Aurelia Butler

This article is an onsite version of our Disrupted Times newsletter. Subscribers can sign up here to get the newsletter delivered three times a week. Explore all of our newsletters hereToday’s top storiesFor up-to-the-minute news updates, visit our live blogGood evening.Is the electric vehicle market starting to run flat?Tesla shareholders are bracing for the carmaker’s worst performance in seven years when it reports quarterly numbers tomorrow as it grapples with slowing demand, a fierce price war and a growing challenge from China.Elon Musk’s company is poised to change gear, slowing plans for its cheaper $25,000 Model 2 and prioritising self-driving “robotaxis”, raising questions over whether it will become a large-scale manufacturer or a smaller provider of autonomous technology. Its investors already face a steadily falling share price and a contentious plan to move the company HQ from Delaware to Texas after a Delaware court voided Musk’s $56bn pay package. The company has already announced a 10 per cent cut in its global workforce.Industry uncertainty is not confined to Tesla: its rival as the world’s top EV maker, China’s BYD has also reported sharp falls in sales. Consumers are balking at the prices of EVs compared with hybrid and petrol or diesel cars, and, as the FT editorial board argues, governments are failing to do enough to realise their ambitions of phasing out internal combustion engines by the 2030s.The sector is also being reshaped, with US and European carmakers set to be overtaken by Asian rivals: a quarter of EVs sold in the EU this year are already expected to be made in China and stockpiles are all too visible at European ports. India too is looking to attract EV investment.In China, intense domestic competition is accelerating this threat to international businesses. And unlike in the US, where Apple ditched its EV plans, even mobile phone companies are getting involved. A rare bright spot for European manufacturers comes from Volkswagen, which has successfully increased sales in China to compensate for the slowdown at home. Manufacturers also have to contend with several uncertainties thrown up by arguments about trade tariffs and subsidies between the west and China. Several carmakers have slowed down EV plans to focus on hybrid models while they still can.The dilemma for western EV manufacturers is how fast to increase production given the sales slowdown and the threat from China. One response, advocated by Renault chief Luca de Meo, is for the EU to adopt an Airbus-like approach to production, with more industrial co-operation and public investment. The big worry for western carmakers, says motor industry correspondent Peter Campbell, is: what if the EV slowdown is not a blip?As one senior executive told him: “If the Chinese sell an EV that is just as good as a western car, but cheaper, that is one thing. But if they sell a better car that also undercuts the west, it’s impossible to catch up.”Join leaders from Peugeot, Nissan, BYD, Jaguar Land Rover and others at the FT Future of the Car summit in London from May 7-9. Newsletter subscribers get a 10 per cent discount off an in-person pass with the code FTS10. Register here.Need to know: UK and European economyUK Prime Minister Rishi Sunak admitted his plan to transport undocumented migrants to Rwanda would be delayed until the summer. The Financial Conduct Authority, the UK’s top financial regulator, faces a backlash from ministers and City bosses over its plan to “name and shame” companies under investigation more frequently and at a much earlier stage. Critics fear it will drive businesses out of the UK.Ireland is facing serious potato shortages as heavy rains delay the planting of its biggest vegetable crop and as Brexit continues to complicate the supply of seeds. The country consumes 94kg of potatoes per head annually, almost triple the global average.Need to know: global economyGlobal military spending rose almost 7 per cent to hit $2.4tn last year, the steepest annual increase in 15 years. Russia’s war in Ukraine was the main driver in Europe but expenditure also increased in other regions.Are investors too complacent on the wider risks from conflict in the Middle East? Mohamed El-Erian compares markets to a frog in boiling water.Singapore is on a mission to reassure international banks that the financial hub can remain stable and neutral at a time of rising tension between China and the west.Is South Korea’s economic miracle over after decades of growth? A new Big Read discusses what’s next as the country tries to reduce its dependence on manufacturing.Indonesia’s sovereign wealth fund is aiming to focus on the switch to green energy as part of a $1bn spending plan. The country wants to become a hub for the energy transition with the help of its vast nickel reserves. Need to know: businessTroubled UK utility Thames Water promised to spend an extra £1.1bn to combat environmental issues such as sewage spills. The company, which supplies 25 per cent of England and Wales, is struggling to stay afloat after shareholders refused to put more money in.TikTok is gearing up for a long legal fight against US legislation that threatens to ban the video streaming app in its largest market if Chinese owner ByteDance refuses to sell it.Exxon is leading a fightback by the petrochemicals industry against UN plans to limit the production of plastics.A Shanghai flying taxi company says China’s “low altitude” industry is edging ahead of western rivals thanks to more supportive regulators, tech breakthroughs and cut-throat competition. The total market created by electric vertical take-off and landing, or eVTOL, aircraft is forecast to be worth $1.5tn a year by 2040.BlackRock more than tripled its spending on home security for Larry Fink last year, after the asset manager’s chair and chief executive became a target for “anti-woke” activists and conspiracy theorists. International hotel groups are stepping up plans to expand in Europe to capitalise on the post-pandemic travel boom. Airlines and airports in Turkey are benefiting from substantial investment and a bet that international travel would recover more swiftly than rivals anticipated.The shipping industry is turning to high-tech “wings” to speed up its path to decarbonisation. The wing, called FastRig, acts as a sail and could cut fuel consumption by up to 30 per cent. When bolted to a vessel’s decks and sitting upright, the FastRig wings will act as a sail capturing the wind More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The economic sentiments from last week’s IMF and World Bank meetings were sanguine, at least compared to warnings of a ponderous recovery at the last meetings in October. Key to the mood is the surprising resilience of the global financial system. Central banks are near peak interest rates and geopolitical tensions are mounting, but the system seems to be weathering it.Reports from the IMF and the Financial Stability Board, which monitors the global financial