Aurelia Butler

Today’s top storiesThousands of residents of southern Ukraine were struggling to escape from flooded homes and towns after the destruction of the Kakhovka Dam sent a torrent of water along the war zone’s southern frontline. Here’s our military briefing on who has most to gain from the dam breach.The Telegraph newspaper and the Spectator magazine are set to be sold after the Lloyds Banking Group pushed their parent group into receivership over debts owed by the Barclays, the family that owns the UK titles. New York is suing Hyundai Motor and Kia over a “virtual explosion” of car thefts after the companies failed to install immobilising devices on vehicles. Thefts surged at the end of last year after video tips for thieves went viral on TikTok.For up-to-the-minute news updates, visit our live blogGood evening.New forecasts show the global economy has weathered a turbulent period earlier this year when banks were collapsing on both sides of the Atlantic, but fresh data from China and the eurozone suggest it’s not yet time to bust out the champagne. The OECD said the world economy would expand by 2.7 per cent in 2023 and 2.9 per cent in 2024, while the US would avoid recession, India would grow strongly and China would meet its target for this year of 5 per cent growth. “The global economy is growing and unwinding from the shocks we’ve seen over the past couple of years,” the group’s new chief economist Clare Lombardelli said, while pointing out that this year was still expected to be weak by historical standards.

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The World Bank yesterday also said 2023 growth would be better than expected at 2.1 per cent but cut its forecast for 2024 to 2.7 per cent, warning of the lingering effects of the war in Ukraine and tight monetary policy.In Europe, markets took a knock after data showed industrial production in Germany bounced back less than expected in April. Tomorrow could be a symbolically important day for the wider eurozone when economists expect official growth figures to be revised down to show output shrank in the past two quarters, denting some of the optimism of recent months over the bloc’s bounceback. The data, including yesterday’s flat retail sales figures, will be closely watched by policymakers at the European Central Bank ahead of their interest rate decision next week.Although the OECD is confident China will eventually get back on track, new trade data this morning showed the world’s second-largest economy was still struggling to revive growth, with exports shrinking more than expected in May. Other indicators in recent weeks have also pointed to an uneven and slowing recovery. Still, as the effects of the pandemic and the energy crisis begin to fade, it was time for governments to get their public finances into shape, withdraw blanket fiscal support and target help on those who really need it, the OECD’s Lombardelli told the FT. Rebuilding these fiscal buffers, she argued, would help countries fight high inflation and put them in a better position to deal with the costs of an ageing population. Need to know: UK and Europe economyUK hopes for a digital trade deal with the US have encountered resistance in Washington just as prime minister Rishi Sunak arrives in DC for talks with president Joe Biden on a new economic alliance.UK house prices shrank for the first time on an annual basis for more than a decade last month, according to mortgage provider Halifax. Financial institutions fear being swamped by applications from borrowers rushing to refinance as mortgage rates rise.New sector data showed UK grocery spending soared last month as food prices remained at elevated levels. In the eurozone hopes are rising that prices are on the way down, exemplified by the slide in German butter.And if you’re a Brit looking for some relief in the sun, think again: new airport strikes are set to cause a “summer of strife”.The UK’s Labour party would win with a majority of 140 seats if an election was held this week, a poll of 10,000 voters found. But the survey showed there was still a lot to play for ahead of the actual vote, expected next year, with a large bloc of undecided voters more likely to lean towards Rishi Sunak’s Conservatives. A Big Read series examines the political and (surprisingly bold) economic agenda of Labour under Sir Keir Starmer’s leadership.The Turkish lira plunged today by the most since late 2021 as Pesident Recep Tayyip Erdoğan’s new economic team began its pivot towards a more “rational” economic policy.Need to know: Global economyUS secretary of state Antony Blinken will visit China this month in a sign that Beijing and Washington hope to stabilise their current turbulent relationship. The US Treasury’s $1tn borrowing drive is set to increase the strain on the country’s banking systems as it returns to the markets after the drama of the debt ceiling battle.Chief economics commentator Martin Wolf tackles the “myth of the Asian century”. What is really happening, he writes, is a world rebalancing as European and American dominance starts to fade.Australia warned the EU it would not sign off on a trade deal unless the bloc opened up to more of its farm products. Canberra meanwhile has extended an “olive branch” to China on its trade disputes.Need to know: businessVenture capital giant Sequoia Capital, which made bets on tech companies such as TikTok parent ByteDance, is splitting its China business into a separate entity.The EU is considering a mandatory ban on companies deemed to present a security risk in their 5G networks such as China’s Huawei. The UK is removing all surveillance cameras made from Chinese companies from sensitive government sites.The latest beneficiary of the energy crisis is commodity trader Trafigura, which reported record net profits of $5.2bn in the first half of the year as well as giving shareholders a record $3bn dividend.As we highlighted in Monday’s DT, warnings are proliferating about the rapid growth of AI and the need for regulation. The IMF’s Gita Gopinath said automation in manufacturing served as a cautionary tale, after economists incorrectly predicted large numbers of laid-off car workers would find better opportunities in other industries.Consumer groups are turning to rail to transport goods across the UK amid concerns over road congestion, lorry driver shortages and the environmental impact of trucking. The rail network currently transports only about 10 per cent of freight. Smaller boutiques and brokers are being picked off by bigger players as global dealmaking slows. Higher interest rates and a transatlantic banking crisis choked off M&A in the first quarter, almost halving the value of transactions.The World of WorkFake recruiters are increasingly targeting jobseekers as they benefit from companies moving hiring processes online during the pandemic.The digital nomad has gone corporate. The dream of working from anywhere that took off during the pandemic has collided with the realities of tax, immigration, cyber security and labour laws, writes columnist Sarah O’Connor.About half of large multinationals are planning to cut office space in the next three years as they adapt to the rise of homeworking, according to a new survey. Some fear that Generative AI could make many jobs redundant, but could it also rid us of some of the more mundane parts of our daily toil? Listen to the new Working It podcast. Some good newsA Ukrainian start-up is making a biodegradable alternative to polystyrene — out of mushrooms. More

