Aurelia Butler

This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersAfter another tumultuous week in the US, Federal Reserve chair Jay Powell was sanguine in a speech on Friday, saying the US economy remained “in a good place” despite “elevated levels of uncertainty”. If this was an effort to reassure markets, it did not work. Fears of a US recession have not abated, with even President Donald Trump not dismissing the possibility, and equities took another tumble on Monday. Is the US headed for recession? Email your thoughts: [email protected] Looking through tariffs?A primary concern for households and businesses is the stop-start nature of Trump’s trade wars. Are import duties going to apply to the US’s closest trading partners? Nobody knows, or perhaps can know, given the capricious nature of the commander-in-chief.The Fed is, at least outwardly, less worried about tariffs. Speaking on February 17, Fed governor Christopher Waller said “any imposition of tariffs will only modestly increase prices and in a non-persistent manner. So I favour looking through these effects when setting monetary policy.” On Friday, Powell noted the “textbook” view of looking through a one-time increase in prices, but did suggest why reality might differ: “If it turns into a series of things . . . if the increases are larger . . . what really would matter is what’s happening with longer-term inflation expectations.”Consider several rounds of impending tariffs ostensibly to come, all at different dates — Mexico and Canada, aluminium and steel, reciprocal tariffs, tariffs on the EU. Consider also retaliations such as the 25 per cent surcharge for Ontario electricity exports, in addition to threats of cutting them off altogether. Perhaps we might check off “a series of things” and “larger” increases. Great expectationsWhat about inflation expectations? In his remarks, Powell noted that “some near-term [inflation expectation] measures have recently moved up. We see this in both market and survey-based measures, and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor.” But, resonating with the generally optimistic tone of his speech, Powell added: “Most measures of longer-term expectations remain stable and consistent with our 2 per cent inflation goal.”This is true when taking a first look at long-run inflation expectations. But, worryingly for the Fed, a more careful examination of the expectations distribution is flashing red. Median long-term inflation expectations over five years from the University of Michigan’s consumer survey is in line with Powell’s message of “stable and consistent”. But measures of dispersion — or disagreements between households — have not re-anchored back to the pre-pandemic norm and are spiking again. Some content could not load. Check your internet connection or browser settings.This is driven by the right tail of expectations. Since mid-2024, 10 per cent or more of respondents expected annual inflation to average an extreme 15 per cent or more over the next five years. By contrast, the average proportion was less than 1 per cent in 2019. Uncertainty (the proportion of those responding that there will be inflation but unsure of how much) has also shot up recently. This sharp move is partly an artefact of the Michigan survey moving to online responses only from July 2024 — answering by phone results in a lower proportion of extreme inflation estimates (perhaps due to social desirability bias, where talking to someone directly makes you answer differently). It might also partly reflect partisanship biases, which are large in the Michigan survey.But only partly. An analysis of just the web-based respondents from 2017 onwards reaches the same conclusion: “Long-run expectations have risen in recent months and are elevated relative to the two years pre-pandemic, but remain below peak readings during the post-pandemic inflationary episode. They exhibit substantial uncertainty, particularly in light of policy changes under the new presidential administration.” Widening disagreement and uncertainty about where inflation is headed in the long term also shows up in the New York Federal Reserve Board’s survey of consumer expectations, even as median expected inflation is back to normal. Some content could not load. Check your internet connection or browser settings.Let’s deal with some possible objections. Household surveys elicit the average Joe’s inflation expectations, and your average Joe may have very foggy understanding of inflation, or may overweight certain items in their own consumption basket. Professional forecasters are unsurprisingly much less dispersed in their long-run estimates.But household inflation surveys capture wider society’s inflation beliefs, and households act on their beliefs about inflation, no matter how far it deviates from “rational”.US exceptionalism?Elevated divergence of expectations is not just an American phenomenon — data from Europe also shows levels that have not yet normalised. Bank of England rate-setter Catherine Mann pointed to the fatter right tails of the UK expectations distribution in a speech last week. More than 20 per cent of respondents to the BoE’s inflation attitudes survey think prices will go up by 5 per cent or more in five years’ time. This is higher than the proportion of respondents anchored at the 2-3 per cent range (roughly 15 per cent), and relative to a 2015-2019 average of roughly 13.5 per cent.Some content could not load. Check your internet connection or browser settings.It’s not just households skewing higher. In the Eurozone, a thick right tail of inflation expectations is evident in a survey of firms. Long-run expectations have also become more strongly correlated to short-run expectations, suggesting that the re-anchoring process following the post-pandemic inflation surge is not yet complete. Dispersion and uncertainty Higher inflation disagreement does not bode well for a Fed that