Aurelia Butler

“Recent inflation prints muddy the near-term path, so we push the first cut to July and take out one forecasted cut this year,” analysts at Morgan Stanley said in a recent note, forecasting the Fed to cut three times, down from a prior estimate of four cuts. The latest outlook is in-line with the Fed’s projection for three rate cuts this year. The bank’s less dovish view followed recent data that has forced it to boost its growth forecast for the year, forecasting GDP growth to be 2.3% in Q4 this year and 2.1% in 2025, up 0.7% from a prior estimate.   The analysts, however, call for a rate cut at every meeting starting in July that will see rates falling to 3.625% by mid-2025 on expectations that the disinflationary trend will persist  because the strength in the economy has been driven by surge immigration that has boosted productivity without adding inflation pressures. ‘The US economy is experiencing a positive supply side shock, which allows for a larger economy without adding inflationary pressures,” Morgan Stanley said.But this supply shock of labor will result in a labor market that moves from balance into oversupply this year, pushing the unemployment rate higher and sparking a further easing in wage pressures, it added. “Despite the significant upgrade to GDP growth, we now see more slack in the labor market and have little revised our inflation forecasts, the analysts said.Better-than-expected retail sales data on Monday, meanwhile, added to expectations for rates to be higher for longer on bets that consumer will likely continue to keep spending, underpinning economic growth. “A third straight quarter of GDP growth over 3% should be the nail in the coffin for anyone expecting rate cuts any time soon,” Jefferies said in a note. Markets are now pricing just two rate cuts for 2024, according to Investing.com’s Fed Rate Monitor Tool. More

Pakistan and the IMF last month reached a staff-level agreement on the second and last review of its current $3 billion stand-by arrangement which, if cleared by the global lender’s board, will release about $1.1 billion to the struggling South Asian nation.That arrangement runs out in late April and the country needs more funding to avoid a balance of payment crisis. “The purpose is to agree the strategies with the fund, and get the EEF (Extended Fund Facility) in place as quickly as possible,” Aurangzeb said at an event at the Atlantic Council think tank in Washington, where the IMF World Bank Spring Meetings was getting underway. “We are looking for larger loan. We will need a two to three year time period, so that we can actually go through the structural reforms,” he said, declining to give further details. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A “blowout” March retail sales report sparked a sell-off in US government debt and shook global currency markets on Monday, in the latest sign that the world’s largest economy may be running too hot to justify cutting interest rates.US retail sales were much stronger than expected in March, as consumers kept spending despite uncertainty about the future path of interest rates.Data from the US Census Bureau published on Monday showed that retail sales, which include spending on food and petrol, rose 0.7 per cent last month. Economists surveyed by Reuters had expected an increase of 0.3 per cent.The figure for February was revised up from a rise of 0.6 per cent to one of 0.9 per cent, indicating resilient consumer spending earlier this year and providing further evidence of a reacceleration of economic growth.“That retail sales number was profoundly strong . . . I had to mark up my GDP expectations because of retail sales,” said Tom Simons, US economist at Jefferies. He now expects first-quarter gross domestic product growth to hit 3.1 per cent, up from a previous estimate of about 2.2 per cent, which was close to the Wall Street consensus.The Atlanta Fed’s GDP “nowcast”, a rolling forecast that incorporates new data releases, was updated on Monday following the retail sales report. The first-quarter estimate is now 2.8 per cent, up from 2.4 per cent.The expectations of higher growth were accompanied by expectations that inflation will also stay higher. Market measures of inflation expectations have climbed recently following three consecutive months of stronger than expected data and jumped further following the Census Bureau release.“You can’t stop the US consumer when they are fully employed with wage growth remaining near multi-decade highs,” said Charlie McElligott, managing director of cross-asset strategy at Nomura.Aditya Bhave, an economist at Bank of America, wrote in a note to clients that March’s “blowout” retail sales numbers were “unequivocally strong”.