When Sequoia Capital China was raising $9bn to invest in the country’s start-ups last year, Helen Huang was among those keen to back the venture capital group.“China is not going to decouple its markets from global markets,” said the private equity investor at MassPRIM, which manages $100bn in pensions for Massachusetts state employees and teachers.According to the US pension fund’s board minutes from May last year, provided to the Financial Times through a public record request, Huang recommended that MassPRIM invest $150mn into Sequoia China, lauding the group’s ability at “deciphering the signals from policymaking and regulations”. “Superlative. Can I use the word ‘superlative’?” gushed state Treasurer Deborah Goldberg on Huang’s risk assessment. All nine members of the pension’s board present voted for the deal.Just over a year later, deteriorating trade relations between the US and China have precipitated the break-up of Sequoia, shattering the view that one of the world’s most successful venture capital empires could continue to navigate the tricky geopolitics of investing across the world’s two biggest markets.The Silicon Valley group said on Tuesday that its US and European operations would be carved away from its China arm, managed by renowned investor Neil Shen who had led early investments in Alibaba and TikTok parent ByteDance. The Chinese unit will take the name HongShan, a Chinese translation of Sequoia and remain in charge of nearly $56bn in assets under management. Sequoia’s Indian and south-east Asian business would form a third entity. The changes will take place by March next year.In an interview with the Financial Times, Sequoia Capital boss Roelof Botha lauded the success of the newly separate entities: “When I joined Sequoia in 2003 these businesses [in China and India] did not exist. They are now flourishing businesses in their own categories.” He said splitting Sequoia into three was the simplest way to prevent a trio of entities with global ambitions rubbing against one another. But Botha also drew a telling historical parallel to describe how much investing conditions had changed. “The number of years that have elapsed since we embarked on this is the same as that between World War I and World War II,” he said. Investing in China has become increasingly complex for US institutions in general, but the turbocharged growth of Sequoia China over the past decade and its international investor base have left it particularly exposed.Sequoia China has faced increased political scrutiny in the US for its investments in Chinese companies that Washington alleges pose a national security risk, including the sanctioned drone maker DJI and AI start-up DeepGlint, which has been accused of facilitating surveillance of Uyghurs in Xinjiang. Sequoia China’s backing of ByteDance has also become problematic, with the US threatening to ban its viral social networking app in the country, and the controversy complicating plans for an initial public offering of the Beijing-based company.The Biden administration, meanwhile, is considering an investment-screening mechanism to stem the flow of US capital into Chinese groups in sensitive sectors such as semiconductors and artificial intelligence. Sequoia has always stressed that the US and European, Chinese and Indian entities have operated with “independent ownership and investment decision-making”. But a shared brand that drew global investors to each of the geographical units has more recently become a magnet for critics who link a high-profile US investor to contentious Chinese companies.“Sequoia is successful in both geographies independently,” said one executive at a Silicon Valley fund. “But you can’t be wining and dining the US president and have investments which could be controlled by the CCP. The geopolitics made it impossible to have that exposure so in the end they cut it off. India, I think, is collateral damage.” As part of the split, Sequoia will end a profit-sharing arrangement with its Chinese and Indian entities. That arrangement has allowed individual partners at the entities to share in the rewards when companies in another entity’s portfolio are sold or go public.The split also unwinds a partnership that made Shen a billionaire, while enriching Sequoia’s US partners and investors. That structure was designed to create shared interest in the group’s global success, but Shen’s huge profits from China appeared to change the dynamic.Two people close to Shen said he had begun to bristle at what he considered to be China’s outsized contributions to the profit-sharing pool. Shen “was agitating to be independent for a long time”, one of the people said. HongShan said the split was a collective decision that was made recently.According to a person with direct knowledge of Sequoia’s profit-sharing arrangements, the US and Europe business has accounted for a greater proportion of total distributions to the pool overall. Sequoia did not provide precise details of its profit-sharing. It said the arrangement was always designed so that regional entities would ultimately receive profits in direct proportion to their contribution to the profit pool.The break-up will also end a practice of employees in one Sequoia region investing alongside funds in another region — a strategy that has been lucrative for partners who have put personal wealth to work overseas.Shen, for example, brought Sequoia’s global growth fund into rising ecommerce group Pinduoduo in an early funding round. Filings show former Sequoia US leader Doug Leone has already cashed out about $8mn of Pinduoduo shares.Sequoia’s challenges have escalated as Beijing led a crackdown on consumer internet groups, and left Chinese venture capitalists chasing sensitive sectors aligned with government priorities at the heart of the US-China rivalry. “Over the past couple of years Sequoia has faced a lot of pressure from the US side on its China business,” said one consultant to LPs in China. “The split means Neil can now find the right deals and invest without worrying about political pressure from the US.”HongShan called the remark “completely baseless” and said that with a substantial base of limited partners from the US, it would continue to adhere to strict compliance protocols. A changing of the guard at Sequoia — with former “senior steward” Leone being replaced by Botha at the top last year — may have edged Sequoia closer to decoupling, according to two venture capitalists who have invested alongside it. Leone was a leading proponent of the close relationship with China as “the guy who pushed it”, according to one of the investors. Botha, he added, “doesn’t have much interest”. Sequoia said the decision to split was made by five current leaders of group, including Botha and Shen, who “collectively decided that the benefits no longer outweighed the costs”.