hopes to “look-through” tariff price effects. For one, inflation dispersion is a good predictor of future inflation, as higher expected inflation becomes self-fulfilling. Mann argued that “keeping track of the tails matters”. She also presented evidence that large inflation shocks mean “expectations formation becomes more backward-looking”.And It’s not just households that take time to get over an inflation shock. A recent working paper corroborates this story using implied inflation expectations derived from financial markets. The authors find the 2021-24 high-inflation episode has left “scars” evidenced by “persistently elevated probabilities of a future inflation disaster”. Inflation uncertainty also matters, and perhaps more than dispersion. Some experimental work shows that higher uncertainty led to lower consumption of durable goods, and portfolios comprising safer assets. Other work shows how inflation uncertainty can lead to a drop in investment and industrial production.Add growing inflation uncertainty on top of the other sources of uncertainty the Fed and other central banks need to be wary of. Strong and credible communication can help reduce uncertainty and lower inflation disagreement. But keeping inflation expectations anchored depends on central bank credibility, which depends heavily on central bank independence, both in law and practice. As concern mounts about political interference at the Fed, expectations may disperse further. The required policy response to tariffs may need to veer far from the textbook.What I’ve been reading and watchingAnticipating my question at the top, Tej Parikh has a nice chart-filled piece arguing that the US economy is heading for a recession.It is not common for former central bankers to become political leaders, but that’s just what former Bank of Canada and Bank of England governor Mark Carney has accomplished after winning the leadership election for the Canadian Liberals. Ilya Gridneff has an excellent profile. The Atlanta Fed’s GDP nowcast showing a sharp contraction in the US economy this quarter caused a stir. Over in Alphaville, Valentina Romei and Robin Wigglesworth dig into the details and uncover the main culprit — “a truly massive surge in US gold imports”. The “gold adjusted” nowcast is for small, yet positive growth of 0.4 per cent. The Economist digs into its archives to show how Donald Trump’s tariffs are a throwback to the 1930s.Daniel Susskind writes how the UK Office for Budget Responsibility has become “the ultimate arbiter of whether the government’s plan to achieve its central mission — more economic growth — is the right one”.A chart that mattersAs if signs of the inflation anchor slipping was not worrying enough for the Fed, there are some early indications of supply chain worries. Negative sentiment in the Fed’s own beige book about supply chains spiked in March (left panel), although levels are still far below the pandemic. US corporates are also increasingly mentioning supply chain risk in earnings calls (right panel).Some content could not load. Check your internet connection or browser settings.Recommended newsletters for you Free Lunch — Your guide to the global economic policy debate. Sign up hereThe Lex Newsletter — Lex, our investment column, breaks down the week’s key themes, with analysis by award-winning writers. Sign up here More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning and welcome back to FirstFT Americas. We’ll bring you right up to date with events on global stock markets after a nerve-racking day and here’s what else we covering: US-Ukraine talks get under way in JeddahPhilippines’ ex-president Rodrigo Duterte arrested in Manila And the British fintechs trying to crack the US marketStock markets around the world are calmer this morning after a sell-off yesterday that saw high-growth technology shares tumble as worries about the outlook for the US economy and Donald Trump’s trade policy deepened.The S&P 500 index closed down 2.7 per cent, after falling 3.1 per cent last week in its worst weekly performance in six months. The tech-focused Nasdaq Composite sank 4 per cent, its worst day in two and a half years. The tech-heavy index is down more than 13 per cent from its December peak, leaving it in correction territory. Futures contracts point to a calmer start on Wall Street, while markets in Europe edged lower on Tuesday morning and Asian markets recovered earlier losses.US tech stocks — which had driven Wall Street markets higher in the previous two years — were among the biggest laggards, extending a recent rout. Tesla, the electric-car company headed by Trump ally Elon Musk, plummeted 15.4 per cent. It has now given up all of those post-election gains and has fallen more than 50 per cent since its December high. Chipmaking giant Nvidia, which has been one of the biggest winners from recent investor enthusiasm for artificial intelligence, fell 5.1 per cent.Financial services companies also fell. Morgan Stanley and Goldman Sachs were down 6.4 per cent and 5 per cent respectively, while shares in private investment groups KKR and Ares shed 6.2 per cent and 8.9 per cent respectively.