Aurelia Butler

(Reuters) – Boeing (NYSE:BA) CEO Dave Calhoun will be on Capitol Hill this week to meet with senators in the aftermath of the 737 MAX 9 grounding following the mid-air emergency landing of a new Alaska Airlines jet, sources told Reuters.Calhoun is set to meet with Senators Ted Cruz, a Republican, and Mark Warner, a Democrat, among others. More

ORLANDO, Florida (Reuters) – If foreign investors en masse are gorging on U.S. Treasuries, central banks may be beginning to lose their appetite. Official U.S. flows data show that overseas private sector investors – banks, asset managers, insurance funds, pension funds, retail investors – are loading up on Treasuries while the official sector’s holdings are flat-lining at best.As long as this active or de facto retreat from central banks is more of a whimper than a bang, the $26 trillion U.S. government bond market should be relatively unaffected. One group of buyers is simply replacing another.But it may come with a price – a rising ‘term premium.’ That’s the amorphous amount of compensation investors demand for buying long-dated bonds instead of rolling over bills. It is the premium for unquantifiable risks in the future beyond current assumptions on the long-term path of inflation or policy rates.Price-sensitive buyers with more of an eye on generating returns may not always be as reliable as price-insensitive buyers perhaps more concerned with capital preservation, liquidity and cautious reserve management goals. Foreign central banks and the U.S. Federal Reserve were the two price-insensitive buyers and holders of Treasuries for many years, and their huge demand helped explain why term premium went negative even as U.S. borrowing rocketed.But both are now backing away – the Fed is reducing its balance sheet and foreign central banks are no longer buying in as large size. Indeed, there are signs they are actively selling.The latest U.S. Treasury International Capital (TIC) data show that overseas investors held a near-record $6.68 trillion of U.S. Treasury notes and bonds in November, but within that, central banks’ stash was near its smallest since 2011. When adjusted for valuation effects – namely the ebb and flow of bond prices and the dollar’s exchange rate – official sector holdings fell by $49 billion in November. That was the biggest decline since September, 2022 and the fourth reduction in five months.Total foreign holdings, meanwhile, rose by almost $60 billion on a valuation-adjusted basis, indicating that overseas private sector investors hoovered up $110 billion. In the first 11 months of last year, total foreign holdings fell only once.Fed and Treasury data for the first 11 months of last year show that on a valuation-adjusted basis, overseas investors’ Treasury notes and bonds holdings rose by $428.4 billion. Of that, central banks accounted for only $31.9 billion.Yields of between 4.5% and 5% for the world’s most liquid – and yes, safest – security, depending on the maturity, are attractive, so it is perhaps little surprise that the private sector’s interest has been piqued. Torsten Slok, chief economist and partner at Apollo Global Management (NYSE:APO), notes that foreign private sector holdings now outstrip foreign official sector holdings for the first time in about a quarter of a century. “With the Fed raising rates and the dollar going up, yield-insensitive central banks have been selling Treasuries to limit the weakening of their domestic currencies, and yield-sensitive foreign private investors have been buying Treasuries to benefit from higher yields and a rising dollar,” Slok noted last month.That may change this year if the Fed cuts rates, yields fall and the dollar weakens. But if the same dynamics play out in the euro zone, Britain and elsewhere in the G10 currency world, perhaps not.Right now, foreign central banks’ holdings are down to around $3.4 trillion, and their collective footprint in the overall U.S. Treasuries market has rarely been smaller. Their share of outstanding bonds is just 14%, down from 25% before the pandemic and a record 40% in 2008.There’s little to suggest this trend is about to change any time soon. (The opinions expressed here are those of the author, a columnist for Reuters.) (By Jamie McGeever; Editing by Andrea Ricci) More

Last week, I discussed five long-term drivers of the world economy — demography, climate change, technological advance, the global spread of knowhow and economic growth itself. This week I will look at shocks, risks and fragilities. Together, I suggest, all these shape the economy in which we live.A “shock” is a realised risk. Risks, in turn, are almost all conceivable. In Donald Rumsfeld’s helpful phraseology they are “known unknowns”. But their likelihood and severity are unknown. We are surrounded by such risks — further pandemics, social instability, revolutions, wars (including civil wars), mega-terrorism, financial crises, collapses in economic growth, reversals in global economic integration, cyber-disruptions, extreme weather events, ecological collapses, huge earthquakes or eruptions by super-volcanoes. All of these are imaginable. The realisation of one raises the likelihood of at least some of the others. Moreover, known fragilities increase the likelihood or at least the likely severity of such shocks.As the Global Risks Report 2024 from the World Economic Forum demonstrates, we live in just such a high-risk