Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Federal Reserve officials unleashed their optimism on Wednesday, unveiling projections for faster than expected US economic growth this year while still leaving room to cut interest rates three times.It was a moment of vindication for the Federal Open Market Committee, whose rosy outlook in December had defied more gloomy expectations from economists.A combination of strong economic growth, low unemployment and falling inflation is historically rare, but Jay Powell’s Fed appears to be pulling it off, all while getting markets in line with officials’ plan for interest rates.A brisk start to 2024 means officials are now confident that the US economy will expand by 2.1 per cent this year, faster than most other advanced economies and above even their own forecasts three months ago.While underlying inflation will come in slightly hotter, and the strong jobs market slightly stronger, Powell signalled this would not dissuade the committee from lowering borrowing costs from their current 23-year high of 5.25-5.5 per cent.“The economy is performing well,” Powell said on Wednesday. Headline inflation of 2.4 per cent was edging towards the Fed’s 2 per cent target, he suggested. “We continue to make good progress on bringing inflation down.”Markets liked the news — and the Fed’s relaxed mood. The S&P 500 and Nasdaq Composite closed at record highs on Wednesday. Government bond prices rose as yields fell.Watching from the White House, Biden administration officials would have cheered, too. Borrowing costs appear destined to start falling before November’s presidential election. The soft landing for an economy that many analysts had expected to wilt under the weight of high interest rates is in sight.Fed rate-setters’ inflation-busting mission looks increasingly likely to end with cuts worth three-quarters of a percentage point this year. While just six officials agreed on three cuts in December, there were nine this time. The projections leave the Fed on track to begin easing monetary policy around June, offering some relief to Americans who have struggled with a surge in mortgage rates and credit card debt costs. Even so, some economists believe recent US data — notably on inflation — will force the central bank to be more cautious. Academic economists in a recent Financial Times poll said the Fed would cut two or fewer times this year.Inflation of some goods and services prices remains sticky. Petrol costs, Americans’ most visible gauge of price pressures, have risen 15 per cent since the start of January. Some other costs, such as rents and motor insurance, are still rising quickly.“I was a little surprised that the Fed’s bias seems to be towards cutting rates even if there’s an improvement in growth,” said Subadra Rajappa, head of US rates strategy at Société Générale. “There was an opportunity at this meeting for the Fed to push back [against a June cut] and they didn’t.”Instead, a confident and noticeably more relaxed Powell played down a recent uptick in consumer price inflation, from 3.1 per cent in January to 3.2 per cent in February, saying seasonal effects could be behind the increase. Still, the committee would avoid “dismissing data that we don’t like”, he said.Powell also downplayed the risks that the US’s persistently hot labour market would hinder the inflation fight. “You saw last year very strong hiring and inflation coming down quickly,” the Fed chair said. “In and of itself, strong jobs growth is not a reason for us to be concerned about inflation.”The Fed’s big upgrade to forecasts for gross domestic product growth came without any comparable adjustment to its outlook on prices or jobs, defying historical norms in which defeating inflation through higher interest rates has typically led to recessions and steep rises in unemployment.Yelena Shulyatyeva, senior economist at BNP Paribas, said it showed rate-setters “were really buying into the story” that supply-side factors, including a rise in immigration that has boosted output while keeping a lid on wages, were helping the US economy.Traders have bowed to the Fed’s logic and rowed back their rate projections from the start of the year, which pointed to cuts of up to 1.5 percentage points by the end of 2024.But their reaction on Wednesday to the Fed’s announcement was far from disappointment, with a sharp rise in equities feeding a rally that has added 27 per cent to the S&P 500 since October.“It’s been quite an accomplishment to rein in market enthusiasm from six [or seven] rate cuts to three,” said Vincent Reinhart, chief economist at Mellon. Some analysts argued that markets had become as optimistic about the US economy as the Fed — and therefore less fixated on the next move in monetary policy. “The Fed is no longer the most important driver of market trends,” said Tony Welch, chief investment officer at wealth management firm SignatureFD. “Now, it’s improving corporate fundamentals that everyone is watching.” Mark Dow, author of the Behavioural Macro blog, agreed. “It’s not about Fed liquidity, it’s about risk appetite,” he said, explaining the market’s buoyant mood. “And we can create all the liquidity we need without the Fed.