“This big sell-off feels ugly, it feels nasty,” said Drew Pettit, an equity strategist at Citigroup. “We were coming off very high sentiment and very high growth expectations. All of this is just recalibrating to the new risks that are in front of us,” he added.The latest jolt of volatility, which also dragged down markets in Europe and Asia, came after the US president on Sunday declined to rule out a recession or a rise in inflation as he dismissed business concerns over lack of clarity on his tariff plans.The White House yesterday dismissed the sell-off and doubled down on its economic and trade policies. “We’re seeing a strong divergence between animal spirits of the stock market and what we’re actually seeing unfold from businesses and business leaders, and the latter is obviously more meaningful than the former on what’s in store for the economy in the medium to long term”. Read more on how markets in Asia and Europe are trading today.Trump and Tesla: The US president yesterday promised to buy a Tesla in a rebuke to “Radical Left Lunatics” who, he said, were “trying to illegally and collusively boycott Tesla”.Opinion: Financial markets have witnessed a change that is upending many consensus trades. Mohamed El-Erian asks: What is behind the dramatic shift?For more markets commentary, sign up for our Unhedged newsletter here if you’re a premium subscriber, or upgrade your subscription. Here’s what else we’re watching today:Congress: The Republican-controlled House of Representatives could vote as early as today on legislation that would avert a weekend government shutdown.Greenland: Voters go to the polls to elect the 31 members of parliament amid a long-simmering independence debate. Portugal: The centre-right government of Luís Montenegro faces a confidence vote, triggered by a scandal over his family business.Results: Department store chain Kohl’s is set to post a fall in fourth-quarter revenue. See our Week Ahead newsletter for the full list.Five more top stories1. Officials from the US and Ukraine have kicked off high-stakes talks in the Saudi Arabian coastal city of Jeddah. The talks begin as Moscow’s authorities reported that nearly 100 drones had targeted the Russian capital last night, in one of the biggest drone attacks on the city since Russia’s full-scale invasion in 2022. Keep up with the talks here. US-Ukraine minerals deal: A major lithium project in Ukraine, backed by US mining company TechMet, could be the first project to benefit from the minerals deal that is close to being finalised.EU: The European Commission has proposed borrowing €150bn worth of loans against the EU budget for member states to spend on weapons.2. Former Philippines president Rodrigo Duterte has been detained under an arrest warrant issued by the International Criminal Court over a crackdown on drugs that resulted in the deaths of thousands of mostly poor Filipinos across the south-east Asian country. Duterte, who served as president from 2016 to 2022, oversaw a crackdown on illicit narcotics leading to the deaths of thousands of mostly poor Filipinos. Read the full report here.3. Argentina’s President Javier Milei has issued an executive decree preapproving a loan agreement from the IMF, signalling the imminent conclusion of a long-awaited deal that is essential to his economic plan. Milei said he needs fresh funds from the IMF, to which Argentina already owes more than $40bn, to replenish the central bank’s scant currency reserves.4. OpenAI has forged a near-$12bn contract with CoreWeave and will take a stake in the cloud computing provider, boosting the group ahead of its expected $35bn public listing. The ChatGPT maker has signed a five-year deal in which CoreWeave will supply computing power to train and run OpenAI’s artificial intelligence models, said two people with knowledge of the deal.5. President Donald Trump has said the arrest of a Columbia University graduate for taking part in pro-Palestinian protests was “the first of many to come”, stoking fears of a clampdown on free speech and campus-based activism across the country. Here’s more on the arrest. Today’s big read© FT montage/Getty ImagesThe UK’s two leading digital banks, Revolut and Monzo, are hoping to crack the US market as fintechs are once again attracting investment following a funding drought caused by rising interest rates. But the push across the Atlantic is no easy feat. Here’s why. We’re also reading and listening to . . . Chart of the daySome content could not load. Check your internet connection or browser settings.The US’s India trade deficit reached more than $45bn last year — less than half of the “almost $100bn” deficit Donald Trump claimed at the White House, but the 10th largest of America’s trade partners. Trump is pushing Indian prime minister Narendra Modi to lower tariffs. Trade experts say the talks promise to be fraught, especially when it comes to agriculture. Take a break from the news . . . The latest fashion shows in Milan and Paris suggest men’s clothing is going through something of a transformation from tight-fitting trousers and jackets to more roomy and baggy shapes — a shift welcomed by market columnist and sartorial correspondent Robert Armstrong. Giorgio Armani’s autumn/winter show at Milan Fashion Week in January More

This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. US stocks got taken out to the woodshed yesterday. The S&P 500 fell 2.7 per cent and the Nasdaq fell 4 per cent, its biggest one-day fall since 2022. A few things are clear. US growth and tariff policy are major concerns for investors at a moment when the country’s risk assets are very expensive. Inflation risks remain on the table. And the Trump administration’s “short-term pain, long-term gain” rhetoric about markets and the economy has scared everyone out of their trousers. Beyond that, it is hard to say much definitively. We try to find some order in the chaos below. If there are points we have missed, email us: [email protected] and [email protected]. Anatomy of a routWhen stock markets really panic, analysis can only take you so far. Logic fails and emotion takes control. That said, there are some patterns in yesterday’s rout which — if confirmed in the days to come — will tell us something about what is going on.Monday looked like a worse case of the same illness the market suffered from last week. Big tech was hardest hit, led by Tesla (15.4 per cent down), Microchip Technology (10.6 per cent) and Palantir (10.1 per cent). Even Apple, the most defensive of the Mag 7, which has held up relatively well over the past month, was off by almost 5 per cent. Banks were down hard, too, showing that investors are concerned about growth, and that the recent hopes