Aurelia Butler

LONDON (Reuters) – The dollar bounced off two-week lows on Friday, shrugging off some of the weakness that has set in this month as expectations have grown that the Federal Reserve may not raise interest rates again for some time.Next week is packed with key monetary policy meetings, including those of the Federal Reserve, the European Central Bank and the Bank of Japan.Meanwhile, data on Thursday that showed a rise in the number of Americans filing new claims for unemployment benefits surged to the highest in over 1-1/2 years last week pushed the dollar index down 0.8% – its largest one-day fall since the depths of the regional banking crisis in March.The index, which measures the U.S. currency against six others, is down 0.6% for the week, set for its biggest weekly fall also since mid-March when fears about the health of the banking sector roiled markets. It was last up 0.2% on the day.”This jump put jobless claims close to a two-year high and has been read by markets as a clear sign of coming weakness in the U.S. economy and a more-hesitant-to-hike Fed,” CaxtonFX strategist David Stritch said.”The question now becomes, is this data isolated and the market simply read too much into it, or is it the first red flag that the U.S. economy may be weaker than first expected?”Money markets show traders are placing just a one-in-four chance of a 25-bp rate hike next week by the Fed, which would bring U.S. rates to 5.50%.”Before the meetings that we had this week I would have said I was expecting the status quo, now I’m not excluding something surprising, because a central bank like Canada, that had clearly telegraphed it was on hold, raised rates and said it was concerned about inflation,” said Chester Ntonifor, FX strategist at investment provider BCA.The Bank of Canada and the Reserve Bank of Australia both jolted markets earlier this week by raising interest rates to tackle stubborn inflation, which has raised expectations for other central banks to stay tough on price pressures.The ECB meets on Thursday and is widely expected to raise eurozone rates by 25 bps to 3.50%, given core inflation is still rising, even though headline inflation has softened. “For me, it’s clear that the ECB is going to stay hawkish, I don’t think they’re going to be more hawkish than what’s already priced in by markets, what is interesting is the Fed,” Ntonifor said.The euro eased 0.2% to $1.0762, backing off Thursday’s two-week high. Sterling, which jumped nearly 1% on Thursday, was flat at $1.2546, near one-month highs. The dollar rebounded against the Japanese yen, rising 0.46% to 139.55 after BOJ Governor Kazuo Ueda reiterated the central bank’s resolve to keep monetary policy ultra-loose. The Turkish lira tumbled more than 1% against the dollar to a record low after President Tayyip Erdogan appointed Hafize Gaye Erkan, a finance executive in the United States, to head Turkey’s central bank. More

LONDON (Reuters) – Investors poured money into cash and bonds in the week to Wednesday, according to data from BofA Global Research, ahead of next week’s pivotal central bank meetings from the Federal Reserve, European Central Bank and the Bank of Japan. Cash funds saw $70.6 billion of inflows, BofA said, citing EPFR data, on Friday.Inflows to cash so far this year have reached $837 billion, almost as much as record $917 billion in the whole of 2020. Bond funds saw $13.4 billion of inflows, while equity funds saw their second week of inflows ($7.7 billion), the strongest two weeks since January as investors were “dragged back into stocks”, BofA said. “Q1 recession fears melt into Q2 Goldilocks greed,” BofA analysts said in the note.”We remain bearish,” BofA said, adding that the “pain trade” over the next 12 months is the Fed raising rates to 6%, not lowering to 3%. The S&P 500 closed 20% above its October 2022 low on Thursday, while the tech-heavy Nasdaq 100 is up over 32% year-to-date.Tech funds, however, had their first weekly outflow ($1.2 billion) in eight weeks, after a record $8.5 billion inflow the week before, due to a surge of investor interest in stocks with exposure to artificial intelligence. BofA’s bull and bear indicator, a measure of investor sentiment, rose to 3.6 from 3.5 on improving credit technicals and steady emerging market stock inflows.A separate set of data showed global equity funds posted outflows for the eighth consecutive week in the week to June 7, while global bonds funds saw inflows for the 12th straight week. Data from Refinitiv Lipper showed investors withdrew a net $18.84 billion from global equity funds, the largest weekly net selling since March 15. More

