Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.It’s a seasonal tradition for M&G’s Bond Vigilantes blog to share its Halloween round-up of the scariest charts in finance. Andrew Eve, an investment specialist in M&G’s fixed income team, treated us to an early look at this year’s selection.1. Duration can be scaryWith the release of pent-up demand following lockdowns, and with excess money in the economy as a result of stimulative monetary and fiscal policy during that period, the past few years have seen inflation make a comeback. As markets have repriced their inflation expectations and as central banks have aggressively increased interest rates, investors in longer-dated bonds have had a sharp reminder that duration can be scary. Bonds with higher duration leave investors exposed for longer to the risk of inflation eroding the real value of their investment, which is why they tend to suffer in such environments. This chart really puts the moves in bonds since the pandemic into perspective: the total drawdown in long-duration US Treasury bonds now exceeds the peak-to-trough stock market crash seen in the Great Financial Crisis. 2. Will Uncle Sam be able to pay his bill before nightfall?Uncle Sam has a big bill to pay. The combination of significant borrowing during the pandemic, together with the rise in interest rates means that debt interest payments have been rising fast for the US government. Annual interest payments look like they will soon hit $1 trillion, and likely rise even further as maturing debt will need to be refinanced at higher rates. In fact, total interest payments for the US have now reached the same level as their total debt in 1980!There is a risk that rising Treasury bond supply and higher leverage will spook investors: perhaps the recent US downgrade by Fitch will not be the last. While default is highly unlikely, the increasing risk of US Treasuries is likely to be manifested primarily at the long end of the curve as market participants demand a higher term premium.3. Midnight approaches following curve inversionThe inversion of the US Treasury curve is a well-known signal that a recession is on the way. For many decades, a recession has always followed in the months following inversion. An inverted yield curve refers to the situation when short-term yields are higher than long-term yields, indicating that investors are repositioning into longer-dated bonds and suggesting market pessimism on near-term economic prospects.But a closer look at the chart below reveals that it is in fact when the curve starts to steepen again following an inversion that recession usually strikes. With the 2s10s curve (10 year yield minus 2 year yield) having just started to steepen, is midnight nearly upon us?4. Will higher financing costs bite high yield issuers?We are now 18 months into the hiking cycles of most central banks. Despite this, credit valuations have remained resilient, even within high-yield bonds. The (option-adjusted) spread of the Global High Yield index has now fallen to the low 400s (bps), leaving it at close to its tightest levels since the Great Financial Crisis.No doubt high yield credit spreads have been helped thus far by demand from yield-hungry investors, and also tighter supply of high-yield bonds: high yield issuers have refrained from refinancing where they can in light of higher funding costs. But, with many companies having put refinancing off for some time now, maturity walls are closing in: nearly 10 per cent of high yield issuers face refinancing risk in the next two years. This is likely to become the largest refinancing effort for HY issuers since the GFC.5. Sharks lurking beneath the inflationary watersInflation usually comes in waves. This is perhaps because inflation tends to cause issues that governments and central banks try to resolve with expansionary policies.For example, back in the 70s we had two big waves of inflation before then-Fed Chair Volker finally managed to put the inflation genie back in the bottle. With inflation dynamics looking similar to the ones we experienced in the 70s, there is a risk that inflation could make a comeback.6. Real rates are back into positively scary territoryThe risk of recession is increasing. One of the key indicators we follow is the real rate, which we have defined in the chart above as the central bank rate minus core inflation. In the US, a real rate above 3 per cent has traditionally been a precursor to recessions.Real rates have been rising significantly over recent months and, following central banks’ tightening of monetary policy, now sit comfortably within positive territory. On a year-on-year basis, real rates are now approaching 2 per cent. Looking at more recent inflation dynamics, however, real rates just crossed the 3 per cent mark.Further reading:— Chart spooktacular 2022 (FTAV) More