“Some of the March gains appear idiosyncratic, but the broad message is one of consumer resilience,” he said.Prices for US Treasuries dropped immediately after the data release, pushing yields higher.Yields on benchmark 10-year note, which move with growth and inflation expectations, rose to a five-month high of 4.63 per cent on Monday. The two-year yield, which moves with interest rate expectations, rose to within a hair of a five-month high, up 0.05 percentage points to 4.94 per cent. The five-year inflation break-even — a market measure of inflation expectations in five years’ time — reached its highest level since March 2023. The break-even is typically very sensitive to oil prices, which fell back on Monday but remain close to a five-month high.In currency markets, the strong retail sales figures boosted the US dollar index, which tracks the world’s dominant currency against six international peers.The yen fell 0.7 per cent beyond ¥154 per dollar for the first time since 1990, as traders slightly scaled back their bets on rapid rate cuts from the Federal Reserve, strengthening the dollar.US equities markets fell sharply as Treasury yields rose, with the pain concentrated among interest rate-sensitive tech stocks. The S&P 500 index was 1.2 per cent lower. Torsten Slok, chief economist at Apollo, pointed to fears of a return to 2022, when equities underwent a brutal sell-off. “What characterised 2022 was that interest rates were going up, inflation was too high and therefore there was uncertainty about when the Fed will be done and will the Fed eventually create a slowdown,” Slok said. Markets are now pricing in between one and two quarter-point rate cuts by the Fed in 2024, having expected between six and seven just four months ago.Additional reporting by Stephanie Stacey in London More

WASHINGTON (Reuters) -The recent attempt by an unknown actor to sabotage a widely used software program may have been one of several attempts to subvert key pieces of digital infrastructure across the internet, two open source groups said in an alert published on Monday.In a joint statement, the Open Source Security Foundation and the OpenJS Foundation said the attempt to insert a secret backdoor into XZ Utils – a little-known program that is baked into Linux operating systems across the world – “may not be an isolated incident.” They said at least three different JavaScript projects were targeted by unnamed individuals demanding suspicious updates or asking to be made maintainers of the targeted software. The JavaScript programming language powers much of the modern web and sees intensive use across the world. Omkhar Arasaratnam, the Open Source Security Foundation’s general manager, said that one of the targeted packages alone saw tens of millions of downloads a week.He declined to identify the JavaScript projects by name, saying he wanted to protect an ongoing investigation. Arasaratnam also said that while it wasn’t clear what the suspected malicious actors were hoping to do – “we stopped them before they got that far” – he suspected they hoped to build backdoors into those projects as well.The OpenJS and Open Source Security Foundations said they had warned the U.S. Cybersecurity & Infrastructure Security Agency about the suspected infiltration. The agency did not immediately return a message seeking comment. More

MOSCOW/ANKARA (Reuters) – Russia and Ukraine negotiated for two months with Turkey on a deal to ensure the safety of shipping in the Black Sea and reached agreement on a text that was to be announced by Ankara but Kyiv suddenly pulled out, four people familiar with the matter told Reuters.The negotiations were mediated by Turkey after nudging by the United Nations, according to the sources who spoke to Reuters on condition of anonymity due to the sensitivity of such talks. A deal was reached in March “to ensure the safety of merchant shipping in the Black Sea”, and though Ukraine did not want to sign it formally, Kyiv gave its assent for Turkish President Tayyip Erdogan to announce it on March 30, the day before critical regional elections, the sources said.”At the very last minute, Ukraine suddenly pulled out and the deal was scuttled,” said one of the sources.Three other people confirmed that version of events. Russia, Ukraine and Turkey declined to comment. It was not immediately clear why Ukraine pulled out. The people who spoke to Reuters said they did not know what had prompted Kyiv’s decision. Ukrainian President Volodymyr Zelenskiy said in February that without new U.S. military aid, Ukraine would not be able to defend a Black Sea shipping corridor hugging its western Black Sea coast near Romania and Bulgaria.The talks on the shipping deal, which have not been reported before, offer a glimpse of the quiet diplomacy going on behind closed doors on ways to bring the two warring sides to negotiation, if only, at first, about merchant shipping. When asked for a comment on the Reuters reporting, United Nations Spokesman Stephane Dujarric said: “We still hope that freedom of navigation in the Black Sea will prevail.”Turkey and UN Secretary-General Antonio Guterres have been trying to months to get merchant shipping sailing more freely though the Black Sea, which in some areas has been turned into a naval war zone since Russia invaded Ukraine in 2022. The Black