that this would be a good year for trading, capital markets and deregulation have been dashed. Defensives did well overall, especially in healthcare and staples. Utilities finished the day up. On its face, this looks like a flight to safety, as investors rush to take profit in the stocks with the biggest gains over the past few years. But there are several aspects of the market action we still don’t quite understand.Why didn’t bonds rally more? The yield on the 10-year Treasury only fell 10 basis points. We would have expected more given the size of the move in equities. Was the rally restrained by fears of rising inflation? Perhaps not — break-even inflation was down a touch, and the term premium up a little.Also, why did some cheap cyclical stocks do OK? General Motors, Ford and 3M were all up at the end of the day, for example. Meanwhile, staples fortresses Walmart and Costco were well down. Their decline probably has more to do with people selling stocks where they have seen gains or were overweight — both Walmart and Costco have had great runs over the past year or two. But the growth scare figures in here, too.Today we will be watching for signs that we are seeing an adjustment rather than the start of a full-on bear market. Do investors buy the dip, and if they do, will the sellers rush back in? Tomorrow’s close will be particularly interesting in this respect. Signs of a bigger flight into bonds will be important, too. Severe contagion to international stock markets will tell us something about whether what we are seeing is the reversal of the overcrowded US trade or something much worse — a global flight from risk. And, like everyone else, we will be looking for any signal that the White House will moderate its policy approach in the face of market mayhem.Germany and EuropeAs US assets start to crack, Europe’s entire financial system may be changing fundamentally.Last week, Germany’s chancellor-in-waiting Friedrich Merz announced that his government would circumvent the country’s long-standing debt limits to boost defence and infrastructure spending by up to €500bn. Then the European Commission said that it would also push forward a €150bn defence funding loan scheme. Other plans are also being floated, including seizing Russia’s frozen assets and, most radically, issuing special defence Eurobonds. Bond yields have jumped and banks have upgraded their growth forecasts for the continent, and all of this has pushed the Euro higher against the dollar:At the same time as the fiscal chessboard has been rearranged, European stocks have performed strongly this year, even as US indices tumble. The fiscal boom and the equity rally appear to be closely linked. But they are not one and the same. Some points to bear in mind:The European rally: The shifting fiscal outlook has some investors seeing a secular growth story, with carry-over to the stock market. Though that may be true, Europe’s outperformance started a month before Germany’s big announcement. This has been more about rotation away from the US, says Thierry Wizman, chief FX strategist at Macquarie Group:European growth will do better overall than it otherwise would have, in light of the government spending. But unless that spending is directed broadly towards Europe’s private sector, it does not necessarily bode well for European stocks . . . higher sovereign bond yields will pressure multiples lower, and crowd out some private-sector led growth, especially if compounded by worries about sovereign debt rising too fast . . . What is happening in European stocks still feels like a rotation out of the US, rather than [being] supported by European fundamentals on their own merits.Some of the biggest moves in European shares are, indeed, tied to European defence and the secular growth narrative. Defence companies have carried the market for the past two weeks, and banks have done extremely well. But, zooming out, this is a wide rally, and it does not cut cleanly across defensives and cyclicals:Some content could not load. Check your internet connection or browser settings.The growth signal from bank stocks risks being overstated, too. Europe’s banking sector has been more or less left for dead since 2008. When a sector goes from “dead” to “mostly dead”, stocks move a lot, but this does not indicate an economic renaissance.In some regards, the reassessment of European equities is long overdue; they were probably a bit too cheap. But that does not mean that the bull run will be sustained, even if fiscal largesse nudges growth up. We still do not know, for example, how Trump’s tariff plans will affect European company profits.Growth hopes and the fiscal space: Though markets are excited about Germany’s change and what it portends for broader EU growth, it’s worth tempering expectations. We do not know how these fiscal packages will pay out. Just yesterday, the German Green party vowed to block Merz’s proposal (this might just be a negotiating tactic, though; as Nico FitzRoy at Signum Capital notes, there is reason to think the Greens will come around). There is also uncertainty about the EU’s plans. Though the EU does not need unanimous approval to push through the €150bn plan, more audacious plans — issuing a raft of new debt, or seizing Russian assets — would require full approval from the bloc. That invites pushback from countries more sympathetic to Russia, such as Hungary.For fiscal spending to translate into growth, countries need to be able to deploy that capital to the private sector, and spending needs to be able to spread from defence and infrastructure to the rest of the economy. While Germany definitely has the fiscal space, it might not actually be able to deploy its budget efficiently or in a timely manner, says James Athey at the Marlborough Group:Taking everything at face value, [Germany] is expected to spend an additional 1 to 2.5 percentage points of GDP per year. But detail is lacking on how shovel-ready proposed infrastructure projects are. And we do not know how constrained the defence industry is; there is a notion that there needs to be an expansion of defence capacity before [the fiscal spending] could go to work. Other countries would face the same issues, but with less fiscal space to play with. And they could have even less fiscal space going forward; it is possible that a flood of new issuance from Germany, or a tranche of Eurobonds, crowds out other sovereign debt. Spreads between the Bund and other European debt have narrowed since last week — but that could change once new Bund or Eurobond supply hits the market.