Aurelia Butler

Brazilian president Luiz Inácio Lula da Silva has unveiled a major public works programme with federal funds of R$371bn ($76bn) over four years, as the leftwinger looks to spur growth with extra state spending.The leader of Latin America’s largest economy on Friday presented long-awaited plans to pour money into construction, infrastructure projects and the ecological transition. Together with additional investments from the private sector and state-controlled enterprises, the Lula administration forecast the total value will reach R$1.4 trillion ($287bn) by the end of his four-year mandate in 2026. Target areas include energy, transport, water and sewerage, healthcare, education and internet access.“Today my government begins. So far what we have done is to repair what has gone wrong,” said Lula, who assumed office in January after defeating rightwing incumbent Jair Bolsonaro at the ballot box. “The state will once again be an entrepreneurial state”. Officially known as the Growth Acceleration Programme, the blueprint reprises a trademark policy from the last time Lula’s Workers’ party was in power. It draws inspiration from the massive stimulus package by US president Joe Biden promoting renewable power and re-industrialisation. Lula, a veteran politician who ruled between 2003 and 2010, pledged in last year’s election campaign to expand the role of the public sector to reduce poverty. However, critics pointed out that two previous large-scale investment initiatives launched under Lula’s party were plagued by waste and corruption. “The execution of projects was often flawed. Many fell by the wayside, and were characterised by considerable delays and cost overruns,” said Claudio Frischtak, a former World Bank economist and founder of consultancy Inter. B. Public expenditure further increased under Lula’s chosen successor, Dilma Rousseff, leading to a fiscal crisis that was blamed for pushing the country into a deep recession. The government said the new scheme would have strong involvement from private sector actors — which it predicts will provide R$612bn — with infrastructure concessions and public-private partnerships. State-owned enterprises including oil producer Petrobras are expected to invest R$343bn. To release the taxpayer funding, the administration in Brasília must first pass a bill that loosens a constitutional limit on growth in spending, as well as a new budget law.“Given the nature of the projects has the potential to make everyone happy by generating jobs and giving legislators concrete things to deliver in their constituencies, I don’t see Congress opposing the overall initiative,” said Mário Braga at consultancy Control Risks.Lula is expected soon to carry out cabinet reshuffle which should win him stronger parliamentary support through the inclusion of two-centre right parties in the executive. Additional reporting by Beatriz Langella More

Bond investors have been on the rack in recent days and weeks. So much so that you have to ask why economists and professional investors continue to refer to government bonds as safe and risk-free investments, relative to supposedly riskier equities.The charge against these government IOUs is pretty damning. Take the US treasury market, regarded as the safest bolt hole on the planet. But the return on US treasuries in 2022 was minus 17.8 per cent compared with minus 18.0 per cent on stocks in the S&P 500 index. Fractionally safer, then, to the point of meaninglessness. Clearly bonds offered no diversification relative to equities. Yes, bonds offer a contractually fixed income and, in the corporate market, rank before equities in a winding up. Yet the reality is that bonds and equities are both risky, with nuanced differences.In 2023 so far, US equities have wiped the floor relative to bonds. This is partly illusory because the bounce in both the S&P 500 and the Nasdaq indices has been driven almost exclusively by the seven biggest technology companies. Quite a turnaround. At the start of the year, the conventional wisdom was that rising interest rates were shrinking the present value of tech companies’ future income streams, since higher interest income today reduces the attraction of dollar earnings in the time ahead. In effect, this seemingly ineluctable mathematical logic has been overridden by the power of the artificial intelligence story. The enthusiasm for AI reflects a level of market euphoria uncomfortably reminiscent of the dotcom bubble, when tech stocks showed stellar performance in the face of tightening monetary policy. In the meantime, fears of recession are in retreat. But to return to bonds — the great bull market that started in the 1980s is clearly over. And recent nervousness has many causes ranging from the Fitch rating agency downgrade of US treasuries, to worries about endemic budget deficits and the withdrawal of Japanese capital from the US (a response to the Bank of Japan’s loosening of its yield