Aurelia Butler

Deposits at large U.S. banks rose by $3.3 billion to $17.339 trillion from a week earlier, on a seasonally adjusted basis.Commercial bank lending inched up by $12.6B to a seasonally adjusted $12.123 during the week, the Fed data showed.Residential real estate lending fell $2.3B, commercial real estate loans were unchanged from a the week earlier, while consumer loans were up $1.6B from the prior week.  More

WASHINGTON (Reuters) – When Fitch Ratings dropped its bombshell downgrade of the U.S. credit rating on Tuesday, Biden administration officials cried foul over the “bizarre” timing and argued that it unfairly punishes them for political chaos under President Donald Trump.Harvard’s Larry Summers and JPMorgan (NYSE:JPM)’s Jamie Dimon were among those who blasted the decision as “inept” and “ridiculous,” respectively, questioning the timing of the downgrade two months after the White House and Congress had worked together to avert a debt ceiling crisis. However, Fitch followed a well-established process as it made its assessments in previous weeks and included U.S. officials at several steps along the way, Reuters’ reporting shows. Fitch told the U.S. Treasury about its ultimate decision about 24 hours ahead of the announcement. Fitch announced in late May, at the height of the debt ceiling stalemate between President Joe Biden and Republicans in Congress, that the U.S. AAA rating was being put on credit watch-negative.At that time, Fitch warned of brinkmanship over the debt ceiling, “failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges” and a growing debt burden.Richard Francis, a senior director at Fitch, told Reuters on Wednesday when asked about the timing of the downgrade, that the agency “wanted to kind of really take a deep look” at long-standing concerns around governance and the U.S. debt profile.Despite the bipartisan debt deal in June, Fitch’s continued concern about debt ceiling brinksmanship, a broken budget process and rising debt levels were made clear last week in discussions the agency held with U.S. Treasury officials about the factors being considered in its ratings review, U.S. officials said. Fitch’s recent talks with the Treasury did not include the actual downgrade decision, Francis said, because it had not yet been made by the agency’s ratings committee.”We didn’t actually say we were about to downgrade but we did say that we would have an upcoming committee soon,” Francis told Reuters on Wednesday. On Monday, Fitch’s credit committee met, made a decision, and Treasury officials received the Fitch press release of the downgrade. That gave Treasury about 24 hours to craft a public response — a notification that one U.S. official said was consistent with past reviews.Sharing the press release ahead of time allows Fitch to ensure that “there’s nothing factually wrong in the report and to make sure there’s nothing (in it) that they told us in confidence,” Francis said.The exact moment of the downgrade announcement Tuesday afternoon, just minutes after former President Donald Trump was indicted for attempts to overturn the 2020 election, was settled weeks before. “The timing of the committee was pure coincidence,” Francis told Reuters on Friday, noting the date was set weeks ago. “The committee was held on Monday, July 31st. We always give the authorities twenty-four hours to respond and publish after markets close.” Fitch cited “erosion of governance,” including repeated debt limit standoffs with last-minute resolutions as a key factor in its decision, along with rising debt levels and lack of progress in tackling medium-term fiscal challenges such as rising Social Security and Medicare costs. The Biden administration says that is unfair.Debt ceiling votes have been “acrimonious for decades,” one U.S. official complained, referring to a long history of standoffs. “It strikes us as quite strange to take the successful resolution this time, with over $1 trillion of deficit reduction, as a negative sign by Fitch in this case.” Biden administration officials complain that Fitch “repeatedly brought up” in meetings the Jan. 6 insurrection at the U.S. Capitol as Trump sought to overturn election results as a sign of eroded governance. Putting aside the timing of the latest decision, the longer-term issues that Fitch has highlighted resonate. “Fitch isn’t telling anybody anything they don’t already know,” said Mark Sobel, a former longtime Treasury official who is now U.S. chairman of financial think-tank OMFIF. Fitch’s assessment of U.S. debt sustainability in the near term is wrong, Sobel said, because the dynamic U.S. economy is keeping it afloat. But longer term, he said, “neither political party has evinced the guts to begin making the sacrifices needed on both the spending and revenue sides — which will only increase as time marches on.” “May Alexander Hamilton rest in peace,” Sobel added, referring to the first US Treasury secretary who tackled the new country’s government debt with a new wave of taxes and other revenue-generating measures. More

