Aurelia Butler

Standard DigitalWeekend Print + Standard Digitalwasnow $85 per monthBilled Quarterly at $199. Complete digital access plus the FT newspaper delivered Monday-Saturday.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts10 monthly gift articles to shareGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionEverything in PrintWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisPlusEverything in Premium DigitalEverything in Standard DigitalGlobal news & analysisExpert opinionSpecial featuresFirstFT newsletterVideos & PodcastsFT App on Android & iOSFT Edit app10 gift articles per monthExclusive FT analysisPremium newslettersFT Digital Edition10 additional gift articles per monthMake and share highlightsFT WorkspaceMarkets data widgetSubscription ManagerWorkflow integrationsOccasional readers go freeVolume discountFT Weekend Print deliveryPlusEverything in Standard DigitalFT Weekend Print deliveryPlusEverything in Premium Digital More

Standard DigitalWeekend Print + Standard Digitalwasnow $75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts10 monthly gift articles to shareGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionEverything in PrintWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisPlusEverything in Premium DigitalEverything in Standard DigitalGlobal news & analysisExpert opinionSpecial featuresFirstFT newsletterVideos & PodcastsFT App on Android & iOSFT Edit app10 gift articles per monthExclusive FT analysisPremium newslettersFT Digital Edition10 additional gift articles per monthMake and share highlightsFT WorkspaceMarkets data widgetSubscription ManagerWorkflow integrationsOccasional readers go freeVolume discountFT Weekend Print deliveryPlusEverything in Standard DigitalFT Weekend Print deliveryPlusEverything in Premium Digital More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a former chief investment strategist at Bridgewater AssociatesWhile the US Federal Reserve may not want to complicate its policy mandate by incorporating climate considerations, it increasingly needs an understanding of meteorology to see where the economy is headed.Hurricane season started on June 1, providing a timely illustration of the weather-driven challenges faced by the Fed, which holds a monetary policy meeting next week. The US National Oceanic and Atmospheric Administration is predicting an above-normal rate of 8-13 hurricane-strength storms before the end of November.Historically, most investors and Fed officials would shrug off this sort of weather event. After all, hurricanes have typically represented one-off shocks that might impede US energy supply in the Gulf of Mexico and regional spending, but only for very short periods. These storms could create tactical trading opportunities for short-term investors, but they weren’t large or sufficiently durable catalysts that they would influence broader economic trends — or require a monetary policy response.That calculus might be changing, however, as storms grow in frequency and cost and have broader macro implications. As someone who grew up in Florida and still has ties to the state, I’ve seen this meteorological evolution first-hand. The data backs up my observations.A recent report from Noaa, for example, found that hurricanes, alongside other US weather events with costs of $1bn or more, averaged 3.3 events per year on average during the 1980s. In subsequent decades, that number rose steadily; over the past three years, an average of 22 events per year were recorded. The cost of these events has risen sharply, from an average $21.7bn a year in the 1980s to $146bn a year over the past three years, adjusting for inflation.Such weather damage is increasingly extending beyond shortlived interruptions to energy supply or postponed consumption, changing both how investors trade weather events but also how policymakers consider them as they think about risks to their economic forecasts. Indeed, one of the biggest financial effects for consumers is something not fully captured in Fed data: homeowner’s insurance.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.US home insurance, especially in parts of the US more prone to weather events, is rising significantly. A March report by the Federal Home Loan Mortgage Corporation, or Freddie Mac, estimated that the annual homeowner’s insurance premium increased between 2018 to 2023 by more than 40 per cent. While a significant part of this reflects higher home and land valuations, Freddie Mac attributes some of the higher cost to greater risks of weather events such as hurricanes.This particular source of inflation is under-represented in important reports that feed into Fed policy decisions. The consumer price index, or CPI, for instance, only incorporates insurance paid for rental units, not homes. Meanwhile, the Fed’s preferred inflation measure, the personal consumption expenditures index, does include homeowner insurance. However, an estimated sum paid by insurance groups on claims is subtracted from what homeowners pay.While insurance is a small piece of the broader inflation picture, the change in the rate of price increases is still noteworthy, and brings with it at least three risks for policymakers to consider. First, the