curve control policy).The more fundamental point, made by William White, former head of the monetary and economic department of the Bank for International Settlements, is that the world is moving from an age of plenty to an age of scarcity. Numerous trends since the end of the cold war — the expansion of global supply chains, growth in the global workforce, trade growth outstripping increases in gross domestic product, less spending on guns and butter — are now going into reverse.At the same time, energy supply is constrained by concerns about climate change and security, while record levels of both private and public debt restrict policy options as well as being a drag on growth. This paves the way for a more inflationary world, in which inflation and interest rates are likely to be more volatile. White foresees continuing inflationary pressures and higher real interest rates for much longer than most people now expect. If he is right, the bond market’s ability to inflict financial instability bears thinking about.In the US, there has been a phoney peace since Silicon Valley Bank and other regional banks foundered in March because of the collapse in the market value of their securities holdings. Yet the US Federal Deposit Insurance Corporation estimates that unrealised losses on American banks’ securities amounted to $515.5bn at the end of March, equivalent to 23 per cent of the banks’ capital. This is quite a deadweight at the start of a looming commercial real estate disaster that will soon inflict further damage on bank balance sheets. That problem is replicated across much of the developed world.It is central banks, however, that are suffering the biggest balance sheet damage due to rising bond yields, as a result of their asset purchasing programmes. On March 31st, for example, the mark-to-market losses on the Federal Reserve’s securities holdings stood at $911bn. That is nearly 22 times its mere $42bn capital. How, you might ask, can the dollar remain the world’s pre-eminent reserve currency if it is backed by a hopelessly insolvent central bank? The immediate answer is that central banks’ most valuable asset is not on the balance sheet: seigniorage, or the profit on manufacturing money. In other words, central banks can print their way out of trouble. But only up to a point. As the Germans learned during the Weimar Republic, markets may conclude that the central bank emperor has no clothes.The US is not there yet. And there are no good alternatives to the dollar and US treasuries. For investors, the message pro tem is that bonds, while unsafe and very risky, offer a substantial yield uptick relative to central banks’ inflation targets of around 2 per cent. The financial world is nothing if not [email protected] More

The topsy-turvy economic environment of the coronavirus pandemic sidelined those differences, turning Fed officials at first universally dovish as they sought to provide massive accommodation to a cratering economy, and then, when inflation surged, into hawks who uniformly backed aggressive rate hikes. Now, divisions are more evident, and the choices – to raise rates again, skip for now but stay poised for more later, or take an extended pause – more varied. All 12 regional Fed presidents discuss and debate monetary policy at Federal Open Market Committee meetings, held eight times a year, but only five cast votes at any given meeting, including the New York Fed president and four others who vote for one year at a time on a rotating schedule. The following graphic offers a stab at how officials stack up on their outlook for Fed policy and how to balance their goals of stable prices and full employment. The designations are based on comments and published remarks; for more on the thinking that shaped these hawk-dove designations, click on the photos in the graphic. Dove Dovish Centrist Hawkish Hawk Austan John Jerome Chistopher Goolsbee, Williams, Powell, Fed Waller, Chicago Fed New York Chair, Governor, President, Fed permanent permanent 2023 voter: President, voter: “It is voter: “If “Hopefully permanent certainly inflation we’re going to voter: “To possible that does not continue to me, the we would continue to see debate is raise the show improvement on really (federal) progress the inflation about: Do funds rate and there front.” Aug 1, we need to again at the are no 2023 do another September suggestions rate meeting if of a increase? the data significant Or not?” warranted, slowdown in Aug 2, and I would economic 2023 also say it’s activity, possible that then a we would second choose to 25-basis-po hold steady int hike at that should come meeting.” sooner July 26, 2023 rather than later” after the July rate hike. July 13, 2023 Patrick Lisa Cook, Philip Michelle Harker, Governor, Jefferson, Bowman, Philadelphia permanent Governor and Governor, Fed President, voter: Vice Chair permanent 2023 voter: “If Designate, voter: “I “Absent any confirmed, permanent expect that