Aurelia Butler

Good morning. On his first international trip since the coronavirus pandemic, North Korean leader Kim Jong Un has offered President Vladimir Putin his country’s “full and unconditional support” for Russia’s invasion of Ukraine, describing it as a “sacred fight” against imperialism and the west. Having travelled to the country on a luxury armoured train, Kim was driven in a limousine brought from Pyongyang to Vostochny Cosmodrome, a space rocket launch site 60km north of Vladivostok, where he met Putin. “Russia has risen to a sacred fight to protect its sovereignty and security . . . against the hegemonic forces,” Kim told Putin via a translator. “We will always support the decisions of President Putin and the Russian leadership . . . and we will be together in the fight against imperialism.”Following a visit to Pyongyang by Russian defence minister Sergei Shoigu in July, the talks between the two leaders are expected to explore a possible arms deal, with Putin seeking to replenish Russia’s supplies of conventional munitions, which its forces are rapidly depleting in Ukraine. Kim is likely to request access to advanced technology for spy satellites and nuclear-powered submarines as well as food aid.Putin said Moscow would help Pyongyang build satellites, telling reporters that the two would discuss a range of issues including weapons supplies, according to Russian state media. This year, North Korea has twice failed to launch a spy satellite into space.“That’s why we came here,” Putin said. “The leader of the DPRK [Democratic People’s Republic of Korea] shows great interest in rocket engineering, they are also trying to develop space [capabilities].” Earlier on Wednesday, North Korea fired two short-range ballistic missiles towards the Sea of Japan, according to the Japanese defence ministry.Analysts estimate that North Korea has a large stockpile of ageing artillery equipment and rockets based on or duplicating designs from its former patron, the Soviet Union.Here’s what else I’m keeping tabs on today:Economic data: US inflation is expected to have risen last month when headline figures are released today. The UK publishes revised gross domestic product figures for July, while the EU has industrial production data for the same month. The International Energy Agency issues its monthly Oil Market Report.Arm IPO: The SoftBank-backed UK chip designer is expected to announce the final pricing of its initial public offering, set to be the biggest in nearly two years.European Commission: President Ursula von der Leyen delivers her 2023 EU State of the Union address at the European parliament in Strasbourg.Join our subscriber-only webinar today (12.30-13.30 GMT+1) on China’s economic slowdown, featuring FT experts on the world’s second-largest economy. Send in your questions and register for free here.Five more top stories1. Exclusive: Deutsche Bank continued to sell risky foreign exchange derivatives to companies in Spain that had suffered big losses from such products. The sales were made even after an internal inquiry, started in 2019 following a whistleblower complaint, found that staff exploited flaws in the bank’s controls and broke EU rules. Read the full story.2. EU will launch an anti-subsidy probe into Chinese electric vehicles. In an investigation that could lead to tariffs on the country’s manufacturers, European Commission president Ursula von der Leyen announced that Brussels would launch an anti-subsidy investigation into Chinese electric vehicles that are “distorting” the EU market. The probe could constitute one of the largest trade cases launched given the scale of the market.3. Bernard Looney has resigned as chief executive of BP after admitting he failed to disclose the extent of past personal relationships with colleagues, the company has said. Looney, 53, is to be replaced by chief financial officer Murray Auchincloss “on an interim basis”, the company said in a statement yesterday. Here are more details on his departure. 4. Cruise ship Ocean Explorer may be stranded in the Arctic for days after running aground, underscoring the environmental risks from the growing popularity of Arctic tourism. The cruise ship, which has 206 people on board, became stuck in Alpefjord off Greenland’s remote east coast on Monday and a high tide on Tuesday failed to free the vessel. The Danish military unit responsible for protecting Greenland said that if the weather remained fine they could reach the cruise ship by Friday at the earliest. Read the full story here. 5. Austria’s longest-serving spymaster has warned about Russian links to the country’s hard right Freedom party, which has been leading polls ahead of next year’s election. In an unusual public intervention, Peter Gridling, who led the Austrian intelligence service between 2008 and 2020, cautioned that the party had remained in contact with Russia since his tenure. Here’s more from his interview with the FT.Vladimir Putin: The Soviet invasion of Hungary and Czechoslovakia was a “mistake”, Russia’s leader said yesterday, even as he glossed over his ongoing war on Ukraine.Grain exporters struggle: Ukraine’s grain exporters are finding it hard to cover the extra cost of avoiding Russia’s naval blockade in the Black Sea.The Big Read

