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ECB to stay flexible as Russia-Ukraine war triggers ‘stagflation’ fears

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President of European Central Bank, Christine Lagarde, attends a news conference following a meeting of the governing council in Frankfurt, Germany February 3, 2022.

Michael Probst | Pool | Reuters

FRANKFURT — The European Central Bank is set for a cautious approach with its monetary policy meeting this week as Russia’s invasion of Ukraine impacts, and potentially derails, many of the policy plans it had for the rest of the year.

The meeting, which ends Thursday, comes exactly two weeks after President Vladimir Putin initiated the unprovoked attack on Russia’s neighbor. The financial world has changed dramatically since. Oil and gas prices have surged and European banking shares have lost all and more of their gains of the last year. 

In a nutshell, the situation is extremely unpredictable. But one thing is certain, inflation will be pushed even higher and growth will be impacted by supply issues and high commodity prices. 

Against this backdrop, the ECB is set to stay put and opt for a wait-and-see approach. 

“Energy prices and inflation will be pushed higher, while growth will weaken,” said Dirk Schumacher, an ECB watcher with Natixis, in a recent research note to clients. 

“As it remains uncertain at this stage how significant this ‘stagflationary’ shock will turn out to be, we expect the ECB to opt for a wait and see stance at the March meeting.”

An economy going through stagflation is one that simultaneously experiences stagnant activity and accelerating inflation. This phenomenon was first recognized in the 1970s when an oil shock led to an extended period of higher prices but sharply falling GDP growth.

Inflation in the euro zone was 5.1% in January and climbed to 5.8% in February as energy prices soared amid the severe military escalation from Russia. The inflation development is likely getting worse as gas prices spike to historic highs and Putin threatens to stop gas supplies altogether as an answer to the Western sanctions imposed on Moscow.

“The ECB still has one major advantage over the U.S. Fed. The worsening inflation overshoot in the Eurozone is caused solely by external shocks to supply and not by any factor which the ECB could control,” said Holger Schmieding, chief economist with Berenberg, in a note.

“As a result, ECB council members can afford to agree to delay some of the major decisions until the outlook has become clearer.”

The jury is still out on what economic impact the war will have on the euro zone, but there are early signs that supply chain issues will be aggravated, weighing even more on production, especially in the manufacturing space.

When it comes to higher interest rates, the majority of economists polled by Reuters only see a first hike in the last few months of this year. However, there is currently no consensus on the month that the ECB could end its Asset Purchase Programme, or APP.

“Optionality” will likely be the buzzword at the ECB press conference on Thursday afternoon as there’s a strong lack of clarity in these most uncertain times.

—CNBC’s Weizhen Tan contributed to this article.

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Teladoc Tumbled 38% After Big First-Quarter Loss. Is It Just a Pandemic Play?

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After pandemic drop, Canada’s detention of immigrants rises again By Reuters

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© Reuters. FILE PHOTO: Two closed Canadian border checkpoints are seen after it was announced that the border would close to “non-essential traffic” to combat the spread of novel coronavirus disease (COVID-19) at the U.S.-Canada border crossing at the Thousand Isla

By Anna Mehler Paperny

TORONTO (Reuters) – Canada is locking up more people in immigration detention without charge after the numbers fell during the pandemic, government data obtained by Reuters shows.

Authorities cite an overall rise in foreign travelers amid easing restrictions but lawyers say their detained clients came to Canada years ago.

Canada held 206 people in immigration detention as of March 1, 2022 – a 28% increase compared with March 1 of the previous year. Immigration detainees have not been charged with crimes in Canada and 68% of detainees as of March 1 were locked up because Canada Border Services Agency (CBSA) fears they are “unlikely to appear” at an immigration hearing, according to the data.

The rise puts Canada at odds with Amnesty International and other human rights groups that have urged Ottawa to end its use of indefinite immigration detention, noting CBSA has used factors such as a person’s mental illness as reason to detain them.