alarming new I will voter: “The additional data between stay economy faces increases now and focused on multiple will likely mid-September, inflation challenges, be needed I believe we until our including to lower may be at the job is inflation, inflation point where we done.” banking-secto to the can be patient June 21, r stress, and (Federal and hold rates 2023 geopolitical Open Market steady.” Aug instability. Committee’s 8, 2023 The Federal ) goal.” Reserve must Aug. 7, remain 2023 attentive to them all.” June 21, 2023 Raphael Susan Michael Barr, Loretta Bostic, Collins, Vice Chair of Mester, Atlanta Fed Boston Fed Supervision, Cleveland President, President, permanent Fed 2024 voter: 2025 voter: “I’ll President, “I’d like if voter: “We just say for 2024 voter: at all may be at, myself, I “My view is possible to or near, think we’re that the make sure we the point close.” July funds rate don’t do too where 10, 2023 will need much, and do monetary to move up more than is policy can somewhat necessary to pause further get us to that raising from its 2% target..” interest current Aug 1, 2023 rates.” level and May 25, then hold 2023 there for a while.” July 10, 2023 Mary Daly, San Neel Francisco Fed Kashkari, President, Minneapolis 2024 voter: Fed “Whether we President, raise another 2023 voter: time, or hold “We’re making rates steady good for a longer progress, and period — we’re staying those things on it. If we are yet to be need to hike- determined.” raise rates Aug. 10, 2023. further from here, we will do so.” July 30, 2023 Lorie Logan, Dallas Fed President, 2023 voter: “The continuing outlook for above-target inflation and a stronger-than -expected labor market calls for more-restrict ive monetary policy.” July 6, 2023 Thomas Barkin, Richmond Fed President, 2024 voter: “We have time before the next meeting … to figure out whether the various forecasts of where the economy is going come true.” Aug 8, 2023 Note: Fed policymakers have been driving up borrowing costs since March 2022 to bring down high inflation, and in July they increased the target policy rate range to 5.25%-5.5%. Most policymakers as of June expected at least one more rate hike by year’s end. Longtime banker Jeff Schmid starts as Kansas City Fed president Aug. 21, and will be a voter in 2025. St. Louis Fed President James Bullard, a vocal policy hawk, left the Fed in July for a job in academia; the new chief will be a 2025 voter. (Reporting Ann Saphir, Howard Schneider, Michael S. Derby and Dan Burns; Editing by Andrea Ricci) More

Today’s top storiesThe FT revealed that Saudi Arabia is pushing the UK, Japan and Italy to allow it to become a full partner in the landmark next-generation fighter jet project that the three countries signed in December. New lending by Chinese banks fell sharply in July to levels not seen since November 2009, highlighting the country’s faltering recovery. The FT editorial board said Beijing needs to stop tinkering and take bold steps to revive growth. Local governments, meanwhile, are racking up debts. Global oil demand hit a record 103mn barrels in June and may move higher after better-than-expected economic growth in OECD countries, strong summer air travel and increased consumption in China.For up-to-the-minute news updates, visit our live blogGood evening.The UK economy performed slightly better than expected in the first half of the year and grew a little in the latest quarter, but the news looks unlikely to change the current miserly outlook for growth.Gross domestic product was 0.2 per cent higher in the second quarter compared with the previous three months and 0.4 per cent higher than a year earlier, according to today’s data, but remains below pre-pandemic levels.The latest figures were more positive than economists had expected. The Bank of England said last week that it no longer expected a recession but that the economy would remain near stagnation for the next two years. Huw Pill, its chief economist, speaking the day after the BoE had raised interest rates to a fresh 15-year high of 5.25 per cent, said its programme of policy tightening was succeeding in getting inflation down, a point echoed this morning by Jeremy Hunt, the chancellor. Food prices look to be an exception: Pill warned on Monday they would still be rising much faster at the end of the year than overall inflation. Consumer spending appeared to be more resilient than expected in the face of rate rises; the car industry helped lift manufacturing and warm weather gave a boost to the services sector. Industrial action had a smaller impact than in previous months although strikes by junior doctors are ongoing. The pound rose in response to the data as investors increased their bets that the BoE had not yet finished its cycle of rate rises. Next week’s inflation and wage growth data will help determine its next move.Some analysts think that the pick-up in growth could prove shortlived as much of the effect of higher