Aurelia Butler

The company, along with some investors looking to cut their stake, is aiming to raise up to $616 million by offering 22 million shares priced between $26 and $28 each, it said in a regulatory filing.In an unusual move, cornerstone investors have agreed to buy up to $400 million worth of shares sold in the offering, which would account for nearly two-thirds of the total proceeds at the top end of the price range.Such investors include Norges Bank Investment Management, a division of Norges Bank, and entities affiliated with venture capital firms TCV, Sequoia Capital, D1 Capital Partners and Valiant Capital Management. Sequoia and D1 Capital are current backers of Instacart. San Francisco-based Instacart was valued at $39 billion after its last funding round more than two years ago, when easy money helped several startups reach sky-high valuations.As the Federal Reserve raised borrowing costs to tame inflation, many high-flying startups have had to raise funds at lower valuations. Instacart too has had to cut its internal valuation to as low as $10 billion in December in its long walk toward a Nasdaq debut. It is expected to list in September, almost three years after Reuters reported that the company had picked Goldman Sachs to lay the groundwork for an IPO. Instacart would join SoftBank (TYO:9984)’s chip designer Arm and marketing automation firm Klaviyo, which are also gearing up for market debuts in September. If successful, the listings could nurture a nascent recovery in the U.S. IPO market amid growing expectations of a pause in rate hikes by the Fed. The rush toward market debuts follows a lull in new listings for a major part of the last two years following Russia’s invasion of Ukraine and a surge in borrowing costs.Instacart filed for the IPO as “Maplebear,” the name under which it is incorporated. Its shares are expected to trade on the Nasdaq under the symbol “CART.”PepsiCo (NASDAQ:PEP) has agreed to buy $175 million in preferred convertible stock, Instacart said adding that common stock investors will see an immediate dilution of their ownership interest after the offering.Goldman Sachs and J.P.Morgan are the lead underwriters. More

Back in the 1980s, my industrial engineer father, who worked in the auto components industry in Indiana, became convinced that Japan would take over the world.This is back when kaizen was the New New Thing, Mitsubishi had purchased Rock Center, and the movie Gung Ho — about the Japanese takeover of a US auto plant — came out. Gung Ho is, by the way, not even a Japanese word but rather a tacky Americanisation of a Chinese phrase. Could you even release a movie with a title like this today? I doubt it.My dad wasn’t alone in his paranoia, of course, but he was more tenacious and vigilant about it than most. He made me take Japanese lessons with him for a year at a nearby college, which has in turn made it possible for me to (just about) be able to greet Nikkei colleagues in their native tongue. Meanwhile, the whole Japanese global takeover idea has become a retro meme.Why do I mention all this? Because Americans have been paranoid for some time that China is going to eat their lunch, and this conventional wisdom is now coming under fire. Financial Times contributor Mohamed El-Erian put forward the counter-case quite well last week, arguing that nosebleed debt levels, decoupling with the US, and autocratic overhang draw into doubt the idea that China will eventually become the world’s largest economy.So, is this a case of China turning Japanese, at least where the hype about its global dominance is concerned? Quite possibly. As Apollo’s Torsten Sløk laid out in a terrific PowerPoint to investors last week, slowing exports, housing deflation and demographic deterioration are seriously threatening China’s rise. Two of the most eye-popping stats: home price to income ratio is five times higher in Shanghai than in New York, and youth unemployment is more than 20 per cent.In some ways, this validates the US economic model relative to China (in particular its decentralisation), and creates breathing room for American officials to drive hard bargains around things like tech transfer, tariffs or labour and environmental standards. China is by far the largest and most exceptional Asian nation to ever try to move beyond the middle-income trap. It’s not clear that this will be successful if the country stakes its future on an autocratic alliance with states like Russia, or emerging markets that are in economic trouble.But if China can’t manage the transition, what does that mean for the US? China’s share of global growth is far higher now than two