Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Demands for pay rises by European workers are the main threat to early interest rate cuts, analysts have warned, after European Central Bank president Christine Lagarde quashed investors’ hopes of a first-quarter cut this week in Davos.Policymakers at the ECB, which will on Thursday be the first major central bank to meet this year, were out in force this week in Davos saying they remained concerned about high wage growth and the potential for this to trigger a surge in price pressures.During meetings of the World Economic Forum in the Swiss town, Lagarde and Gita Gopinath, first deputy managing director of the IMF, were among those pushing back on market expectations of a rate cut in the first quarter wing to concerns over pay increases.Dirk Schumacher, a former ECB economist now at French bank Natixis, said recent comments by ECB rate-setters indicated they were “warming up to the idea of a rate cut during the summer”. But he said “the main hurdle for a clear shift in tone” was wage growth.These concerns were underlined after the IG BAU union on Thursday announced a demand for a €500 per month wage increase for 930,000 German construction workers, which it said would lift pay for the lowest paid majority of workers by 21 per cent.Tomasz Wieladek, an economist at investor T Rowe Price, said that even if German construction workers received only half their initial demand and it was spread out over several years, it would still “reinforce the ECB’s fear of persistent medium term inflation and desire to cut slower than markets expect”.Paschal Donohoe, the president of the Eurogroup, told the FT that the coming part of the journey of getting inflation down “is going to be tough — but it is a journey we need to complete.” He added: “If we don’t complete it, we run the risk of inflation becoming embedded within our economies.” Inflation has fallen sharply in major economies over the past year, with price growth slowing to 3.4 per cent in the US, 2.9 per cent in the eurozone, and 4 per cent in the UK. But that does not mean the threat is over, especially with inflation in the labour-intensive service sector too high for comfort. “Wages will remain elevated for some time given the lagging nature of the European wage-setting process,” said Mark Cus Babic, an economist at Barclays. “Those contracts that have not yet renegotiated since the inflation shock could settle at high rates while those that have already renegotiated before will start settling at lower rates as inflation has fallen.”Lagarde’s comments that information needed to assess the strength of wage pressures would only be fully available by “late spring” caused a sell-off in bond and equity markets on Wednesday as investors adjusted their bets on the timing of rate cuts from March to April.There have been signs of UK wage growth easing, with annual growth in earnings excluding bonuses slowing to 6.6 per cent in the three months to November, down from 7.3 per cent the previous month. However, many analysts believe the Monetary Policy Committee will want to see clearer and more sustained evidence of pay pressures easing before it feels confident it can start cutting interest rates from their current level of 5.25 per cent.In the US, officials are becoming more concerned that the labour market will tank than overheat. Rate-setters have noted that jobs growth has shown signs of cooling in recent months, with some suggesting that the Fed should soon switch its focus away from inflation and towards the part of its mandate that safeguards jobs.  However, some US rate-setters believe that higher wage growth is needed to bring workers’ pay packets back in line with levels seen prior to the outbreak of the coronavirus.  More

This article is an on-site version of our Disrupted Times newsletter. Sign up here to get the newsletter sent straight to your inbox three times a weekToday’s top storiesUkraine shifts to an ‘active defence’ strategy after the failure of its summer counteroffensive as it prepares for a third year of war.Thousands of pages of Jeffrey Epstein-related legal documents give voice to the women in Epstein’s world.Stellantis boss Carlos Tavares has warned carmakers cutting electric vehicle prices too fast risk a “bloodbath” in the industry.For up-to-the-minute news updates, visit our live blogGood evening.Artificial intelligence has dominated conversations between political and business leaders at the World Economic Forum in Davos this week as questions are raised over the future of the burgeoning technology.Who looks set to win the race? And on a spectrum from complete utopia to the robots stealing our jobs, just how much regulation will be required to rein in this technological innovation?A survey published at the beginning of the week painted a gloomy picture about the potential threat of AI. A quarter of global chief executives expect the deployment of generative artificial intelligence to lead to headcount reductions of at least 5 per cent this year, the survey found. But by the end of the week everybody was talking about the potential of the French start-up Mistral. The scrappy nine-month-old company looks set to challenge what had become a two-way battle between Google and Microsoft-backed OpenAI.The relative newcomer from France is doing “a great job” competing against sophisticated