(Reiter)One good readA warning, perhaps.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereFree Lunch — Your guide to the global economic policy debate. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyFinancial markets have witnessed a dramatic change that is overturning the consensus trades that dominated until early February of this year. Falls in US stocks and their under-performance relative to other countries reflect a remarkable turnaround in investors’ views about the economic outlook for America and Europe — and to a lesser extent China. What is less clear is whether the resulting mix of all this is favourable or unfavourable over the longer term. And that matters a lot for global wellbeing, inflation and financial stability.Three key factors underpin the recent 180-degree turn in consensus views on stocks, bonds and currency: growing worries over the US economy; a potential “Sputnik moment” in Europe driven by a possible change in Germany on fiscal policy and European funding; and hints of a more determined policy response from China. Belief in American exceptionalism has been eroded with not only US shares dropping but bond yields falling on growth concerns and the dollar weakening.Having dealt with a whiff of stagflation, markets are suffering a good old-fashioned growth scare due to a significant bout of US policy volatility. The uncertainties associated with the on-again/off-again tariffs on America’s major trading partners and allies such as Canada and Mexico were compounded by concern about the impact on employment and income of the ongoing public sector cuts.US government officials argue that these “disturbances” are small and should be seen as part of a bumpy journey to a much better destination — one of fairer international trade, great public sector efficiency, reduced fiscal dominance, and the unleashing of more powerful private sector entrepreneurship and activity. Indeed, according to them, it is only a matter of time before the journey itself improves due to lower energy prices, tax cuts and significant deregulation.The worry is that the bumpy journey may lead to a different, less favourable destination. The recent bout of US unpredictability risks robbing the US of one of its important and differentiating “edges” — long-term investor confidence in policy framework and decision making.Some content could not load. Check your internet connection or browser settings.US policy is also responsible for the markets’ sudden change of view about Europe that now sees the potential at long last for a dramatic economic policy shift. Jolted by America’s treatment of long-standing security alliances and the change in its Ukraine policy, Germany is suddenly contemplating a relaxation of its long-held fiscal constraints. This could translate into increased defence spending, larger infrastructure investments and greater regional funding.Meanwhile, China is signalling a move towards a more potent mix of stimulus and reforms. Markets see this as essential to counter the growing threat of the Japanification of the Chinese economy which was highlighted again in data on Sunday with both consumer and producer prices falling in February.On paper, this confluence of factors presents two possible scenarios for convergence among what was previously the good (US), bad (China) and ugly (Europe) of the global economy. The optimistic view anticipates an upward convergence of global growth, with Europe and China accelerating to get closer to the hitherto exceptional performance of the US economy. This would result in a higher overall level of global growth as a short-term US deceleration is more than compensated by the pick-up in China and Germany.The more pessimistic outlook would be a downward convergence featuring stagflation. This scenario would be due to delays in Germany’s policy implementation; China’s continued struggle to balance stimulus and reforms; and a US economy decelerating towards stall speed amid low consumer confidence, job insecurity, a corporate wait-and-see approach on investment, and the stagflationary pressures of tariffs.While it remains unclear which path the global economy will take, absolute and relative price levels in markets suggest expectations that are slightly more weighted to favourable convergence over the long term. This implies a belief in Europe’s ability to overcome its fiscal inertia, China’s capacity to navigate its policy challenges and the resilience of the US economy despite its current disturbances. The bet is that the global economy is still likely to escape the clutches of stagflation and achieve a more balanced and sustainable growth trajectory. We should all hope this is right. More