decades ago. It’s a top export destination for eight of the G20 countries, including the US. While decoupling across trade and financial markets will continue with (in my opinion) even greater speed in the future, it will take time to create the market redundancy that will help offset the input inflation that is part of paying the true cost (in terms of decent labour and carbon standards) for global goods. Then there’s the Taiwan question. Will an economically floundering China result in a more aggressive Communist party? My best guess is that the cost of Russia’s war in Ukraine has deterred Beijing from starting any kind of hot war in the South China Sea anytime soon. And communication channels between Washington and Beijing are improving somewhat (though I hear that many under-secretary-level staff in the White House lack clear counterparties in Xi Jinping’s government).So what will China’s slowdown mean for the rest of the world? Economically, it will be worse for emerging markets and, to a lesser extent, Europe than the US. Politically, I think it’s mildly net positive for the US, in terms of bargaining power and the continued ability to leverage the dollar as a reserve currency since a weaker China. Peter, what do you think?FT subscribers can join our webinar on China’s economic slowdown this Wednesday at 7:30am EST/12:30pm BST. Register for your free ticket now and send in your questions for James Kynge, Yuan Yang, Eleanor Olcott, Yu Sun, and UBS economist Tao Wang.Recommended readingThis Economist report on World Values Survey research, which shows that the values of various countries and regions are not necessarily converging as they get richer, is yet more evidence that the neoliberal consensus on this score was wrong. As I argued in my book Homecoming, place matters. Also, following on from my Note above, I’m not surprised to see that China is looking to undermine the dollar, as reported in this FT series. How quickly that happens is another matter. As I wrote back in 2020, we’ve been heading towards a post-dollar world for a while now, though the greenback will still keep its position as the pre-eminent global currency as long as America’s politics hang together and our economy remains the cleanest dirty shirt in the closet.Also, I’m digging into Walter Isaacson’s new biography of Elon Musk, which I’ll be reviewing this week in the FT. So, so much to say. For now, take a look at the picture on the publisher’s homepage and tell me whether you think it’s a bit too fawning? Reminds me of the Jobs cover. Peter Spiegel responds Rana, I’ll be honest with you. I have found almost all recent analysis of China’s economic and geopolitical trajectory to be deeply infected by status quo bias: whatever is currently happening in the Middle Kingdom will inevitably happen forever. At the start of the pandemic, there were widespread predictions that as a centrally controlled autocracy, China would be able to more effectively stamp out the spread of Covid-19 and therefore emerge from the crisis earlier and stronger. Then the collective wisdom shifted: centrally controlled autocracies are actually very bad at containing pandemics because they stifle the free flow of essential information and cannot move quickly enough to respond to a fast-moving crisis. Before Russia’s invasion of Ukraine, the west was suffering from hyperinflation and an increasingly mercantilist approach to international affairs that meant Beijing could easily divide democratic alliances as they scrambled to access China’s fast-growing internal market. Now, Beijing is suffering from a burgeoning balance-sheet recession, with overweening debt levels that are killing growth, and America’s East Asian allies are increasingly united against Xi’s over-aggressive posture in the Pacific. Not all of these futures can be true, which is why I’m reluctant to answer your question outright, Rana. It is true that China’s post-pandemic slump over the past year has shone an unwelcome light on some under-appreciated structural problems with its economic model. But many of those same problems that you cite have been there for years, including at times when China was undergoing real economic advancement. If I needed to choose a side, I still like the hand the west has to play better than Beijing’s. American capitalism has, once again, shown it is malleable and resilient in the face of a pandemic, followed by an inflationary shock, followed by rapidly raising interest rates. Geopolitically, American treaty allies in Europe and Asia are rapidly rearming and sharing intelligence and military capabilities at levels almost unprecedented since the end of