World
Breakingviews – El Nino will brew up potent new economic storm
MELBOURNE, July 4 (Reuters Breakingviews) – Just when you thought it was safe to hope interest rates might soon peak, along comes more bad news. It looks likely that the El Nino weather phenomenon has returned, according to both the U.S. National Oceanographic and Atmospheric Administration and the Australian Bureau of Meteorology. Its appearance usually results in, or exacerbates, floods, heatwaves, water scarcity and wildfires, especially in the southern hemisphere. The damage these inflict on crops and infrastructure is inflationary, putting pressure on central banks to tighten monetary policy. If climate change makes such events stronger and more frequent, supply shocks will become embedded.
This year’s El Nino is shaping up to be a record breaker. The phenomenon is created when the surface temperature of the eastern and central Pacific Ocean is at least 0.5 degrees Celsius warmer than average, weakening or reversing the flow of the trade winds. The strongest one to date was in 2016, when the sea surface temperature hit 2.6 degrees above average; that level could reach 3.2 degrees Celsius this November, Australian meteorology’s finest revealed a couple of weeks ago.
So far, traders have focused on some of the commodities most likely to be affected. Rice futures hit an almost 15-year peak in June, excluding a 2020 pandemic spike. India, Thailand and Vietnam, the three largest exporters of this staple, have already this year experienced record or near-record high temperatures and tend to suffer from hotter, drier weather due to El Nino. In anticipation of water shortages, Thai authorities in May asked farmers to plant just one, rather than two, crops this year. Vietnam has already been under drought conditions, which has also affected yields from its robusta coffee trees. The country is the top producer and exporter of the bean which is used for instant coffee as well as making up around 15% of Italian espresso blends. Last week, the robusta futures contract reached its highest price since being introduced in 2008, having risen 60% this year.
By one reckoning, a single El Nino event might seem manageable. It can push up the price of oil almost 14% and non-fuel commodities by more than 5% within a year of an event, the International Monetary Fund calculated in 2015. But the biggest increases in overall inflation over a 12-month period were only around 1 percentage point and limited to a handful of the most exposed countries like Brazil, Indonesia and Mexico, the IMF analysts concluded. Researchers at the University of Dartmouth this year extended the timeframe and estimated that the 1998 El Nino, the second strongest on record, caused global economic losses of $5.7 trillion, in 2017 dollars, over five years.
Much has changed since then. First, the world is warmer: the eight years since the IMF paper have also been the world’s eight hottest on record – even with cooler Pacific Ocean temperatures since 2020 giving rise to El Nino’s opposite, La Nina. On the one hand, global warming has exacerbated aridification in parts of Europe, China, Southeast Asia and the United States, some of which El Nino may yet worsen. On the other hand, it creates the conditions for heavier deluges because for every 1 degree Celsius increase in its temperature, the air can hold 7% more water. That means crops which usually benefit where El Nino brings wetter conditions – such as U.S. soybeans, which have been hit hard by lack of rain – now face a greater risk of being swamped.
Oceania felt some of those effects during La Nina. A second consecutive year of floods in Australia contributed to food inflation rising at an annualised rate of 9% in the three months to September 2022, its highest level since 2006, per Rabobank. Meanwhile, New Zealand’s fruit and vegetable price index spiked 22% year-on-year in March, a month after cyclone Gabrielle hit. Heavy downpours – and frost – also depleted harvests of arabica coffee in top exporter Brazil and other Latin American countries in 2021 and 2022, pushing the futures price up to a decade high in February last year. That also helped spur increased demand for robusta beans.
The direct impact of El Nino- and La Nina-affected weather on sowing, growing and harvesting is not the only economic consideration. Infrastructure can be damaged or destroyed: early last year, for example, floods swept away a 30-kilometre stretch of the only rail line that transported food to Western Australia. And sugar futures may in part have hit an almost 12-year high in June due to concerns that excess humidity could bring a repeat of the 60% increase in work stoppages that beset Brazil’s cane fields in 2016, per Barclays. But there was another reason: a combination of a disappointing crop last season and the prospect of El Nino causing water shortages prompted India, the world’s second-largest producer, to effectively ban exports until next year.