The launch is set for next Tuesday, according to CEO Octavio de Lazari Junior, adding that the bank will manage the card’s credit risk, and the card will be powered by Mastercard (NYSE:MA).More details, such as the card’s loyalty rewards and credit limits, are expected next week.Amazon’s Brazil Country Manager, Daniel Mazini, said in a note that the company is always “looking for opportunities” to improve the shopping experience of customers in Brazil.The credit card offers comes at a time the country sees its interest rate starting a downward cycle and government programs to boost consumption. Brazil’s central bank voted on Wednesday to cut its benchmark interest rate by 50 basis points to 13.25%.Amazon also has a credit card offering in the U.S., where it partners with JPMorgan Chase (NYSE:JPM).Credit lines can serve as a potential growth avenues and are proving increasingly popular with non-financial services companies. More

(Reuters) -President Joe Biden is expected to issue his long-awaited executive order to screen outbound investments in sensitive technologies to China early next week, according to people familiar with the matter.    A White House spokesman declined to comment.    The goal of the order is to prevent U.S. capital and expertise from accelerating the development of technologies that would support China’s military modernization and threaten U.S. national security.    The order is expected to target U.S. private equity, venture capital and joint venture investments in China in semiconductors, quantum computing and artificial intelligence. Most investments captured by the order will require that the government be notified about them. Some transactions will be prohibited, sources have said.”It fills a gap in our current regime,” said Cordell Hull, a former U.S. Commerce Department official. “We have prohibitions on exporting the technology. We have restrictions on in-bound investment. This will help to plug that gap on funding and know-how and give the government visibility into these capital flows.”The regulations are not expected to take effect right away and the administration will solicit comment on its proposals. It has already conducted meetings with stakeholders and has been consulting with allies. The topic also came up last month during U.S Treasury Secretary Janet Yellen’s meetings with Chinese officials.    In a briefing with reporters at the end of her trip, Yellen said the potential restrictions were “highly targeted, and clearly directed, narrowly, at a few sectors where we have specific national security concerns.”She said the order would be enacted in a transparent way, through a rule-making process that would allow public input.Asked about the expected order, Liu Pengyu, a spokesman for the Chinese embassy in Washington, said the United States “habitually politicizes technology and trade issues and uses them as a tool and weapon in the name of national security.”China will follow developments and firmly safeguard its rights and interests, he said.     Laura Black, a former policy director for the Committee on Foreign Investment in the United States (CFIUS), which reviews certain transactions in the U.S., said the order was not expected to establish a “reverse CFIUS,” because it would not involve a case-by-case review where a committee would clear, mitigate or block a transaction. However, it is expected to prohibit certain investments, she said.    Two sources said briefings were expected on Monday, with the announcement Tuesday. But the timing has moved many times before and could again.     Sources have told Reuters the investments that will be restricted are expected to track export control rules for China issued by the U.S. Department of Commerce in October.      Emily Kilcrease, a former U.S. official who has worked on China investment policy, said the U.S. also has been trying to define what counts as artificial intelligence, and aiming to also control offshore investments by U.S. people and companies.     She described the order as a major step in setting up a U.S. system of oversight to screen transactions to countries of concern and said that it was expected to expand in time.      She also said the U.S. should be prepared for retaliation by China. “We should anticipate that,” she said.A separate amendment on outbound investment in a pending defense policy bill passed the U.S. Senate last week. That potential legislation requires notification of certain outbound investments, but contains no prohibitions. “I have long urged the Biden Administration to take executive action to screen investments in national security sectors made in countries of concern, like the People’s Republic of China,” Sen. Bob Casey, who co-led the amendment, said in a statement on Friday. He said the order would be bolstered by the amendment, the Outbound Investment Transparency Act. More

