Today’s top stories
Microsoft and Activision Blizzard are exploring a restructured version of their proposed $75bn tie-up in a move that could trigger a fresh UK antitrust probe. A judge yesterday denied a request from the US regulator to block the deal, arguing it had failed to show it harmed competition.
Ukraine’s key western allies agreed long-term security commitments aimed at turning the country into a military fortress to repel Russian aggression. The pledge from G7 countries includes supplies of weapons, cash and other assistance.
Bank of England stress tests found the UK’s top banks “would continue to be resilient” if the economic environment worsened and were well positioned to support households and businesses through a period of rising interest rates. The cost of two-year fixed-rate mortgages in the UK has surpassed highs reached in the wake of last autumn’s “mini” Budget.
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Good evening.
US inflation in June fell to its slowest rate since March 2021, in the latest sign that the Federal Reserve’s programme of interest rate rises is bearing fruit.
CPI dropped more than expected from an annual 4 per cent to 3 per cent, with a smaller dip in the “core” measure which strips out volatile food and energy costs from 5.3 per cent to 4.8 per cent.
The drop tallies with last week’s jobs data which showed growth slowing more than expected, albeit with wage growth remaining stubbornly high and unemployment still at a historically low level.
The news pushed US stocks and bond prices higher. The yield (which moves inversely to prices) on the two-year Treasury note, which tracks interest rate expectations, fell to 4.74 per cent, a two-week low.
Much of the drop in the headline measure is due to the high number from last June falling out of the annual comparison, while the Fed is also wary that inflation has slowed before only to pick up again. Markets consequently still expect the Fed to raise rates by 0.25 percentage points at its next meeting but are more confident the end of rate rises is in sight.
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John Williams, the New York Fed president, told the FT yesterday that getting inflation back down to the 2 per cent target necessitated not only reducing further the demand for labour but also some increase in unemployment. He did however think the US would now avoid recession.
In the meantime, new data shows the effects of high inflation and interest rates on US households. Mortgage costs today topped 7 per cent for the first time since early November, while Deloitte yesterday forecast that the average family would spend 10 per cent less this summer on back-to-school supplies, traditionally seen as a pointer to what households spend in the peak retail season from November to January.
Three in 10 of the parents Deloitte surveyed reported being in a worse financial situation than last year, and half said they expected the economy to weaken in the next six months. The end of a pandemic-era moratorium on student loan repayments is also likely to dampen consumption and savings.
The bigger picture on where the US is heading is the focus of a new FT series on how President Joe Biden is rewriting the rules of the global economy and embracing “big government” after decades of laissez-faire.
Last year’s Inflation Reduction Act and Chips and Science Act, alongside 2021’s Infrastructure Investment and Jobs Act, offer hundreds of billions of dollars of subsidies, grants and loans to spark new investment, particular on the energy transition, encouraging similar moves in Europe and elsewhere.
Some moves are already beginning to bear fruit: tax credits have for example contributed to a surge in electric vehicle sales.
The push to support domestic manufacturing is almost certainly here to stay, despite criticisms from Biden’s opponents. “I don’t see a lot of politicians walking into a community and saying, ‘I know we like that battery factory where you’ve all got jobs but I’m going to take away the subsidies and send those jobs overseas’,” said one adviser. “That’s not a message that resonates with anyone.”
Need to know: UK and Europe economy
Pay in the UK grew faster than expected in the three months to May, adding to pressure on the Bank of England as it tries to restrain inflation. BoE governor Andrew Bailey and chancellor Jeremy Hunt had joined forces to demand wage restraint the day before the new data. Hunt has also ordered ministers to find £2bn in savings for public sector pay rises.
Rising water bills are set to pile further pressure on UK households: companies plan to increase charges by up to 49 per cent to pay for much-needed infrastructure upgrades. Troubled Thames Water co-chief Cathryn Ross came under fire in parliament over her former role as head of the water watchdog.
Hunt’s “Mansion House reforms” which aim to channel pension savings into investment in high-growth companies would only have a small effect on UK growth, the FT editorial board concluded.
Turkey’s backing of Sweden’s bid to join Nato is part of its efforts to ease tensions and unblock trade with the west and begin luring back foreign investors who have fled during its elongated economic crisis.
Need to know: Global economy
The gap in government borrowing costs between emerging and developed markets has hit its lowest level since 2007, as the former plan interest rate cuts and the latter plan further tightening. Said one investment officer: “Emerging markets have done a good job at navigating this inflation shock and I’m not sure you could say the same about some of the western central banks,”
Chief economics commentator Martin Wolf says developing countries have good reasons to distrust the west and its hypocrisy, whether over selective support for human rights and international law or failure to fully acknowledge its historic responsibility for climate change.
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More than 130 nations extended a controversial ban on national taxes aimed at Big Tech as they attempted to put together a co-ordinated global fix that would update the international tax system for the digital age.
Cash is no longer king in Japan. The number of coins circulating has plunged over the past 18 months, sparked by a combination of the pandemic, banking fees, inflation, and the advance of cashless payment technology.
Kenyan president William Ruto is facing mounting criticism for slashing subsidies and implementing austerity measures as his government tries to find enough cash to meet creditors’ demands and avoid the defaults and forced restructurings of African peers such as Zambia and Ghana.
Need to know: business
The EU hit Illumina with a record €432mn fine after the world’s largest gene sequencing company completed an $8bn acquisition without the approval of Brussels, violating what regulators said was the “cornerstone” of their authority
Amazon became the first US company to challenge the EU’s proposed rules forcing Big Tech to police content online, arguing it is being unfairly targeted. The move will be followed closely by the 18 other companies, including Twitter and TikTok, that the EU has said fall within the scope of the law.
Cryptocurrency transactions are illegal on mainland China, but not in Hong Kong, where the city is seeking to become a digital assets trading hub, with lightly regulated bricks-and-mortar crypto shops scattered throughout the city’s tourism and shopping districts.
Our latest Tech Tonic podcast focuses on the impact of social media on young users’ mental health and how regulation might affect the industry’s business model.
The World of Work
The OECD called on its member states to prepare for the negative side-effects from the mass adoption of artificial intelligence in the workplace. Potential benefits, such as higher job satisfaction and productivity gains, had to be weighed against downsides, particularly for traditionally highly-skilled occupations.
If AI does herald a future where machines replace human labour, what might we do instead? Columnist Sarah O’Connor says it’s time to relearn the lost art of leisure.
Good chit-chat skills are a key tool of self-promotion in the office. This week’s Working It podcast features a masterclass in schmoozing from Matt Abrahams, author of the forthcoming book Think Faster, Talk Smarter.
Healthcare workers have been sharing their experiences of working for the NHS with the FT.
Some good news
Empty office buildings in US cities are being turned into vertical farms.
Source: Economy - ft.com