world. It is not so much that anything can happen. It is rather that a sizeable number of quite conceivable somethings might happen, possibly at much the same time. The recent past has shown this clearly: we have suffered a pandemic, albeit a relatively mild one by historical standards, two costly wars (in Ukraine and the Middle East), an unexpected surge in inflation and an associated “cost of living crisis”. Moreover, these disturbances followed not long after the multiple financial crises of 2007-15.Not surprisingly, these shocks have proved damaging and destabilising. They are likely to impose long-term costs, especially on more vulnerable countries and people. But we can see a piece of good fortune: the inflation shock looks likely to fade relatively soon. Consensus forecasts for inflation in 2024 have changed very little since January 2023. In January 2024, they were 2.2 per cent for the eurozone, 2.6 per cent for the US and 2.7 per cent for the UK. Central bankers are mostly desperate to avoid the mistake of loosening too soon and so are far more likely to do so too late. Consensus forecasts for growth in 2024 are consequently low, but not negative, so far. The future of the current wars is far more uncertain. They might be resolved, fade away or explode into something bigger and more damaging. Such uncertainty, history tells us, is in the nature of war. Moreover, how they end might — indeed, probably will — create further risks. At one end, there might be peaceful settlements of both conflicts. At the other, there might be a mere pause before still worse hostilities.What happens in the future depends not only on how the driving forces continue to operate, when (and how) recent shocks work themselves out, and which risks are realised. It also depends on the fragilities in the system. Four stand out.The first set is environmental. We are engaged in an irreversible experiment with the biosphere, largely, but not exclusively, in relation to climate. As the human economy grows, so is its impact on the biosphere likely to expand, too. It will take a big effort to avoid making the environment still more fragile. So far, we have failed to reverse the trends and so the fragility of the environment will grow.The second set is financial. Over time, the quantity of debt, both public and private, has tended to rise. Often, this has been sensible, indeed essential. The difficulty is that people come to rely on both the soundness of their claims and their ability to finance and, when necessary, refinance their debts. Economies rely on the confidence of creditors in their debtors. If anything causes a big shock to such expectations, mass bankruptcy might trigger deep depressions, with ghastly economic and political consequences. With today’s high indebtedness, an extended period of high interest rates might trigger such shocks.The third set lies in domestic politics. We are living in what Larry Diamond of Stanford has called a “democratic recession”. There is growing hostility to fundamental norms of liberal democracy, even in western countries. As I have argued elsewhere, this is rooted in economic disappointment, policy failures, and disruptive social changes. That has lowered the legitimacy of conventional politicians and raised that of populist demagogues. This then makes our politics fragile.The final set lies in geopolitics. The combination of changes in relative economic power with the emergence of a bloc of authoritarian powers centred on China has cemented divisions in the world. These can be seen in today’s conflicts. The resulting distrust threatens our capacity to summon the co-operation needed to secure “prosperity, peace and planet”. In a world in which the dangers of conflict and the cost of failure to co-operate are so great, this final fragility might be the most important. If we do not find a way to co-operate, we are likely to fail to manage many of the risks. That, in turn, will make further big shocks more likely and harder to deal with.Ours is indeed a messy and unpredictable world. This is not because we do not know anything. On the contrary, we know a great deal. The problem is that we also know that the world is unpredictable and complex. The crucial response must be to reduce fragilities, manage shocks, plan for risks and understand the fundamental drivers. Moreover, since many of these are global, we must think globally, too. Humanity’s habitual myopia and tribalism will not work. Alas, it is hard to imagine we will outgrow them in the near [email protected] Martin Wolf with myFT and on Twitter More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Council leaders from across England have urged ministers to urgently uprate funding subsidies for temporary accommodation, warning that soaring levels of homelessness threaten to tip many authorities into insolvency.   Local leaders, speaking on Tuesday at an emergency meeting in Westminster, said budgets were being devastated by the exponential cost of keeping vulnerable people off the streets. They called on the government to raise the “housing benefit subsidy”, which supports councils with the provision of temporary accommodation, in line with inflation.The subsidy has been capped since 2011, which has led to a growing gulf between what councils pay to fulfil their statutory duty to help the homeless and the support they receive from central government, as the cost of housing has risen.  “They are presiding over the end of local government if they fail to take the urgent action needed,” said Michael Jones, Labour leader of Crawley council in West Sussex. The annual cost of providing temporary accommodation in his district had risen from a manageable £262,000 five years ago to more than £5mn last year, Jones said, and was using up a third of council spending. “It’s the acceleration of the issue that is so concerning,” he added, explaining that an increase in homelessness among asylum seekers in the borough had added to recent pressures.The meeting came after more than 40 Tory MPs, including seven former cabinet ministers, wrote to Prime Minister Rishi Sunak threatening to vote against the local government funding settlement next month, warning that without urgent intervention from Westminster their constituents would pay more council tax for fewer services.Research by Shelter found a record 279,400 people were in temporary accommodation in England and Wales last year. The housing advocacy group also reported a 26 per cent annual jump in the number of rough sleepers in 2023. Jeremy Hunt, the chancellor, has committed to raising the cap on “local housing allowance”, a benefit that goes to lower-income households, in May to reflect huge increases in the cost of renting privately.However, Steve Holt, the Liberal Democrat leader of Eastbourne council, said this fell “a long, long way short of what we need to avoid decimating essential frontline services”.He said his council was spending 49p on temporary accommodation for every £1 it raised in council tax, threatening the viability of its finances.The Treasury has now offered to hold a special meeting to discuss the acute pressures facing councils as a result of the housing crisis, Holt said. The Department of Levelling up, Housing and Communities said it was “committed to reducing the need for temporary accommodation,” and was providing councils with £1bn through the “homelessness prevention grant” over three years.“Councils are ultimately responsible for their own finances, but we remain ready to talk to any concerned about its financial position,” it added. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.If you’re so smart — goes a not very smart saying — why aren’t you rich? Well, Americans are adapting that question for Donald Trump. “If he was so bad, why were we rich?” Even voters who regard him with fear and distaste remember that he oversaw a non-inflationary boom as president. Much of that “achievement” was an accident of timing, of course. He had received a benign economic inheritance from Barack Obama. He was long gone when the invasion of Ukraine turned the global trade in vital commodities upside down. But, and this is the worst that can be said, Trump didn’t squander that luck. Four years of rule-breaking and mob-rousing didn’t do active harm to US living standards. Now consider another controversial leader who is up for election this year. After a decade of Narendra Modi, India has the fifth-largest output in the world, up from 10th. It could dislodge Japan from third place before the 2020s are out. Given India’s potential in 2014, a different government might have achieved much the same performance. However, as with Trump, the point is that even if a boom was always due, Modi’s alleged authoritarianism didn’t stop it. As international watchdogs marked India down from “free” to “partly free”, its economy soared. This is the liberal nightmare: not that populists abolish democracy to remain in power, but that they perform well enough not to have to. It is also intellectually confounding. Populism should be bad economics. It tends to set itself against things conducive to growth, such as immigrants (who expand the labour force), judges (who enforce contracts), technocrats (who set interest rates and competition rules) and free trade. Business professes to hate arbitrariness, the defining feature of strongman rule. Better a bad but consistent law than a leader’s personal caprice. The autocratic habit of feuding with independent central bank governors should on its own depress the animal spirits of investors. Yet here we are. Of the world’s most famous populist heads of government, how many have a defining economic failure on their record? Recep Tayyip Erdoğan, perhaps. Other than his losing fight with inflation, there are fewer examples than you’d think. Italian growth is not much slower under Giorgia Meloni than it was under more conventional prime ministers. Benjamin Netanyahu has been feted abroad for Israel’s economic performance.The UK is rare in that a causal link can be drawn between a discrete populist act (Brexit) and national economic underachievement. Sure enough, politics there has corrected somewhat, with chastened voters turning towards sensible-to-bland politicians as though it were 2005 again. The lesson? In order to get over populism, a country must suffer materially at the hands of it. (The moral case against populism isn’t enough.) The surprise is that such economic damage has been so rare.And why? One view is that, from the beginning, we commentators lost all sense of proportion. These “strongmen”, “autocrats” and “demagogues” are much more pragmatic than such excitable language allows. Whenever the Supreme Court ruled against a Trump policy, he didn’t have the judges arrested. He appealed, or tweaked the policy. He hounded Jay Powell via Twitter, but