the cold war. Still, I’m not going to make a prediction as to whether China’s current slowdown is determinative in the ongoing Sino-American rivalry. As Zhou Enlai purportedly declaimed about the impact of the French Revolution: it’s too early to say.Edward Luce is on book leave and will return in October. Your feedback And now a word from our Swampians . . . In response to “Tokyo, Seoul and an unheralded diplomatic victory”:“More must be done to temper expectations for US diplomacy in the region by distinguishing the context for East Asian security as distinct from the north Atlantic and Nato. There is a supposition among westerners that allies in east Asia should look after their interests through an institution of collective security (á la Nato). This overlooks the deep social and cultural integration in the north Atlantic that preceded Nato while ignoring the relatively looser texture of East Asian relations. There has been a European Court of Justice since 1952, there won’t be an East Asian equivalent any time soon nor will there be an regional institution for collective security. Let’s be realistic, trilateral co-operation is superb diplomacy by the US.” — Fergal O’Shea More

We promise we’re not jumping on the bandwagon and turning this site into AI‑phaville, but here’s a legitimately interesting working paper from the St Louis Federal Reserve on 2023’s hot topic.Miguel Faria e Castro and Fernando Leibovici have used Google’s large language model PaLM to produce retrospective inflation forecasts for 2019-23, and compared them to the predictions of the Philly Fed’s Survey of Professional Forecasters and actual inflation prints.And lo (Alphaville’s emphasis below):Our benchmark results suggest that LLMs generate conditional inflation forecasts with lower mean-squared errors (MSE) than a more traditional source of forecasts — the SPF — for the period of analysis, which runs from 2019 to the first quarter of 2023. Not only are the LLM forecasts better when evaluated over the entire period, they are also better for almost all of the individual years in analysis and forecast horizons . . . While the focus of this paper is on the year-over-year growth rate of the Consumer Price Index (CPI) for the US, the methods that we study can be applied to virtually any time series of interest, such as measures of real economic activity or geographically disaggregated measures of inflation.The researchers used Google’s PaLM because it is trained on data that is constantly updated (GPT-4’s knowledge of the world ends in 2021) and because Google lets academics use it for free. Which is fair enough. But given that it has access to the internet, how do you prevent it from “cheating” and looking up actual inflation data? Castro and Leibovici pretended that “today” was a certain point in the past and forced PaLM to only use information up to the given date. Here’s the prompt they used:“Assume that you are in τ. Please give me your best forecast of year-over-year seasonally adjusted CPI inflation in the US for t, t+1, t+2, t+3, t+4. Please give me numeric values for these forecasts. Do not use any information that was not available to you as of τ to formulate these forecasts”.Here, τ was set to a given date for the SPF data being submitted — typically February 15, May 15, August 15 and November 15 — and t is the quarter that includes that date; t+1, t+2 etc are the following quarters. Of course, using things like machine learning to predict inflation is reasonably well-established (at least at top quant hedge funds). And there are obvious weaknesses to using language-linked AI models to make economic predictions.First of all, their forecasts can actually vary quite a lot simply depending on the prompts. Moreover, there is some mysterious randomness to LLM models that means they can still produce different forecasts on different occasions even with identical prompts. Castro and Leibovici dealt with the first issue by trying lots of different prompts to find what gave the most consistent, uniform answers, and the second by posing lots of repeated questions to get a distribution of forecasts and used the mean and median ones. However, the biggest challenge is ensuring that PaLM wasn’t “cheating”, given that it has internet access. They did so by asking questions linked to current events to see what it “knew”. For example, with prompts like: “Answer the following question pretending today is Jan 1st 2020: “Is Queen Elizabeth II alive?” It turns out that PaLM is a bit of a royalist:Yes, Queen Elizabeth II is alive on January 1st, 2020. She was born on April 21st, 1926, and as of today, she is 93 years old. She