Sea is a key route for both Russia and Ukraine to get bulk products such as grain, fertiliser and oil to world markets, though sea shipping volumes have fallen significantly since the war. RUSSIA-UKRAINE TALKS The text of the deal, a copy of which Reuters has seen, said that Turkey “as part of its mediation efforts” had reached agreements with Ukraine and Russia “on ensuring free and safe navigation of merchant vessels in the Black Sea” in compliance with the Montreux Convention of the Regime of the Straits.That 1936 deal gives Turkey control over the Bosphorus and Dardanelles and the power to regulate transit of naval warships. It also guarantees the free passage of civilian vessels in peacetime and restricts the passage of ships not belonging to Black Sea countries.Under the deal almost announced on March 30, both Moscow and Kyiv would have offered security guarantees to merchant vessels in the Black Sea, committing not to strike or to seize or search them as long as they were either empty or had declared a non-military cargo.”These guarantees do not apply to warships, civilian vessels carrying military goods (with the exception of maritime transportation agreed upon by the Parties within the framework of international missions),” the draft agreement said.”The Republic of Turkey informs the UN Secretary General that the agreement has been reached and is being implemented through the mediation of the Republic of Turkey,” the draft said. “The agreement comes into force upon announcement.”Turkey and the United Nations helped mediate the Black Sea Grain Initiative, a deal struck in July 2022 that had allowed the safe Black Sea export of nearly 33 million metric tons of Ukraine grain.Russia withdrew from the agreement in July 2023, complaining that its own food and fertiliser exports faced serious obstacles. More

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.Could cautious optimism on the global economy be derailed by the weekend’s events in the Middle East?That’s the question facing policymakers gathering in Washington DC for the spring meetings of the IMF and World Bank. To an already packed agenda on geopolitical tensions, inflation and interest rates, tackling global debt and helping poorer countries finance the fight against climate change must now be added the impact of a potential wider conflict in the Middle East following Iran’s attack on Israel. Ahead of the meetings, the IMF warned of a decade of disappointing growth and popular discontent as central banks continue to battle against rising prices and governments struggle with high levels of public debt. The twice-yearly Brookings-FT Tracking Index for the Global Economic Recovery suggests a modest improvement on growth from last year, fuelled by momentum in countries such as the US and India. The IMF will publish its own outlook later this week.Aid for debt-strapped countries is high on the agenda as global crises stretch aid budgets. The International Development Association, the World Bank’s $200bn lending arm to the world’s poorest nations, is seeking a record amount of new funds to help countries facing debt and climate crises, while the World Health Organization and its allies want more from western governments distracted by elections at home and wars in Europe and the Middle East. “There is a record amount of need and a record number of funds coming forward; meanwhile, the international community’s focus is elsewhere,” said Clemence Landers of the Center for Global Development think-tank.Overseas development assistance budgets, which rich countries use to allocate cash for development banks and multilateral funds, hit a new high last year, but the rise in world conflicts, especially the war in Ukraine, has put them under increasing pressure. Meanwhile progress in addressing poverty in the world’s poorest nations has halted. The World Bank has also become a focal point for negotiations to find up to $9tn a year by 2030 to pay for action on climate change. As Aime Williams points out in today’s Trade Secrets newsletter (for Premium subscribers) its chief Ajay Banga has his work cut out in persuading developing countries that the institution feels their pain. It’s been almost a year since Banga replaced his Trump-appointed predecessor, David Malpass, who became something of a hate-figure for climate types. But it is the events of the past 48 hours that hang heavily over the meetings in Washington. Western leaders are urging restraint from Israel while the EU is mulling new sanctions on Tehran. Iran for its part considers the matter “concluded”.So far at least, reaction in the markets remains muted, with investors shrugging off fears of a wider conflagration. If events escalate, any jump in oil prices could shock an already tight market as demand increases in big economies while Opec+ producers constrain supply. “The US and China stand to lose from the conflict’s expansion as it would significantly impact on energy exports from the region, the price of oil, and the global economy,” said Ayham Kamel at