models made by large US companies, according to one US Big Tech executive.But Mistral isn’t alone in taking on Google and OpenAI. Toronto-based start-up Cohere, which was founded by ex-Google scientists, is in talks to raise as much as $1bn in financing as investors race to back large language models, the FT revealed today. The five-year-old company was co-founded by Aidan Gomez, Nick Frosst and Ivan Zhang. Cohere has become one of the three most high-profile artificial intelligence start-ups in North America alongside OpenAI and Anthropic.Celebrities were also getting in on the act. Grammy-award winning rapper will.i.am may not be who you first think of as an AI commentator but at Davos this week, he passionately declared his belief that AI will “break down barriers” for people “who have nothing.”One incredible innovation includes researchers’ hope that the same technology that is powering ChatGPT will allow us to begin to understand — and even speak — animal languages.Google’s AI unit DeepMind used artificial intelligence to all but match the geometry problem-solving skills of the world’s brightest students. AlphaGeometry, the tech giant’s system, correctly answered 25 of 30 questions from the high school International Mathematical Olympiad, according to a paper published in Nature on Wednesday.Others worry that artificial intelligence must be regulated closely to ensure commitments to diversity, equity and inclusion so language models and algorithms do not reflect existing prejudices and biases.A somewhat frightening algorithm from Denmark might be able to predict mortality. Just as ChatGPT can mine language use to predict future sentences, life events can be mined to predict when a person might die.Need to know: UK and Europe economyBritish shoppers appear to have tightened their belts before Christmas as retail sales fell 3.2 per cent in December, according to the Office for National Statistics. This boosted hopes that the Bank of England may cut interest rates, lifting UK stocks.UK prime minister Rishi Sunak has promised there is “more to come” on pre-election tax cuts and didn’t rule out the possibility of two Budgets ahead of this year’s general election.Border disruption and risks to food supply chains look set to hit the UK ahead of the scheduled introduction of post-Brexit import checks on January 31, according to the Labour party.Shares in the Danish shipping giant AP Møller-Maersk slipped 2.2 per cent on Friday, a day after it warned customers of a likely knock to operations due to winter weather in Europe and Red Sea disruption.BASF, the world’s biggest chemical maker, missed forecasts as high energy prices dragged down sales and profits. BASF reported a 21 per cent fall in annual sales to €68.9bn, well below the expected range of €73bn to €76bn, because of falling prices for its chemicals amid lower demand.Need to know: global economyThe US House of Representatives passed a short-term spending bill yesterday that will avert a partial government shutdown, extending spending at current levels for some federal agencies until March 1 and others until March 8.JPMorgan Chase paid longtime chief executive Jamie Dimon $36mn in 2023, up about 4 per cent from the previous year. Dimon’s pay rise comes after a year in which the bank reported record profits of almost $50bn.Houthi rebel attacks on commercial shipping in the Red Sea continue to cause chaos. China has called on “all relevant parties” to “ensure the safety of navigation” as analysts warn attacks in the crucial waterway threaten the world’s second-largest economy. Meanwhile, the world’s third-biggest container shipping group CMA CGM said earlier today that some of its vessels are continuing to go through the Suez Canal but warned of scheduling chaos and that clients were worried. International investors are losing faith that economic stimulus from Beijing is on the way as they sell off Chinese stocks, confounding predictions from US banks, JPMorgan and Goldman Sachs that China’s stock market was primed for a recovery in 2024.Need to know: businessPrivate equity executives are predicting a sharp increase in takeover activity as buyout firms that have held on to investments in the hope of higher prices finally begin to capitulate and sell some of their businesses.Tata Steel plans to lay off about 2,800 workers as part of a major restructuring of its UK operations affecting its Port Talbot plant in south Wales.Zara’s billionaire founder Amancio Ortega is seizing on the commercial property downturn as a chance to buy assets on the cheap as high borrowing costs hand the advantage to debt-free investors.Science round-upChanges in blood protein have been found in people suffering with long Covid, according to research published in the journal Science yesterday.Coloured gemstones are defying the downturn in price for diamonds as consumers look past cheaper man-made stones towards more personalised jewellery.Germany must act fast on nuclear fusion energy to grow its economy after renouncing the use of coal, nuclear power and Russian gas, according to the FT’s John Thornhill.Urban planners are using supercomputers to create a virtual laboratory or ‘digital twin’ city to address issues such as climate change and traffic congestion.Some good newsA lost city has been identified by archaeologists working with LiDar in the Amazon rainforest. Located in Ecuador’s Upano Valley, researchers identified 6,000 earthen platforms across an area of 100 square miles and divide the society’s works into 16 different settlements connected by a series of sophisticated roads.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