China’s top airlines reported their first quarterly profitsin more than three years on Friday, fanning industry hopes for China’s big three state carriers to finally step out of the difficulties brought by the COVID-19 pandemic.The Civil Aviation Administration of China will roll out its winter and spring season flight plan on Sunday, which will last until March 30, according to the summary of a Friday press conference on the website of CAAC News, which is run by the aviation regulator.There will be 96,651 domestic flights a week, or 34% higher than the same period four years ago, with 7,202 new weekly flights brought on by the opening of 516 new domestic routes.The increase in domestic flights focuses on connections between regional and hub airports like Shanghai, Beijing and Guangzhou, the regulator said.International flights, while slower to recover, are also picking up steam. In the next five months there will be 16,680 weekly flights, with passenger flights expected to reach 71% of the total four years ago.Flights to and from 22 countries, including Britain and Italy, have neared or overtaken pre-pandemic levels, the regulator said.In the winter and spring season, weekly direct passenger flights between China and the United States are expected to increase to 70 from 48, according to a post on Sunday on the CAAC News WeChat account. 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 storiesThe US struck two facilities in eastern Syria that it identified as linked to Iran-backed militias, following attacks on American forces in the region in recent weeks. Full coverage of the Israel-Hamas war.JPMorgan chief Jamie Dimon will sell 1mn shares in the bank next year, the first time he has reduced his stake since joining nearly two decades ago, raising questions about how long Wall Street’s longest-serving boss intends to stay on. His rival at Morgan Stanley, James Gorman, is stepping down at the end of the year, to be replaced by Ted Pick, who currently runs investment banking and trading.The “core” personal consumption expenditure index, an inflation measure closely watched by the US Federal Reserve, fell to an annualised 3.7 per cent in September, the lowest in two years, easing pressure on the central bank to raise rates next week. The US economy grew faster than expected in the third quarter with a 4.9 per cent annualised GDP increase, its quickest pace in almost two years.For up-to-the-minute news updates, visit our live blogGood evening.Has Big Oil in the US got its swagger back?It’s tempting to believe so, in a week where the most significant industry consolidation in two decades gathered pace and the supermajors continued to enjoy a lift from rising crude prices.As we report today, ExxonMobil, which fired the starting gun on the current M&A race with its $60bn purchase of Pioneer two weeks ago, is still on the hunt for deals, or at least those where “one plus one equals three”.Exxon also reported third-quarter earnings had risen to $9.1bn, up from $7.9bn in the previous three months, thanks to the oil price increase and more refining activity, although a little lower than expected because of weaker margins in its chemical business and reduced trading.On Monday, Chevron announced a $53bn deal to buy fellow US producer Hess, the biggest transaction in its history, doubling down on its bet that demand for fossil fuels would remain strong for decades to come. Today it reported third-quarter earnings of $6.5bn, down from $11.2bn last year, but up from $6bn in the previous three months.This doubling down was attacked by former US vice-president and climate campaigner Al Gore this week in an FT interview as he hit out at the “buddy-buddy” relationship between political leaders and the fossil fuel industry, which he said was damaging prospects for global climate action. Gore has also criticised the industry’s “capture” of the UN climate change negotiations. Big Oil remains unapologetic: “We are not selling a product that is evil,” Chevron chief Mike Wirth told the FT this week as he laid out a “real world” case for fossil fuels.The backdrop to the industry manoeuvring is the shift from fossil fuels to cleaner sources of energy. The International Energy Agency said this week that demand for oil would fall by almost half by 2050 if governments carried through on their green pledges and said that the energy crisis triggered by Russia’s full-scale invasion of Ukraine, rising tensions in the Middle East and record temperatures highlighted the risk of continuing to rely on fossil fuels. The IEA also laid out the ramifications of governments failing to follow through on their pledges, showing oil demand would barely fall by 2050.The FT editorial board said recent tie ups are part of the race to be last man standing, a bet that the IEA is wrong, and proof that, as Saudi Arabia’s energy minister said this week, “hydrocarbons are here to stay”. What the recent megadeals really show however is that we are in a new age of uncertainty, writes energy editor David Sheppard, who says that those betting the transactions signal robust demand growth may want to think twice.