Aurelia Butler

OTTAWA (Reuters) – The Bank of Canada (BoC) on Wednesday is expected to hike its key overnight rate by a quarter of a percentage point to a 22-year high of 5.00% as economic growth continues to fuel a tight labor market and sticky underlying inflation, analysts said.Last month, the Canadian central bank raised its overnight rate to 4.75% – also the highest level since 2001 – after a five-month pause, saying monetary policy was not restrictive enough. It then said further moves would depend on the picture painted by the latest economic data.While there have been some signs of cooling, economic growth has been resilient and the housing market has shown signs of picking up despite nine rate increases totaling 450 basis points since March of last year. The economy regained momentum in May, likely growing 0.4% on the month, after stalling in April.The BoC will announce its decision at 10 a.m. EDT (1400 GMT).”Inflation has been running above the Bank of Canada’s (2%) target for 27 consecutive months and there’s no end in sight,” Desjardins Group economists Royce Mendes and Tiago Figueiredo said in a note. “We expect the Bank of Canada to raise its policy rate to 5.00% and leave the door open to more hikes this fall.”Twenty of 24 economists surveyed by Reuters expect the central bank to lift rates by another quarter of a percentage point and then hold them there well into 2024. Money markets see more than a 70% chance of a rate hike on Wednesday, and are fully pricing in such a move by September. Though headline inflation slowed to 3.4% in May, less than half of last year’s 8.1% peak, the three-month annualized rates of the BoC’s core measures just barely crept lower.Canada added far more jobs than expected in June, according to data published on Friday. Doug Porter, chief economist at BMO Capital Markets, said a rate hike on Wednesday is likely but not a “foregone conclusion” because the BoC could wait until September to increase borrowing costs.”It just doesn’t seem like the economy has really suffered much from the very steep rate hikes of the past year,” Porter said. “And let’s face it, inflation is still above the Bank of Canada’s 2% target.” More

Our top scoop today is on SoftBank-owned Arm, which is in talks to bring in Nvidia as an anchor investor in its New York public listing.Nvidia is one of several existing Arm partners, including Intel, that the UK-based company is hoping will take a long-term stake at the initial public offering stage, according to several people briefed on the talks.The prospective investors are still negotiating with Arm over its valuation ahead of its listing as early as September. One person familiar with the discussions said Nvidia wanted to invest at a share price that would value Arm at $35bn to $40bn, while Arm wants it to be closer to $80bn.Nvidia, which in May became the first chipmaker to hit a $1tn valuation, was forced last year to abandon a planned $66bn acquisition of Arm after the deal was challenged by regulators.Arm and Nvidia declined to comment. A person close to the situation said the talks had not been concluded and might not lead to an investment.Here’s what I’m keeping tabs on today:US inflation: The consumer price index is expected to have moderated to 3.1 per cent in June, its lowest level in more than two years. But “core” inflation is expected to be higher. Read more on what to expect from the latest US inflation report.Central banks: The Bank of Canada is expected to raise interest rates again after its latest meeting ends today while the Federal Reserve publishes its Beige Book on economic conditions. Nato: On the sidelines of day two of the military alliance’s summit in Vilnius, the G7 will announce long-term security commitments for Ukraine.Five more top stories1. Exclusive: JPMorgan is hiring dozens of bankers globally to capitalise on Silicon Valley Bank’s collapse in March. Recent hires in the UK and the US include three former SVB executives while the bank is also planning to expand its services to start-ups and venture capital-backed companies in Asia. Read more on how JPMorgan is filling the gap left by SVB.2. A US federal court ruling has helped Microsoft move closer to its purchase of Activision Blizzard after a judge dismissed the Federal Trade Commission’s attempt to block the $75bn deal. The UK’s competition watchdog, which initially rejected the acquisition, signalled it was open to discussing changes to the deal that would address its concerns.Analysis: The court ruling could force the FTC, which has until tomorrow to appeal, to rethink its recent interventionist stance, say investors and analysts.3. EY China has refused to pay fees owed to its global headquarters for more than a year in a dispute over IT services. The Chinese arm says the services cannot be fully used after Beijing tightened data security rules, according to people familiar with the matter. Read more on the tussle between EY’s global bosses and its semi-independent member firms in China.4. Dozens of academics are reviewing their research on behavioural science conducted alongside Harvard Business School professor Francesca Gino. It is alleged that Gino, an expert on dishonesty, manipulated data in studies behind her research papers. Read more on the escalating controversy. 5. Saudi-controlled LIV Golf proposed giving ownership stakes to star players Tiger Woods and Rory McIlroy as it sought control of the sport. Newly released documents show how the Saudis tempered their ambitions in talks with the PGA Tour as the two sides moved from bitter litigation to prospective partners. Read more on the trove of emails, documents and instant messages released by a Senate committee yesterday.The Big Read