© FT montage/Getty Images

The release of ChatGPT in November spurred a rush of feverish excitement over applications of artificial intelligence but also increased awareness of its dangers: the potential to spread misinformation during elections, replacing jobs and one day becoming more intelligent than and superseding humans. While regulators and companies have been loud in voicing the need to control AI, ideas on how to do so have diverged widely.We’re also reading . . . Tony Blair interview: The “mess” Labour will inherit if it wins next year’s UK elections cannot be fixed by taxing and spending, the former prime minister told the FT.Elon Musk biography: Walter Isaacson’s much-hyped book is long on reporting detail but shorter on the meaning of the tech entrepreneur’s work, writes Rana Foroohar.Electric cars: The cost of Europe’s indecision on the sector is a lesson for other industries prevaricating over difficult but critical investments, writes Helen Thomas.Chinese aircraft carrier: China’s first domestically designed aircraft carrier marks a leap in Beijing’s aim of projecting force beyond its shores to contest US air superiority in the Pacific.Chart of the dayItaly, Belgium and Portugal have issued about €60bn worth of bonds directly to households so far this year, up from €26bn last year. The retail push by European countries is partly designed to press high street banks into raising the interest rates they pay to depositors.Take a break from the newsLake Khovsgol is located in one of Mongolia’s most remote regions. With temperatures of minus 12C, it might seem like the last place you would want to visit. Not so for Tim Moore, who participated in the Mongol 100 bike race, pledging to traverse 160km of the frozen lake “by any means necessary”.

Tim Moore cycling solo past jagged stacks of ice on Lake Khovsgol

Additional contributions from Benjamin Wilhelm and David Hindley More

Post-Brexit Britain must steel itself against the growing forces of protectionism that are being driven globally by the race to net zero and rising antipathy towards China, the outgoing chief of the UK’s independent trade advisory body has warned.Simon Walker, who stepped down as chair of the Trade Remedies Authority this month after a turbulent three-and-a-half years in office, also expressed regret that Boris Johnson’s government had failed to live up to its promise of championing free trade.He reflected that Johnson had begun his premiership with a swashbuckling speech in Greenwich lionising the UK’s prospects as a trading power, but subsequently bowed to political pressure to protect steel producers, handing ministers powers to over-rule evidence-based findings of the TRA.Walker said he was “not pleased” with the decision, which the government admitted would breach legal obligations under the World Trade Organization, but he took comfort in the fact that ministers had been forced to be open and transparent about their decision.“In theory there was a possibility that Britain would be standing up for free trade, as a matter of principle, in terms of international leadership, and perhaps it was naive to think that would survive political storms, but I still think there is more of a commitment to it here than there is there [in the US],” Walker told the Financial Times.A former director-general of the Institute of Directors, Walker built up the TRA after Brexit as the UK took control of trade defence measures from the European Commission.The TRA is an independent, arms-length body that advises the government on when to apply tariffs to address unfair subsidies and product dumping, and when to apply safeguard measures to protect British producers against a sudden flood of imports.As well as steel, the TRA’s 150-strong staff has handled cases covering aluminium, optical fibres and even Turkish ironing boards, which Walker said demonstrated the authority’s effectiveness.Walker said the government’s decision to over-rule the TRA’s advice on steel safeguard measures had created the impression that ministers would bow to pressure from MPs worried about keeping their seats rather than defending the principles of free trade.He added that by disregarding the agency’s advice, the government had prioritised the concerns of producers over the more disparate interests of consumers and smaller businesses whose voices were less easily heard, but whose rights the TRA was also there to protect. “I noticed 10 days ago that Godfrey Watt, the chair of the International Steel Trade Association (ISTA) was saying it is now clear that it is ministers who will call the shots on steel in the United Kingdom, and not an ‘arms-length body’, and one can see why he thinks that,” Walker said.But he added that the UK government remained far away from the full-blown protectionism exhibited by the US, which under former president Donald Trump imposed 1,700 per cent tariffs to protect US mattress-makers.“I hope that instincts towards free trade in this government — and one is assured in a future government, if it is a Starmer government — will be sufficient to keep us pretty much on the straight and narrow,” he said.But Walker warned that resisting the temptations of protectionism would become more difficult as the race to secure green investments and rising sinophobia would provide a pretext for protectionism.Walker said he was concerned by recent warnings by the head of Turkey’s Arçelik, owner of the consumer goods brand Beko, that China could dump white goods on international markets as its domestic economy cooled. “Talking about consumer goods and the need to protect against Chinese washing machines and other imports — that’s the kind of thing that would worry me if it ever got over here. And clearly at a time when there’s almost hysteria about connections with China, I’d hate that to spread into the trade area. It is a worry,” he said.He also warned that the introduction of carbon border taxes to ensure a level playing field in the transition to net zero must not become a backdoor to protectionist policies.“I accept that carbon border adjustment taxes are going to be a policy tool for the future, I’m just anxious that measures like that, and indeed measures against China, don’t provide a cloak for protectionism, and I think we need to watch for that,” he said.Walker said he was also concerned about the protectionist drift of the EU under the growing influence of France. He added that the TRA was now actively engaging with the European Commission after being frozen out for three years because of the diplomatic row over post-Brexit trading arrangements for Northern Ireland.Walker said France had long held protectionist inclinations and recalled its attempt to strangle Japanese video recorder imports in the 1980s by ordering them to be cleared through a nine-man customs depot in the cathedral city of Poitiers. “This country has always had a more liberal approach and I suppose it is inevitable that without Britain’s voice their commitment to free trade is going to be rather weaker. But at least they have free trade within the European Union which ensures a degree of competition whether people like it or not,” he said. More

