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This is an audio transcript of the FT News Briefing podcast episode: Schrödinger’s dead cat bounce

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, June 22nd, and this is your FT News Briefing.

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Wall Street had a rare good day yesterday, but was it a fluke? Lithuania is enforcing sanctions against Moscow. Now, Russia is pushing back. Plus, the global food supply shortage has reignited a classic debate — should produce be used to feed people or should it be used as biofuel?

Camilla Hodgson
It’s not such a clear-cut case of: turn off biofuels, end up with more bread.

Marc Filippino
I’m Marc Filippino, and here’s the new you need to start your day.

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The S&P 500 climbed almost 2.5 per cent on Tuesday. It was its best performance since late May, but stocks are still in bear market territory. The FT’s Kate Duguid explains what might have been behind yesterday’s rally.

Kate Duguid
So one thing that we always kind of see is bargain hunters who come out and try to buy stocks at lows, hoping that they’ll be a bit of a bounce. There was also a phenomenon happening last week where hedge funds were short selling a ton, and so there was a sort of a counter move on Monday where funds were maybe covering those short positions, kind of artificially driving stocks up a little higher. There’s also this idea that markets are maybe thinking that the Fed may be closer to the end of its hiking cycle. You know, nothing has fundamentally changed. Our outlook is the same. The economic data is the same. But it may be the case that, you know, markets are really sort of coming to terms with the possibility of a recession. And so there’s like a little bit of temporary relief believing that the Fed may not hike as much in the future. All that said, it was a one day move, and it’s not quite clear if that’ll continue.

Marc Filippino
Yeah. So a market move like this is sometimes called a “dead cat bounce”, which is gross. And basically it indicates that as the market continues its downward trajectory, it may spike up every once in a while and then it would keep dropping. Much like the way a dead cat would bounce if you dropped it off a tall building or something. Again, it’s a it’s a super gross visual. But I guess what I’m trying to ask is, is this, is what we saw yesterday a dead cat bounce?

Kate Duguid
It may be, but it’s, you know, we’re not sure if the cat’s dead.

Marc Filippino
(Laughter) Good point.

Kate Duguid
A lot of things are called dead cat bounces well before anybody knows whether or not the cat has died. So President Biden yesterday came out and said that he didn’t think that a recession was inevitable. This is after a conversation that he had with former secretary of the Treasury Larry Summers. And there’s, there’s some belief that the Fed may still be able to orchestrate what people call a soft landing, basically, that they would be able to continue to raise interest rates without causing a recession. So that would be the dead cat. The dead cat is the recession.

Marc Filippino
Kate Duguid is the FT’s US capital markets correspondent.

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Lithuania is blocking Russia from transporting goods to Kaliningrad. This blockade is part of the sanctions that the EU has laid out against Russia for invading Ukraine. But now Moscow is retaliating against Lithuania for enforcing these sanctions. The FT’s Max Seddon joins me now to talk more about this. Hey, Max.

Max Seddon
Hi.

Marc Filippino
So, Max, this all started yesterday when Russia’s secretary for the security council made this kind of vague threat towards Lithuania. What did he say?

Max Seddon
We do not know exactly what Russia is threatening. All that we have seen is that Nikolai Patrushev, who is the secretary for security council, said to be one of the very few officials involved in the planning of the war in Ukraine. He went to Kaliningrad on Tuesday, had a meeting about this, and he declared that Russia would take unspecified measures, which will be very painful for the Lithuanian population if Lithuania doesn’t start allowing sanctioned goods to start going back to Kaliningrad via rail. Lithuania controls the only rail route linking Russia to Kaliningrad, and while they can replace these goods via by a sea, it’s much more expensive to do that so much so that apparently it’s not really economically viable. So this is an important issue for Russia in a vulnerable strategic location for the EU.

Marc Filippino
How has Lithuania responded to the threats?