system, concur, however, that there are some notable remaining risks, and hidden ones may emerge on the bumpy road to disinflation. Policymakers must be vigilant.First, stretched valuations across asset classes and high correlation could prove a toxic combination. Investors had seized on expectations of falling rates and increased earnings. Despite signs of fewer impending cuts, market valuations remain bullish, as continued buying drives up the price of assets, ranging from Magnificent Seven stocks to volatile cryptocurrencies, and widespread risk appetites continue to spike bonds, equities, credit and commodities, with the average correlation above the 90th historic percentile. A shift in investor sentiment could prove catastrophic, as price drops would spread through asset classes and cause global financial conditions to dry up.Next, the shadow banking system — an assortment of financial institutions ranging from hedge funds to insurance companies — still lacks the liquidity to weather price adjustments, according to the FSB. Despite recent shocks that have alerted regulators to the sector, years of high interest rates and successive crises have made the situation worse by further depleting coffers. A spike in margin or collateral calls could give rise to fire sales by shadow banks, which could transmit stress to the global system.There are also vulnerabilities in the banking system. Commercial real estate (CRE) prices have declined since the onset of COVID-19. Some countries’ banking systems are extremely overexposed, particularly Cyprus, Malaysia, and South Korea, and US regional banks have high exposure, though US supervisors appear to be more vigilant since Silicon Valley Bank collapsed. Further price declines could cause local bank failures, with the potential for global spillover. Losses from declining CRE prices and low-quality assets have also conspired to trim capital ratios. According to the IMF, 19 per cent of global banking assets are now held in banks that do not meet its capital ratio guidelines, many of them in China. Globally, government debt burdens are at concerning highs. In a record year for elections, it will be harder for governments to restrain spending and tax pledges — even if debt dynamics look troubling. US debt is a particular concern. High and volatile US treasury yields — which underpin pricing in financial markets — risk adding to global rate pressures. The recent strengthening of the dollar could also cause low-income nations to default, which, while not globally destabilising, would harm hundreds of millions of poor people.These risks are material, but outstanding issues can be addressed. After a decade of flagging the issue, regulators must make progress on improving transparency in the shadow banking system. Stress testing and monitoring liquidity remain important, given the raised uncertainty. Central banks also need to be clear and cautious with their communications. Policymakers canfund debt relief, and can progress frameworks that would allow quick responses to failing banks. There could be a benign end to this hiking cycle, with inflation tamed and the financial system intact. But that may imply that asset prices will remain high — raising the spectre that the inflation-focused agenda may still miss the mark. More

BENGALURU (Reuters) – The European Central Bank will cut its deposit rate in June, three months earlier than an expected move by the U.S. Federal Reserve, and then twice more this year – less than previously thought, according to most economists polled by Reuters.That outlook of a June cut was in line with recent ECB guidance, but while policymakers have made it clear there will likely be multiple cuts this year, they have been less clear on exactly how many.The steeper fall in inflation in the euro zone than in the U.S. nevertheless backs up the view that the ECB is set to cut more than once.An overwhelming majority, or 91 of 97 economists in the April 15-22 Reuters poll, expected the ECB to cut its deposit rate, currently 4.00%, to 3.75% in June, in line with market pricing.”June seems like the starting point of a cutting cycle… Only a big disappointment on collective wage data which comes out in the middle of next month could derail a June cut – it’s very unlikely,” said Bas van Geffen, senior macro strategist at Rabobank.”It’s also a bit of a feeling of how much easing they can get away with because there’s still some upside inflation risks and these risks are especially being amplified.”Despite inflation easing to 2.4% in March, persistently high oil prices and elevated wage growth could derail the progress. It won’t slow down to the central bank’s 2% target until the third quarter of 2025, the poll showed.Although ECB President Christine Lagarde stated after the April 11 monetary policy meeting that the central bank is “not Fed-dependent”, further weakening of the euro, which has already lost more than 3.5% against the dollar this year, could raise the prospect of more imported inflation.More than an 80% majority, or 44 of 54 economists, said they agreed with Lagarde’s statement.”Lagarde is technically right in saying the ECB is independent, but the ECB cannot ignore what is happening in the U.S.,” said Carsten Brzeski, global head of macro at ING.”I would argue with recent market developments, a resurge in oil prices and the weakening of the currency, the idea of back-to-back rate cuts has become very unlikely. So I really think the ECB will do exactly what Lagarde said it will – be extremely data-dependent.”After June, the central bank will cut the deposit rate twice more this year, according to just over half, or 52 of 97 economists. While seven expected a total of 50 basis points of rate cuts in 2024, 38 predicted 100 basis points of cuts or more.In a March survey, a slight majority, 39 of 77 economists, expected a total of 100 basis points or more of reductions.”Over the last few months we have had to gradually back out of a more aggressively dovish call on the ECB. The economy has been a bit more robust and inflation a bit stickier than we were expecting,” said Mark Wall, chief Europe economist at Deutsche Bank.Still, the expected rate cuts were more than the two reductions expected from the Fed. The chances are rising the U.S. central bank holds rates throughout this year.When asked about estimates for the ECB’s neutral rate – that neither stimulates nor restricts economic activity – the median of 35 responses was at 2.25%, in line with the recent comments from French central bank chief Francois Villeroy de Galhau.Meanwhile, recent business surveys showed signs of an upturn in the bloc’s dominant services industry, which could encourage the ECB to go for fewer rate cuts.Euro zone economic growth was seen at 0.2% this quarter and 0.3% in Q3, and at an average 0.5% this year and 1.3% next.But Europe’s largest economy, Germany, was expected to only grow 0.1% in 2024, slower than the 0.3% predicted in January.(For other stories from the Reuters global economic poll:) More