One scoop to start: Bond fund group Pimco has recorded a 17 per cent paper profit on its portion of a £3bn emergency loan that it and other lenders are set to provide to ailing utility Thames Water.Welcome to Due Diligence, your briefing on dealmaking, private equity and corporate finance. This article is an on-site version of the newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday to Friday. Standard subscribers can upgrade to Premium here, or explore all FT newsletters. Get in touch with us anytime: [email protected] today’s newsletter:Wall Street stocks take a hitPerella Weinberg’s messy disputeUK supermarket chains struggle under PECurtains for the Trump dealmaking boom?It was a painful Monday for Wall Street that will cut more brutally into hopes of a dealmaking boom.The S&P 500 index closed down nearly 3 per cent while the Nasdaq Composite dropped 4 per cent — its worst day in two and a half years. And a whole host of finance stocks, from private equity behemoths to top banks, were among the hardest hit.The wipeout has been the biggest one-day market hit inflicted on financiers since Donald Trump moved into the White House in January.It was only a matter of time before the administration’s aggressive trade policies hit financial markets. But the volatility is also putting a scare into the expectations of dealmakers, who had hoped for a boom in large takeovers, private equity activity and initial public offerings.The mood shift was palpable in New Orleans last week, where the US’s top bankers and advisers gather annually for a conference at Tulane University’s Corporate Law Institute. It wasn’t quite as festive this year.The administration has prioritised a muscular trade agenda. “Maga doesn’t stand for ‘Make M&A great again,’” said Treasury secretary Scott Bessent on Friday.Unsurprisingly, private equity and boutique banks were some of the hardest-hit stocks on Monday. Private credit titan Ares Management’s shares were down 9 per cent; boutique bank Evercore dropped 8 per cent.Yet some financial firms’ shares were saved from the worst in the final hour of trading in New York as investors appeared to swoop in and buy the dip. (We’re looking at you, PJT Partners).Right on the heels of Mardi Gras, the gathering at Tulane would’ve been the perfect venue for a celebration of global M&A’s blistering return. Instead, this year’s takeaway was a collective disappointment that the hotly anticipated Trump bump has failed to materialise.While Wall Street’s top brass try to figure out whether the volatility is temporary or risks worsening, some advisers have begun to grow bearish.One top banker thought there was now about a 40 per cent chance of a recession. “So much for animal spirits,” he added.That view is becoming the consensus after Trump said during an interview on Fox News on Sunday that he wouldn’t rule out a recession or a new burst of inflation.Some on Wall Street sought solace online. As Third Point founder Dan Loeb put it on social media platform X late Monday night: “We are born alone; we die alone and we navigate the Trump stock market alone.” Jefferies chief executive Rich Handler replied: “We all need a hug sometimes.” Perella Weinberg vs Michael Kramer finally reaches courtWall Street’s ego-fuelled clashes are typically kept behind closed doors. Bitter text exchanges and awkward dinners with managers rarely see the light of day.Yet a decade-long legal battle between boutique bank Perella Weinberg Partners and a group of bankers the firm alleges plotted to start a rival group, has finally had its time in court over the past few weeks. And their heated exchanges have spilled out into the open.The crux of the fight is this: PWP has accused top restructuring banker Mike Kramer of improperly coaxing seven of the firm’s employees away to join a rival firm.After being fired, Kramer shortly thereafter formed Ducera Partners in 2015 with nearly all of the existing senior bankers in his restructuring group at his prior employer.Both sides are suing each other, and there’s a lot of money on the line. Kramer’s looking to recover more than $40mn in equity that the firm seized upon his termination, out of the nearly $100mn in total pay he accrued while working there over seven years.Meanwhile, PWP is seeking to recoup $40mn in damages stemming from the cost of hiring replacement bankers, plus bonuses it paid to Kramer and his dissidents around the time of their terminations.While the judge hasn’t made a formal decision, he has been sceptical about, first, the idea that PWP was damaged by Kramer’s alleged plot to start a new firm and, second, that the banker was unaware that his colleagues were taking steps to start a new firm.The trial included some star witnesses, including 83-year-old banker Joe Perella, who explained to the court how much Wall Street had changed since the 1980s.When he famously started his own boutique firm mere hours after resigning from First Boston Corporation, there were “no written agreements” prohibiting that sort of thing.“So they started tying people down with lockups and whatnot,” he said. “But that’s the world of today; that wasn’t the world in ‘88.”Supermarket chains and their private equity ownersGrocery stores have for decades attracted the interest of private equity buyers.But two of the UK’s largest recent takeovers — TDR Capital and the Issa brothers’ £6.8bn deal for Asda, and US group Clayton Dubilier & Rice’s £10bn acquisition of Morrisons — are struggling mightily.Both deals were struck amid an epic wave of takeovers between 2020 and 2021 when interest rates were low and markets were exuberant.They’re now burdened by heavy debt costs and high inflation, and their PE owners are facing financial pressure and questions over their large debt burdens, reports the FT.Grocers are volume-based businesses with low margins, meaning the underwriting is crucial. Such deals can either pay out or go sour quickly.In the past, PE groups such as KKR and Cerberus have made billions on the likes of Safeway and Albertsons by getting the timing right.But Asda and Morrisons face an uphill battle. The jump in interest rates in 2022 left the supermarkets paying hundreds of millions of pounds a year to service their debts. Both chains have also faced operational issues, which have eaten into their market shares.Some large PE executives now question whether grocery stores are a business worth their attention.