The writer is a financial journalist and author of ‘More: The 10,000-Year Rise of the World Economy’It is all too easy for investors to get caught up in the short-term news and focus on the latest profit warning, or utterance from the chair of the US Federal Reserve. But those who take the long view should concentrate on five factors that help to drive the growth of the global economy and investment returns — demography, energy supply, debt, inflation and geopolitics.These factors interact in complex ways that make forecasting particularly difficult. Take demography. The ageing profiles of western populations mean that overall economic growth will be even harder to achieve in the future, as Japan has already shown (although it has not done so badly in terms of gross domestic product per capita). To date, ageing populations have also been associated with low inflation and low interest rates. Baby boomers have saved money for retirement, keeping up the supply of savings while sluggish economic growth rates have discouraged business investment. All that may change, as Charles Goodhart and Manoj Pradhan argued in their book The Great Demographic Reversal. Old people will spend their accumulated savings, particularly when they need care for conditions such as dementia, while the shortage of workers will drive up the bargaining power of labour, and thus real wages. Inflation, and interest rates, will rise.The recent surge in prices and rates owes a lot more, of course, to two of the other five factors: geopolitics and energy supply. Over the past 20 years or so, geopolitics have caused the occasional market wobble but investors have learned to regard wars and occasional terrorist attacks as short-term phenomena. In the very long run, however, geopolitics are highly significant; the world economy would look a lot different today if Deng Xiaoping had not shifted China towards being an export-oriented, market-tolerating economy in the 1980s.The use of energy supply as a geopolitical weapon began in the 1970s with the Opec oil embargo and quadrupling of the crude price that created stagflation in the western economies. Russia’s invasion of Ukraine has demonstrated Europe’s dependence on Vladimir Putin’s regime for its gas supply. And as the western world tries to move away from fossil fuels, it faces another geopolitical challenge; two Chinese companies produce more than 50 per cent of electric car batteries in the world while China’s share of global solar panel production is a remarkable 80 per cent. Given the Chinese regime’s oft-stated desire to “reunite” with Taiwan, a country with a democratically elected government, there may be more geopolitical flashpoints to come.China’s development may also determine the outlook for global inflation. The cheap goods produced by China over the past 30 years may well have played a bigger role than the supposed expertise of central bankers in keeping inflation low. But China’s working age population is now in steady decline and its growth performance has wobbled in recent years. In addition, geopolitical tensions mean that globalisation, while not in retreat, has stalled; in 2022, exports were slightly lower, as a proportion of global GDP, than they were in 2008. Since globalisation is such a competitive force, its slowdown may have reduced a constraint on inflation. If the world has moved into an era when inflation is more likely to surprise on the upside, this has important implications for markets. Central banks will have to keep interest rates higher than they did during the 2010s. One key bullish argument for risky assets, such as equities, is that low interest rates reduce the discount rate that needs to be applied to future cash flows. That increases the present value of assets. By extension, therefore, higher rates should reduce valuations. Furthermore, higher yields on bonds and cash increase their short-term attractiveness, relative to equities.

An even bigger problem is that consumers, companies and governments have taken advantage of low interest rates to borrow money cheaply. During the Covid pandemic, the ratio of public and non-financial private sector debt to global GDP peaked at 257 per cent in 2020, according to the IMF. It dropped back 10 percentage points in 2021 but was still more than double its level in the early 1980s, when interest rates were at a historic high.Only a portion of that debt has to be refinanced in any given year but inevitably, when it does, some borrowers will come under strain. There has already been a mini-banking crisis in the spring of 2023 and, as Torsten Slok of Apollo Global Management points out, the default rate on both bonds and leveraged loans has started to pick up. To sum up, five big factors seem to be creating significant headwinds for global markets over the long term. Demography will mean slower growth; energy supplies may be more disrupted; the hangover of debt will be more costly if inflation and interest rates are higher; and all this will be exacerbated by geopolitical shocks. That doesn’t mean it won’t be possible to make money out of risky assets. But it is likely to be a lot more difficult doing so than it was in the 2010s. More