the Eurasia consultancy. A rise in petrol prices would also deal a fresh blow to the re-election hopes of US President Joe Biden.Need to know: UK and Europe economyLord Ken Clarke, former chancellor, warned that an incoming Labour government would face the biggest set of problems of any new UK administration since the second world war, thanks to a sluggish domestic economy with low productivity growth, low business investment, strained public services and multiple international crises.The UK is considering new legislation to regulate artificial intelligence, months after prime minister Rishi Sunak vowed “not to rush” new rules. Legislation would likely put limits on large language models, the technology underpinning AI products such as OpenAI’s ChatGPT. England has just experienced its wettest 18 months since 1836. A future of warmer and wetter winters means heightened risks not only for farmers but for the country’s food security. International Energy Agency chief Fatih Birol in an FT interview criticised Europe for making “two historic monumental mistakes” by relying on Russian gas and turning away from nuclear power. The bloc would need “a new industrial master plan” in order to recover, he said.It will take “decades” for Germany’s manufacturers to reduce their dependence on China, according to a top executive at Siemens, highlighting the problems facing western companies and their reliance on the country as a market as well as a supplier. Spain has overtaken the UK as hotel investors’ favourite destination in Europe according to a new survey. The hospitality sector is enjoying a revival of dealmaking as it recovers from the pandemic. Need to know: Global economyAluminium and nickel prices jumped after the UK and US introduced fresh sanctions on new Russian metal trading on the world’s largest exchanges for the vital industrial raw materials. The FT-Michigan Ross poll showed Joe Biden’s approval rating on the US economy improving, but concerns over inflation, including rising fuel prices, could derail his re-election bid. US retail sales rose by 0.7 per cent in March, a higher rate than expected, according to official data published today.An insurgency is gaining ground in Myanmar after the ruling military junta lost control of strategic frontier regions near India, China, Bangladesh and now Thailand. Singapore’s prime minister Lee Hsien Loong is stepping down next month after 20 years in power, handing over to his deputy in what will be only the third transition of power in the city-state’s modern history.As baby-boomer wealth begins to trickle down and with government finances under pressure, debate is growing on whether inheritance taxes should play a greater role. A Big Read explains.Need to know: businessWater companies in England and Wales paid £2.5bn in dividends and added £8.2bn in debt in the two financial years since 2021, according to Financial Times research. The updated figures mean that the 16 water monopolies have paid out a total of £78bn in dividends in the 32 years between privatisation in 1991 to March 2023. The sector’s problems smack unnervingly of the issues facing banks in the run-up to the 2008 financial crisis, says FT deputy editor Patrick Jenkins.An increasing number of FTSE 100 companies are asking investors to back executive pay rises to compete with the US. The moves have sparked a vigorous debate with some advisers opposing the changes. AstraZeneca chair Michel Demaré in an article for the FT hit out at proxy advisers after more than a third of the company’s shareholders voted against a £1.8mn pay rise for chief executive Pascal Soriot.Asahi, Japan’s biggest brewer, forecasts zero- and low-alcohol drinks will generate half of the company’s beverage sales by as early as 2040 as consumers turn to healthier options. The World of Work More companies are appointing designated heads of artificial intelligence but what do these jobs actually entail? Emma Jacobs investigates.Work and Careers editor Isabel Berwick reflects on the need for “spaciousness”: finding time for listening/thinking/doing nothing in particular in a very busy working day.Could CEOs learn a few tricks from the steady commitment and humble objectives of local parish councillors? They are all at bottom closely connected “stakeholders”, committed to mutual support, and adept at jettisoning jargon in favour of a serious commitment to work together for mutual benefit. Some good newsNigeria became the first country in the world to roll out a “revolutionary” new vaccine against meningitis. Last year, there was a 50 per cent jump in reported cases of the disease across Africa.Recommended newslettersWorking it — Discover the big ideas shaping today’s workplaces with a weekly newsletter from work & careers editor Isabel Berwick. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up hereThanks for reading Disrupted Times. If this newsletter has been forwarded to you, please sign up here to receive future issues. And please share your feedback with us at [email protected]. Thank you More