Aurelia Butler

Markets in Argentina reeled on Monday after the shock victory of Javier Milei, a radical libertarian economist and outsider candidate, in the country’s primary poll ahead of its presidential election later this year. Bonds and equities both swung wildly after Milei won more than 30 per cent of the vote on pledges to dollarise the country’s economy and dramatically cut spending.The central bank responded quickly by devaluing its official exchange rate by as much as 18 per cent to 350 pesos per dollar to stabilise markets. It also lifted interest rates by 21 percentage points to 118 per cent as it runs out of means to defend its currency. Uncertainty created by the shock result, which leaves October’s vote wide open, deepens anxiety among investors around Argentina’s fragile economy. Inflation is running above 115 per cent, foreign exchange reserves are at dangerously low levels and the peso has lost more than half of its value against the dollar over the past 12 months. Four in 10 Argentines are living in poverty.“The primary election result was a political earthquake,” said Paul Greer emerging markets debt and FX portfolio manager at Fidelity International. “We’ve had a huge injection of uncertainty and the market has repriced to reflect that.”Prices for Argentina’s most liquid dollar-denominated bonds fell as much as 15 per cent on market opening and ended about 10 per cent lower, trading at between roughly 28 and 34 cents on the dollar.The benchmark S&P Merval stock index registered initial losses of 3 per cent but closed 3.3 per cent higher. The New York-traded Global X MSCI Argentina ETF — a means for international investors to express views on the country, ended down 2.9 per cent but off a 7 per cent fall soon after the open.Milei, who came to prominence as a television personality railing against Argentina’s political class, has no executive experience and has spent just two years as a congressional representative. “There’s concern about the policy themselves, whether he would be able to execute them and also about governability — to what extent he would be able to control protests if he were able to implement his radical measures,” said Peter West, economic adviser at EM-Funding. The blue-chip swap rate, a free-floating exchange rate for international investors who buy stocks and bonds, weakened by 40 pesos to 637 pesos to the dollar on Monday.Thierry Larose, emerging markets bond fund manager at Vontobel, said the devaluation of the exchange rate would boost Argentina’s dollar and local bonds as the “massive gap” between the official and unofficial exchange rates have caused a “permanent drain” on foreign exchange reserves.The board of the IMF is due to meet on August 23 to approve a $7.5bn disbursement to Argentina, provisionally agreed in late July after months of negotiations over the country’s failure to meet crucial program targets. Argentina is the largest debtor to the IMF, after securing a $44bn loan programme last year to refinance a 2018 loan. “We welcome the authorities’ recent policy actions and commitment going forward to safeguard stability, rebuild reserves and enhance fiscal order,” the IMF said in a statement.Fernando Marrul, founder of Buenos Aires-based economic consultancy FMyA, said the devaluation of the peso — which the IMF has long called for — is an attempt by the populist government to reassure the fund in a moment of extreme uncertainty. “The government can’t afford for that disbursement not to take place,” he said. But he added that the devaluation will have a strong impact on inflation in the run-up to the election. “It will go into the double digits for sure, likely around 15 per cent. That will hit voters’ wallets hard.”

However, investors said that the results had encouraging signs for markets. The two leading parties — with a combined 58 per cent of the vote — on Sunday also both supported slashing fiscal spending and further devaluing the currency. Investors said Milei’s victory highlights the likelihood of fragmentation in parliament, after elections in October and a likely run off in November. “I think the markets are subject to a two-way pull: up by the fact that the reform oriented blocs together took two-fifths of the vote and down by the uncertainty created by the radical policy platform of Milei which may make it unworkable,” West added. More