Donald Trump yesterday said he had been indicted on federal charges in connection with classified documents found at his Mar-a-Lago residence in Florida last year and that he has been summoned to appear in a federal court in Miami on Tuesday.“This is indeed a DARK DAY for the United States of America,” Trump wrote on his Truth Social social media platform last night.A lawyer for Trump said that a legal summons from the Department of Justice indicated there were seven charges, including obstruction of justice, false statements and violations of the Espionage Act. Jim Trusty told CNN the charges were “ludicrous”.Trump is the favourite to win the 2024 presidential nomination for the Republican party and a criminal conviction would not disqualify him from running for the White House.But the DoJ’s decision to press charges adds to Trump’s mounting legal woes. He has already become the first former president to be charged in a criminal case in state court, after the Manhattan district attorney hit him with 34 felony counts of falsifying business records. He has pleaded not guilty.He could also face charges in the state of Georgia, related to the 2020 presidential election where Trump maintains he did nothing wrong. And New York attorney-general Letitia James has also filed a civil lawsuit against Trump and three of his adult children, alleging a sweeping fraud in connection with the Trump Organization. Last month Trump was ordered to pay $5mn to journalist E Jean Carroll after being found liable in a civil lawsuit accusing him of sexual abuse and defamation. Trump’s lawyers yesterday asked for a retrial in that case, arguing the financial reward was “excessive”. Analysis: A defiant Trump faces a much bigger political test in an unprecedented second indictment, this time with national security implications.Here’s what else I’m keeping tabs on today and over the weekend:Economic data: Canada releases its May unemployment rate.World affairs: Honduran president Xiomara Castro pays a state visit to China. Sport: Game four of the NBA finals takes place tonight with the Denver Nuggets leading Miami Heat 2-1 in the series. The finals of the French Open take place in Paris over the weekend and football’s Champions League final in Istanbul tomorrow night will pit Premier League champions Manchester City against Inter Milan of Italy.Do you work in consulting? Please tell us more about your working life in this FT survey.Five more top stories1. FT investigation: London hedge fund Odey Asset Management confirmed today it was in “active discussions” with all of its service providers. The news comes a day after the Financial Times published an investigation alleging the fund’s founder, Crispin Odey, had sexually assaulted or harassed 13 women. Morgan Stanley moved to sever ties with the fund after the publication of the story while JPMorgan and Goldman Sachs said they were reviewing their ties with the investor. Go deeper: Read the FT’s full investigation into how Crispin Odey evaded sexual assault allegations for decades.2. Smoke from Canada’s forest fires spread yesterday, affecting millions of people in the cities of New York, Philadelphia and Washington. The US National Weather Service warned the smoke would push southwards and westwards later today, worsening air quality in Alabama and Georgia but said some improvement was expected over the weekend. See the latest advice.Analysis: New York City jarred by ‘movie of the future’. 3. Traders are upping their bets that US interest rates will be higher for longer after Australia and Canada’s central banks this week unexpectedly lifted borrowing costs. Read more on the latest interest rate projections from the Treasury futures market. 4. Antony Blinken said the US would push for the normalisation of relations between Saudi Arabia and Israel, following his first visit to the kingdom as secretary of state. But Saudi Arabia has pushed back, publicly saying it first needed Israel to provide concessions to Palestinians. Read more on Blinken’s press conference in Riyadh. 5. A former executive of First Republic Bank has been appointed as the new governor of Turkey’s central bank. Hafize Gaye Erkan is Turkey’s first female central bank chief and is the latest sign of President Recep Tayyip Erdoğan rowing back on his unorthodox approach to economic policy following his recent re-election. Read more on the appointment.How well did you keep up with the news this week? Take our quiz.News in-depth

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Central to the lawsuit filed this week by the US Securities and Exchange Commission against Binance are allegations involving Merit Peak and Sigma Chain, two secretive companies directly or indirectly owned by the crypto exchange’s chief executive Changpeng Zhao.We’re also reading and watching . . . Gillian Tett: Finance is becoming an area of concern where deepfake technology could cause chaos after a recent video of an attack on the Pentagon caused share prices to wobble. ‘King of Hollywood’ 🎬: Can Bob Iger, back for a second reign as Disney’s chief, revive the Magic Kingdom? Watch our latest FT Film.Data points: Abundant parking has hollowed out urban life in the US, writes Oliver Roeder. One study found there was more square feet of housing for each car than each human.Graphic of the day

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Kyiv yesterday committed German-made tanks into battle against Russian positions in south-eastern Ukraine, launching the first heavily armoured assaults of its long-anticipated counter-offensive. One military expert said the fighting appeared to be “along the Tokmak axis” and a Ukrainian breakthrough would help sever Russia’s supply lines to the Crimean peninsula. Read more Take a break from the newsA darkly comic hairdressing whodunnit and the return of Chilean director Patricio Guzmán are among this week’s top picks of our film critic Danny Leigh. Additional contributions by Tee Zhuo and Benjamin Wilhelm. More