There are other recent examples of protectionism under the guise of national food security. Last year New Delhi banned exports of what’s called broken rice and imposed a 20% levy on other grades heading overseas after below-average monsoons, even though its stock levels were decent, notes Barclays. The restrictions are still mostly in place. In April last year, meanwhile, Indonesia temporarily banned the export of palm oil – used in all manner of foodstuffs and other goods – as domestic cooking oil prices surged. It’s not hard to imagine the country, which accounts for more than half of all palm oil exports, using El Nino to justify reimposing the embargo, or other producers of agricultural goods taking similar actions.
All these uncertainties are a store of potential supply shocks capable of driving up prices over the next year alone. Rising temperatures due to climate change will make them more endemic; the World Meteorological Organisation in May declared there’s a 98% chance that the next five years will be the hottest period on record thanks to the combination of greenhouse gas emissions and El Nino. After struggling to cope with an inflation storm caused by the pandemic and the war in Ukraine, policymakers have a potent new economic hurricane coming their way.
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CONTEXT NEWS
The Australian Bureau of Meteorology on June 20 updated its estimate for the mean surface temperature of the sea in the east-central tropical Pacific Ocean to be 3.2 degrees Celsius above average in November this year. The metric is one of the key inputs for assessing whether El Nino conditions will return, with the base case being 0.5 degrees Celsius above average. The Australian BOM on June 6 raised its El Nino outlook status from “Watch” to “Alert”, meaning it sees a 70% chance of the weather system developing this year.
On June 8 the U.S. National Oceanographic and Atmospheric Administration’s Climate Prediction Center issued an advisory that El Nino conditions “are present and are expected to gradually strengthen into the Northern Hemisphere winter”.
The highest temperature reached in any past El Nino was 2.6 degrees Celsius above average in 2016.
Editing by Peter Thal Larsen, Katrina Hamlin and Thomas Shum
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
World
North Korea launches short-range ballistic missile hours before US election
Just hours before the U.S. election, North Korea was reported to have fired at least one ballistic missile into its eastern sea.
It remains unclear whether North Korea fired only one missile or multiple. It is also unclear what type of missile it was or how far it flew.
The launch came days after North Korean leader Kim Jong Un supervised a flight test of the country’s newest intercontinental ballistic missile designed to reach the U.S. mainland. In response to that launch, the United States flew a long-range B-1B bomber in a trilateral drill with South Korea and Japan on Sunday in a show of force.
North Korea claimed last week that the Hwasong-19 it tested last Thursday was “the world’s strongest” ICBM, but experts say the solid-fuel missile was too big to be useful in a war situation. Experts say the North has yet to acquire some critical technologies to build a functioning ICBM, such as ensuring that the warhead survives the harsh conditions of atmospheric re-entry.
DOCUMENTS REVEAL RUSSIA’S INITIAL ‘PEACE DEAL’ EQUATED TO THE SURRENDER OF UKRAINE: REPORT
South Korean officials have warned that the North was likely to ratchet up military displays around the U.S. presidential elections to command the attention of Washington.
South Korea’s military intelligence agency said last week that North Korea has also likely completed preparations for its seventh nuclear test.
Tensions between North and South Korea have been at all-time highs in recent months as Kim has repeatedly flaunted his expanding nuclear weapons and missile programs while providing Russia with munitions and troops to support President Vladimir Putin’s war in Ukraine.
In response to North Korea’s growing nuclear threats, South Korea, the United States and Japan have been expanding their combined military exercises and updating their nuclear deterrence plans built around U.S. strategic assets.
The Associated Press contributed to this report.