U.S. regulators are seeking to strengthen oversight of the banking system, particularly in light of a string of collapses in March that included three of the largest in U.S. history.”To that end, the FDIC plans to issue a notice of proposed rulemaking in the near future that will be a comprehensive restatement of the rule for notice and comment,” Gruenberg said in remarks prepared for a speech at the Brookings Institution in Washington.The top three U.S. banking regulators in late July issued a joint proposal for sweeping changes to bank capital requirements as part of a 2017 international agreement, changes which the industry has vowed to fight.Banks are currently required to submit plans to regulators detailing how they would wind up their businesses should they fail. Gruenberg said on Monday the proposal would make this planning “significantly more effective.”The FDIC will call for plans that give it more options when overseeing a failed bank’s receivership, Gruenberg added, noting that the proposed “living will” requirements are separate from those for large bank holding companies under 2010 Wall Street reforms.”The proposed rule would require a bank to provide a strategy that is not dependent on an over-the-weekend sale,” Gruenberg said.Regulators handling the failures of Silicon Valley Bank and Signature Bank (OTC:SBNY) in March would have benefited from more robust information on how quickly banks could set up a “data room” for potential buyers, as well as information on continuing operations and internal communications, Gruenberg said.The proposal would also require banks to identify parts that could be sold separately, Gruenberg said, noting that could reduce their size and “expand the universe of possible acquirers.”The proposal would require additional information from banks with more than $50 billion in assets, but not full resolution plans, he said.At the end of 2022, lenders with more than $50 billion in assets made up 1% of the total number of U.S. banks but held 80% of all uninsured deposits, making them more vulnerable to runs, Gruenberg said. More

The fast-moving inferno, which started earlier this week, ravaged the historic resort town of Lahaina that was once the capital of the Hawaiian Kingdom.The impact of the fire would be second only to the Hurricane Iniki, which hit Hawaii in 1992, based on today’s property value, KCC said in a note on Friday. The firm estimates the total area burned at about 2,200 acres, while roughly 3,500 buildings within the fire perimeter.Search teams on Maui on Friday would comb through the charred ruins of Lahaina looking for more victims of the wildfire, with officials expecting the death toll of 55 to rise.Insurance broker Aon (NYSE:AON) said the extreme devastation to homes, businesses and other structures in Lahaina would likely drive economic and insured losses into the hundreds of millions of dollars.Since the situation is ongoing, losses may continue to rise and significant disruption to tourism in Maui, a major part of the local economy, would be realized for the foreseeable future, Aon in its weekly catastrophe report said. More

UBS has agreed to pay $1.4bn to resolve a US regulatory probe into the alleged mis-selling of residential mortgage bonds in the run-up to the 2008 financial crisis, wrapping up the last remaining case brought by the US government against Wall Street groups over the issue. The US Department of Justice alleged that UBS defrauded investors when it sold 40 residential mortgage-backed securities deals between 2006 and 2007, which ultimately sustained substantial losses during the housing crash, according to a statement on Monday.“UBS knew that significant numbers of the loans backing the RMBS did not comply with loan underwriting guidelines that were designed to assess borrowers’ ability to repay,” the DoJ said. It added the bank also “knew that the property values associated with a significant number of the securitised loans were unsupported, and that significant numbers of the loans had not been originated in accordance with consumer protection laws”.UBS confirmed the settlement and said it had already fully provisioned for the costs. In the first quarter, it added $665mn to its reserves to cover the cost of the resolution. The UBS settlement closes the last outstanding case brought by a special task force of the DoJ formed in 2012 to pursue Wall Street banks for their role in the 2008 financial crisis. The task force was formed after years of complaints from critics that regulators had not done enough to hold Wall Street to account for a wave of foreclosures and other economic damage caused by faulty home loans, as well as complicated securities that were underwritten by big banks in the mid-2000s. In the end, the RMBS Working Group reached settlements with a total of 19 banks and rating agencies, bringing in more than $36bn for their misconduct, including a $7.2bn settlement with Deutsche Bank and a $17bn fine for Bank of America. Despite the big monetary settlements, few bankers were ever individually charged with wrongdoing.

In 2018, UBS vowed to fight the lawsuit the DoJ brought over RMBS, arguing that it was not a significant originator of RMBS. The lender also maintained that it had suffered its own losses on mortgage-related investments.Barclays similarly refused to settle when the DoJ initially demanded more than $5bn. That gamble seemed to pay off when Barclays agreed a $2bn settlement a few months later.UBS has been attempting to swiftly settle any outstanding litigation and regulatory issues as it focuses on absorbing its domestic rival, Credit Suisse, which it took over in a Swiss government-brokered rescue in March this year. More