A CBSA spokesperson told Reuters that “when the number of entries (to Canada) goes up, an increase in detention is to be expected.” CBSA has said in the past it uses detention as a last resort.

A lawyer told Reuters her detained clients have been in Canada for years.

In the United Kingdom, too, immigration detention levels rose last year after dropping earlier in the pandemic, according to government statistics. Unlike Canada, the United States and Australia, European Union member states have limits on immigration detention and those limits cannot exceed six months.

The rise in detentions puts people at risk of contracting COVID-19 in harsh congregate settings, refugee lawyers say.

Julia Sande, Human Rights Law and Policy Campaigner with Amnesty, called the increase in detentions “disappointing but not surprising,” although she was reluctant to draw conclusions from limited data.

The number of immigration detainees in Canada dropped early in the pandemic, from a daily average of 301 in the fourth quarter (January through March) of 2019-20 to 126 in the first quarter (April through June) of 2020-21.

FEW NO-SHOWS AS DETENTIONS DROPPED

Detaining fewer people did not result in a significant increase in no-shows at immigration hearings – the most common reason for detention, according to Immigration and Refugee Board data.

The average number of no-shows as a percentage of admissibility hearings was about 5.5% in 2021, according to that data, compared to about 5.9% in 2019.

No-shows rose as high as 16% in October 2020, but a spokesperson for the Immigration and Refugee Board said this was due to people not receiving notifications when their hearings resumed after a pause in the pandemic.

Refugee lawyer Andrew Brouwer said the decline in detention earlier in the pandemic shows Canada does not need to lock up as many non-citizens.

“We didn’t see a bunch of no-shows. We didn’t see the sky fall … It for sure shows that the system can operate without throwing people in jail,” Brouwer said.

He added that detainees face harsh pandemic conditions in provincial jails – including extended lockdowns, sometimes with three people in a cell for 23 hours a day.

Refugee lawyer Swathi Sekhar said CBSA officials and the Immigration and Refugee Board members reviewing detentions took the risk of COVID-19 into account when deciding whether someone should be detained earlier in the pandemic but are doing so less now.

“Their position is that COVID is not a factor that should weigh in favor of release,” she said.

“We also see very, very perverse findings … [decision-makers] outright saying that individuals are going to be safer in jail.”

The Immigration and Refugee Board did not immediately respond to a Reuters request for comment.

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Nasdaq futures rise as market attempts comeback from April sell-off, Meta shares soar

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Stock futures rose in overnight trading as the market shook off the April sell-off and investors reacted positively to earnings from Meta Platforms.

Futures on the Dow Jones Industrial Average added 70 points or 0.2%. S&P 500 futures gained 0.7% and Nasdaq 100 futures jumped 1.2%.

The moves came as shares of Meta surged more than 18% after hours following a beat on earnings but a miss on revenue, a sign that investors may see signs of relief in the beaten-up tech sector. Shares were down 48% on the year heading into the results.

Meanwhile, shares of Qualcomm gained 5.6% in extended trading on the back of strong earnings while PayPal rose 5% despite issuing weak guidance for the second quarter.

“I think a lot of people want to believe that earnings are going to pull us out of this, but earnings are not what got us into this,” SoFi’s Liz Young told CNBC’s “Closing Bell: Overtime” on Wednesday. “… But the reality is there are so many macro headwinds still in front of us in the next 60 days that the market is just hard to impress.”

The after-hour activity followed a volatile regular trading session that saw the Nasdaq Composite stoop to its lowest level in 2022, as stocks looked to bounce back from a tech-led April sell-off. The index is down more than 12% since the start of April.

In Wednesday’s regular trading, the tech-heavy Nasdaq ended at 12,488.93, after rising to 1.7% at session highs. The Dow Jones Industrial Average rose 61.75 points, or 0.2%, to 33,301.93 propped up by gains from Visa and Microsoft, while the S&P 500 added 0.2% to 4,183.96.

Investors await big tech earnings on Thursday from Apple, Amazon and Twitter, along with results from Robinhood. Jobless claims are also due out Thursday.

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