World
Musk’s $1m US voter giveaway can continue, Pennsylvania judge rules
The state’s top Democratic legal official says the giveaway in states likely to decide the US election is a ‘scam’.
A $1m-a-day voter sweepstakes operated by a political group established by billionaire Elon Musk can continue, a judge in the state of Pennsylvania has ruled.
Last month, the world’s richest man announced he would start the giveaway in seven battleground states likely to decide the outcome of the United States 2024 election.
Musk’s giveaway has widely been seen by many as an unsubtle attempt to secure extra votes for Republican candidate Donald Trump, who Musk has thrown his vocal and financial support behind.
Musk has given $75m to America PAC, a political action committee that has been funding various Republican candidates, including former President Trump.
Winners ‘not chosen by chance’
The Tesla CEO has already gifted $16m to registered swing-state voters who qualified for the giveaway by signing his political petition.
Pennsylvania‘s Common Pleas Court Judge Angelo Foglietta’s decision on Monday came after a surprising day of testimony in a state court in which Musk’s aides acknowledged hand-picking the winners of the contest based on who would be the best spokespeople for his super PAC’s agenda.
Previously, the 53-year-old billionaire had claimed the winners would be chosen at random.
District Attorney Larry Krasner, a Democrat, called the process a scam “designed to actually influence a national election” and asked that it be shut down.
As it was, the judge ruled in favour of Musk and his America PAC.
Musk’s lawyer, Chris Gober, said the final two recipients before the presidential election would be announced in Arizona on Monday and Michigan on Tuesday.
“The $1 million recipients are not chosen by chance,” said Gober.
“We know exactly who will be announced as the $1 million recipient today and tomorrow.”
‘They were scammed’
Chris Young, the director and treasurer of America PAC, testified that the recipients were vetted ahead of time, to “feel out their personality, [and] make sure they were someone whose values aligned” with the group.
Musk’s lawyers, defending the effort, called it “core political speech” given that participants were asked to sign a petition endorsing the US Constitution.
More than 1 million people from the seven battleground states – Pennsylvania, Wisconsin, Nevada, Arizona, Georgia, North Carolina and Michigan – have registered for the sweepstakes by signing a petition saying they support the right to free speech and to bear arms, the first two amendments to the US Constitution.
District Attorney Krasner has questioned how the PAC might use their data, which it will have on hand well past the election.
“They were scammed for their information,” Krasner said. “It has almost unlimited use.”
World
Video: Reaching Rural Voters in North Carolina After Hurricane Helene
new video loaded: Reaching Rural Voters in North Carolina After Hurricane Helene
transcript
transcript
Reaching Rural Voters in North Carolina After Hurricane Helene
Ahead of Election Day, canvassers knocked on voters’ doors in Ashe County in storm-ravaged Western North Carolina.
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“What we know is that North Carolina is a dead heat right now. So the margin of victory is going to come from rural voters. You’ve got to get to where people are at, and this is rugged mountain turf. So sometimes the bridge is out to access the home, and you’ve got to go down and across the creek and up the other side to find out if the voter’s there. Sometimes, we’ve hit addresses where the house is gone and we’re finding people in tents.” “Hello, hello. Hi, my name is Bailey and this is Ibi. We’re from Down Home North Carolina. How did you, how did you do in the storm? It looks kind of hard around here.” Yeah, the water was up past these trees when it — and you see what happened to the car.” “And have you made plans to vote? Are you going to vote?” “I was actually able to go last Monday, so I did. Yeah, I was able to get in.” “Did your housemates also vote already as well?” “So they still need too. So trust me, I’m pushing on them. And my son, who’s in Greensboro, to make sure he gets in.” “Ashe County, it wouldn’t be where you would traditionally expect political efforts to be active at this phase in the campaign because it is so heavily a Republican county. And yet, we know every vote counts the same. So we’re really motivated to make sure that we end up with representatives all up and down who represent working-class people and are going to do what’s required to help rebuild Western North Carolina.”
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