interest rates has yet to feed through to households. James Smith, of the Resolution Foundation think-tank, said: “The big picture is that the UK economy has expanded by just 0.4 per cent since the start of 2022 — the weakest growth in 65 years outside of a full-blown recession.”Zooming out from today’s data, the UK economy’s long-term problem is that it is too London-centric, argues chief data reporter John Burn-Murdoch. London is the only one of the 10 regions in England and Wales to have grown in every quarter since the depths of the pandemic in 2020, while three others — including the South East — have dipped into regional recessions in the past 12 months.Removing the capital’s output and headcount would shave 14 per cent off British living standards, he writes. To put this into an international context, the UK would be poorer than any single state in the US. Need to know: UK and Europe economyThis week’s huge surge in European gas prices highlights how the region’s success in weaning itself off Russian energy has left it more vulnerable to volatile global markets. Australian producers of liquefied natural gas are in talks to avert a strike that threatens to disrupt LNG supplies and caused gas prices to jump almost 40 per cent on Wednesday. Russia’s targeting of Ukrainian grain supplies and Ukraine’s drone strikes on Russian vessels have increased concerns about world food security. The UN said: “A single mis-step by either party will have disastrous consequences simply because there is no immediate substitute for all the grain exported by Russia and Ukraine from the Black Sea.”Ukraine’s government bonds, however, have surged in price over the past two months as investors grow more optimistic about how much of their money they will get back when the country is eventually rebuilt.French statistical authorities put paid to the theory that a 331-metre-long cruise ship was responsible for better than expected third-quarter GDP data. Need to know: global economyUS inflation, as measured by the consumer price index, edged up from 3 per cent to 3.2 per cent in July, the slowest pace of growth since March 2021, bolstering the case for the Federal Reserve to keep interest rates steady at its next meeting in September. The core measure, stripping out volatile items such as food and energy, hit an annual 4.7 per cent, the lowest level since October 2021. However, US producer prices rose more than expected.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Fernando Villavicencio, a presidential candidate in Ecuador, was shot dead at a campaign event. The politician and former journalist had spoken out against organised crime and corruption. Six Colombians are being held in connection with the assassination.India passed a controversial and long-delayed data protection bill to regulate the internet and sharing of online data. Civil liberties groups say it gives the government too many carve-outs, allowing it to access users’ information.Need to know: businessThe White House unveiled a ban on US investment in Chinese tech linked to military use — focusing on quantum computing, advanced chips and artificial intelligence. The EU said it would issue its own proposals by the end of the year, while the UK is considering whether to follow suit. Ahead of the US announcement, Chinese internet giants Baidu, ByteDance, Tencent and Alibaba were rushing to buy high-performance Nvidia chips vital for building generative AI systems. Alibaba announced a return to strong sales growth, boosting its shares in New York, but its cloud unit could yet take a hit from the US controls.China is attempting to dominate the trading of lithium carbonate, a mineral used in the manufacturing of electric vehicle batteries, by wresting benchmark contracts for minerals away from the west.Beijing yesterday lifted pandemic-era restrictions on overseas travel, boosting tourism-related stocks in Japan and South Korea, the erstwhile favourite destinations of Chinese tourists.The US Supreme Court put on hold Purdue Pharma’s $6bn bankruptcy settlement that would shield members of the Sackler family, the company’s owners, from future lawsuits linked to the opioid crisis. Tapestry, owner of fashion brands Coach, Kate Spade and Stuart Weitzman, agreed to buy Capri Holdings, home to luxury labels Versace, Jimmy Choo and Michael Kors, for $8.5bn. The combined revenue of the six brands is more than $12bn.Driverless taxis have been approved in San Francisco, the first US city where they are free to roam the roads and carry paying passengers without restrictions.Science round-upJuly was officially the hottest month ever recorded. The European Earth observation agency said the average global temperature was about 1.5C warmer than that of the pre-industrial period of 1850 to 1900 before human-induced climate change began to take effect. A third of England’s healthcare facilities will be at risk from heatwaves by 2050.An FT Big Read looks at the sudden warming