didn’t countermand his decisions as the Federal Reserve chair. At some base transactional level, Trump seems to know how far he can push things before harming the institutional framework in which commercial life takes place.As more voters go to the polls than ever before in 2024, four global authors — Margaret Atwood, Aditi Mittal, Elif Safak and Lola Shoneyin —  share their perspective on democracy, its value and its fragility.Watch now: ft.com/democracy2024A bleaker view is that economic harm takes time to show. This month, Lawrence Summers warned US corporate bosses against embracing Trump. Citing Mussolini, the economist said such wild leadership can be of transient use to business but “ultimately brings a great deal crashing down”. The important word is “ultimately”. Populism’s drag on the economy is gradual and cumulative. It is there each time vilification of the “deep state” puts a talented graduate off a career as a regulator, or an unfunded tax cut swells public debt, or a tariff gums up world trade, or partisan manipulation of the law saps confidence in the sanctity of contract.When populism began to break through around a decade ago, I wasn’t alone in assuming that it would be too expensive to the average voter to last. For the most part, I was over-optimistic (or, if you prefer, pessimistic). Think of the ideological challenge here. It was awkward enough that China enriched itself without democratising. If existing democracies become authoritarian without getting poorer, even the sunniest liberal will feel night closing [email protected] More

BANGKOK (Reuters) -Thailand’s central bank chief, under fire from the prime minister for not cutting rates, said slower-than-expected economic growth was not a crisis as portrayed by the government, nor would it be revived by its quick-hit stimulus measures.The Bank of Thailand’s current policy rate is broadly neutral, Sethaput Suthiwartnarueput told Reuters on Tuesday ahead of the central bank’s next rate meeting on Feb. 7, adding that the country was not facing a deflationary situation.His comments came after Prime Minister Srettha Thavisin – a real estate mogul and political newcomer – urged the central bank to cut the policy rate, which is at a decade-high of 2.50%, to help revive the economy.”If you want to raise the long-term potential growth rate, you’ve got to do the structural stuff. You’ve got to get productivity up. But the way to get there is not just by engaging in short-term stimulus type measures,” Sethaput said.Srettha’s government has described Thailand’s economy as being in “crisis”, underscoring the need for his signature 500 billion baht ($14 billion) digital handout scheme to boost consumption. “What we’re seeing is a recovery that is there, but is slower than expected,” Sethaput said in his most direct response to the ongoing disagreement with the government. “That’s not the same thing as a crisis.”Srettha last week said his government would move ahead with the handout scheme, which was a campaign promise that seeks to transfer 10,000 baht ($281) each to 50 million Thais via a mobile app to spend within six months, though it may be delayed. His deputy said there was no back-up plan if it could not be implemented.The central bank left its policy rate unchanged during its last rate meeting in November, having raised it by 200 basis points since August 2022 to curb inflation.Having openly disagreed with the central bank’s current policy stance, Srettha earlier this month met the central bank chief to urge him to cut interest rates.”There are only two countries in the world … that have lower policy rates than us. And that’s the Japanese and the Swiss,” Sethaput said.Sethaput said the recent meeting with Srettha was “cordial” and it was part of his job to withstand criticism.”I think the thing that is very important to maintain, absolutely critical is the independence of trust and credibility in the central bank,” he said.SLOWER GROWTH, LOW INFLATIONSethaput, who took office in Oct. 2020, said Southeast Asia’s second-largest economy is expected to grow less than 3% this year, down from the most recent forecast of 3.2% issued in November.Growth in 2023 would also be lower than the 2.4% seen earlier, with a slower-than-expected recovery in tourism and exports – both key drivers of the economy that are linked to China.”China, obviously, is very, very important to us. It accounts for about 12 percent of exports. Pre-COVID, it was 27 percent of our tourists,” he said.Overall foreign tourist arrivals in 2024 will be lower than 34.5 million predicted in November, Sethaput said, declining to provide a specific number.Growth in the fourth quarter of 2023 should be in line with the third quarter’s 1.5% growth, he said. Official 2023 gross domestic product data is due to be released on Feb. 19.Sethaput said headline inflation is expected to be lower than the latest forecast of 2.0% this year, with negative headline inflation in January, February and possibly March, while the core rate should be in line with an earlier forecast of 1.2%.Negative headline inflation has been driven by government energy subsidies and is not a concern or a sign of deflation, he said, as consumer prices fell for three straight months through December, against the central bank’s target range of 1% to 3%.”It’s a temporary thing, and the long-term inflation expectations are still positive and anchored,” Sethaput said. More