“When you have 3 to 5 per cent ebitda margin, any swing you have hits you badly,” said the head of consumer at one major international buyout firm. “If you have those low margins and at some point any issue hits you, you don’t have any more cash flow to pay for your debt.”TDR and CD&R are still optimistic they can make money, partially by holding their bets longer. Their grocers have also embarked on asset sales, including selling and leasing back some of their properties, and refinancing deals.But thankfully for TDR and the Issa brothers, they only ploughed £200mn of their cash into the Asda deal.Job movesThe Wallenberg family has stepped up its succession planning: Jacob Wallenberg Jr, an executive at US start-up Ramp, will join the board of private equity firm EQT while Fred Wallenberg, a manager at industrial group Piab, will become a non-executive director of Investor, the main family investment vehicle.​​Barclays has named John Kolz as global co-head of equity capital markets. He joins from RBC Capital Markets.Davis Polk has hired Michael Diz as a partner for the firm’s mergers and acquisitions practice in northern California. He was previously co-chair of Debevoise & Plimpton’s M&A group in San Francisco.Clifford Chance has hired Joanna Nicholas as a partner for its global financial markets team as it expands its collateralised loan obligations work. She joins from Mayer Brown.Smart readsSecret stakes Wealthy Chinese investors are quietly funnelling money into Elon Musk’s companies using an arrangement that shields their identities from public view, the FT reports.‘Druckonomics’ Stanley Druckenmiller has spent years quietly running his family office, the FT writes. Now one protégé is Treasury secretary, another is vying for Fed chair, and the billionaire’s views on the US economy have become far more consequential.In-your-face Lulu Cheng Meservey — who’s run communications for Anduril and Activision — is turning public relations into a public brawl, Business Insider reports. She’s ruffling feathers in the process.News round-upKPMG to merge dozens of partnerships in overhaul of global structure (FT)Failed TDR-backed finance firm ‘misrepresented’ performance (FT)Tanker carrying jet fuel for US Navy struck by container ship in North Sea (FT)European Commission raids drinks groups over possible competition law breaches (FT)Lloyd’s of London forecasts $2.3bn losses from LA wildfires (FT)Ex-Barclays boss Staley accuses regulator of ‘destroying’ his reputation with ban (FT)Glencore backs cobalt investment company planning to list in London (FT)Donald Trump bets propel Michael Platt’s BlueCrest to 15% gain (FT)NHS landlord Assura poised to accept £1.6bn bid from KKR consortium (FT)Ford to inject €4.4bn into debt-ridden German subsidiary (FT)Due Diligence is written by Arash Massoudi, Ivan Levingston, Ortenca Aliaj, and Robert Smith in London, James Fontanella-Khan, Sujeet Indap, Eric Platt, Antoine Gara, Amelia Pollard and Maria Heeter in New York, Kaye Wiggins in Hong Kong, George Hammond and Tabby Kinder in San Francisco. Please send feedback to [email protected] newsletters for youIndia Business Briefing — The Indian professional’s must-read on business and policy in the world’s fastest-growing large economy. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.What do bankers and care home workers have in common? They are both more likely than your average employee to have volatile pay packets that gyrate over the course of a year.A newly available UK data set, which comes from HM Revenue & Customs payroll records on more than 250,000 working-age people between 2014 and 2019, has raised the lid on a hitherto hidden aspect of the world of work: the stability — or otherwise — of people’s pay from one month to the next.Unpredictable shifts are a well-known problem for people on zero-hours contracts, but this group only accounts for 3.3 per cent of those in employment. Analysis of the new payroll data by the Resolution Foundation think-tank shows that 14 per cent of continuously employed workers experienced four or more months in a year where their earnings deviated from their monthly average by 25 per cent or more. In other words, volatile pay is surprisingly prevalent in the British economy. The phenomenon is most common at the bottom and top of the wage ladder, accounting for 30 per cent of people in the bottom pay decile and 18 per cent of those in the top.This is a useful reminder not to conflate “instability” with “insecurity”, nor to assume it is necessarily a problem. We can safely assume that investment bankers can cope with the ups and downs that come from bonuses and so forth, for example.That said, it is a concern that volatile pay is most prevalent among the lowest-paid workers, who are the least likely to be able to build up savings to cushion the shocks. Nest Insight, the research arm of the UK state-backed pension fund, tracked 51 low-and-moderate income households in England and Scotland, which experienced on average a little over £500 in volatility each month. The research found that people in this position were vigilant and ingenious money-managers. They developed all sorts of coping mechanisms, from informal circles of friends and family who would supply short-term loans to one another, to moving money between multiple accounts to ringfence and pay for bills. But Sope Otulana, Nest Insight’s head of research, told an event hosted by the Resolution Foundation, at which I also spoke, that the sheer effort and stress was wearing people out. One couple in the study, who both had volatile incomes, made 170 transactions each month on average just between themselves, in an attempt to keep all the plates spinning.There are two ways to approach a problem such as this: tackle the root cause, or help people cope with the effects. On the former, the government is pushing through legislation to make employers give low-paid workers a right to a contract that reflects their regular hours, and compensate them for cancelling shifts last-minute. The advantage is that this