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Last week, two more shiny new regulatory appliances started to roll off the EU’s legislative assembly line: a due diligence law making companies liable for environmental and human rights abuses in their supply chains and new rules for recycling plastic packaging.Europe might be struggling for long-term economic growth, but its regulatory productivity is unsurpassed. Brussels has also created a deforestation regulation to block the sale of commodities grown on recently cleared land and a carbon border adjustment mechanism compelling overseas exporters in effect to respect Europe’s emissions pricing system, and is devising a rule banning products made with forced labour.You can add to this strict rules on EU food and agriculture, increasingly complex packaging and labelling requirements and tough regulations on personal data and artificial intelligence. The US’s annual report on trade barriers devotes 32 pages to listing its irritations with the EU, way ahead of everyone else except China. Traditionally, the US and other frustrated agricultural exporters such as Australia and New Zealand have decried such rules — including on genetically modified organisms (GMOs) for soyabean and maize, growth hormone for beef and chemical washes for chicken meat — as protectionism driven by European producer interests. Many low and middle-income countries have also said provisions on labour and environmental standards in EU preferential trade agreements are disguised protectionism.But over the decades it seems to be the preferences of the European public — particularly on food and the environment — that have often become the main driver for stricter EU rules, frequently opposed by European businesses and farmers. Last week’s due diligence law was watered down after strong opposition from multinationals, especially in Germany. Many farmers, at least the large-scale producers represented by the pan-EU organisation Copa-Cogeca, argue against restrictions on new agricultural technologies.The European parliament has recently voted to relax the rules on genome editing, which involves modifying crops’ DNA without introducing genes from other species. The move was resisted by green campaigners and small organic farmers but strongly supported by Copa-Cogeca. Farmers are trying to push back a coming wave of environmental and food regulations.Trading partners are only gradually waking up to the true political dynamic. Following the “GMO wars” in the 1990s and 2000s, in which genetically modified American produce denounced as “Frankenfood” was kept out of the EU, US farmers began to grasp that European consumer resistance rather than change-averse European farmers was the main factor.But some of the more recent regulations, such as the deforestation rules, continue to attract accusations of old-style producer protectionism. It’s a criticism made by palm-oil growers in Indonesia and Malaysia who must now laboriously certify their products as sustainably produced. True, European oilseed producers benefited from a directive on renewable energy from 2018, which in effect banned biofuel made from palm oil from the EU. Malaysia recently obtained a ruling at the World Trade Organization on those rules, which criticised some of the EU’s approach. But the deforestation regulation also covers growers of coffee and cacao, which are barely grown in the EU itself. Public opinion — or at least that of campaigners — is the main influence on that legislation.On the whole it’s almost certainly better, especially as regards political legitimacy, to have trade policies being informed by wider public interest rather than pure producer lobbying power. But the problem with what former EU trade commissioner Pascal Lamy called “collective preferences” is that, particularly if green campaigners exaggerate and distort issues, those principles can reflect a weak understanding of trade-offs and create perverse unintended effects.The cost and difficulty of complying with the deforestation regulation, for example, means large palm oil plantations are likely to displace smallholder farmers in exporting to the lucrative EU market. The UK has a weaker official deforestation regulation than the EU, but the issue of proportionality was brought home a few years ago by voluntary action. In 2016, the British supermarket chain Iceland, working in tandem with the environmental campaign group Greenpeace, banned palm oil in all its own-brand food products, a radical approach backed by few mainstream environmental or development experts.The EU has too few constraints on misguided or disproportionate regulations that affect trade. In food safety and green regulation, it has a tendency to ignore inconvenient science, which has resulted in previous rulings against it at the WTO, and to seek to eliminate hazards from new technologies rather than assess the balance of risk and reward. With issues such as palm oil it has too little