Shen’s HongShan will now be left standing on its own as it approaches institutions for new funding in a few years’ time. To prepare for this test Shen’s team has taken over managing relationships with limited partners and brought fundraising activities in-house. When Sequoia China raised $9bn last year, about half of that came from US investors such as MassPRIM, University of Texas Investment Management Company and the University of Washington endowment, according to PitchBook. To appease its American investors, Sequoia China has begun consulting outside policy experts before agreeing to sensitive investments. The group has also slowed the pace at which it is investing the newly raised $9bn, one person familiar with its activities said. Sequoia’s move has led other US VCs to consider their own exposure to China. “Is this a harbinger of things to come?” asked a partner at a rival venture group. “Funds which had global ambitions, do they change their strategy?” More

Turkey eased its long-running battle to defend the lira, sending the currency into its biggest fall in more than a year as President Recep Tayyip Erdoğan’s new economic team implements more “rational” policies.The currency on Wednesday dropped 6.9 per cent to a record low of 23.17 against the US dollar, leaving it down almost 10 per cent since this weekend’s appointment of Mehmet Şimşek as finance minister. The lira has not ended a day with such a big fall since December 2021, Refinitiv data shows. In comments posted on Twitter on Wednesday after being sworn in, Şimşek said his “immediate priority” was “to strengthen our team and design a credible programme”, although he warned that “there are no short-cuts or quick fixes”.The former deputy prime minister, who is well regarded by foreign investors, has promised to restore “rational” economic policies in Turkey after years of interest rate cuts and unconventional measures to prop up the currency. “This exchange rate . . . was heavily suppressed by alternative financial [measures] before the election,” said Enver Erkan, chief economist at brokerage Dinamik Yatırım Menkul Değerler. “The new period will bring a more liberal approach in this regard and will create a situation that will enable the lira to get closer to its real value.”The fall this week highlights how investors are increasingly expecting a shift towards more orthodox measures in the aftermath of Erdoğan’s election victory last month. Some analysts also expect a new central bank chief will be appointed with a more orthodox economic approach. The pace of the lira’s depreciation has been rapid: Goldman Sachs said at the weekend that it expected the lira to fall to 23 against the dollar in the next three months, a forecast that came to fruition in a matter of days.One big bank in currency trading told clients on Wednesday that Turkish state banks appeared not to be intervening in the market, according to a person familiar with the matter. An executive at a western bank noted the same trend. State bank lira purchases have been an important tool in propping up the currency in recent years.

