, former head economist of the US Department of Agriculture, supermarket prices are projected to “moderate over the next six months, particularly if oil prices decline.”
As of June 24, the average daily price of a gallon of gasoline in the United States had fallen for ten consecutive days after reaching some of its highest levels on record. Crude oil futures are down more than 10% from a near all-time high in the days after Russia’s late-February invasion on Ukraine, one of the world’s largest grain and vegetable-oil shippers. Fertilizer, a major expense for farmers, has fallen after reaching new highs.
The United Nations’ food price index fell from a record high in March after the war stifled Ukrainian exports and provoked a slew of sanctions against Russia. Even if the rate of increase slows, high food prices will continue to put pressure on the poor. A government prediction released last week predicts that food prices will rise by much to 8.5 percent this year, however the analysis did not account for the recent decline in agricultural futures.
Furthermore, Goldman Sachs Group Inc., one of the more positive commodity watchers, claimed prices haven’t peaked yet, despite Bloomberg’s broad index of spot commodities falling around 13% from a record high.
“We agree that when the economy is in a recession for long enough, commodity demand falls and hence prices, fall,” experts such as Jeffrey Currie stated in a note. “We are not yet at that state, with economic growth and end-user demand simply slowing, not falling outright.”
Darden Restaurants is enthusiastic about the future. The Orlando, Fla.-based company says it is not passing on higher meat, dairy, and wheat prices to customers because it does not expect the higher expenses to last. Meat prices are starting to “come down a little bit,” and impending crop harvests could help lower wheat prices, according to Chief Financial Officer Rajesh Vennam last week.
Wheat and soybean futures have lost roughly 15% this month, while maize has fallen 13%. Coffee, sugar, and cocoa have all taken a step back.
Food is more of a national security issue in China than an inflation concern. As grain and cooking-oil prices fall, June consumer-price growth in China is projected to be less than 2.5 percent, according to Zhaopeng Xing, senior China analyst at ANZ Bank China Co. in Shanghai.
However, given the uncertain future for grain supplies from Ukraine, India, and other key exporters, he believes it is still too early to declare an end to food inflation.
Palm oil, the world’s most widely used vegetable oil, has fallen almost 30% from its peak as leading shipper Indonesia increases exports to reduce bloated stocks. The decline, combined with a drop in soybean oil and other commodities, might mean cheaper household products like chocolate, margarine, and shampoo. However, as with other agricultural markets, any sign of supply disruption or adverse weather might spark another wild ride.
For the time being, the reduction in essential commodities may provide a much-needed halt in inflation.
“Markets would really love to be able to breathe less stressfully again,” said Arnaldo Correa, a partner at Archer Consulting in Sao Paulo. “Light a candle for your guardian angel, and let’s see how things will play out.”
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