© FT montage/Lindsay DeDario

Four decades after Ronald Reagan rejected large-scale US government intervention in the economy, Joe Biden is embracing it wholeheartedly with a raft of subsidies for domestic producers in strategic sectors, in the hope of creating hundreds of thousands of new jobs. Will the president’s policies transform the American economy in a way that is durable and have a tangible impact that resonates with voters?We’re also reading . . . Turkey looks west: Backing Sweden’s Nato bid was a strategic move by President Recep Tayyip Erdoğan to ease tensions and unblock trade.Recognising the west’s hypocrisy: To tackle the threats to peace, prosperity and the planet the west must engage with China, writes Martin Wolf. But it must also engage with the rest of the world which sees it as deeply hypocritical.Corporate Japan’s hunt for investments: Unlike the 1980s, the current search is about diversifying revenue streams and not accumulating trophy assets. Chart of the day

Investors have been buying up local currency bonds issued by emerging economies in a bet that policymakers there have done a better job of battling inflation than their developed market counterparts, with the gap in government borrowing costs between the two markets falling to its lowest level in 16 years.Take a break from the newsScientists believe they are on the brink of proving the Earth has entered a new era for the first time in 11,700 years. A small lake in an area outside Toronto has been identified as the site to provide the formal reference point for the new Anthropocene epoch.Additional contributions by Tee Zhuo, Emily Goldberg and Benjamin Wilhelm More

The water consumer watchdog for England and Wales has warned companies’ plans to increase charges by up to 49 per cent by 2030 risk causing a new “crisis”, with one in four households already struggling to pay their bills. The Consumer Council for Water (CCW) said companies raising bills by £100 to pay for much-needed infrastructure upgrades could push an extra 1.1mn households into water poverty. The watchdog defines water poverty as a household spending more than 5 per cent of its income after housing costs on water bills; in 2021 it estimated that about 1.5mn of England and Wales’ roughly 25mn households were affected.Ahead of an October deadline, water companies have set out plans to increase bills to pay for an estimated £70bn of investment by 2030 in draft submissions to water regulator Ofwat. The industry regulator will decide whether to approve the proposals by December 2024. Water companies are required by Ofwat to consult consumers on any proposed price increases and have presented rises based on either this year or last year’s bills. The proposed bill levels do not include the future impact of inflation.Household water bills have already risen by an average of 7.5 per cent this year, meaning they stand at £448 a year. But water companies, under public pressure over sewage outflows and leakage, are asking for big rises in bills for the next five-year regulatory period.

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

Based on current levels Southern Water, which serves 4.2mn customers across Kent, Sussex, and Hampshire, is proposing that bills rise by £222 — or 49 per cent — between now and 2030, according to its draft proposals.Wessex Water, which provides water to 1.4mn people across the south west of England, has proposed an increase of £204, or 43 per cent, from now to the end of the decade.Meanwhile, South East Water has said it plans to ask for an increase of between £57 and £76, equivalent to 31 per cent, between now and 2030 based on its current bills. The company’s 2.3mn customers across Kent, Sussex, Surrey and Berkshire were left without water for several days in recent months.CCW chief executive Emma Clancy called for more support for households, saying: “Without a stronger safety net for people that cannot afford their bill, there is a potential crisis waiting further downstream.” All water companies in England and Wales have social tariff schemes, which are designed to lower bills for struggling households. Companies have to consult customers to establish how much they are willing to contribute to subsidise less well-off customers.Clancy said the capacity of some companies’ social tariffs was at present “stretched almost to its limit and yet we face the prospect of many more low-income households needing help to afford large bill rises in the future”. Only a small number of companies pay towards the schemes from their own profits and more companies should follow suit, the CCW said, noting that some groups were consulting customers to see if they were willing to increase the level of cross-subsidy. Katy Taylor, chief customer officer at Southern Water, said: “We regularly listen to the views of customers from across our region when we plan future investment in our network, and we discuss the possible impacts on bills.” She added that the company offered “a minimum 45 per cent discount . . . to around 125,000 households” in need of support. Wessex Water said: “Bill projections are based on early assessments of potential increases needed to meet regulatory and legal requirements. We are pressing for changes to allow greater use of more sustainable, lower-cost nature based solutions which would mean much smaller bill increases.”Water UK, which represents the industry, said: “While it is clear bills will need to rise, the exact level is not yet known. These figures will change, because they are part of a consultation process with companies testing proposals with their customers.”South East Water declined to comment. More