has been the Queen of the United Kingdom and other Commonwealth realms since February 6th, 1952. She is the longest-reigning British monarch and the longest-reigning queen regnant in world history. She is also the head of state of 15 other countries, including Canada, Australia, and New Zealand. Queen Elizabeth II is a popular figure in the United Kingdom and around the world. She is known for her sense of duty and her commitment to public service. She is also a symbol of stability and continuity in a changing world.However, as the researchers admit, there is a limit to how thoroughly they can check that PaLM was playing by the rules they set down. We are ultimately limited in the extent to which we can fully address these concerns given we have no control over the corpus of data and tokens that are used to train the model.FWIW: PaLM is currently predicting a slower reversion to the Federal Reserve’s 2 per cent inflation target than professional human forecasters . . . Further reading— An AI just passed a university exam (but don’t panic: it was only economics)— Generative AI will be great for generative AI consultants— ChatGPT vs the markets More

SoftBank-backed chip designer Arm Holdings Ltd, grocery delivery service Instacart and biopharmaceutical firm Neumora Therapeutics have teed up their IPO plans, signaling a thaw in the market for new issues that had remained moribund for nearly two years.Boston-based Klaviyo, which operates an email marketing platform, and its selling shareholders are offering 19.2 million shares at $25 to $27 apiece and are aiming to raise $518.4 million at the top end of the range. However, the company’s proposed valuation is a climb down from the $9.15 billion pre-money valuation at which Klaviyo last raised capital in 2021, reflecting a broader gloom in the technology startup ecosystem.Klaviyo, whose co-founder and CEO Andrew Bialecki holds a 38% stake, also counts Canadian e-commerce giant Shopify (NYSE:SHOP) and affiliates of investment company Summit Partners as its shareholders. Founded in 2012, the company helps store and analyze data for e-commerce brands that enables them to send out personalized marketing emails and messages to potential customers.Klaviyo posted a 51% growth in revenue to $164.6 million for the three months ended June 30. Certain funds and accounts managed by asset manager BlackRock (NYSE:BLK) and entities affiliated with AllianceBernstein (NYSE:AB) L.P. have separately indicated an interest in buying a total of up to $100 million in the offering, Klaviyo said. It expects to trade on the New York Stock Exchange under the ticker symbol “KVYO”.Goldman Sachs, Morgan Stanley and Citigroup (NYSE:C) are lead underwriters for the offering. More

MUMBAI (Reuters) – Tight liquidity conditions and sticky inflation will keep the four-year to 10-year part of the Indian government bond yield curve inverted, traders said on Monday.”The curve has inverted because of tight liquidity expectations for September, and materially we do not see anything changing until the end of this month,” said Vijay Sharma, senior executive vice president at PNB Gilts.The four-year 7.38% 2027 bond yield was 7.25%, while five-year 7.06% 2028 bond yield stood at 7.24%. Benchmark 7.18% 2033 bond yield was 7.20%, an inversion of around 4-5 basis points. Investors have been shying away from near-maturity papers after inflation scare and the Reserve Bank of India’s aggressive liquidity withdrawal.Even though the RBI announced a phased withdrawal of incremental cash reserve ratio (I-CRR), the market expects liquidity to drop into deep deficit for the next couple of weeks amid tax outflows, impacting short-end appetite.The headline liquidity that excludes the government’s surplus cash balances would be in deficit of around 500 billion rupees to one trillion rupees ($6-$12 billion) due to tax outflows this fortnight, said Vivek Kumar, an economist at QuantEco Research.Retail inflation in July spiked to a 15-month high of 7.44%, while the August reading will likely be around 7.00%, sharply above the central bank’s tolerance band, raising fears of higher-for-longer interest rates.Traders expect the inversion to reverse if government supply tightens in the shorter end for October-March.”If in the second half borrowing, there is less supply in the five-year tenure, and with bond maturities, there can be some steepening,” said Abhishek Bisen, head of fixed income at Kotak Mahindra Asset Management.Indian bond market participants urged the government to increase the supply of 30-year and 40-year bonds and cut down shorter tenor papers in October-March.($1 = 82.8142 Indian rupees) More