of the oceans where missing ice and bleached coral are just some of the visible signs of climate change concerning researchers.A UK-commissioned report showed Antarctica is facing a catastrophic cascade of extreme environmental events as global warming increases, which will affect climate across the world.New research suggests early humans were wiped out in Europe by “glacial cooling” more than a million years ago, challenging the idea that people have continuously lived in the region since first arriving.Hopes that Cambridge might become the “science capital of Europe” have taken a knock as locals object to building plans and the lack of water and transport infrastructure. Staying out of the EU’s Horizon research programme would also do great damage, says the FT editorial board.On a more positive note, top scientists said the UK would be better prepared for the next pandemic with a new vaccines centre that aims to develop a jab for any new potential killer pathogen within 100 days.AstraZeneca signed a deal with Chinese pharma company CanSino Biologics to develop messenger RNA vaccines for infectious diseases, building on the success of the technology in finding a jab for Covid-19.The US is investing $1.2bn in projects aiming to strip carbon dioxide out of the atmosphere with hopes that the technology could play a big role in achieving its net zero goals.The biggest news of the week also came from the US, where scientists achieved net energy gain in a fusion reaction for the second time, an accomplishment described by US energy secretary Jennifer Granholm as “one of the most impressive science feats of the 21st century”. Here’s a reminder of how it works.Something for the weekendTry your hand at the range of FT Weekend and daily cryptic crosswords.Some good newsPlastic waste recycling is gaining momentum. The latest development comes from US researchers who have found a way of turning containers into soap. More

WASHINGTON (Reuters) – U.S. President Joe Biden is tapping C. Kirabo Jackson, a labor economist whose research advocates robust public spending on schools, to fill out his three-member Council of Economic Advisers (CEA), according to a White House official.The selection suggests public education will be a key area of focus for Biden’s brain-trust ahead of a 2024 re-election bid expected to turn on the strength of the economy. The position does not require Senate confirmation.Jackson, who will take a leave from Northwestern (NASDAQ:NWE) University, where he professor focused on economics, education and public policy, is best known for research on what draws good teachers to certain schools as well as other data showing that raising school spending increased students’ future wages.The U.S. unemployment rate is at 3.5% and the economy grew at a 2.4% rate last quarter, while consumer prices are rising at a 3.2% annual clip.While the Biden administration sees those numbers as a positive sign of a move to steadier momentum with slower growth and inflation, voters are largely dissatisfied with Biden’s handling of the economy, creating a challenge for his economic policymakers.Biden has argued that more U.S. government investment in early childhood education programs like pre-school for three- and four-year-olds would lift wages and decrease poverty, views that agree with some of Jackson’s own research.But the president’s efforts to dramatically increase such funding have consistently failed to win sufficient support in Congress.Jackson’s pick also comes as the Biden administration is thinking through how to boost lagging educational performance since the COVID-19 pandemic.Lengthy public school closures, staffing shortages and other issues during that pandemic are believed to have contributed to the sharp declines registered in U.S. children’s reading and mathematics test scores since 2020.Cecilia Rouse, the Princeton University economist who used to be Biden’s CEA chair, said Jackson’s work would be critical given the country’s biggest long-term economic challenges, including an aging workforce, declining fertility rates, a lack of childcare and learning loss. “Coming out of this pandemic, one of the big consequences that we will be addressing for some time is the learning loss,” she said. The choice of Jackson “may signal that the administration is looking for creative ways to address what can be a huge loss in human capital for this country for quite some time.” More