UK lenders have cut the cost of mortgages, offering hope for the housing market in a week when the Bank of England hiked rates to their highest level in 15 years and house prices fell the most since 2009.The BoE raised rates to 5.25 per cent on Thursday, its 14th consecutive increase, and Huw Pill, BoE chief economist, indicated on Friday that rates were likely to stay high for a prolonged period. But over the past few weeks, markets have priced in a lower peak of interest rates next year and it is these “swaps” rates that banks use to price mortgages.NatWest, Halifax and Virgin Money have all cut rates this week — by as much as 0.41 per cent in some cases. That action followed cuts by Nationwide, Barclays, TSB and HSBC last week. Santander and Coventry Building Society also announced reductions. David Hollingworth, director at London & Country Mortgages, said that Thursday’s news had been priced in to lenders’ calculations. Aneisha Beveridge, head of research at Hamptons, the estate agent, said: “If everything follows the BoE expectations from here on in, I think we’ve seen mortgage rates peak about a month ago. They might come down a tiny bit more but they won’t come done too much until we see inflation falling across the board.”Aaron Strutt, director at broker Trinity Financial, said: “We are starting to see more of the lenders reducing rates.”In spite of the individual rate cuts, the average two-year fixed mortgage rate is still at 6.85 per cent, close to the highest level in 15 years, according to data from website Moneyfacts.The pain of higher interest rates is having a very uneven impact in the housing market, according to research by Savills.Nearly three-quarters of cash buyers surveyed by the estate agency said that their purchasing budget had remained the same. But nearly 60 per cent of those seeking to take out a mortgage with a loan-to-value ratio above 50 per cent said they had cut their budget. “Cash buyers who are not exposed to concerns around rising interest rates have been able to drive ahead strongest in the current market,” said Frances McDonald, director of research at Savills. By contrast, Chris Storey, chief commercial officer at digital lender Atom Bank, warned that the 1.4mn households due to come off fixed rates this year faced a steep increase in costs.“People will perhaps have to become more accustomed, in the long term, to higher interest rates than they’ve faced in the last 15 years . . . especially if they have a payment shock coming off of a fixed-rate mortgage,” he said.“The Bank of England might have to start cutting rates late next summer,” said Beveridge. “You might see mortgage rates react a bit earlier because they’re priced off of swap rates.”The BoE’s Pill said: “Monetary tightening . . . is working. There’s no pre-determined path for interest rates, but rather we are responding as the economy and the data evolve.” Additional reporting by James Pickford More

Today’s top storiesUkraine attacked the oil export infrastructure that helps fund Moscow’s invasion for the first time, using a drone strike to damage a Russian naval vessel outside the port of Novorossiysk. The attack follows a series of Russian strikes on Ukraine’s grain export facilities.Container shipping giant Maersk warned that a contraction in global trade would be longer and deeper than feared, as companies cut their inventories in the face of recession risks in Europe and the US.UK housebuilding activity fell sharply in July, the eighth consecutive month of contraction, as higher mortgage rates hit demand, according to new survey data.For up-to-the-minute news updates, visit our live blogGood evening.Growth in US jobs was weaker than expected in July in a fresh sign that the labour market is cooling and the Federal Reserve is making headway in its fight against inflation.Today’s non-farm payrolls data showed 187,000 new jobs were added, while the number of new positions for the previous two months was revised lower. Hourly earnings growth, however, was stronger than expected at an annual 4.4 per cent. The overall market remains robust, with the unemployment rate dipping from 3.6 per cent to 3.5 per cent.As major contributors to inflation, wages and the number of job openings are closely watched by the Fed and today’s data will fuel the view that its tightening of monetary policy, including last week’s interest rate increase to the highest level in 22 years, is helping bring price pressures under control without driving the economy into a severe recession. Consumer price inflation fell more than expected in June, while the central bank’s preferred indicator — the core measure of the personal consumption expenditure index — also hit the lowest level since October 2021. “It does seem that the labour market is cooling, albeit slowly, which is just what the Fed will want to see,” said Neil Birrell of Premier Miton Investors. “Overall, this increases the chances of rates being at their peak and the Fed pulling off the trick of getting inflation under control whilst keeping the economy strong.”Across the Atlantic, new data earlier this week showed the eurozone labour market also remained in pretty good shape. Unemployment fell to an all-time low of 6.4 per cent despite weak economic growth. The European Central Bank has echoed the Fed in expressing concern that rising wages could keep price pressures high: wage growth was almost 5 per cent in the first quarter.In the UK, the Bank of England said this week that the labour market was “loosening” but remained tighter than before the pandemic. Yesterday it raised interest rates by 0.25 percentage points to a 15-year high of 5.25 per cent but said it was “too early to conclude that the economy was at or very close to a significant turning point”, a point echoed by the FT editorial board.BoE policymakers said they now saw evidence of a feedback loop