Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyIt would not surprise me if future economic history books were to look back at the last week in central banking as marking a move away from strict inflation targeting by the world’s most influential central banks.While far from being definite or risk-free, it is a shift that would be consistent with superior economic outcomes and stands a reasonable chance of working. And it is a policy approach that is to likely to be superior to others as central banks tackle an operating environment that is particularly fluid economically and politically at domestic and global levels.It is not often that you see a reputable central bank revise up its inflation and growth projections and yet strengthen a dovish tilt to its policy stance. Yet that is what happened in Washington last week when the Federal Reserve raised those projections up a notch and yet delivered two consequential signals — a willingness to tolerate higher inflation for longer and an openness to slow the ongoing reduction in its balance sheet.Reacting to these unexpected signals of monetary policy patience, markets pushed stocks and gold significantly higher to record levels. Moreover, bond prices rose as traders became more confident that the Fed might cut interest rates as early as June despite hotter than expected inflation reports for January and February.Fed chair Jay Powell justified the central bank’s stance by saying the inflation story was “essentially the same” despite this data and the upward revision in its own inflation projections.But the Fed was not the only central bank that markets deemed surprisingly dovish. Two days before the Fed, the Bank of Japan wrapped its first interest rate increase in 17 years in dovish packaging. So despite the BoJ also announcing an exit from its policy of capping bond yields, the yen weakened against the dollar rather than appreciated on the news that Japan was the last central bank to move nominal interest rates into positive territory.Japan’s hotter than expected inflation made its “dovish hike” even more notable, pushing the currency close to a 32-year low. The dovish central bank surprises did not stop there. A day after the Fed meeting, the Swiss National Bank unexpectedly cut its interest rates, knocking about 1 per cent off the value of its currency.Now, each of these moves could be explained by country-specific factors. Undoubtedly, and using a clever distinction I heard years ago from my former Pimco colleague Andrew Balls, last week’s central bank outcomes were correlated rather than co-ordinated.Having said that, they are consistent with a bigger macroeconomic paradigm shift that central banks will eventually be forced to embrace in an explicit fashion. Every week, we seem to get a new sign that the supply side of the global economy is working less flexibly than before and, crucially, than needed.The causes range from economic rigidities and structural transitions to geopolitical shocks and the trumping of national security over economics in determining key cross-border investment, technology and trading relations. The result is a supply side that will not easily allow inflation to quickly fall back to 2 per cent and stay there without unnecessary damage to economic wellbeing and financial stability.Do not get me wrong. We will not get big announcements of a change to inflation targets, not when central banks have missed their targets so much after mischaracterising inflation as “transitory” three years ago. Instead, it will be a slow progression, led by the Fed. Central banks will first push out expectations on the timing of the journey to 2 per cent and then, well down the road, transition to an inflation target based on a range, say 2-3 per cent.Some will view this as further undermining central bank credibility and threatening the de-anchoring of inflationary expectations. They will point to the horrible experience of the 1970s, when central bankers prematurely declared victory over inflation only to see it head back up, requiring the imposition of a big recession to bring it under durable control.This possibility is a small risk and one that is justified in taking by the potential upside for overall economic wellbeing. It would be particularly impactful if accompanied by additional government measures to promote more flexible supply, including by focusing on greater labour force participation, better skill retooling, improved infrastructure and more public-private partnership to advance tomorrow’s engines of growth, particularly in generative artificial intelligence, life sciences and green energy. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Bond fund giant Pimco is holding a smaller than usual position in US Treasuries and prefers the bonds of countries such as the UK and Canada, as it believes inflationary pressures may lead the Federal Reserve to cut interest rates more slowly than other major central banks. Andrew Balls, chief investment officer for global fixed income at the $1.9tn-in-assets firm, told the Financial Times that weaker economic growth in some countries was helping ease price pressures there faster than in the US. “Outside of the US . . . we are seeing more evidence of inflation correcting,” he said. “I think you see the balance of risks on the Fed going slower [in cutting rates] than is priced in but outside the US there is some risk of central banks delivering more than is priced in.”Balls prefers longer-dated government bonds — which are more sensitive to changes in interest rates — outside of the US, and holds a smaller position than the benchmark index in the US. Markets at present anticipate three 0.25 percentage point cuts by the Fed and Bank of England this year, while for the European Central Bank it is closer to four. US inflation has come in above analysts’ forecasts in January and February this year. Last week, Fed chair Jay Powell played down the recent uptick as the US central bank stuck to its forecast of 0.75 percentage points of interest rate cuts this year. Powell also suggested it was too soon to know whether recent signs of stickier than expected inflation, especially in the services sector, would last. But he said he did not think recent readings had “really changed the overall story” of price pressures easing to 2 per cent. Balls said that while his baseline expectations for inflation and Fed rate cuts were similar to market consensus, he sees “the risks towards stronger activity and sticky inflation.“You have an ongoing US exceptionalism theme,” he added.He also warned that the US’s yawning budget deficit — which the Congressional Budget Office estimates will rise by almost two-thirds over the next decade to $2.6tn — would likely push up long-dated Treasury yields, reflecting a fall in prices.Ten-year US borrowing costs have risen to 4.2 per cent from 3.9 per cent at the start of the year, but remain far below a peak of more than 5 per cent reached last October when markets were worried about bigger than expected government borrowing plans. “You can imagine that happening again,” Balls said, referring to the rise in yields last autumn.“Both the Democrats and the Republicans seem unconcerned about the level of the fiscal deficit . . . It does seem likely that without having something exciting happening [like the UK’s 2022 gilts crisis] you could have a slow grind to higher term premia.”Balls said his preferred places to have exposure to bonds more sensitive to changes in interest rates were in the UK, Australia, New Zealand and Canada. In December the FT reported that Pimco’s chief investment officer believed the UK was at risk of a serious economic downturn and that he had been running larger than usual bets on gilts.Last week the BoE kept rates at 5.25 per cent for a fifth consecutive meeting, as widely expected. However, in a surprise to markets, the two most hawkish rate-setters on the monetary policy committee fell in line with the majority and voted to keep rates on hold, while one member voted for a cut.BoE governor Andrew Bailey told the FT last week that markets are right to expect more than one rate cut this year and he was increasingly confident inflation was heading towards target.Balls said his funds had a larger than normal position in gilts and he was not worried about a potential borrowing splurge ahead of a general election. In contrast, in 2019 he warned that a post-election borrowing binge promised by all major political parties could add to pressure on prices.“I think both sides will have very similar fiscal policy and in the post [former prime minister] Liz Truss environment we tend to expect the UK to be very orthodox in terms of fiscal policy,” he said, referring to the 2022 gilts crisis triggered by an announced £45bn of unfunded tax cuts. More

TOKYO (Reuters) -Japanese Finance Minister Shunichi Suzuki said on Tuesday that he would not rule out any measures to rein in weakness in the yen, echoing a warning from the nation’s top currency diplomat the previous day.Suzuki said a weak yen has both positive and negative effects on the economy but excessive volatility raises uncertainty for business operations. This in turn could hurt the economy, the minister said, reinforcing Tokyo’s focus on the velocity of market moves, rather than on specific currency levels. “Rapid currency moves are undesirable,” Suzuki told reporters after a cabinet meeting. “It is important for currencies to move stably, reflecting economic fundamentals.”Early on Tuesday, the dollar was off slightly against the yen, fetching 151.26 and facing great resistance near the 152 level due to the threat of intervention from Japanese authorities. The greenback is up about 7% on the yen since the start of the year.Suzuki declined to comment on the possibility of Tokyo intervening to stem the yen weakness, but suggested the speed of the currency’s fluctuations will be a factor in any decision to enter the market.”If I answer the question about currency intervention, it could have unintended effects on the market,” Suzuki said, adding “if there’s excessive moves, we will respond appropriately without ruling out any measures.”Japan last intervened in the currency market in September and October 2022 to stem the yen’s declines, initially when the dollar hit around 145 to the yen, and later in October when the U.S. currency surged to a 32-year high near 152 levels. More