Max Seddon
Lithuania, which is interesting, they, they don’t seem particularly troubled by this, at least not openly. They have said this is really more, more about rhetoric, and they don’t expect any kind of response because it’s not entirely clear what Russia could do to Lithuania at this at this point other than some sort of military action, which I think the assumption is, given that Lithuania is Nato member, Russia is not going to do because Lithuania already cut itself off from Russian gas. So there aren’t that many economic levers to retaliate against Lithuania in the way that Russia often has against other countries.

Marc Filippino
So is this kind of escalating what the EU has been doing?

Max Seddon
The EU has stressed this is something that Russia knew was coming. These sanctions were taken months ago and they had winding down periods to prepare for this. So I don’t think it’s fair to say that the EU is escalating now. The question is how confident does Russia feel that it can continue to pressure western states at a time when it’s already blocking Ukraine’s Black Sea grain exports and it’s started limiting gas supplies to countries such as Germany and the EU.

Marc Filippino
Max Seddon is the FT’s Moscow bureau chief. Thanks, Max.

Max Seddon
Thanks so much.

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Marc Filippino
Food prices, you may have noticed, are way up because of Russia’s invasion of Ukraine. Both countries were huge exporters of corn and sunflower oil before the war. Now, not so much. This food shortage has reignited the food versus biofuel debate. Should we be using corn and sunflower oil to make this low carbon fuel when the global food supply is struggling to feed people? The FT’s Camilla Hodgson has been looking into this, and she joins me now. Hey, Camilla.

Camilla Hodgson
Hi.

Marc Filippino
So what’s the argument for limiting biofuel production right now?

Camilla Hodgson
So what some groups would say is that given that there’s likely to be less grain coming out of places like Ukraine and Russia, we shouldn’t use what we have to make into fuels. We should instead use those grains for human food, basically. So making wheat into bread, for example.

Marc Filippino
Camilla, would limiting biofuel have a noticeable impact on the global food supply? I guess, you know, would people be able to eat more?

Camilla Hodgson
I think it’s really difficult to say. And there are a couple of different factors at play here. One is that this is something the industry, the biofuels industry would say, it’s not that there’s been a massive reduction in how much grains are made into human food. It’s just that there’s also been more biofuel production. But they would say, you know, kind of taking away from food production in order to create fuels. Whether or not that is fair is up for debate. One of the other things that some analysts would say is, you would have more grain in theory if that was no bio biofuel production. But do all those grains necessarily get made into human food at the end of the day? The biofuels industry would say, no. It’s generally not the kind of quality that gets made into bread. It’s the kind of quality that gets made into animal feed. You can have a whole argument about whether that’s more worthwhile anyway, because animals are part of the human food chain. But I think all of which is to say, it’s just, it’s not such a clear-cut case of: turn off biofuels, end up with more bread.

Marc Filippino
Camilla, would limiting biofuel have a noticeable impact on the global food supply. I guess, you know, would people be able to eat more?

Camilla Hodgson
Well, so countries are reacting in different ways to this problem. In the EU, you’ve had countries like Belgium and Germany considering easing biofuel blending mandates, which basically just means saying you need to have less biofuels in the fuels that are used. The IAEA, the International Energy Agency, has also cut its biofuels growth forecast for this year. But that said, in the US, they’ve taken a bit of a different approach and they’ve said actually, given that oil prices are so high, it might be helpful to continue to have higher blending levels. The situation is a little different there because you have corn-based ethanol, which is the main biofuel, and it’s cheaper. It’s not entirely clear what the best approach is gonna be, and countries are really still trying to figure out what is gonna be best for them given their national circumstances.

Marc Filippino
That’s the FT’s Camilla Hodgson. Thanks, Camilla.

Camilla Hodgson
Thank you.

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Marc Filippino
Before we go, Kellogg’s is splitting up into three different companies. It’ll keep the global snacking business, but spin off its North American cereal brands and a smaller business that sells plant-based foods. The company’s chief executive told the FT the move will help the company stay agile and focused during a, quote, “tumultuous time”. The decision comes as input costs are going up and consumers are switching over to cheaper options because of higher prices.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.


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