consideration for the development and growth impact of its regulation, and the knock-on environmental effects from growing other vegetable oils instead.European public and consumer sentiment, or at least campaigners’ influence, is now one of the most powerful forces determining swaths of EU trade policy and hence global regulation. It is potentially a force for good, but its sometimes arbitrary demands and the counterproductive regulatory burdens they create have the potential to do substantial [email protected] 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 here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Expanding medical therapies based on Crispr gene-editing globally is “unrealistic” and the sector needs heavy investment to make the technology, which could transform treatment of diseases, accessible to all, according to its co-discoverer.Speaking in the wake of last year’s first-ever regulatory approval for a Crispr therapy, Jennifer Doudna, who alongside fellow scientist Emmanuelle Charpentier discovered the gene-editing potential of DNA sequence Crispr-Cas9 in 2012, told the Financial Times she would “love to see the day when Crispr is a standard of care for certain kinds of diseases”.“We need to really roll up our sleeves and figure out how to take the right steps, both technically and from an investing perspective, to get to the finish line,” she said.The Crispr genetic code was discovered in bacteria as part of the mechanism that helps the organisms defend themselves against viruses. The Crispr DNA sequence can guide Cas9 — an enzyme that acts like molecular scissors — to specific locations on the genome, allowing scientists to make precise changes to DNA at particular points, removing a gene or tweaking it to change its function.Biotech companies have worked to apply the technology since Doudna and Charpentier’s discovery. In November, the UK’s medicines and healthcare products regulatory agency gave the world’s first regulatory approval for a Crispr treatment. The therapy — Casgevy, developed by US biotech company Vertex Pharmaceuticals and Crispr Therapeutics for the blood disorders sickle cell disease and beta thalassaemia — has since been approved by the European Medicines Agency and US Food and Drug Administration. Sickle cell disease, a genetic blood disorder that causes red blood cells to stretch from a disc to a “sickle” shape, can inhibit blood flow, leading to disorders such as anaemia, painful swelling and strokes. It predominantly affects people of colour and is prevalent in sub-Saharan Africa, Latin America, the Middle East and India.But Doudna said it was “unrealistic to think we could deliver[the treatment] globally in the way it’s being provided currently. It’s not going to be possible to do it financially.” Casgevy involves taking stem cells from patients’ bone marrow, editing them in a laboratory and transplanting them back into the patient.The process is prohibitively expensive for many health systems. The US list price of the treatment is $2.2mn per dose, while Lyfgenia, another gene therapy for sickle cell disease developed by Bluebird Bio and approved on the same day as Casgevy, costs $3.1mn per dose. Patients require a single treatment.To lower costs, technology needed to develop “to allow a treatment like Casgevy to be administered in vivo, meaning directly into the body, rather than requiring the laboratory procedure”, said Doudna, who said her California-based Innovative Genomics Institute was focusing on this.US start-up Intellia Therapeutics has launched the first late-stage trial for an in-vivo Crispr treatment for a rare heart condition. The costs are also a strain for higher-income countries. Nice, the UK’s healthcare spending watchdog, said last week that it could “accept higher than the usual maximum for assessing cost-effectiveness” of Casgevy but that it needed to collect more data on the drug’s effectiveness before funding it on the NHS.Other gene therapies that treat rare diseases and have few alternative cures can come with high price tags. The first approved medicine for a rare and fatal genetic disorder in children, metachromatic leukodystrophy, this week became the most expensive drug in history, pricing at $4.25mn.Doudna said that while “we should be working to get the cost down”, cell and gene therapies can permanently cure patients and lower future healthcare costs, meaning regulators needed to rethink how to price such “one and done” treatments.Venture capital investment in gene editing dropped last year along with other biotech investments, falling from $2.45bn in 2022 to $1.06bn in 2023, according to data provider PitchBook.Several early-stage life sciences investors told the Financial Times the technology was attractive but that the field faced a higher bar for investment than other start-ups. “It needs pretty extreme efficacy and needs to be transformational for patients,” one said.With investment, Doudna said, Crispr could treat more common conditions. She is “bullish” about Crispr therapies relating to editing the human gut microbiome, including a molecule linked to asthma in children.Her institute is also assessing Crispr applications in agriculture, including tackling climate change by removing genes in the cow microbiome that are responsible for methane emissions. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief European economist at T Rowe PriceFinancial markets and fiscal rules are pressuring governments to lower historically high public-debt-to-GDP ratios. Fiscal restraint and inflation are politically unpopular ways of doing that. And growing out of debt is less likely today, given low expected real GDP growth rates. What is known as financial repression appears to be the path of least resistance to reduce debt and keep bond vigilantes at bay.This is defined as any policy with the explicit purpose of reducing the cost of government debt — such as forcing down real interest rates or steering central and commercial banks to buy up government bonds. There is historical precedence for financial repression as an effective solution to reducing the public debt burden. Following the debt accumulation of the second world wear, the US Federal Reserve pegged interest rates on government debt at a low level until 1951. Thereafter, the Fed kept interest rates below the level of inflation for many years. As US president, Richard Nixon put pressure on Fed chair Arthur Burns to ease monetary policy in 1971 ahead of the 1972 election. A recent IMF working paper estimates that financial repression during this time led to a reduction of over 50 percentage points in the debt-to-GDP ratio. Subtle repression of bond markets can be achieved by governments leaning on their central banks. Central banks will remain important participants in government bond markets, despite quantitative tightening programmes to reverse years of asset buying. And they will need to intervene in times of market dislocation. The Bank of England was able to successfully keep its bond market support temporary following the 2022 gilt crisis. But there is a risk that these types of central bank intervention will become more common and persistent.Attempts to push central bank losses on commercial banks can also be a form of repression. Central banks are currently running large losses. This is because the yield on central bank investments in government bonds is much lower than the rate on the bank reserves that were issued to finance the purchase of these bonds during quantitative easing. There is a live debate on whether a larger share of these reserves should be renumerated at zero. This would push the costs on to commercial banks and eventually borrowers and savers, interfering with the capital allocation process.   You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.A more direct form of repressing banks and bond markets may occur through abuse of regulatory policy. Following the financial crisis, bank liquidity requirements were designed for banks to hold enough liquid assets to sell in times of a run. This liquid asset is normally government debt. Financial repression is requiring banks to hold a significantly larger amount of government debt than is necessary for prudential purposes. Indeed, this has been the strategy of Italy for the past decade. In more recent times, Italian banks have been divesting from government debt securities. But their share of public debt in total bank assets remains roughly 10 times as high as in Germany or France. More governments could adopt this approach going forward. Issuing debt directly to retail investors, if large in scale and with the specific purpose of lowering bond yields, also amounts to financial repression. Banks are unlikely to offer the same high yield on their savings accounts due to costs of intermediation. Direct debt sales to retail investors will therefore suck out funds from bank accounts. Rather than being intermediated to the private sector, these funds will finance government borrowing.The economic consequences of financial repression are significant. These policies crowd out private sector investment. In the short term, this will lead to lower growth and inflation, as monies which would have been invested in the private sector capital stock are spent on public debt service and repayment instead. But in the medium term, lower accumulation of capital will result in a structurally more rigid supply side of the economy. When there is rise in demand, this will lead to higher inflation and therefore structurally higher interest rates.  Clearly, it is easier to repress domestic investors than foreign ones. This raises risks for countries dependent on foreign money to finance debt issuance. If foreign investors stay away, for fear of repression, yields on government debt will have to rise to attract more domestic investors. It is up to politicians to decide whether financial repression is a way out of developed markets’ current fiscal issues. However, they need to be aware that in the long term, such a policy could significantly backfire by leading to lower growth and higher interest rates.  More