SINGAPORE (Reuters) – The dollar was on the back foot on Tuesday, owing to profit taking and pressured in part by a slightly stronger yen as Japanese government officials continued with their jawboning to defend the currency.Against the greenback, the New Zealand dollar rebounded from a four-month low and last bought $0.5999, and likewise for sterling which firmed to $1.2636, away from last week’s one-month trough of $1.25755.With a relatively light economic data calendar for the week, the market focus turns to the release of the Federal Reserve’s favoured inflation measure on Friday, which could guide the path of the U.S. interest rate outlook.The U.S. core personal consumption expenditures (PCE) price index is seen rising 0.3% in February, which would keep the annual pace at 2.8%.”The Fed Chair has tried to push the market away from aggressive interest rate expectations at the start of this year and he’s always been maintaining the idea that it was going to be a bumpy path,” said Tony Sycamore, a market analyst at IG.”But a print of 3% (annually) or greater would certainly create a lot of concern that maybe the bumpy path is going to be bumpier than expected.”A shift in the global rate outlook following a slew of central bank meetings last week had pushed the dollar to a one-month high against its major peers.While the Fed stuck to its projection of three rate cuts this year, other major central banks similarly signalled that an easing cycle was in play.”It’s tough for the (dollar) to sustain any weakness with a backdrop in which U.S. growth outstrips growth in the rest of the world,” said Thierry Wizman, global FX and rates strategist at Macquarie. “But it’s even tougher for the (dollar) to weaken when other central banks were sounding more dovish than a dovish Fed.”Fed officials had on Monday acknowledged an increased sense of caution around the pace of slowdown in inflation in the world’s largest economy.The dollar index was last 0.02% lower at 104.20, while the euro rose 0.03% to $1.0840.The Aussie steadied at $0.6540.In Japan, the greenback fell 0.04% against the yen to 151.37, facing great resistance near the 152 level due to the threat of intervention from Japanese authorities.Japanese Finance Minister Shunichi Suzuki on Tuesday said that he would not rule out any measures to cope with the yen’s weakening, echoing a warning from Tokyo’s top currency diplomat the previous day.The yen has slid more than 1% since the Bank of Japan’s (BOJ) landmark rate hike last week, as traders continue to focus on the still-stark interest rate differentials between Japan and the rest of the world, particularly the United States.Local authorities have grown increasingly vocal about their discomfort over the currency’s slide, as it nears a multi-decade low that was hit in 2022.”While they say that the fundamentals don’t justify the price, the market’s telling them something else,” said IG’s Sycamore.Elsewhere, the offshore yuan rose nearly 0.1% to 7.2487 per dollar, extending its gain from the previous session after suspected selling of dollars by China’s state-owned banks and a strong official guidance set by the central bank, which propped up the currency in the onshore market. More

In December last year, Chinese solar panel billionaire Li Zhenguo addressed the UN climate change conference in Dubai, promising a “benevolent and equitable” energy system to support the world’s decarbonisation.“The opportunities for everyone to contribute to the fight against climate change through renewable energy solutions are boundless,” Li said.But three months later, the founder of Longi Green Energy Technology has been forced into retreat as a result of a global supply glut, firing thousands of factory workers and new office staff as the industry grapples with a collapse in prices. In China, the lay-offs have sparked criticism of the company’s corporate culture.Longi, one of the world’s biggest solar panel manufacturers, said last week it expected to cut 5 per cent of its 80,000-strong workforce after Bloomberg reported the company was planning to slash 30 per cent of its staff. Longi said the 30 per cent figure was “false”, though experts said the eventual job losses were likely to be higher than 5 per cent after solar module prices halved over the past year.The pressure on Li comes after a production boom in China resulted in oversupply. The job cuts threaten to test Li’s reputation with the government in Beijing at a time of slowing economic growth and concerns about industrial overcapacity. Overseas, he faces a world increasingly polarised by China’s dominance of global supply chains for renewable