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Donald Trump was in the snows of Iowa for the US state’s Republican primary on Monday, rather than snowy Davos. But the former president’s name resounded all week through the corridors and coffee bars of the Swiss resort. US executives at the global confab sounded notably more sanguine than foreign business people and political leaders about his potential return. With Trump already closing in on the Republican nomination after his Iowa victory, however, US businesses should be as concerned as non-US counterparts about what this could mean for them, and for the world.US businesses have reason, for now, to project calm. They liked the tax cuts in Trump’s first term, which they expect he would extend in a second. Despite his protectionism, the US economy performed well; stock prices rose. Many US executives are hopeful that the day-to-day running of the economy and business under a Trump 2.0 could be largely ringfenced from shenanigans in the White House, as last time round. And they see no reason to antagonise a man they might soon have to work with again.Yet a second Trump presidency is being comprehensively planned for in a way the first never was. Trump’s 2016 victory surprised his party. He has since taken over the Republican soul, and a network of conservative think-tanks is preparing detailed policies, databases of suitable staff and even a “training academy” on governing for a Republican president — presumptively Trump. Since he has never been one for policy minutiae, the likelihood is he would simply follow much of the programme, which is available for anyone to read.The return of a president who tried to overturn the 2020 election result, has vowed retribution, and is armed with a meticulous, highly radical blueprint — even if not every element is objectionable in itself — is not a prospect business or US allies should relish.What should worry business? Trade policy, for one. In contrast to his ad hoc tariffs and duties last time, Trump has floated the idea of a 10 per cent universal tariff on imports — a modern-day version of the Smoot-Hawley tariff of 1930. There is a strong anti-tech vein running through the programme of his conservative backers, who blame Big Tech for alleged leftwing bias and enabling the “Great Awokening” they aim to reverse. His intention to gut the Inflation Reduction Act raises questions for companies trying to make deals on the basis of that legislation.Big Oil and the fossil fuel industry, real estate and associated sectors might hope to gain from a second Trump administration. But all of business and finance would suffer from the erosion of checks and balances represented by the election of a man who had tried to subvert US democracy, and his plan to replace career civil servants — including in security, justice and law and order — with people loyal to him.They would lose out, too, from the rise of core geopolitical risk inherent in the ability of a Trump surrounded by pliant loyalists to pursue his often erratic whims — in reshaping policies on issues from US membership of Nato and support for Ukraine to its stance on China.After Trump’s crushing win in the Iowa caucuses, unless either Nikki Haley or Ron DeSantis can make a breakthrough in Tuesday’s New Hampshire primary, both may struggle to raise further campaign financing. Trump could rapidly become the presumptive nominee. The ex-president still faces multiple charges that could put him in jail rather than on the ballot. But corporate and political leaders well beyond those who gathered in Davos this week must start preparing for the disquieting possibility, at least, of his return to power. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Until this week, the UK economy looked increasingly set for a smooth “soft landing”, with inflation dropping sharply and early signs of growth picking up. But data releases in the past few days have added unexpected turbulence.Inflation in December was higher than predicted, at 4 per cent, the Office for National Statistics said on Wednesday. On Friday, official data showed retail sales last month fell at the fastest rate since Covid curbs were in place. Although some analysts still expect a soft landing — where price growth returns to the Bank of England’s 2 per cent target without a sharp recession — the figures have complicated the picture for central bank rate-setters ahead of their next meeting in two weeks.Neville Hill, co-head of the consultancy Hybrid Economics, said the data meant there was “enough volatility and lagged evidence in the data for Monetary Policy Committee members to stress ‘uncertainty’ and justify keeping rates on hold” at 5.25 per cent.Wednesday’s data prompted markets to scale back bets on cuts in the BoE’s benchmark rate, which stands at a 15-year high, but the retail sales numbers moved them the other way. Traders now see interest rates ending the year at 4-4.25 per cent, on the back of inflation falling from a 41-year high of 11.1 per cent in October 2022 and expectations of further declines.