Suzuki made no comment on currency intervention when asked by a reporter about the possibility of the government considering the measure.”I won’t comment on currency levels. It is important for currencies to move stably reflecting fundamentals. The government is closely watching market moves with a high sense of urgency,” Suzuki told reporters at the finance ministry. More

TOKYO (Reuters) – Japan’s exports grew for a third straight month in February demand improved in the U.S., China and the European Union, offering some hope for policymakers seeking to revive growth after weak performance last year.Exports rose 7.8% in February from the same month a year ago, Ministry of Finance data showed on Thursday, faster than the 5.3% gain expected by economists in a Reuters poll.The trade data comes days after the central bank ditched years of unconventional easing in a shift towards normalising policy.The Bank of Japan ended eight years of negative interest rates and other remnants of its unorthodox policy on Tuesday, making a historic shift away from decades of massive monetary stimulus. But it is expected to keep rates around zero for some time to support fragile growth.Exports have been a source of concern for policymakers who worry about the fragile recovery in the world’s fourth-largest economy, which narrowly dodged recession late last year.Imports rose 0.5% year-on-year in February versus the median estimate for a 2.2% increase. The trade balance came to a deficit of 379.4 billion yen ($2.52 billion), versus a median estimate for a deficit of 810.2 billion yen.A Reuters monthly poll showed earlier on Thursday that big Japanese firms’ confidence rebounded to a three-month high in March while the service-sector mood hit a seven-month high. More

SINGAPORE (Reuters) – The dollar fell broadly on Thursday after the U.S. Federal Reserve maintained its interest rate cut projections for the year in the face of upside surprises on inflation, and did not strike a more hawkish tone as some investors had feared.The Australian dollar jumped after data on Thursday showed employment rebounded sharply in February and the jobless rate dived far below forecasts, pointing to a still-tight labour market there.The Aussie was last 0.33% higher at $0.6608, after having risen more than 0.4% to a one-week top of $0.6615 in the wake of the strong jobs data.At the conclusion of the Fed’s policy meeting on Wednesday, Chair Jerome Powell said recent high inflation rate readings had not changed the underlying “story” of slowly easing price pressures in the U.S. as the central bank stayed on track for three rate cuts this year, even though it projected slightly slower progress on inflation.That knocked the greenback lower as traders were quick to rebuild bets of a Fed easing cycle beginning in June, with markets now pricing in a 75% chance of a rate cut that month, as compared to 59% chance a day ago, according to the CME FedWatch tool.The euro and sterling were among major currencies that notched one-week highs against the dollar on Thursday, rising to $1.09375 and $1.2798 respectively.”The Fed really, really wants its soft-landing ending. Stronger growth, lower unemployment, higher inflation – and yet still no change to the median dot,” said Seema Shah, chief global strategist at Principal Asset Management.”Powell has perhaps shown his cards: he needs a good reason not to cut rates, rather than a reason to cut rates.”The dollar index was flat at 103.23, after having slid more than 0.5% in the previous trading session.With the Fed meeting out of the way, focus now turns to a rate decision from the Bank of England (BoE) later on Thursday, where expectations are for the central bank to keep rates on hold.British inflation slowed in February, official data on Wednesday showed, keeping the BoE on track to start cutting borrowing costs later this year.”This should give the (Monetary Policy Committee) confidence to run back February’s messaging … with a largely unchanged rate statement, which in the context of further disinflation progress, should on balance be seen as marginally hawkish by markets,” said Nick Rees, FX market analyst at MonFX.Elsewhere, the New Zealand dollar was last 0.08% higher at $0.6087, though gains were capped by domestic data showing New Zealand’s economy shrank slightly in the fourth quarter, putting the country into a technical recession.The yen rose 0.4% to 150.63 a dollar, after having slumped to a four-month trough of 151.82 in the previous session and toward a multi-decade low.Despite the Bank of Japan’s (BOJ) landmark shift away from negative interest rates earlier in the week, policymakers signalled that “accommodative financial conditions” were expected to be maintained for some time.That gave investors confidence to rebuild positions in the popular yen carry trade as stark interest rate differentials between Japan and the U.S. were likely to stay for some time, which in turn sent the currency sliding.”Given that the BOJ tightening cycle is unlikely to be aggressive, the Japanese yen could remain under pressure until the Fed changes course,” said Charu Chanana, Saxo’s head of FX strategy. More