methodology used to calculate CPI and PCE may underestimate the actual inflation being experienced by homeowning households. A second, related risk, is that consumers who need to use more of their income for items such as insurance will have less afterwards to spend on other goods and services. Reduced demand could in turn lead businesses to become more cautious. Such a negative feedback loop could ultimately influence the other half of the Fed’s mandate, the labour market.Finally, the higher cost of homeowner (and other) insurance is feeding into what is increasingly discussed as a K-shaped economy, with lower-income and wealth groups less able to absorb higher living costs relative to their wages. Freddie Mac’s study, for instance, found that between 2018 and 2023, very low-income borrowers’ homeowner insurance premiums represented 3.1 per cent of their monthly income, double that of middle-income borrowers and about triple that of high-income groups.For Fed officials, the widening gap between the top and bottom of the US economic “K” means that however they set monetary policy, it will not be optimal for one part of the population. Maybe we’ll avoid a perfect storm this season, but clear economic policy skies don’t seem likely anytime soon. More

MEIWA, Japan (Reuters) – When Costco Wholesale (NASDAQ:COST) opened its warehouse in a rural Japanese town not far from Tokyo last year offering hundreds of jobs at eye-popping pay, a nearby noodle shop chain took a drastic step: it hiked hourly wages by a third. It was an almost unthinkable decision for Yamada-udon, which sells 390-yen ($2.48) bowls of noodles and for which the slightest rise in cost requires acrobatic scrambling to stay in business.”For us, even a one- or two-yen rise in raw materials costs is tough, so to increase hourly pay by even 10 yen is extremely challenging as we need to generate far more sales,” said marketing director Takehiro Ehashi.After a round of internal discussions, Yamada-udon decided to renovate the store, in Meiwa, Gunma prefecture, offering 1,300 yen an hour for the first three months. That was shy of Costco’s starting hourly wage of 1,500 yen but enough to entice job-seekers in the notoriously tight labour market. After three months, wages would be at 1,050 yen, versus 970 yen pre-Costco.Pressure from the big-box U.S. retailer to offer competitive salaries is tough for businesses like Yamada-udon, but could be the kind of jolt that Japan’s local economies need to create a virtuous cycle of higher wages, solid consumption and stable demand-driven inflation, some say.A meaningful and sustainable rise in wages is a key goal for Prime Minister Fumio Kishida, while the Bank of Japan says it’s a crucial factor for normalising monetary policy. Real wages – stripping out the effect of inflation – have fallen for 25 straight months despite Japanese firms agreeing to the biggest hike in wages in three decades in both 2023 and 2024. That has dragged down consumption and the broader economy, which depends heavily upon it, making it harder for the BOJ to execute a smooth exit from easy policy. Japan lags far behind other big economies with an index for its real average annual wages showing almost no growth between 1995 and 2021, according to IMF data. That compares with growth rates of 50% in the U.S. and nearly 30% in France during the same period. Two years ago, Costco set its minimum hourly pay at 1,500 yen across all of its stores in Japan in a bid to retain workers. That’s high even for Tokyo, where the legal minimum wage is the country’s highest, at 1,113 yen, and 60% more than the minimum in Gunma prefecture. Costco received more than 2,000 applications for about 300 spots for its Meiwa store which opened in April 2023 about an hour north of Tokyo. “If we offer higher wages, our staff can earn and spend more,” said Costco Gunma Meiwa warehouse manager Kaoru Yamamoto. “By doing so, we feel we can make a big contribution by creating a favourable cycle in the local economy.” Costco plans to accelerate its new-store openings in Japan, nearly doubling the number of outlets to more than 60 by 2030, many in remote regions such as Shiga and Okinawa prefectures. Swedish furniture maker IKEA, which has set a nation-wide minimum hourly wage of 1,300 yen in Japan, also opened a store in Gunma this year. “Such moves by big foreign firms to offer higher wages can become a trigger for wage hikes in the local community, which can spread into the broader economy,” said Yusuke Aoki, an economist at Indeed Hiring Lab.STEPPING RIGHT UPJust over a year since Costco opened in his town, Meiwa mayor Motosuke Tomizuka says the positive signs are already evident.The hourly wage in Meiwa has grown by as much as 300 yen, he said, and the rice-growing town of about 11,000 residents sees about as many daily visitors thanks to Costco’s popularity.”When the local economy enters the stage of raising wages, what do business owners do? They try their hardest to make money,” Tomizuka said. “In this way, the economy finally expands and spurs revitalisation.”Costco worker Ryu Kawane says the company’s generous pay has allowed him to buy higher-quality ingredients to make his favourite dish of roast beef, while colleague Nanami Shimamura said he’s now able to save up to study abroad.Noodle chain Yamada-udon, for its part, said it has Costco to thank for the influx of shoppers into town, contributing to a 40-50% jump in its revenues.To be sure, not everyone was thrilled about Costco’s arrival, mayor Tomizuka said, recalling how some business owners chided him for making it even more difficult to hire.”The big chains may have the strength to raise wages, but small and medium-sized businesses are still in a difficult position,” said Hisanori Amada, an economist at the Gunma Labour Bureau. “Some can’t even afford to offer jobs at the moment.”($1 = 157.1100 yen) More