The IMF added that its board is set to meet on Aug. 23 to approve Argentina’s 5th and 6th reviews to “unlock the agreed disbursements.”The Fund’s comments came after the Argentine government devalued its currency by nearly 18%, while the benchmark interest rate will be hiked 21 percentage points to 118%, as pressure built on Argentina’s financial markets following a primary election. More

Today’s top storiesItaly’s billionaire Agnelli family has acquired a 15 per cent stake in Dutch conglomerate Philips in a €2.6bn transaction as it backs the group’s effort to shift away from consumer electronics to healthcare following a costly product recall.A severe drought in Panama is leading to long delays and tough restrictions along one of the world’s most important trade routes, highlighting the challenge the warming climate poses to global commerce.Shares in Chinese developer Country Garden slumped to a record low and dragged down other property-linked stocks in signs that the sector’s two-year crisis could be escalating. There are also concerns over the country’s wealth management industry and its exposure to the market.For up-to-the-minute news updates, visit our live blogGood evening.Pressure on the Russian economy is mounting as western sanctions over the invasion of Ukraine take their toll, leaving policymakers squabbling over how to deal with the fallout.The country’s central bank will hold an emergency interest rate-setting meeting tomorrow morning following its statement today that it might raise the key rate to prop up the rouble after it fell below 100 to the dollar. Export revenues have fallen and reliance on imports is increasing while military spending is rising and inflation is speeding up. The move prompted rare public disagreements among officials as the Kremlin tried to soothe growing anxiety about the currency, which has lost about 25 per cent of its value this year, while continuing to praise the debt-fuelled growth that had weakened the rouble.“Very little currency comes into the country, so a currency famine has formed,” said Vladimir Milov, a former deputy energy minister who now opposes the Kremlin from exile. “Imports have now recovered to pre-war levels, only now we import all consumer goods and manufactured goods from China, Turkey, Central Asia and the Emirates, and not from the west. You still have to pay for it in some currency but no one wants roubles.”New sanctions continue to be applied, whether on business figures linked to the government or its access to foreign military supplies. Russian companies are even being forced to turn to Hong Kong for dispute arbitration services as they are locked out of western courts.There are, however, a few rays of hope for Moscow.Although oil and gas revenues fell more than 40 per cent in the first seven months of the year thanks to embargoes and a G7-imposed price cap, they began to rebound in July. Russia has also been able to exploit loopholes around the cap. A new FT analysis reveals, for example, how inflated shipping costs have enabled Russian companies to earn far more from crude sales to India than previously recognised. In addition, Moscow has begun to retarget Ukraine’s ability to export wheat, barley, corn and other grains — including attacks today on the Black Sea port of Odesa — to open up opportunities for its own exports. Already the world’s largest wheat exporter, Russia had a record grain harvest in 2022-23 and this year’s crop is expected to be another bumper one.Need to know: UK and Europe economyCornwall in south-west England is hoping to revive its dormant mining industry with lithium, a material used in the production of electric vehicle batteries, at the forefront.UK ministers are planning 12 innovation-focused “investment zones” to boost economic growth. Each zone will be focused around existing research institutions and industrial clusters, with up to £80mn of support to attract further jobs and private investment. Italy’s prime minister Giorgia Meloni said she took “full responsibility” for last week’s decision to impose a surprise windfall tax on banks, which crippled her government’s credibility with investors. Here’s a look at how the idea of windfall taxes is spreading from banks and energy to other sectors across Europe.Need to know: Global economyFinancial Times analysis shows Republican-controlled areas of the US are the biggest beneficiaries of President Joe Biden’s push for clean energy tech, despite their efforts to block his climate legislation.Argentina devalued the peso by 18 per cent to 350 per US dollar and will raise its key interest rate by 21 percentage points to 118 per cent after radical rightwinger Javier Milei pulled off a surprise victory in a primary poll for the upcoming Argentine presidential election. China is making a push to cut reliance on food imports by increasing corn and soyabean output and putting more land under cultivation. Increased urbanisation and a manufacturing boom have fuelled a greater reliance on food imports in recent decades. A new Big Read highlights Zambia’s attempts to capitalise on the looming shortfall of copper, an important element in the global energy transition.The African Development Bank admitted that its $55mn integrity fund launched with great fanfare seven years ago to help combat corruption had still not been put into operation.Need to know: businessAirlines in the US and Europe are rushing to find spare parts and engines and avoid flight cancellations after a product recall from engine-maker Pratt & Whitney.Multinationals are turning to generative artificial intelligence to help navigate supply chains hit by geopolitical tensions and cut links to environmental and human rights abuses. Unilever, Siemens and Maersk are among those using AI to negotiate contracts and find new suppliers.The number of daily users of Twitter rival Threads on Android devices has fallen almost 80 per cent in just over three weeks, highlighting the scale of the challenge facing app owner Meta.