Investment chiefs at two of the world’s largest asset managers have warned that the risk of a US recession is rising, even as government officials and a growing number of investors believe the Federal Reserve’s interest rate rises will not damage the economy significantly.Top fund managers at BlackRock and Amundi told the Financial Times that while the US economy has largely looked resilient in the face of aggressive monetary tightening by the Fed, cracks are now appearing, notably in the labour market.“The probability of a recession for us is very high,” said Vincent Mortier, chief investment officer at Amundi, which manages $2.1tn. “The question mark is how deep and how long . . . We are much more concerned by the dynamics in the US than the consensus,” he said, adding that he expected the contraction to come at the end of this year or early next year.Rick Rieder, chief investment officer of global fixed income at BlackRock, which manages $9.4tn, said he had become more pessimistic about the state of the US economy in recent weeks. While he thought the country would avoid a severe recession, he said a slowdown had already begun.“We had been pretty enthusiastic about the economy. But now, ironically, when I think people have written off a recession . . . now I actually think we are seeing some tangible signs of slowdown,” said Rieder. “I don’t think you can write off a recession.”Both are now “overweight” US government bonds — meaning they hold larger positions than their benchmarks would suggest — in the belief that the Fed may already be done raising rates and that Treasuries would perform well during a period of economic weakness. Both also expect the dollar to fall.Their warnings come even as the broader market is expecting a “soft landing”, in which the Fed manages to bring down inflation without sending the economy into a recession. Treasury secretary Janet Yellen said at the weekend she was increasingly confident that a soft landing was possible.Investment bank Goldman Sachs earlier this month cut the probability of a US recession starting in the next 12 months. A Bank of America survey of global fund managers, published on Tuesday, found that about three-quarters of respondents expected either a soft landing or no downturn at all for the global economy, up from 68 per cent in June.The futures market is starting to reflect investors’ more bullish expectations. Earlier this year, traders were betting on big cuts in interest rates in 2023, expecting the Fed would be forced to loosen monetary policy in the face of a recession. Those expected cuts have in recent months largely been pushed back until the middle of next year. Both Mortier and Rieder pointed to a recent crunch in the labour market as evidence of a slowdown. Unemployment rose to 3.8 per cent in August, higher than economists’ estimates and above the July rate of 3.5 per cent. While the number of jobs added was higher than forecast, totals for the previous two months were revised lower.“For the first time, there is some tangible slack in the labour force,” said Rieder. With further rate rises looking increasingly unlikely, Rieder said the relatively high Treasury yields on offer looked attractive.“Now that the Fed is, if not entirely finished, pretty darn close to it . . . I think you can feel a whole lot better about taking on a bit more interest rate exposure,” he said.