The Federal Reserve’s drive to shrink its swollen balance sheet is poised to hit $1tn this month, a significant milestone in the US central bank’s attempt to reverse years of easy pandemic-era monetary policy as investors warn further reductions threaten to shake financial markets.The US central bank bought trillions of dollars of government bonds and mortgage-backed securities to help stabilise the financial system during the early stages of the Covid-19 pandemic, but last spring started letting its holdings mature without replacing them.As of August 9, the Fed’s portfolio had shrunk by $0.98tn since the portfolio’s peak of $8.55tn in May last year, and analysis of weekly data suggests it is on track to pass $1tn before the end of the month. By removing one of the largest buyers from government bond markets, the Fed’s balance sheet reduction — known as quantitative tightening — adds to the supply of debt that private investors have to absorb.For the central bank, quantitative tightening can be a precarious path. It was forced to end its previous attempt in 2019 after the balance sheet unwinding contributed to a sharp spike in borrowing costs that spooked markets. So far, the latest round of tightening has proceeded smoothly, despite happening at almost twice the pace of 2018-2019 reductions. Investors say the resilience reflects the fact that the global financial system has been awash in cash since the pandemic, but the backdrop for further decreases is becoming more challenging.“The second trillion worth of balance sheet reduction is likely to have more of an impact,” said Jay Barry, co-head of US rates strategy at JPMorgan. “The first trillion occurred against the backdrop of the federal funds rate moving rapidly higher, and the second trillion matters more because it’s coming against the backdrop of a quicker increase in the pace of Treasury supply.”The Fed aims to cut another $1.5tn from its balance sheet by mid-2025, just as the US government is dramatically increasing the amount of debt it issues, and as demand from foreign investors wanes. That threatens to drive up borrowing costs for the government and for companies, and would cause losses for the many investors who have piled into bonds this year expecting yields to fall as the cycle of interest rate rises draws to a close. Manmohan Singh, a senior economist at the IMF, said a further $1tn of QT would be equivalent to lifting the federal funds rate by another 0.15 to 0.25 percentage points.“With interest rates stabilising, the effects of more QT may be easier to see,” he said. The Treasury department has ramped up bond issuance this year to fill the gap between lower tax revenue and higher government spending. Earlier this month, the agency announced that it would increase the sizes of its auctions in the coming quarter, and that there would be further increases in the quarters to come. Meghan Swiber, a rates analyst at Bank of America, estimates that some auction sizes could reach the peaks hit in 2021, at the height of Covid-19 borrowing. Meanwhile, demand from Japan, the largest foreign holder of Treasury bonds, is forecast to fall. The Bank of Japan in July eased control on its government bond market, sending Japanese bond yields to the highest level in almost a decade. Higher bond yields have led some investors to anticipate a significant repatriation of Japanese money, with notable flows out of Treasuries.QT, even in this scenario, is not expected to result in the sort of liquidity calamity seen in 2019. Unlike four years ago, there is still a lot of cash in the financial system. Although usage has come down, a special Fed facility designed specifically to suck up excess cash still has investors putting $1.8tn into it every night. Bank reserves are lower this year, but remain far above the levels at which the Fed starts to worry.But some analysts think yields in the Treasury market could go up significantly, particularly on longer-dated bonds. Higher yields reflect lower prices.“The Fed’s unwind, even though it’s passive, should lead to a steeper yield curve,” Barry said.“Even though we’re done with rate hikes, [QT] could influence the yield curve for the rest of this year and into next year as well.”Because Treasury yields underpin valuations across asset classes, a significant rise would also mean higher costs for corporate borrowers and could undermine the rally in equities this year.“All of this shuffles around the buyers and the sellers and the market,” said Scott Skyrm, a repo trader at Curvature Securities. “And, of course, when you move things around, it tends to create more volatility. I expect more volatility in September and October, as a lot more issuance comes.” More

The producer price index for final demand rose 0.3% last month, the Labor Department said on Friday. Data for June was revised lower to show the PPI unchanged instead of nudging up by the previously reported 0.1%. In the 12 months through July, the PPI increased 0.8% after gaining 0.2% in June. The pick-up in the annual rate happened because prices were lower last year. Economists polled by Reuters had forecast the PPI would climb 0.2% on the month and advance 0.7% on a year-on-year basis.The government reported on Thursday that consumer prices rose moderately in July, strengthening expectations that the Federal Reserve would likely keep interest rates unchanged next month. Since March 2022, the U.S. central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range. More