More than 130 nations have extended a controversial ban on taxes aimed at corporate technology giants by another year to 2025, as they wrestle to introduce landmark measures that update the international tax system for the digital age. After three days of talks at the OECD’s Paris headquarters, most of the countries approved a statement that unveiled fresh details on plans to make the world’s largest 100 companies pay more tax where they do business. They also agreed to put on ice plans to introduce national digital services taxes for another 12 months to make more time to ratify a breakthrough global tax deal that they signed up to in the autumn of 2021 but have yet to pass. The introduction of a range of digital services taxes would be an obstacle to ratifying the deal, as having a patchwork of national measures would defeat the purpose of agreeing a co-ordinated global fix. “We are thrilled that we were able to secure approval of the outcome statement by 138 jurisdictions,” Manal Corwin, director of the OECD’s Centre for Tax Policy and Administration, told the Financial Times. She added that it showed “significant, broad-based agreement to the statement”.However, five countries, including Canada, refused to approve the extension. That sets up a clash with its neighbour the US, where many of the world’s biggest technology companies are based, and threatens to reignite trade tensions should Canada press ahead with its own plans to tax big tech. Four other countries involved in the talks did not approve the statement — Belarus, Pakistan, Russia and Sri Lanka.The talks have focused on how to implement a key plank of the global tax deal. “Pillar I” would lead to the redistribution of $200bn-worth of profits a year from multinationals to countries where sales are made, and requires a change in global tax law. But countries remain in dispute over the exact wording of the legal language. The OECD tax chief acknowledged the text would no longer be published in July, as planned. Corwin said this was because there were “a few outstanding issues between a small number of countries that have to be resolved”. However, a statement published on Wednesday morning set out new details on the conditions required to make the planned rule changes a legal reality, and the OECD remains confident that a signing ceremony proposed for the end of this year can take place. A ban on the introduction of digital service taxes was due to expire on December 31 2023. Canada has legislated for a new digital services tax to come into force on January 1 2024. People close to the negotiation confirmed Ottawa’s refusal to sign the statement was down to the extension of the ban.If the country’s digital services tax is introduced as planned, then Washington is expected to fight back on behalf of US tech giants such as Google, Facebook and Amazon. Last week US trade representative Katherine Tai, urged Canada to refrain from imposing a digital services tax while the OECD process continued.The countries, meanwhile, also agreed steps designed to ensure the deal is passed in most jurisdictions even if it is not ratified in all countries taking part in the negotiations. The US’s polarised politics make it unlikely it will be able to ratify the deal in Congress, where changes to tax treaties require a two-thirds majority in the Senate; the chamber is currently split 51 to 49 in favour of the Democrats.However, under measures agreed this week, the treaty would only need to be signed by 30 jurisdictions, as long as they account for a minimum of 60 per cent of the 100 companies affected by the changes. The countries would need to sign by the end of 2023.“There’s been a lot of discussion and speculation about the prospects of ratification in the US,” Corwin said. “But that is the third milestone [after finalisation of text and signing by countries] and our approach and our view is we need to get to the first two for that last one to be relevant.” More