Mortier said a weaker jobs market would sap consumer demand, putting pressure on corporate margins as companies lowered prices to compete for market share. “The US consumer is exhausted,” he said.Meanwhile, he thought corporate balance sheets would become more stretched as companies depleted their cash reserves and needed to refinance at higher interest rates. “There is a wall of refinancing coming,” he added. Mortier also pointed to the high level of US government debt, which limited the ability for US authorities to increase support for the economy.Amundi is shorting the dollar, although Mortier admitted it was a “tricky” bet given that the currency was a haven asset that could benefit during market shocks. More

The writer is vice-chair of Evercore ISI and a former member of the management committee of the New York FedWith the US Federal Reserve almost certain to leave interest rates unchanged at its policy meeting later this month, the focus of central banker watchers has shifted to the other side of Atlantic. The European Central Bank’s decision on whether to raise rates again at this week’s monetary policy meeting on Thursday looks finely balanced. There is less debate about the Bank of England, where a rate rise is rightly expected later this month but there is some possibility of a surprise pause.Behind these near-term calls is a debate around how forward-looking monetary policy can afford to be at this juncture and how credible it is to substitute further rises with a policy of keeping rates high for longer. The issue is how such “high for longer” signalling would square with an approach that makes policy decisions data dependent and the desire of central banks to stay away from “forward guidance” on rates.The Fed, though the most important of the central banks, may be the simplest to assess. It will pause in September and uphold the option to raise further with a stern and resolute tone providing cover for a gradual transition to policy on hold. It will only exercise the option to raise rates again if progress on inflation and rebalancing the labour market stalls amid stronger-than-expected growth.Most of the debate is around whether the ECB will deliver a “hawkish pause” with signals that lean to raising rates again in October if inflation does not moderate notably further, or raise one more time with a more neutral signal going forward. There are compelling reasons for the ECB to pause in September, with core inflation slowly turning lower, wage growth in line with projections and a spreading economic slowdown. The idea that the ECB should raise rates before the “window of opportunity” closes is nonsense: a central bank should never do something it could not justify doing a month or two later. But near-term inflation has been sticky and energy prices have moved up again. This could lead policymakers to deliver one more rise to send a hawkish signal to companies and unions.The BoE is more interesting than market pricing — 80 per cent for another rise — suggests. In recent weeks, the bank’s leadership has sent dovish signals, seemingly to make an option to pause as early as September. The rise in unemployment in the three months to July ticks a key box for policymakers who think it will be necessary to open up some slack to moderate future wage and price inflation. But the data is not clear-cut and continuing rapid wage growth underlines the absence of a clear turn in domestically generated inflation so far. With higher oil prices set to nudge up headline inflation, risk management favours raising rates one more time in September. But a pause should not be ruled out, particularly if services inflation surprises to the downside.In each case, the debate turns in part on the viability of substituting additional rate rises with a policy of keeping rates high for longer. BoE chief economist Huw Pill recently set out his preference for a lower peak but a longer hold — more “Table Mountain” and less “Matterhorn”. But ECB council member Isabel Schnabel has warned policymakers “cannot trade off a need for a further tightening of monetary policy today against a promise to hold rates at a certain level for longer”.The answer is not black and white. In theory, a central bank can provide a certain amount of restraint by setting rates at significantly restrictive levels for a shorter period of time or more moderately restrictive levels for longer. A smoother rate path is preferable to a sharp up and down, allowing more time to assess data. When the market prices a rapid U-turn, it is often assuming the central bank will end up overtightening.But in the real world the promise of restraint tomorrow from keeping rates high for longer is not a perfect substitute for acting today if the central bank’s credibility is strained and data suggests inflation risks becoming entrenched.The ECB is probably better placed right now to substitute longer for higher than the BoE. Both struggle with how to reconcile high for longer with data dependence and an aversion to forward guidance on rates. This is misplaced. Central banks should always be comfortable communicating their “reaction function” — the strategy they think is likely to be appropriate to return inflation to target, and how the resulting rate path will be updated as new information comes in, so anchoring inflation expectations. This is not controversial forward guidance — it is central banking 101.  More