TORONTO (Reuters) -Canadian stocks and bonds rallied on Wednesday, while the loonie touched a near two-week low against its U.S. counterpart, after the Bank of Canada became the first central bank among G7 countries to cut interest rates, raising prospects for Canada’s economy.The Toronto Stock Exchange’s S&P/TSX composite index ended up 166.84 points, or 0.8%, at 22,145.02, clawing back much of its losses since the start of the week.The Canadian central bank lowered its benchmark interest rate by 25 basis points to 4.75%, its first cut in four years, in a move that will ease pressure on highly indebted consumers.”It was clearly a positive development for equity markets and bonds,” said Angelo Kourkafas, senior investment strategist at Edward Jones in St. Louis, Missouri. “It is consistent with a soft landing scenario that the Bank of Canada is willing to start (to) normalize policy while economic growth still is holding up.”The Canadian services economy grew in May for the first time in a year as firms saw an increase in new business and hired workers at a faster pace, data from S&P Global showed. All 10 major sectors on the Toronto market moved higher, including the interest rate-sensitive real estate sector and resource stocks, as commodity prices climbed.Wall Street also rallied, led by technology shares.The Canadian 2-year yield fell as much as 12.7 basis points to 3.929%, its lowest level since Feb. 1, as investors bet that the BoC would ease rates further in the coming months.Swap market data shows that the central bank is expected to cut 77 basis points in total this year, compared with 49 basis points of easing that is priced in for the Federal Reserve.That prospect of interest rate divergence weighed on the Canadian dollar. The currency was trading 0.1% lower at 1.3690 to the U.S. dollar, or 73.05 U.S. cents, after touching its weakest intraday level since May 23 at 1.3741″We think the BoC will cut rates at least once more before the Fed meets on Sept. 18, leaving CAD vulnerable to a further widening in rate differentials,” said Simon Harvey, head of FX analysis for Monex Europe and Monex Canada.The Federal Reserve’s next policy meeting is June 11-12, when it is widely expected to leave rates unchanged. The Fed will also hold a policy meeting in late July, followed by its meeting on Sept. 17-18.A majority of forecasters in a Reuters poll expect the Fed to cut its key interest rate in September, followed by one more cut this year.The loonie is set to strengthen less than previously expected over the coming year as the BoC leads the Fed on rate cuts and if the U.S. election in November raises global trade uncertainty, a Reuters poll found. More

FRANKFURT (Reuters) – The European Central Bank was all but certain to cut interest rates from record highs on Thursday and was likely to acknowledge it had made progress in its battle against high inflation, while also stressing the fight was not yet over.ECB policymakers have clearly telegraphed their intention to lower borrowing costs after seeing inflation in the 20 countries that share the euro fall from more than 10% in late 2022 to just above their 2% target in recent months.The broad-based decline was seen as more than enough for the ECB to begin undoing the steepest streak of interest rate hikes in its history, which were a response to spiralling prices in the wake of Russia’s invasion of Ukraine.Now, the ECB will join the central banks of Canada, Sweden and Switzerland in cutting rates and moving well ahead of the influential U.S. Federal Reserve.But what had looked like the start of a major easing cycle only a few weeks ago now appeared more uncertain amid signs that inflation may prove stickier than expected in the euro area, as has been the case in the United States.This meant that ECB President Christine Lagarde and her colleagues were unlikely to commit to a further rate reduction at their July meeting or beyond just yet.Instead, they were expected to stress any further move would depend on incoming data and that borrowing costs needed to remain high enough to keep a lid on inflation. “The cut will set the new direction for policy but with economic momentum outperforming expectations and domestic inflation proving sticky in 2024, the ECB can afford to take things slowly and let the data set the parameters of the easing cycle,” Deutsche Bank economists wrote in a note to clients.All 82 economists polled by Reuters expected the ECB to trim its deposit rate to 3.75% on Thursday from a record 4.0%, in what would be its first cut since 2019.But not all think it is a good