A defunct slide projector in an empty office and peeling paint in the employee canteen are among the few signs of the role that an industrial site in Buffalo once played in the rise and then fall of American manufacturing. The campus was first built in 1923 for General Motors. A faded poster that reads “diversify, profitably grow and become global” dates from when it was later owned by American Axle & Manufacturing. The car part maker followed its own advice, shifting some production to Asia and later shutting its huge factory in the East Side area of the city in 2008.A site that once employed thousands of people in one of the country’s most deprived communities became a symbol of deindustrialisation and rustbelt decay.Now, however, the same location is starting to come back to life. In one warehouse, workers employed by Viridi Parente, a cleantech firm backed by investors including the UK’s National Grid, are packing lithium-ion cells into metal boxes, making batteries the size of mini-fridges. These will then be housed within office blocks, hospitals or other buildings to provide vital back-up power.Eric Stein, formerly head of JPMorgan’s investment banking and now Viridi’s chief financial officer, says the company aims by 2027 to churn out about 4 gigawatt-hours of battery capacity each year — more than the entire current storage capacity in the UK. For now, the lithium-ion cells packing the batteries are shipped in from Asia. But that will change when South Korea’s LG Energy opens a new battery plant in Arizona.It is the kind of project that the White House wants to see sprout across the US, especially in the industrial areas that were ravaged during the globalisation era of the past four decades — a process which was facilitated by policies put in place by both Republican and Democratic presidents.The new approach is spearheaded by two laws passed within days of each other last August — the Inflation Reduction Act and the Chips and Science Act — along with the Infrastructure Investment and Jobs Act, passed in late 2021.Combined, they offer hundreds of billions of dollars of subsidies, grants and loans to spur new investment in broadband networks, semiconductors, electric vehicles and batteries. Since the bills were passed, there has been a growing realisation that their significance goes well beyond their immediate impact on specific industries. They also represent a profound shift in economic thinking in America. Four decades after Ronald Reagan rejected large-scale US government intervention in the economy, Biden is embracing it wholeheartedly with a raft of subsidies for domestic producers in strategic sectors, in the hope of creating hundreds of thousands of new jobs. And 30 years after Bill Clinton signed the Nafta trade agreement and paved the way for China to join the WTO, Biden is no longer pushing for sweeping trade liberalisation.“I don’t think you’ve seen something of this magnitude since Reaganomics came on the scene,” says Jennifer Harris, a former Biden administration official who worked on international economics at the White House National Security Council. “We’ve been living in that intellectual box and under those policymaking constraints for 40-plus years, and so this is really shaking those off towards the next turn of the screw.”For the administration, economics is mixed with foreign policy — the laws are designed to both reverse the shift of manufacturing jobs to China, while also blunting China’s competitiveness in clean energy and tech. “This vision is a fundamental break from the economic theory that has failed America’s middle class for decades now,” Biden said in a speech at the Old Post Office in downtown Chicago last month. In a two-part series, the FT is looking at the implications of the Biden revolution in economic policy. On Thursday, we will examine how the new burst of industrial policy in the US has unsettled some of its closest allies in Europe and Asia and forced them to adapt to Washington’s attempt to rewire the global economy. The question in this first piece is whether the policies will transform the US economy in a way that is durable and which will have the sort of tangible impact that resonates with voters.The FT calculates that more than $200bn worth of projects have been promised since the IRA and Chips Act passed. Developers say as many as 85,000 jobs will be created.