John Maynard Keynes’ third- or maybe fourth-most quoted quote, the one about how everyone’s dead in the long run, tends to be cut off too early. It can be found on page 80 of A Tract On Monetary Reform, in the middle of a discussion about how the quantity theory of money is misapplied. To very crudely paraphrase, Keynes says changes in the money supply don’t have a predictable effect on prices because people neither know nor care what economists say will happen. The theory of how money flows and purchasing power interact might be matched by facts, eventually, but to trust it is looking through the telescope the wrong way:[T]his long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.So anyway, Goldman Sachs has a note out this morning that forecasts how big the world’s capital markets will be by 2075. It builds on work published in December that did the same for the global economy and concluded: “By 2075, China, the US, and India are likely to remain the three largest economies and, with the right policies and institutions, seven of the world’s top ten economies are projected to be EMs.”To crudely paraphrase once again, Goldman says market cap-to-GDP ratios tend to increase with GDP per capita. And though real GDP growth slowed for both developed and emerging economies in the past 10-15 years, income convergence has continued in spite of a GFC and a pandemic. The persistency of EM-DM income convergence means the distribution of global income will shift towards a “growing group of ‘middle-income’ economies” that fall deeper into the warm embrace of market capitalism, it says. That means the US is knocked off its perch by China in 2035 and is overtaken by India in 2075, etc:Today’s update concentrates on future equity market capitalisation. It’s a fairly simple exercise where the long-term forecasts are run through a market cap-to-GDP table (because equity market value as a percentage of GDP tends to be higher among richer countries) and GDP per-capita estimates (where there’s more of a rising-tide-lifts-all-boats sort of relationship).As income levels rise, EM equity asset growth will outpace GDP growth, Goldman says. A national wealth effect means “the equitisation of corporate assets, the deepening of capital markets, and the disintermediation that takes place as financial development proceeds.”Its conclusion: watch India. Our projections imply that EMs’ share of global equity market capitalisation will rise from around 27% currently to 35% in 2030, 47% in 2050, and 55% in 2075. We expect India to record the largest increase in global market cap share — from a little under 3% in 2022 to 8% in 2050, and 12% in 2075 — reflecting a favourable demographic outlook and rapid GDP per capita growth. We project that China’s share will rise from 10% to 15% by 2050 but, reflecting a demographic-led slowdown in potential growth, that it will then decline to around 13% by 2075. The increasing importance of equity markets outside the US implies that its share is projected to fall from 42% in 2022 to 27% in 2050, and 22% in 2075.But also, keep buying all equities everywhere, says Goldman. They’re all good, in the long run:Do our projections that EMs’ share of global equity market cap will rise at the expense of DMs imply that long-term investors should overweight EM vs DM equities? Not necessarily.To the extent that the growth of EM capital markets comes from the equitisation of corporate assets — and we expect this to be the major driver — this does not have a clear implication for the performance of equities themselves.That said, we expect EM equities to outperform DM equities in the longer run for other reasons: namely, the combination of stronger long-run earnings growth and multiple expansion, as risk premia fall.What could possibly go wrong? Here are the risk factors: Of the many risks to our economic projections, we identified rising protectionism and climate change as the most important long-term risks. Of these, we view the first as the more important risk to the growth of capital markets — specifically, the risk that populist nationalism leads to increased protectionism and a reversal of globalisation.The successful development of open capital markets is particularly exposed to this risk because it relies on the ability and willingness of investors to commit capital to foreign jurisdictions. To date, the rise of populist nationalism has led to a slowdown rather than a reversal of globalisation, in our assessment. However, there are already examples of populist nationalism bringing about a clear reduction in openness to trade and capital flows — such as the impact of Brexit on the UK — and the risk of a broader reversal of globalisation is clear.The development of deep equity markets also requires a commitment from domestic policymakers to follow a mix of capital-market-friendly policies that encourage innovation, transparency, listing, protection of private property rights, etc. It is impossible to incorporate each of these elements into an analytical framework satisfactorily, which is why we have focused on the broader relationship that exists between GDP per capita and equity market capitalisation ratios. In modelling equity capital market growth in this way, we implicitly assume that the conditions required for economic growth are also the conditions required for capital market development. But this won’t always be the case, which presents risks (especially to our EMC projections for any individual country).Finally, the development and dissemination of Generative Artificial Intelligence is another important risk to our projections. Because it is likely to raise global productivity and GDP per capita levels, we view it as an upside risk to the development of global capital markets. However, as the effects appear likely to be larger in DM than EM economies, this implies that it poses a downside risk to the projected increase in EMs’ share of global equity market capitalisation.Goldman’s economists don’t disagree with Keynes about the ultimate value of this exercise, pretty much, though the latter is a better writer than the former:Making economic projections over a 50-year horizon for 104 countries inevitably involves a considerable degree of risk and uncertainty. Indeed, given the difficulties in forecasting even one or two years ahead, some readers may be sceptical of the value of forecasts that extend so far into the future. However, one advantage of making long-term projections is that cyclical risk — an important source of short-term forecasting error — tends to mean-revert over time, leaving GDP mostly determined by slower-moving trends in population, capital, and technology.Other long-term predictions are available. For example, 2075 is the year when an earthquake destroys Earth’s fusion engines and puts our frozen planet and its subterranean population into a collision course with Jupiter, according to 2019 film The Wandering Earth. How these events affect global equity market capitalisations is not a theme the movie investigates in comparable detail. More