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Dumb phones, which can just call and text, are experiencing a bit of a comeback as concerns grow about smartphone-related problems such as sleep disruption and excessive time spent online. Demand for pawnbroking has hit “record levels” in Britain because of high inflation and a shortage of alternatives, according to the head of H&T Group, the country’s biggest operator. The World of WorkUK employers are resorting to bidding wars to retain staff, according to a new survey that seems to contradict recent data that suggests the labour market is cooling. In the past year, 40 per cent of employers have made a counter-offer to try to keep an employee who has received a job offer elsewhere.The growing number of workers concerned about environmental issues presents bosses with a host of new challenges: from supporting employees with climate anxiety, to how to hire and retain eco-conscious staff. Management editor Anjli Raval says bosses need to take time to learn from defeats. An admission of failure is the first step to analysing, unemotionally, how something went wrong and how to improve, she argues. Amazon has been tracking the attendance of US-based workers and targeted those who appeared to fail to comply with its hybrid working policy. Employees are expected to be in the office at least three days a week. Some good newsScientists have discovered a whole new ecosystem of animals underneath the ocean’s hot springs, providing fresh evidence that life can exist in incredible places. More

The writer is executive director of American CompassLast week, officials briefing reporters on President Joe Biden’s long-awaited executive order restricting American investment in China used the words “narrow” and “narrowly” no fewer than 10 times in half an hour. They emphasised that new rules would reach just three “national security sensitive technologies”: advanced semiconductors, quantum computing and artificial intelligence.The rules will apply only to the “subset” of technologies in those three categories that are “specifically designed for military or intelligence end-uses” and only to particular categories of private investment such as venture capital, private equity and joint ventures. The approach reflects “our longstanding commitment to open investment,” the officials insisted. The action is “not an economic one” and the goal is “not decoupling our economies”. To illustrate the point, “investments in entities engaged in the development of less-advanced semiconductors or AI systems designed for certain dual-use capabilities that pose national security risks” can, subject to certain conditions, proceed.More than anything, what this rhetoric reflects is the administration’s “consultations with over 175 industry stakeholders”. Leaders in the semiconductor industry, especially, have been vocal opponents of any efforts to curtail their sales and investment abroad, insisting that access to the Chinese market is vital to their own and, by implication, US economic success.“Overly broad, ambiguous, and at times unilateral restrictions risk diminishing the US semiconductor industry’s competitiveness,” the Semiconductor Industry Association has warned.That message clearly resonates in the Treasury department, which has reportedly led the push against interference with free trade and capital flows. Intruding even to protect national security, Treasury secretary Janet Yellen has suggested, “harms our own narrow economic interests”. Testifying before Congress in June, she asserted, “we gain and China gains from trade and investment that is as open as possible”. The most popular arguments for this view, offered by Intel chief executive Pat Gelsinger and Nvidia boss Jensen Huang, hold that access to the Chinese market is crucial to investment in the US, both because profits realised in China can be reinvested at home, and because meeting Chinese demand provides the impetus for building US capacity.“If I have 25 per cent to 30 per cent less market, I need to build less factories,” said Gelsinger at the Aspen Security Forum last month. In May, Huang told the Financial Times: “If the American tech industry requires one-third less capacity [due to the loss of the Chinese market], no one is going to need American fabs, we will be swimming in fabs.” But the goal of redeveloping advanced semiconductor fabrication in the US is not to export the chips to China; it is to supply an American market that is today wholly dependent on imports.Indeed, the Intel experience refutes more broadly the idea that reaping profits in China is somehow vital to investment and competitiveness in the US. The company’s world-beating years pushing the frontier of microelectronics came at a time when it had lower sales and lower profits, and a much greater need to innovate.The second argument that industry will reach for is a self-defeating one. Pulling out of China is what President Xi Jinping wants the US to do, because he aspires to indigenous Chinese leadership in these fields. “If [China] can’t buy from . . . the United States, they’ll just build it themselves,” says Huang.If China’s goal is to become self-sufficient in these technologies and supplant American producers, and its policy is to aggressively transfer technology from American producers so long as they remain in the market, the argument in favour of remaining is what, exactly? As the former General Electric chief executive Jeffrey Immelt famously remarked of the Chinese, before his company disavowed it: “I am not sure that in the end they want any of us to win or any of us to be successful.” The real argument is next quarter’s profit.One can perhaps forgive the lobbyists their poor arguments; they are only doing their job. What’s unforgivable is those in the Biden administration failing to do theirs, and to distinguish the private from the public interest. More