technology, including electric vehicles, wind turbines and solar panels.Li graduated from Lanzhou University, in China’s northern Gansu province, in 1990. He initially worked at a state-owned computer chip factory before founding Longi. Two of his university classmates serve as company executives.Longi was one of several Chinese companies, private and state-backed, that accounted for more than 80 per cent of global solar production, the result of decades of deep state support and rapid domestic growth. Listed in Shanghai in 2012, it reported annual revenues of nearly Rmb130bn ($18bn) in 2022, up from Rmb54bn in 2020. As of October, Li and his wife Xiyan were worth about $5.7bn, ranking just outside the 100 richest people in China, according to the Hurun Research Institute, a group tracking wealth in China.Experts said Li’s fortune reflected the success of a series of breakthroughs in solar materials and manufacturing that have significantly improved the efficiency and longevity of solar panels. Longi’s advances include the replacement of polycrystalline material with monocrystalline in solar panels, allowing greater power production, as well as diamond wire cutting technology, which reduces the time and cost of manufacturing.Li plays an important role in the Chinese Communist party’s plan to boost the country’s energy security, said Alex Payette, chief executive of Cercius Group, a consultancy that specialises in elite Chinese politics.“It is important to remember that Li Zhenguo directly plays his part in Xi Jinping’s self-sufficiency, domestic self-innovation programme — to secure China’s own supply chains — and of course, military-civilian integration strategy,” Payette said.The solar industry is cyclical, resulting in periods of boom and bust. Analysts have warned that massive job cuts across the industry are inevitable after several years of excessive focus on output rather than on sustainable profits.Xuyang Dong of Climate Energy Finance, an Australian think-tank, noted that at of the start of this year, China had more than 1,000GW of solar module production capacity in development for domestic and international markets, a far higher amount than current domestic demand. China needs around 280-320GW of new solar capacity a year until 2030 to reach its dual carbon targets.“The amount of money saved by laying off staff is insufficient compared to the 40-50 per cent decline in prices in the market over the last 12 months,” she said.Dennis She, a Longi vice-president, told the Financial Times last month that the company’s factory utilisation rate had fallen to as low as 70 per cent and that industry consolidation was likely to follow.“You have to be very tough at this moment,” he warned, adding that the company would try to increase its market share as smaller companies and newer entrants to the industry struggle to survive.The Chinese solar industry’s expansion is coming under increasing scrutiny, especially in the US and Europe. In January, Brussels said it was considering emergency support measures after a flood of cheap Chinese equipment sparked a series of factory closures.That same month, a bipartisan group of US senators called on President Joe Biden to increase tariffs on Chinese-made solar imports. In August, the US Department of Commerce found Chinese producers, including Longi subsidiary Vina Solar, “were attempting to avoid the payment of US duties by completing minor processing in third countries”.However, there are few signs that the company’s global ambitions have been dented, said experts. Longi already has factories in Vietnam and Malaysia, a joint venture with Invenergy in Ohio and sales offices in the US, Australia, Japan, India and the UAE. It is also in talks to enter Saudi Arabia through a local partner.Yanmei Xie, a China analyst at Beijing-based consultancy Gavekal Research, said Longi had proved itself to be “quite adaptable” through several rounds of tariffs levelled at Chinese solar companies by Europe and the US over the past 15 years.“This is not a new wave of protectionism. The international backlash against Chinese solar exports started quite a while ago and mostly has proven to be fairly ineffective,” she said.Li and his lieutenants are trying to convince governments they risk slower decarbonisation of their economies if they restrict Chinese companies from their renewable energy supply chains. They argue China should not be seen as a threat to the energy security of other countries.“China is not going to export sunshine,” said She.Additional reporting by Amanda Chu in New York and Wang Xueqiao in ShanghaiClimate CapitalWhere climate change meets business, markets and politics. Explore the FT’s coverage here.Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets hereate More

The BTr would hold weekly auctions for 91-day, 182-day and 364-day T-bills in April to June, offering up to 15 billion pesos at each. It would also offer 120 billion pesos of T-bonds each in April and June, and 150 billion pesos in May, BTr said in a posting on its website. ($1 = 56.28 Philippine pesos) More