developing between wages and prices, meaning that “some of the risks of greater persistence . . . had crystallised”. The labour market’s strength has been one of the key causes of core inflation remaining at elevated levels. Need to know: UK and Europe economyUK businesses are turning more optimistic about the outlook for inflation but the fear of stoking price rises has caused the government to postpone again the introduction of post-Brexit UK border checks for food.Investors have turned gloomy on Europe’s economic prospects in stark contrast with their view that the US is headed for a “soft landing”. ECB policymaker Fabio Panetta said inflation could be beaten without more rate rises.Inflation in Turkey jumped to almost 50 per cent as the weak lira and the government’s stimulus programme pushed prices higher. Need to know: Global economyThe head of a US congressional committee urged President Joe Biden to widen limits on investments in China to cover stocks and bonds in order to counter security threats.Saudi Arabia warned it could deepen cuts to oil production as it extended its voluntary supply curbs with Russia for another month.Local government officials in China are busy swotting up on the best ways to get a good score in the World Bank’s ease of doing business index. Asia business editor Leo Lewis explains what smart toilets can tell us about the state of Chinese consumer spending.India abruptly restricted the import of personal computers including laptops and tablets as it tries to boost its domestic electronics industry. Companies such as Apple will now need a licence to ship PCs from overseas.Need to know: businessThere was better news for Apple in its quarterly results. Profits at the world’s largest company by market value rose more than expected to $19.9bn, thanks to its digital services business. Sales of iPhones, iPads and Macs, however, were weak.Better than expected online sales and an improvement in cloud computing helped Amazon almost double after-tax earnings, fuelling further increases in its share price. But it is still unclear as to when Big Tech’s surge in AI investment might start to pay off. Chinese deal activity in the US has slumped to its lowest level in almost two decades as geopolitical tensions between the two countries weigh on activity. Hedge funds have lost more than $6bn this year betting against cruise companies and hotels after underestimating the strength of US consumer spending. But the rebound in travel helped Lufthansa, which posted record profits from higher ticket prices, and Rolls-Royce, which charged higher prices for servicing the engines of the world’s large airliners, such as the Airbus A350 and Boeing 787. Airbnb customers also seem happy to pay higher prices.The spat between drinks company Diageo and US rapper Sean Combs, aka Diddy, over their tequila joint venture highlights the potential problems for companies entering into high-profile tie-ups. See also: Adidas vs Kanye West. Bonds have long been considered the most boring bit of finance but have played an integral role in the development of human society, from subsistence farming to the modern era, funding everything from wars and railways to Netflix. Here’s a short history of the market that will shape the next financial crisis.Science round upCommentator Anjana Ahuja assesses the hype around the LK-99 superconductor, a pebble-sized dark rock made of lead, phosphorus, copper and oxygen. Is it too good to be true?Ahuja also asks whether the rapid development of AI bots means we need a new Turing Test. By the time machines can convince us they are human, we may well be incapable of doing much about it, she says.Glasgow university spinout Chemify has raised $43mn to “digitise chemistry”, using a computing process that runs continuously from designing new molecules with AI to making them in an automated lab. An FT Big Read examines the science of weather forecasting. Meteorologists’ predictions are becoming more accurate but some dramatic events remain difficult to pin down.A ban on new boilers is central to Germany’s efforts to achieve carbon neutrality but another law requiring municipalities to find climate-friendly energy sources for local heating may prove even more consequential: cities are digging deep to tap geothermal energy.Competition to build a commercial replacement for the International Space Station is heating up. Airbus this week announced a joint venture with US start-up Voyager on its Starlab project.Will astronauts on the new ISS be alone up there? A respected former US intelligence official told a US congressional committee last week that, in effect, aliens existed. Henry Mance looks at the evidence for extraterrestrial life.Something for the weekendTry your hand at the range of FT Weekend and daily cryptic crosswords.Some good newsNew hopes of defeating malaria have come from GSK’s accidental discovery of a bacteria in the guts of mosquitoes that can limit the growth of the microscopic parasites that cause the disease, which kills more than 600,000 a year. The Anopheles mosquito, which spreads the parasite responsible for malaria, is becoming resistant to chemical treatments, spurring a search for other preventive methods © Jim Gathany/CDC/Handout/Reuters More