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

Jon Williams, Viridi’s chief executive and a Buffalo native, pays his employees $18 an hour, with healthcare, stock options and a retirement plan included. For some of the workers it is their first job — a lifeline in an area stricken with social problems. “Industrial America just abandoned these communities,” says Williams. But at the moment, its operation is limited in scale — it employs just 140 people.Heather Boushey, a member of the White House council of economic advisers, says there have been encouraging signs that the strategy is working on the ground. “We’re seeing businesses say, ‘Great’,” she says. “They are starting to announce these investments and we’re starting to see shovels in the ground. And those are the kinds of early indicators that we are looking for.”A long time in the worksIf the Biden approach amounts to a transformation in US economic policy, it has been a shift that has been building for some time.The roots are in the financial crisis of 2008-9, when American confidence in laissez-faire economics was badly dented. The sluggish recovery that ensued was tarnished by anaemic labour markets and stagnant household incomes, leading to a sense of malaise that many believe contributed to Donald Trump’s victory in the 2016 election against Hillary Clinton. Trump used his presidential inauguration address to call for an end to the “American carnage” of “rusted out factories”. He passed a big tax cut that cheered corporate America but on the trade front there was huge upheaval: he forced a high-stakes renegotiation of Nafta with Canada and Mexico, then launched tariff wars with China, the EU and other US trading partners around the world, in defiance of the traditional Republican approach to global commerce. By the time Biden entered the White House in 2021, the mood had shifted even further. The pandemic had revealed the potential vulnerability of US supply chains, while geopolitical tensions with China rose sharply. Russia’s full-blown invasion of Ukraine then sent shockwaves through global energy markets.And Biden — who was born in the rustbelt city of Scranton, Pennsylvania — made it his mission to provide massive subsidies for industrial America as the solution to maintaining both US economic primacy in the world and prevent further lurches towards forms of populism that could undermine democracy. President Biden at the Cummins Power Generation facility in Minnesota in April, part of his 20-state tour to promote an economic agenda that focuses on clean energy and infrastructure jobs © Elizabeth Flores/Star Tribune/Getty Images“I think the Biden camp really sees questions of trade and industrial policy as tools to a set of higher ends, or broader national aims, whereas [traditional Republicans and longtime Democratic policymakers] see markets as an end to itself,” says Harris. Biden frequently cites predecessors from the early and mid 20th century — including FDR and Dwight Eisenhower — as the inspiration for his economic agenda, given their use of the government’s muscle to boost America’s economic potential in manufacturing and infrastructure. Since so much time has passed since then, his top officials have in recent weeks carefully crafted an intellectual framework to accompany it. Janet Yellen, the US Treasury secretary, has dubbed it “modern supply-side economics”. “[It] seeks to spur economic growth by both boosting labour supply and raising productivity, while reducing inequality and environmental damage,” she said.

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

Jake Sullivan, Biden’s national security adviser, called it a “modern industrial and innovation strategy” insisting that it would “ build a fairer, more durable global economic order, for the benefit of ourselves and for people everywhere” in the globe, fending off criticism that America was reverting to protectionist policies it long decried. But the need to compete with China, which also offers massive industrial subsidies, is a main driver of the shift in Washington, one that is recognised by both parties. “Let’s be clear: winning the competition with China should unite all of us,” Biden told Congress earlier this year.Too ambitious?The Biden agenda has a lot of ambitious goals: to rejuvenate US industrial hubs, reorient global supply chains, decarbonise the American economy and drive down energy costs. Is it realistic to try and achieve these objectives all at the same time?Some Republican critics believe the large-scale government spending, particularly in the IRA, constitutes a “reckless tax-and-spending spree” that will only worsen inflation in what some see as an already overheated economy. Labour shortages are one potential obstacle. Contractors fret that a stretched labour market will be overwhelmed with projects, increasing costs and slowing schedules.

Red tape is another. Clean energy executives and fossil fuel developers are united in calls for reforms to make permitting of infrastructure such as transmission lines easier.“We need a better process for connecting new generation to the grid,” says Greg Wetstone, the president and CEO of the American Council on Renewable Energy. “We’ll continue growing — the real question is are we going to be able to realise the full potential [of the IRA].”“You can invent brilliant widgets. You can create wonderful business models, but the long pole in the tent is labour,” says Tracy Price, chief executive of Qmerit, an energy installation service. “[But] if somebody can’t install it, maintain it . . . it doesn’t matter.”For all the talk about competing with China, the US remains a minnow in cleantech manufacturing and an also-ran in the supply of the critical minerals and parts needed for the energy transition. In solar power, for example, US efforts to limit China’s presence in supply chains have already proven difficult. Last year the Commerce Department launched an investigation into tariff-dodging by Chinese suppliers. But when this led to the first drop in solar installations in four years, the White House was forced under pressure from US developers to suspend the probe.China also dominates the supply of parts for electric vehicles — one reason why Chinese company CATL, the world’s largest battery maker, remains so prominent in the US auto sector. The underlying concern of some analysts is that the effort to break dependence on China will slow down the efforts to decarbonise.“It would be very difficult, very expensive to try to cut off all Chinese supply chains,” says Mark Wakefield, an analyst at consultancy AlixPartners. “It’s very impractical.”Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, says the objective is to engineer a “pretty speedy transition” to electric vehicles and renewable energy. “The more expensive we make those imports or the harder we make it to have those imports . . . the slower that transition is going to be,” she says. A wave of Asian investmentThe hope within the Biden administration is that the forces it unleashed will nonetheless prove lasting in expanding America’s productive capacity. GE, which once embodied the shift of manufacturing overseas under late CEO Jack Welch, is among investors which are capitalising on the IRA’s tax credits and the market opportunity created by the US’s clean energy shift to build new plants. One GE facility to make nacelles — the gearboxes for wind turbines — is in the works in Schenectady, New York, where the company’s roots date back 130 years to Thomas Edison.The hourly rate for workers is “certainly more expensive in New York than it would be in other locations,” says Scott Strazik, chief executive of Vernova, GE’s energy unit. “But there are incentives to build in the US . . . that’s real.” The new $50mn facility will employ 160 people.