will tackle not just zero-hours contracts, but also short-hours contracts, which only guarantee a bare minimum. The disadvantage is that it will be fiendishly complicated, and employers don’t like it. I have some sympathy for businesses, which have also been hit with higher taxes. But the new data underscores the need to rebalance some of the risk of fluctuations in customer demand from the shoulders of individual low-paid workers on to the books of employers.As for helping people cope with volatile pay, wouldn’t it be great if this was something the government safety net could do? Indeed, this was the initial intention of universal credit, which replaced six means-tested benefits and tax credits with a single household payment. It is paid monthly in arrears and is meant to respond swiftly to changes in income, earnings and circumstances. Before it was rolled out, I remember speaking to a farmer who hoped he would be able to recruit more British workers because UC would insulate them from the ups and downs of being paid by the piece for picking fruit.But if anything, it can have the opposite effect: people with unstable pay often find that UC exacerbates the problem. This is partly because of one-size-fits-all design flaws such as assessing income by the month, when many low-paid workers are paid by the week which means they have four pay packets in some months and five in others. The good news is that design flaws can be tweaked. Unlike many policy ideas, which often come with huge price tags, some technical changes here, such as converting non-monthly earnings into a monthly equivalent, could make a positive difference to people’s lives. Volatile pay isn’t always a problem, but in the places where it is, the answers are in [email protected] More

For the residents of some of Scotland’s Orkney Islands, one of the UK’s most remote areas, receiving mail is a logistical feat. In the past two years, newcomers have joined Royal Mail’s fleet of distinctive red vans and lorries on the archipelago: aerial drones.In partnership with Royal Mail, Skyports has operated a delivery service between Stromness and smaller islands Graemsay and Hoy since April 2023, with several flights a day.And soon, Skyports and Royal Mail will have a new rival, albeit further south on the UK mainland. Amazon, the US tech group, recently announced plans to launch a drone delivery service in the northern English town of Darlington, adding to its existing services in College Station, Texas, and Tolleson, Arizona.Unlike existing UK drone delivery services — as well as the Orkney operation, a hospital trust in south London uses uncrewed aerial vehicles to transport blood samples in partnership with Apian and Alphabet’s Wing — Prime Air will deliver directly to customers’ homes in Darlington, which was selected because Amazon has a fulfilment centre on the edge of town.Under the plans, eligible customers would be able to choose drone delivery as an option alongside same-day delivery, explains Amazon spokesperson Av Zammit. At launch, delivery time will be up to 2 hours, though the company hopes to get this down to under 30 minutes. “It’s all about speed”, he adds.By the end of 2029, Amazon wants to be delivering 500mn packages a year worldwide by drone, he says — one-tenth of the total number of packages it delivered by same- or next- day delivery last year.A drone used by Royal Mail for deliveries in the Orkney islands More

Supply chain visibility is a growing priority for chief executives dealing with increasingly complex and brittle logistics networks.The value of intermediate goods — those used to make other goods — traded internationally has tripled since 2000 as companies have expanded across borders, according to a McKinsey study.The Covid pandemic demonstrated how fragile some of these international supply chains were, with rapid shifts in demand leading to production bottlenecks and shortages. Yet there is every sign that supply chain disruption is becoming more common, whether due to worsening weather, natural disasters, cyber attacks or supplier failures.Supply chain visibility, which is the ability to monitor every item as soon as it leaves a warehouse or production line, “is getting more crucial”, according to Markus Mau, president of the European Logistics Association, a federation of national logistics networks. Having this information to hand allows businesses to pre-empt and minimise the impact of future disruption, as well as meet customer demand for cheaper and faster deliveries.Regulations such as the EU’s Corporate Sustainability Due Diligence Directive and the US’s 2021 Uyghur Forced Labor Prevention Act also mean companies need to know more about how and where their products were made.GPS trackers and RFID tags have been around for decades, and big logistics companies typically use Transport Management System (TMS) software to track shipments, but these older technologies have their limitations. They tend not to offer visibility across borders and modes of transport, while TMS software can be slow and difficult to integrate with other systems.At the same time, the logistics sector still relies on manual processes, which are slow and error-prone. Outdated infrastructure and technology silos, both within companies and between companies and their suppliers, prevent managers from proactively minimising risk. “Traditional supply chain visibility is broken,” says Chitransh Sahai, co-founder of GoComet, a logistics software start-up based in India. It is part of a new crop of supply chain visibility providers that are using emerging technologies such as AI and machine learning to provide customers with accurate data insights and end-to-end visibility. Many of these companies seek to offer a “control tower” view of the supply chain, amalgamating and making sense of disparate data points on one platform. There is every sign that supply chain disruption is becoming more common More