An executive at a Turkish bank, who asked not to be named, described Wednesday’s move as an “intentional devaluation” as opposed to a full loosening of controls. Currency analysts broadly say the lira is overvalued in relation to Turkey’s economic position, even after falling more than 60 per cent against the dollar over the past two years.Erdoğan had insisted on huge interest rate cuts, with the main policy rate falling from 19 per cent in March 2021 to 8.5 per cent on Wednesday despite intense inflation. This has knocked “real”, or inflation-adjusted, rates deep into negative territory.“With such pressure on the lira, we think it is a question of when rather than if the currency weakens significantly, with the probability of a larger one-off adjustment having increased,” Goldman said in a note to clients, predicting a fall to 28 against the dollar in the next year.The central bank has burnt through about $24bn in foreign currency reserves this year alone, in part in an attempt to boost the lira. The reserves have also been used, economists say, to finance Turkey’s big current account deficit, which itself has been made worse by a lira that many exporters have said is too strong to be competitive. Murat Gülkan, chief executive of OMG Capital Advisors in Istanbul, said “things are beginning to make sense” with the currency, given that inflation was “running high”. While the lira has fallen sharply, other indicators have pointed to relief among investors about the proposed policy shift. Turkey’s dollar bonds have rallied in price, while the cost to protect against a default has eased markedly.The country’s stock market has also risen, with the benchmark Bist 100 index rallying 3.2 per cent on Wednesday to bring its gains for the week to almost 9 per cent. More

Switzerland’s largest bank, which is currently completing its takeover of rival Credit Suisse had originally planned to report its earnings on July 25.UBS was considering delaying its quarterly results at least until the end of August, as the Swiss banking giant deals with complexities over its takeover, the Financial Times reported on Sunday. More

TOKYO (Reuters) – Japan is committed to putting economic growth before fiscal reform, Prime Minister Fumio Kishida’s government said in its draft mid-year policy framework, while signalling an end to crisis-mode stimulus spending to return to one in “peacetime”.The draft plan, which was presented at Kishida’s top economic advisory panel on Wednesday, underscored the challenge for the leader, who is seen as a fiscal hawk, to strike a balance between economic growth and fiscal consolidation.Japan has the industrial world’s heaviest public debt that is more than double the size of its economy, the world’s third-largest. Like many other countries, it is now facing additional fiscal strains due to heavy spending rolled out to cushion the economic blow from the COVID-19 pandemic.”As we emerge from the coronavirus crisis and as the economy normalises, we strive to prevent crisis-time fiscal spending from being prolonged, while bringing spending structure back to peacetime,” the draft report said.The closely-watched policy framework will be approved by Kishida’s cabinet this month, along with a separate action plan on his “new capitalism” agenda.”Japan has been an outlier of the global trend that has moved away from crisis-mode stimulus. Policy normalisation is definitely a step in the right direction,” said Takahide Kiuchi, executive economist at Nomura Research Institute.”It’s easier said than done though, given his big spending plans with doubling defence and child care spending,” he added, noting lawmakers were also bracing for a potential general election.For the second straight year, the framework dropped a specific timeframe to balance the budget, reflecting a compromise Kishida may strike with reflationary forces within his own Liberal Democratic Party ₍LDP₎. Analysts see the budget-balancing goal as rather symbolic.”We will not abandon the flag of fiscal reform,” Economy Minister Shigeyuki Goto told reporters after the panel’s meeting. “There’s no change to the government stance of striving to achieve a primary budget surplus in fiscal 2025,” Goto added.Currently, Japan aims to swing a primary budget surplus, which excludes new bond sales and debt-servicing costs, by the fiscal year ending in March 2026.The target was originally set for the early 2010s but has been delayed four times since then.Several rounds of heavy stimulus spending to cope with the pandemic pushed up the annual budget from some 100 trillion yen to around 140 trillion yen ($1 trillion) during fiscal 2020 to 2022.Japan’s delay in unwinding fiscal largesse has prompted International Monetary Fund (IMF) to urge the country to pursue fiscal consolidation by meeting any increase in government expenditure with steps to boost revenues. The framework said the government will conduct a review of any progress of its fiscal reform in the fiscal year 2024 so as to create a medium-term economy and fiscal scheme.Since he took office in October 2021, Kishida has pledged to achieve a virtuous cycle of growth and redistribution under his “new capitalism” while suggesting that previous administrations’ stimulus policies created social division and inequality.The draft features the expansion of new child care measures and households’ assets as well as overhaul of asset management firms. It also seeks labour reform, the need to cope with artificial intelligence (AI), strengthen supply chains and promote start-up firms and green and digital transformation.”We will realise sustainable growth by mobilising budget, taxation and regulatory reforms, aiming to exit deflation and overcome falling childbirth,” it said.”We will conduct flexible policy while working closely with the Bank of Japan” which aims for the 2% inflation target accompanied by wage hikes. ($1 = 139.4600 yen)(This story has been refiled to fix formatting) More

WASHINGTON (Reuters) – The U.S. economy is strong amid robust consumer spending but some areas are slowing down, U.S. Treasury Secretary Janet Yellen said on Wednesday, adding that she expects continued progress in bringing inflation down over the next two years.Yellen, in an CNBC interview, also said that, while banks may struggle with commercial real estate and face some consolidation, there is ample liquidity in the system and that banks should generally be able to withstand any strain. More