GE will ship the nacelles to the wind farms now springing up across the US. “The IRA is providing a more clear pathway towards onshore wind growth over the next decade,” Strazik says. GE is also considering a plant in New York state to make the giant blades used in offshore wind — a sector that barely exists in the US.“The IRA really underpinned the business case to stay here,” adds Jorg Heinemann, chief executive of EnerVenue, a US battery company building a $264mn factory in Kentucky. “Take away the IRA, now it becomes a much more difficult equation . . . the pull of Asia would have been difficult to resist.”Indeed, Asian companies are now in the vanguard of investors coming to the US, with South Korean giants such as Hyundai, LG, SK and Samsung pledging tens of billions of dollars to make battery plants. Hyundai is also building a $5.5bn electric vehicle factory near Savannah, Georgia, one of the largest EV investments to date. Despite the Biden administration’s confidence that its strategy will pay off both politically and economically, there are some warning signs that it could be a disappointment. Manufacturing employment boomed by just under 800,000 jobs since Biden took office, hitting a post-pandemic high close to 13mn last month and eclipsing the levels recorded under both Trump and Obama. But the sector’s job growth has slowed sharply this year and the ISM manufacturing index fell unexpectedly to its lowest level in three years last month, suggesting some significant cyclical headwinds are building, as the Federal Reserve presses ahead with higher interest rates to fight inflation. “We have to stick the landing and prove that we can do this in ways that are resilient to inflation questions and to recession questions that are all still in the mix here. And that’s not straightforward,” says Harris. “I’m optimistic but I’m not going to say these are calm waters.” In fact, the biggest fear when it comes to the Biden administration’s strategy to rebuild American industrial strength is that it could fail to ultimately deliver the transformation promised on the ground in places like Buffalo. “Manufacturing is always going to be critically important to GDP, but it’s not going to be where the big numbers are for employment,” says Edelberg, pointing to long-term productivity trends and the continued dominance of the service sector in the US economy. Employees at Buffalo’s rejuvenated Viridi factory — the kind of project that the White House wants to see sprout across the US, especially in the industrial areas that were ravaged during the globalisation era © Lindsay DeDario/FTIn Buffalo, the Viridi battery plant now stands as a beacon of opportunity in a depressed area. But its workforce is a fraction of the thousands that once worked in the plant shut down by American Axle & Manufacturing 15 years ago. Automation is coming fast too, and robots won’t revive the area — or vote in elections.James Giles, a Christian pastor on the East Side and social justice advocate who is head of personnel for Viridi, is sceptical that tax breaks, subsidies and loans from Washington can deliver the change needed in communities like the East Side.“They’ve literally dumped billions and billions into urban communities across this country,” he says, referring to earlier federal rejuvenation efforts. Even so, the push to support US domestic manufacturing is almost certainly here to stay. While some Republicans have called for a reversal of Biden’s subsidies should they win back the White House and full control of Congress next year, it could be a very hard case to make. “I don’t see a lot of politicians walking into a community and saying, ‘I know we like that battery factory where you’ve all got jobs but I’m going to take away the subsidies and send those jobs overseas’,” says Boushey. “That’s not a message that resonates with anyone.” More