Zachar Medvedev shrugged when the air raid warning sounded, despite the Russian drone attack that had hit Ukraine’s river port of Izmail only 12 hours earlier.“As the saying goes, if you are scared of wolves, don’t go into the forest,” said the 33-year-old, who manages the grain export facility built on the Danube by Nibulon, one of Ukraine’s biggest agro-industrial companies.For the past two months, Russia has launched waves of drone attacks on Ukraine’s Danube ports. Their aim has been to cripple Ukraine’s economic infrastructure and the export routes set up to break Moscow’s naval blockade of the Black Sea, Kyiv and its western allies say.Ukraine, which produces half the world’s sunflower oil exports and 10 per cent of its wheat, has exported about 35mn tonnes of grain via the Danube over the past 12 months. Alongside rail freight through Europe, this has provided vital economic support for the country’s war effort against the Russian invaders.But how long Ukrainian companies can absorb the extra cost of these alternative routes has become a pressing issue — especially after Russian president Vladimir Putin on July 17 suspended a UN-brokered deal that had allowed the safe export of 33mn tonnes of Ukrainian grain via the Black Sea.Russian drone and missile strikes in Ukraine have also destroyed 280,000 tonnes of stored grain since July, according to the UK government.“Increasingly it makes no sense for Ukrainian farmers to plant crops as they just lose money,” said Yevgen Osypov, chief executive of Kernel, one of Ukraine’s largest agro-industrial companies. High costs would undercut Ukrainian grain production and lead to exports halving in 2024 from last year’s levels to about 35mn tonnes, he predicted.International wheat prices fell 3.8 per cent in August compared with July, according to the UN’s FAO Food Price index, meaning prices are now well below the levels they surged to last year following Russia’s full-scale invasion of Ukraine.But Osypov feared when the market realises the size of the coming shortfall next year, global food prices would soar once again. He called it “a big game for Russia” with tragic consequences for world hunger.A grain warehouse in Ukraine damaged by a Russian drone attack. Drone and missile strikes have destroyed 280,000 tonnes of stored grain in Ukraine since July © Operational Command of the Ukrainian Armed Forces/ReutersThe rerouting of Ukrainian exports via the Danube has been a logistical task of Herculean proportions.So many trucks carry grain to Izmail and the nearby Danube port of Reni that queues can back up 35km. To preserve road surfaces during the summer, they can only travel at night or when day temperatures are less than 28C. The grain is then loaded into barges, sailed via inland waterways to Romania’s Black Sea port of Constanta, where the cargo is loaded on to larger seaborne tankers.There are also significant costs involved. Viktor Berestenko, president of Ukraine’s association of international freight forwarders, estimates that to export a tonne of grain to Egypt via the Danube costs about $116 per tonne compared with about $69 before Russia’s invasion last year.Even when the Russian grain accord was in place, a go-slow by Russian inspectors mandated to check Ukrainian cargos at sea meant transport costs were not much lower. Andrey Sokolov, a partner in Tully Logistics, estimates the expense of a two-month delay by Russian inspectors is broadly equivalent to the cost of Danube routes. On average, he said delays were between one and two months.“My opinion is that Russia only did the grain deal because it controlled it,” Sokolov said.As a first step to reopen Black Sea shipping routes, Ukraine has launched aerial drone strikes on Russian naval bases in Crimea. It has also threatened Russian commercial shipping, with marine drone hits on a Russian tanker and a warship at the Novorossiysk naval base.“Russia’s navy is now struggling to operate in the Black Sea,” commented a senior western official on the Ukrainian attacks. The Black Sea is “becoming a more competitive space, alongside the fight on land”.Kyiv has also opened what it calls a “humanitarian corridor” through the Black Sea. A handful of cargo ships including the Joseph Schulte have sailed out of Odesa seaports, hugging the Ukrainian coastline until they reach the safe waters of Nato members Romania and Bulgaria. But no vessel has risked an inbound journey.“It would be good if empty boats also came to pick up cargos,” said Oleksandr Myronenko, chief operating officer of Metinvest, Ukraine’s largest steel producer, which has sailed three boats out through the corridor.Ukraine has exported about 35mn tonnes of grain via the Danube over the past 12 months © Getty ImagesBack at Izmail, the air raid siren stopped and loading operations restarted. Despite a previous drone strike that had destroyed a warehouse, there was little sign that the infrastructure at Nibulon’s facility, spread out over a large area, had been seriously degraded.Multiple boats were also loading at other piers. Despite the security risks from almost daily Russian drone strikes, shipping data showed as many as 89 boats were in port at Izmail and another 27 upstream at Reni on Saturday.“The benefit of the Danube is that there are multiple places where you can load and the infrastructure is spread out,” said Andriy Vadatursky, Nibulon’s chief executive and scion of the family that owns the company. “It also means that Ukraine does not dance to Russia’s tune.”Ukrainian farmers and shippers say Danube’s capacity can expand further. Even so, its high costs mean the Black Sea needs to reopen for the health of the Ukrainian economy — with or without Russian co-operation.“The Black Sea corridor isn’t just about grain corridor. It needs to be an everything-export corridor. All of Ukraine’s economy routes through the Black Sea,” said Andrey Stavnitser, co-owner and chief executive of TIS, a terminal operator at the Black Sea port of Pivdenny.A scheme that Kyiv is finalising with global insurers may help that happen. The aim is to provide insurance for up to 30 ships travelling into Ukraine via its corridor every month, with losses of up to $30mn covered by state funds in effect held in an escrow account.“What is eventually going to happen is probably that the Russians will continue to attack our port infrastructure and we will counter-attack with marine drones,” Stavnitser said. “It’s going to be a full-blown pirate operation by both sides.”