(Reuters) – Some major Republican donors were working together to help U.S. presidential candidate Donald Trump fund the original bond amount needed to cover his $454 million civil fraud judgment ahead of Monday’s deadline, three sources briefed on the matter told Reuters.Former Republican President Trump needs to pay a bond in a New York civil case in which he was found liable for fraudulently inflating his net worth by billions of dollars to secure better loan and insurance terms. On Monday he won a bid to delay the enforcement of the judgment if he posts a smaller $175 million bond within 10 days, but until that last-minute reprieve he appeared to be struggling to raise the original amount and risked having his properties seized. Billionaire hedge fund founder John Paulson was involved in the behind-the-scenes effort by donors concerned about Trump’s legal woes and looking to help provide money toward the bond, two of the sources told Reuters. Oil and gas magnate Harold Hamm was also involved, one of those sources said.The sources asked not to be identified in order to speak freely about the matter, which has not been previously reported. Paulson, the founder of Paulson & Co, did not immediately respond to requests for comment. Reached by phone and asked about his involvement, Hamm, the founder of oil company Continental Resources (NYSE:CLR), appeared to hang up. A spokesperson for Hamm did not respond to requests for comment. The Trump campaign did not respond to multiple requests for comment. A fourth source, a Trump ally, said he had direct knowledge of one donor who offered more than $10 million toward the bond over the weekend, before being told it was not necessary.After Monday’s court decision allowing a smaller bond, Trump said he would now be able to pay.”I’ll post either the $175 million in cash or bonds or securities or whatever is necessary, very quickly,” Trump told reporters in New York.Surety companies would have likely required Trump to post about $558 million in collateral for the original bond, or 120% of the judgment, according to Trump’s lawyers.Full details of the billionaires’ efforts to raise funds, such as how much each donor had potentially pledged, were not immediately available. One source said the group had pooled the full amount originally due Monday. It was not clear whether the mega-donors would offer to help fund the new bond.It was also unclear whether Trump would have to provide collateral or other guarantees to the benefactors.The potential help from Trump’s billionaire allies shows that he retains some deep pocketed-support in his quest to win back the White House in the Nov. 5 presidential election against Democrat Joe Biden.It also highlights how big donor money is playing a potentially different role in this presidential election as Trump faces a major financial squeeze amid multiple legal judgments and expenses.Paulson and Hamm are both involved in an upcoming campaign fundraiser for Trump that is unrelated to the efforts around the bond. An invitation shows Paulson listed as a host and Hamm serving as a co-chair.Funds raised at the April 6 event in Palm Beach, Florida, will go to Trump’s campaign, the Republican National Committee, state Republican parties and a group that has been paying some of Trump’s legal fees, according to the invitation.Trump has talked about selecting Paulson as his Treasury secretary should he win the presidency, according to a separate source briefed on the matter. LITTLE TRANSPARENCY ON BOND There is no obligation to disclose the origins of funds obtained for a bond. The terms of Trump’s $91.6 million bond for a defamation verdict in favor of writer E. Jean Carroll, for instance, were not disclosed. That bond was posted on March 8 by Federal Insurance Co, part of the insurer Chubb (NYSE:CB), which said it requires that bonds be fully collateralized.In Trump’s civil fraud judgment, the bond would stave off the state’s seizure of his assets while he appeals Justice Arthur Engoron’s Feb. 16 judgment against him. A bonding company would be on the hook for any payout if Trump loses an appeal and proves unable to pay.Donors helping to pay for Trump’s bonds could draw scrutiny from election regulators or federal prosecutors if the benefactors were to give Trump amounts exceeding campaign contribution limits. While the payment would not be a direct donation to Trump’s campaign, federal laws broadly define political contributions as “anything of value” provided to a campaign.Some 30 surety companies approached through four separate brokers turned down Trump’s attempts to secure the original bond needed to cover the $454 million judgment, his lawyers said earlier in March.Had the pause not been granted and had Trump not able to post the original bond on Monday, New York Attorney General Letitia James could have asked a court to start seizing assets, including prized real estate holdings like 40 Wall Street in Manhattan. More