idea.Gabriele Foà, a portfolio manager at Algebris Investments, said the cut “may soon be viewed as a policy mistake” and JPMorgan economist Greg Fuzesi said it was “oddly rushed”. “The cost of waiting until September appears low while the benefit of getting more clarity on the inflation outlook appears high,” Fuzesi added. “For some reason, the ECB Governing Council, however, seems already to have decided many weeks ago to deliver a June cut.”NO DECLARATION OF VICTORYECB chief economist Philip Lane set the tone last week, saying that a rate cut would be no “declaration of victory” and the pace of further reductions would depend on progress on domestic inflation and demand.Most economists still expected two further rate cuts by the end of the year and money markets priced in between one and two more moves, possibly in September and December.But some stronger-than-expected data over the last few weeks fuelled fears of a more difficult “last mile” on the way to 2% inflation than the ECB has been predicting — a concern often expressed by influential board member Isabel Schnabel. Euro zone inflation rose more than predicted in May, with price growth in the services sector, which some policymakers singled out as especially relevant because they reflect domestic demand, rebounding to 4.1% from 3.7%, according to preliminary estimates.This was likely to mirror larger-than-expected increases in wages in the first quarter of the year, which boosted consumers’ battered disposable income after years of below-inflation pay hikes.”We’re still confident about services inflation coming down but there’s definitely a last-mile dynamic at play here,” Paul Hollingsworth, an economist at BNP-Paribas, said.Economic activity surveys have also pointed to a stronger-than-expected rebound by the economy after more than a year of stagnation, which is likely to force the ECB to increase its GDP forecast for this year when it publishes its new projections on Thursday.These were still expected to point to inflation returning to the ECB’s 2% goal next year, keeping the central bank on course for more easing barring new inflation surprises.”If anything, the five quarters of stagnation in the euro zone economy from autumn 2022 to the end of 2023 suggest that the ECB may have overreacted with its rate hikes,” Holger Schmieding, an economist at Berenberg, said. “Seen from this angle, somewhat lower rates make sense.” More

(Reuters) – A look at the day ahead in Asian markets.So much for ‘bad news is bad news’. After struggling for days to take advantage of tumbling U.S. bond yields, pushed lower by increasingly gloomy signals on the U.S. growth outlook, Wall Street snapped back on Wednesday, surging over 1% and pushing the S&P 500 and Nasdaq to new highs.Nvidia (NASDAQ:NVDA) is a $3 trillion company, U.S. futures are pointing to another rally at the open on Thursday and volatility is sinking. Bad news – and there was another dose of it on Wednesday in the form of soft private sector job growth – no longer seems to be bad news.That’s the backdrop to the Asian open on Thursday, and it is worth highlighting because the drip feed of soft U.S. economic data recently had begun to cast an increasingly dark shadow over markets and sour investor sentiment.Throw in this week’s political and market volatility from the general elections in India, Mexico and South Africa, and the strength of Wednesday’s rally is perhaps doubly surprising.That said, a much stronger-than-expected reading on Wednesday of U.S. service sector activity in May can be seen as ‘good news’. But if equity investors seized on that, why did bond yields fall across the curve?To be sure, the global interest rate picture is looking more risk-friendly. The Bank of Canada cut rates on Wednesday and the European Central Bank is expected to do so on Thursday. The 2-year U.S. Treasury yield has fallen more than 25 basis points in the last week, and is now down five days in a row – its longest stretch of down days this year. The 10-year yield is down 35 basis points in five days.The Asian economic on Thursday sees the release of unemployment data from the Philippines, trade and housing market figures data from Australia, the latest reading of inflation from Taiwan, and Chinese trade data for May.China’s trade data will be closely watched for signs that activity is picking up after months of disappointing numbers. Exports are seen rebounding strongly, rising 6.0% year-on-year, but import growth is expected to halve to 4.2%.The combination of a powerful rally on Wall Street, falling volatility, lower bond yields and a fairly steady dollar should be a positive one for investors in Asia on Thursday. Indian stocks jumped more than 3% on Wednesday, recovering half of Tuesday’s slump. The NSE Nifty 50 index and S&P BSE Sensex are now higher than they were on Friday, before the volatility sparked by the election exit polls and final results.Japanese equities, meanwhile, look set to bounce back from two down days in row after the yen on Wednesday registered its biggest fall against the dollar in over a month. Here are key developments that could provide more direction to markets on Thursday:- China trade (May)- Australia trade (April)- Taiwan inflation (May) More