Video: Ukraine tech sector goes to war | FT Film More

TOKYO (Reuters) -Japan’s annual wholesale inflation slowed in August for the eighth straight month, data showed on Wednesday, offering some relief for households and retailers hit by past sharp rises in raw material imports.The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 3.2% in August from a year earlier, matching a median market forecast.It slowed from a revised 3.4% rise in July, and is now off a peak 10.6% year-on-year surge hit in December last year, data by the Bank of Japan (BOJ) showed.”While crude oil prices remain high and yen falls continue, wholesale inflation is slowing … and could post a year-on-year decline in the fourth quarter,” said Toru Suehiro, an economist at Daiwa Securities.”The price declines seen for some goods can’t be ignored” as it could affect households’ perception of future price moves, he added.Rising wholesale prices, driven by last year’s surge in global commodity costs and the weak yen, have pushed up Japan’s broader consumer inflation by prodding many firms to charge households more for their goods.While consumer inflation has remained above the BOJ’s 2% target for more than a year, the central bank has stressed the need to keep ultra-loose monetary policy until such supply-driven rise in prices is replaced by an increase backed by domestic demand. More

The New York firm, which goes by Yieldstreet and offers alternative assets to investors, failed to disclose a heightened risk related to the collateral behind one of its securities offerings, the SEC said in a statement. In September 2019, Yieldstreet offered securities to finance a loan it made to companies to transport and deconstruct a retired ship. It did not tell investors of a heightened risk that it would not be able to seize the ship if the borrowers stole the funds and defaulted, as they ultimately did. “YieldStreet aims to unlock the complex alternative investments market for retail investors but failed to disclose glaring red flags it had about the security of the collateral backing this offering,” SEC official Osman Nawaz said in the statement.A representative for Yieldstreet, which did not admit or deny the SEC’s findings, said the firm brought the marine borrower fraud to the attention of authorities three years ago.”We continue to aggressively pursue recovery for our investors throughout ongoing litigation and collection efforts both here and abroad,” the spokesperson said in a statement. More