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Good morning. Traders have built up bets that the Federal Reserve could raise interest rates again, a once-unthinkable prospect that highlights a shift in market expectations after stronger than expected US economic data and hawkish comments from policymakers.
Options markets now suggest a roughly one in five chance of a US rate increase within the next 12 months, up sharply from the start of the year, according to analysts.
The shift in expectations has hit bond markets, with interest rate-sensitive two-year Treasury yields — which move inversely to prices — reaching a five-month high of 5.01 per cent. Wall Street stocks incurred their longest losing streak in 18 months before jumping yesterday.
Traders’ central expectation is for one or two rate cuts of a quarter of a percentage point each this year, according to pricing in the futures market.
But following three months of higher than expected US inflation data, investors in a corner of the options market are beginning to take seriously the possibility that the Fed’s next rate move could instead be higher. Read more on the factors driving the shift.
And here’s what else I’m keeping tabs on today:
Federal Trade Commission: The FTC will vote on whether to adopt a final rule that would prevent most employers from enforcing non-compete agreements against workers.
Results: General Motors, Philip Morris International, PepsiCo, Spotify and Visa are among the companies reporting. The spotlight is on Tesla, whose shareholders are bracing for the carmaker’s worst performance in seven years. See the Week Ahead newsletter for the full list.
US property: New home sales figures measuring the number of new single-family properties that were sold last month.
Five more top stories
1. Joe Biden has told Ukraine’s President Volodymyr Zelenskyy that Washington will rapidly escalate military aid to Ukraine as soon as Congress gives final approval to a $95bn security funding package this week. The US president made the pledge to Zelenskyy during a call yesterday, according to the White House, two days after the Republican-controlled House of Representatives led by Speaker Mike Johnson voted to approve the assistance after months of delay.
UK aid: The UK prime minister will unveil an extra £500mn of military funding to Ukraine today and announce the largest supply of munitions to Kyiv as Rishi Sunak travels to Poland and Germany to reinforce ties with European allies.
EU sanctions: European companies still operating in Russia are racing to comply with a new EU policy that, from June, bars them from offering professional services to their subsidiaries in the country.
2. Donald Trump’s ‘hush money’ trial opened yesterday with allegations from the prosecution that he had interfered with the 2016 election, when he directed his team to buy the silence of porn actor Stormy Daniels who threatened to go public with claims of an extramarital affair. A lawyer for Trump, Todd Blanche, countered that his client was “cloaked in innocence” and had merely been trying to “protect his family, his reputation and his brand”. Read the full story here before proceedings resume at 9.30am.
Trump scowls: With his freedom at risk, the former US president has appeared more docile this week as he faces criminal, rather than civil, charges.
3. An independent review commissioned by the UN has said that Israel has not substantiated allegations it made that staffers working for the body’s agency for Palestinian refugees were members of terror groups. The Jewish state has claimed publicly that “a significant number of UNRWA employees are members of terrorist organisations”, the report said, but “Israel has yet to provide supporting evidence of this”. Read more about the findings.
Campus tensions: Police arrested dozens of pro-Palestinian demonstrators at New York University yesterday as authorities stepped up efforts to quell student protests amid scrutiny over antisemitism on US campuses.
Port congestion: Mediterranean container ports are nearing full capacity, operators have warned, as they deal with overflowing storage yards following Houthi attacks on ships in the Red Sea.
4. Exclusive: India is seeking to shore up its access to critical minerals such as lithium, a government official said, as the world’s most populous country rushes to catch up with rivals including China in the race to build next-generation energy supply chains. New Delhi is pushing state-owned mining groups to pursue mineral reserves in South America and Africa. Read more on the country’s plans for this sector.
5. The chief executive of BCG has said the $12bn consulting firm expects to generate a fifth of its revenues in 2024 from helping corporations integrate artificial intelligence into their businesses, a share it projects will reach 40 per cent by 2026. “We have never seen a topic become relevant as rapidly as Gen AI,” Christoph Schweizer told the Financial Times. BCG is working with global tech giants and AI companies including Microsoft, Google, OpenAI and Anthropic to integrate their technology into company operations and processes.
Today’s big read
More than a decade ago, ByteDance founder Zhang Yiming sketched out an idea for a new social media company on a napkin in a Beijing coffee shop. Faith in Zhang led a local partner at Jeff Yass’s Susquehanna International Group to invest $80,000 in the parent company of TikTok and follow up with another $2mn months later. That stake is now worth an estimated $40bn and represents a significant part of Yass’s net worth, according to people familiar with the matter. The Republican donor’s fortune is now hostage to the growing political tension between the US and China. Under pressure, he has gone on the offensive.
We’re also reading . . .
Beyond Bretton Woods: Global financial institutions will have to change if there is to be a real shift to a better system, writes Rana Foroohar.
Wide-awake: Bamboo pyjamas and sensors in beds — while scientists seek to explain the mechanics of sleep, businesses can keep exploiting our tiredness, writes Leo Lewis.
Long-term mortgages: Rising mortgage rates have been a big contributor to the UK’s cost of living crisis. Can long-term mortgages, a norm in the US, help solve the country’s housing crunch?
Chart of the day
Military spending around the world rose almost 7 per cent to a record $2.4tn last year, the steepest annual increase in 15 years, according to research from the Stockholm International Peace Research Institute, a think-tank. Among the biggest national increases was a 24 per cent rise in Russian defence spending to an estimated $109bn, representing a 57 per cent increase since 2014, when Russia annexed Crimea. Read more about an increase in military expenditure across the main geographical regions here.
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Take a break from the news
How can you make work from home wonderful, asks Rhodri Marsden. A walking pad, Razer’s latest chair, a hi-fi speaker and Apple’s newest MacBook Air is what she recommends, and more.
Additional contributions from Benjamin Wilhelm and Irwin Cruz
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Source: Economy - ft.com