“You can of course believe that the IEA have got this wildly wrong,” he says, “or that governments will grow tired of addressing climate change, if their populations deem it too complicated or expensive. But within the wide ranges and uncertainty of the IEA scenarios is a glimpse into what the likely path is for the oil sector. Investors should be careful about swaggering blindly towards it.”Need to know: UK and Europe economyUK prime minister Rishi Sunak is to put crime and energy at the heart of his next legislative programme in the King’s Speech on November 7. Sunak said however he would “not rush to regulate” AI as he announced the creation of a safety body to evaluate and test new technologies.The European Central Bank held its key interest rate as expected at the all-time high of 4 per cent, ending its streak of 10 consecutive increases. EU leaders backed plans to use earnings from Russia’s frozen assets to help Ukraine. Western sanctions have immobilised $300bn belonging to Russia’s central bank since the full-scale invasion began. Russia today raised interest rates more than expected to 15 per cent, citing high inflation and the weak rouble. In Turkey, rates were raised for the fifth time in as many months to 35 per cent, with the threat of higher oil prices an additional concern in a country that imports the bulk of its energy. Its stock market meanwhile tumbled after President Recep Tayyip Erdoğan stepped up his criticism of Israel and its allies at a time when Ankara is desperate for western investment. Need to know: Global economyChina’s Communist party beefed up its new financial regulator which will act as de facto watchdog, planner and decision maker for the country’s $61tn financial sector, weakening institutions such as the People’s Bank of China and the Securities Regulatory Commission. Li Keqiang, the former Chinese premier who served under President Xi Jinping and was seen as a leading proponent of market-oriented reforms, has died aged 68, months after leaving office.Zambia reached a debt relief deal on nearly $4bn owed to private bondholders, fuelling hopes that its long-running debt restructuring might be nearing an end.Need to know: businessNatWest admitted to “serious failings” in the way its private bank Coutts treated politician Nigel Farage when it closed his account, and promised “substantive changes” to its procedures. NatWest also reported lower than expected third-quarter profits and warned that benefits from higher interest rates were starting to decline. Its shares tumbled.The post-pandemic travel boom continues. British Airways owner IAG and Air France-KLM reported record profits over the summer while London’s Heathrow airport raised its passenger forecasts after an “extraordinary” peak season.Cruise, the driverless car company owned by General Motors, paused its operations after California regulators barred its vehicles from the state’s roads following an accident in San Francisco.Ford reached a tentative deal with the United Auto Workers union that would raise wages 25 per cent over four years and potentially end a 40-day strike. About 29,000 workers at Stellantis and General Motors remain out. The American south-east meanwhile is vying to become the new Detroit for the electric vehicle age. In Europe, Mercedes said the “brutal” price war in EVs had dented its profits while in Japan, a lot of hope is riding on Toyota’s progress on solid-state batteries. Bond market turmoil has forced US companies to delay borrowing plans, making October the slowest month for debt issuance since 2011.Science round-upRecord high sea surface temperatures and unexpected marine heatwaves are threatening ocean biodiversity, affecting corals, seagrasses, fish and birds, according to Copernicus, the European earth observation agency.The record readings also mean hurricanes are more likely. Acapulco in Mexico was hit by a “nightmare” version — hurricane Otis — on Wednesday, catching authorities unprepared and leading to warnings about flash floods and landslides. The UN’s climate science body said the chances of the world limiting the rise in global temperatures to 1.5C since pre-industrial times had decreased since its 2021 report. Drugmakers Eisai and Eli Lilly presented research that shows the benefits to patients from using pioneering new Alzheimer’s drugs very early in the development of the disease. Alzheimer’s is the most common form of dementia but until recently, many large pharma companies were reluctant to invest heavily in finding treatments after decades of failure.Innovation editor John Thornhill says it’s time to get serious about the dangers of quantum computing as we approach “Q-day” — the moment a quantum computer might crack the RSA cryptosystem, widely used by tech companies, banks and governments on their data.Some good newsA Philippine spotted deer fawn, one of the world’s rarest animals, has taken its first steps at Chester Zoo. The new arrival, named Hercules, is part of a conservation breeding programme between zoos in Europe, set up at the request of the Philippine government to ensure the survival of the highly endangered species.[embedded content]Something for the weekendTry your hand at the range of FT Weekend and daily cryptic crosswords.Interactive crosswords on the FT appSubscribers can now solve the FT’s Daily Cryptic, Polymath and FT Weekend crosswords on the iOS and Android appsRecommended 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 youCorrection: This article has been amended to make clear the Chevron link in the introduction refers to earnings, not revenues. We apologise for the error. More