The writer is a former central banker and a professor of finance at the University of Chicago’s Booth School of BusinessThere is nowhere to hide. Whether you are being baked in Athens, Rome, Phoenix, or Tehran, or drenched in Beijing or Delhi, climate volatility is not far from you. With global talks on climate change going nowhere, countries and regions are feeling the pressure to do something on their own, rather than waiting for global agreement. Action is usually good, but some of it has serious adverse spillovers on other countries, especially poor ones. Uncoordinated action can be profoundly unfair.Europe is probably most advanced among regions in taking action against climate change, with its cap and trade scheme for emissions (EU ETS). Fearing that EU companies that pay the implicit carbon tax will be at a disadvantage to foreign firms, and even choose to shift production abroad, the EU has settled on a carbon border adjustment mechanism (CBAM), which will levy a border tariff on imported goods, proportional to the untaxed emissions on the imports. Both the direct emissions from a company’s production and the emissions that were generated in the power it uses will be tariffed.The US has its own approach. Rather than taxing emissions, it will subsidise clean energy use and generation with nearly $400bn of tax incentives, grants, and loan guarantees under the Inflation Reduction Act. Since some of these schemes are open-ended, the actual funding may be substantially more. To ensure its producers do not decamp to the US, the EU is trying to match some of these subsidies with its €2tn post-Covid recovery fund.Finally, for many developing countries damaged by Covid and food inflation, budgets are tight. For now, there is little prospect of climate action funding coming from industrial countries despite past promises. Given that developing countries in the global south will bear much of the effects of climate change, and given that environmental disruptions will probably get much worse before they get better, developing countries are better off spending their own funds on adaptation — moving people to higher ground, shifting farmers to hardier crops, or reviving traditional water storage techniques — than on reducing emissions. Each of these actions makes sense taken alone; together they have unintended effects. So, CBAM passes muster under World Trade Organization rules (which prohibit giving domestic companies an unfair advantage) because the EU will levy a similar carbon tax on its own producers. But if the EU subsidises clean energy production to match the US, any EU manufacturer will have lower effective emissions since more of the power they use will be clean. For an Egyptian producer, whose government is strapped for funds and has modest possibilities for increasing green power, the playing field will become unfairly tilted. If that Egyptian producer cannot compete, exports fall, lay-offs increase, tax collections fall and the country becomes even less able to afford climate action of any kind. And even if Egypt does improve its fiscal situation, would it not make more sense for the government to spend more on helping its farmers adapt at this juncture than spending scarce budgetary resources on replacing existing energy sources with green energy?In sum, the CBAM alone is a sensible policy, though the global playing field would really be level only if other countries had an equal opportunity cost of funding green investment. For developing countries, though, not only are the direct costs of financing much higher, adaptation is becoming much more critical, and so the opportunity cost of devoting scarce funds to green energy is increasing. And everything is made yet more unequal for developing countries by the subsidies the US is pouring into green energy, which Europe is striving to match. Ideally, a global agreement would take all of these concerns into account. For instance, I have proposed a scheme whereby countries emitting carbon per capita above the global average should pay into a fund, and those below the global average should receive. High emitters (largely rich countries) would pay, giving poor countries transfers they could then leverage so that they have enough resources to fund mitigation and adaptation.Are we letting the perfect be the enemy of the good in pushing for a just global agreement? Not if the unintended consequences of unilateral action tend to pile up in countries and among people least able to bear them. The industrialised world can do better. More