Aurelia Butler

Deposits at large U.S. banks rose $86.5 billion to $17.238 trillion from a week earlier, on a seasonally adjusted basis.Commercial bank lending increased $1.20B to a seasonally adjusted $12.133 trillion during the week. On an unadjusted basis, loans and leases fell by about $1.00B.Residential lending increased $3.7B, commercial real estate loans climbed $2.8B, while consumer loans were down $1.2B from the prior week.Commercial and industrial loans were down about $4.4B from a week ago on a seasonally adjusted basis.  More

Airlines placed orders for close to 1,200 new aircraft in the first five months of the year, underlining the resurgent demand from the industry as passenger traffic continues to rebound in the wake of the pandemic.The figures were bolstered by three standout deals, including the announcement in February by Air India to purchase 470 single-aisle and long-distance widebody aircraft from Airbus and Boeing, according to research by aviation consultancy IBA. Total orders to the end of May — including options — were 1,198. The large order haul underlines how quickly airlines’ demand has bounced back to pre-pandemic levels. The International Air Transport Association, an industry body, said this week that domestic travel had regained pre-pandemic levels and overall passenger traffic grew 46 per cent year-on-year in April led by carriers in the Asia-Pacific region. Aircraft demand has been fuelled by persistent industry-wide capacity constraints which have pushed out available delivery slots for the most popular models towards the end of the decade. Airbus and Boeing, along with engine makers, have been struggling to meet ambitious delivery targets amid a shortage of components since the peak of the pandemic. “Airlines are rushing to get capacity back, bringing stored aircraft back and ordering new ones. They are all keen to get to the front of the queue for deliveries,” said William McClintock, manager of market analysis at IBA. Net orders, which take account of cancellations, in 2022 were 1,592 — almost double the 812 orders placed in 2019, the year before the Covid pandemic all but brought air travel to a standstill, according to IBA data. The bulk of the net orders, or 1,436, were for single-aisle aircraft, notably Airbus’ best-selling A320 family of jets. Net orders for widebody aircraft which are used on long-haul international routes were 156, a fraction over the 148 tally in 2019. The wide-body recovery now “looks sustainable,” said McClintock. “Before the pandemic, delivery rates were outstripping orders and did not look sustainable.” The industry’s supply-demand balance is expected to remain out of kilter, however, for some time with executives warning that delivery problems will persist until at least next year. David Calhoun, chief executive of Boeing, warned on Friday that progress on fixing the industry supply chain problems had been “frustratingly slow”. “We’ve got to be smart about how we manage supply against that demand spike, and it is reasonably big,” Calhoun said at a Bernstein conference in New York. “On the flip side, on the supply chain, it’s just frustratingly slow-going to open up the constraints.”While Boeing had seen improvements in some areas of its supply chain, Calhoun said the ability of both the US group and Airbus to meet customer demand would still be “constrained five years from now”.Guillaume Faury, CEO of Airbus, said last month that the supply chain crisis gripping the industry could last into next year. More