Sethaput Suthiwartnarueput told reporters on Saturday that Southeast Asia’s second’s largest economy is still expected to grow close to forecast of 2.8% this year although third-quarter growth might be softer than expected. The central bank’s growth forecast of 4.4% for 2024 will be revised if there is any change in the government’s stimulus plan, he added. Last year the economy grew 2.6%.Sethaput said the Bank of Thailand is concerned about the fallout from the conflict in the Middle East.”A new factor that I’m quite wary about is Middle East problems as evaluating the impact of this risk is very difficult,” he said, but added that the current policy rate is appropriate.”The rate is appropriate for this period… But if the situation changes significantly from our forecasts, our set framework, there will be adjustments.”Last month, the Bank of Thailand’s monetary policy committee unexpectedly raised the key interest rate by a quarter point to 2.50%, the highest in a decade, saying growth and inflation are likely to pick up next year. It will next review policy on Nov. 29.The rate has been raised by a total of 200 basis points since August last year to rein in elevated inflation.The baht currency has been more volatile than its peers due to external factors and capital outflows from the country, the governor said.The baht has fallen about 4.4% against the dollar so far this year, with capital outflows at 308 billion baht ($8.53 billion) since the start of the year.($1 = 36.11 baht) More

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NEW YORK (Reuters) – Financial markets are bracing for what could be a momentous week, with a Federal Reserve meeting, U.S. employment data and earnings from technology heavyweight Apple Inc (NASDAQ:AAPL) possibly setting the course for stocks and bonds the rest of the year.October has lived up to its reputation for volatility, as a surge in Treasury yields and geopolitical uncertainty pressured stocks. The S&P 500 index is down 3.5% for the month, adding to losses that have left it over 10% off its late-July high.Whether the ride remains rough for the rest of 2023 may depend in large part on the bond market. The Fed’s ‘higher for longer’ stance on interest rates and rising U.S. fiscal worries pushed the benchmark 10-year Treasury yield – which moves inversely to prices – to 5% earlier this month, the highest since 2007. Higher Treasury yields are seen as a headwind to stocks, in part because they compete with equities for buyers.Investors worry that yields could rise further if the Fed reinforces its hawkish message at the central bank’s Nov. 1 monetary policy meeting. Strong U.S. employment data next Friday could also be a catalyst for yields to rise if it bolsters the case for keeping rates elevated to cool the economy and prevent inflation from rebounding.”Stocks will start to recover when the market believes that bond yields have peaked,” said Sam Stovall, chief investment strategist at CFRA Research. Overall, futures markets are pricing in a near-certainty that the Fed does not raise rates in November, and a nearly 80% chance that the central bank holds rates steady in December, according to CME’s FedWatch Tool. Still, policymakers have projected they will keep the key policy rate at current levels through most of 2024, longer than markets had previously anticipated.Investors are playing a “waiting game of how much does each economic data point need to increase to put another rate hike back on the table,” said Alex McGrath, chief investment officer for NorthEnd Private Wealth.With U.S. Gross Domestic Product growth at a sizzling 4.9% in the third quarter, signs that the labor market remains too hot, or the Fed sees the need for further tightening to control inflation, could fuel further volatility. “It feels like we are at a crossroads whether or not the strong growth we’ve seen over the summer months will continue over the fourth quarter,” and keep worries over inflation and restrictive monetary policy bubbling, said Charlie Ripley, senior investment strategist for Allianz (ETR:ALVG) Investment Management. Adding to the bond market’s concerns, the Treasury is expected to announce its upcoming auction sizes later this week. Worries about a growing federal deficit and increased supply have helped push yields higher.Investors are also awaiting Apple’s results on Thursday, during an earnings season with disappointments from some growth and technology giants, including Tesla (NASDAQ:TSLA) and Google (NASDAQ:GOOGL). The tech-heavy Nasdaq 100 index is down 11% from its high, though still up nearly 30% on the year.Some investors believe the worst of the selling may be over. A stock market rebound would follow seasonal trends, said Stovall, of CFRA Research. Since 1945, the S&P 500 has advanced by an average of 1.5% in November, making it the year’s third-best performing month, he said.More broadly, some believe the stock market’s trading patterns this year point to a rebound in the fourth quarter. In the 14 instances when the S&P 500 has gained at least 10% through July and then declined in August, as it did this year, the index has increased every time over the last four months of the year, according to Ned Davis Research. The average gain in those instances has been 10%.Stocks appear “oversold” according to technical indicators and could rally if economic data comes in as expected, said Randy Frederick, managing director of trading and derivatives for the Schwab Center for Financial Research.”The stock market is poised for a late Q4 rally.” More