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Price pressures are easing more quickly than forecast only a few months ago, with expected cuts to the cost of borrowing likely to boost spending and activity in the months ahead, according to analysts. Paul Dales, economist at the consultancy Capital Economics, said a soft landing was still “the most likely outcome”, adding that this week’s data pointed to “a bit of mild turbulence as the plane comes into land, rather than anything more significant”.Last week, the ONS said the economy grew 0.3 per cent between October and November. But output marginally contracted in the three months to September, meaning the economy could have entered a technical recession if data released next month shows another drop in output in the final quarter. On Tuesday, the agency reported that real wages rose in the three months to November, while nominal pay growth slowed. But some economists said continuing problems with its survey meant the true state of the labour market remained uncertain.Although inflation accelerated to 4 per cent in December from 3.9 per cent in the previous month, driven by higher tobacco and alcohol costs, it was still well below the BoE’s latest forecast. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.In November, when price data was available only up to September and showed sticky underlying pressures, the central bank pencilled in price growth of 4.6 per cent and services inflation of 6.9 per cent in December.Both measures, which are watched closely by policymakers, came in under those estimates last month, having fallen sharply in October and November.“The big picture is that inflation and wage [growth] are still substantially lower than the BoE was forecasting as recently as November,” said Jack Meaning, economist at Barclays. With the household energy price cap expected to fall by 10-14 per cent in April thanks to lower wholesale gas prices, most analysts think inflation will drop below 2 per cent by the spring and stay at or close to that level for the rest of the year. Andrew Goodwin, chief UK economist at consultancy Oxford Economics, said he had become “more upbeat on near-term prospects” because of the improving inflation outlook, which meant businesses had easier access to funding and was already helping households refinancing mortgages.Pay and inflation “is clearly headed in the right direction as far as the MPC is concerned,” he said, adding that “we should ignore” the 3.2 per cent month-on-month drop in retail sales in December, the biggest since January 2021. The fall partly reflected shoppers taking advantage of Black Friday discounts in November ahead of Christmas. Better economic prospects will boost Rishi Sunak’s Conservatives ahead of the election expected this year. The prime minister on Friday promised there was “more to come” on pre-election tax cuts, which Tory MPs are calling for as their party lags Labour in opinion polls. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.However, in a sign of the difficulty in drawing clear conclusions from all the figures, Hill said they offered “growing evidence that tighter monetary policy — with its long, variable lags — is hitting consumer spending”. Sandra Horsfield, economist at Investec, warned that with the ONS still not publishing key data on unemployment and inactivity, it was difficult to assess the strength of households’ income and “their ability to shoulder price rises” and broader cost pressures. As a result, Yael Selfin, chief economist at KPMG UK, said the consultancy expected “the BoE to remain cautious as it interprets the last set of data”.The property sector, as well as business and consumer sentiment, has improved in recent months following financial market expectations of BoE rate cuts this year.On Thursday, the Royal Institution of Chartered Surveyors said estate agents expected house sales to expand in 2024 and were more optimistic about prices and demand. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Horsfield said she expected reductions in national insurance, which took effect this month, and possible tax cuts in the government’s March Budget to boost sentiment. But overall the economy stagnated last year and might even have slipped into a technical recession. Charlie Huggins, head of equities at the investment broker Wealth Club, said it was not clear if some of the latest data was a “blip or a more worrying sign”. But he added: “One thing’s for sure — despite optimism around interest rate cuts, the UK economy certainly isn’t out of the woods.” More

Stay informed with free updatesSimply sign up to the More

The brokerage now expects 100 basis points (bps) of rate cuts by the end of the year compared to 75 bps expected earlier.It said the recent slowing of core inflation could reflect transitory factors fading out, making the trend hard to gauge, while stronger wage data may give more “stickiness”.The brokerage warned that disruption to shipping from the conflict in the Red Sea could add to inflationary pressures. “To avoid raising the number of cuts from three to five, we assume that the ECB skips July and then starts back-to-back cuts in September,” said Greg Fuzesi, economists at the brokerage.Markets expect the first ECB rate cut in April. Traders had earlier expected a cut in March. Among major brokerage, Barclays and UBS Global Research expect the start of cuts in April. More