And relax. After months of performative wrangling, the showboats of US politics have finally agreed to give the country more leeway in borrowing, a move that extinguishes the risk of a potentially cataclysmic default on its government bonds. Averting a disaster in the world’s core so-called risk-free asset, this is victory for common sense. If you are heavily invested in chipmaker Nvidia and other big-name US tech stocks, you are living your best life regardless of this whole pantomime. For everyone else, the deal on the debt ceiling is a rare jolt of good news in a worrywart year, as HSBC summed up nicely this week. “Recapping the first five months of 2023 reads more like a song list of doom-mongers rather than anything else,” Max Kettner, chief multi-asset strategist at the bank wrote this week. Aside from the US debt ceiling tussle, fund managers have had to contend with a string of US bank failures, alarm over a credit crunch and constant warnings about a horror show in corporate earnings. Conspicuously, risky markets have kept motoring higher anyway. Sure, US stocks in particular are dominated by a tiny clutch of high-flying names, without which they would be flat this year. Opinion is divided on whether that is, in itself, a cause for alarm. Either way, the S&P 500 has gained about 10 per cent so far in 2023 despite the laundry list of risks and shouty warnings of imminent disaster. Even Kettner, who has been an optimist on risky asset prices all year, is growing nervous this has gone too far.The question now is whether clearing a US default off the agenda clears the way for some punchy new rallies in US and indeed global stocks. The sense is that it is a necessary precondition, but probably not enough on its own. “The rally needs more,” wrote Mark Haefele, UBS Global Wealth Management’s chief investment officer. “While the prospect of a [debt ceiling] resolution is positive for risk sentiment and may support stocks in the near term, we still think the risk-reward balance for broad US equities remains unfavourable amid other macro challenges.”At the risk of sounding like a broken record, top of that list of macro challenges is, you guessed it, inflation – the corrosive force that chewed up and spat out fund managers last year by hurting both stocks and bonds. Few are keen on a re-run.Evidence that the dreaded i-word is simply not backing down is everywhere. The UK is something of an outlier, of course. But core inflation is proving annoyingly sticky, and food prices are up almost 20 per cent in the past year. Bracing stuff. Meanwhile, the US Federal Reserve’s favoured inflation measure – the personal consumption expenditure data – is still rattling along. Core PCE was shown earlier this month to be running at 4.7 per cent a year, well above the Fed’s target. The rapid return to low and, crucially, stable inflation, is stubbornly refusing to materialise.“People talk about the peak in inflation, but they don’t see the next waves coming,” says Frédéric Leroux, head of the cross-asset team at Carmignac in Paris. “We have had the first peak, but there will be a series of them in the coming years.”Too often, he says, investors and analysts infer that the rapid acceleration in price increases after the Covid-era lockdowns had one big fixable source – the shutdown and reopening of global supply chains – and another less fixable one: the war in Ukraine.Instead, broader interlinked forces are at play, from reshoring to the reset in global geopolitics to the green energy transition, all of which point to higher structural inflation for decades to come. “The market is of the view that inflation is transitory,” Leroux says. “It’s not.”For him this bolsters the case for active rather than passive fund management, for tilting away from growth stocks, particularly in the US, and instead towards unloved pockets of value. He is drawn towards Japan, Europe and Asia. “We have this big wave [of investor interest] from west to east,” he says.Michael Saunders, formerly a member of the Bank of England’s monetary policy committee and now a senior policy adviser at Oxford Economics, suggests this may be a little pessimistic.“Inflation will not go away as quickly as it came,” he says. “The ‘immaculate disinflation’ where it shoots up and then shoots down again looks less plausible now. But I believe that central banks will eventually get there. So we won’t have structurally higher inflation, but we will have structurally higher interest rates to make sure it’s not persistent.”This message is cutting through. Expectations for a cut in US interest rates to soften the blow of stresses in the banking system are now melting away. Futures markets have swung from anticipating that the Fed’s next move will deliver welcome relief with a cut, to baking in a roughly one-in-three chance of a rise.Strip out those high-flying tech stocks and suddenly it looks like those doom-mongers are still cracking out their greatest hits. Inflation remains top of the [email protected] More

Today’s top storiesCIA director Bill Burns travelled to China last month in a secret visit, highlighting White House concerns about deteriorating relations between Beijing and Washington. Here’s more on how the big beasts of corporate America are keeping up US engagement while pushing forward their own business interests. Russian state-backed energy company Gazprom has recruited, equipped and paid security guards to fight in Ukraine. The FT investigates.Former British prime minister Boris Johnson is giving unredacted WhatsApp messages directly to the UK’s Covid inquiry, bypassing the government, which has taken legal action to block release.For up-to-the-minute news updates, visit our live blogGood evening.“Another win for the seriously underestimated Joe Biden” was the FT editorial board’s view on the ending of the political stand-off over the US debt ceiling that could have triggered a default in the world’s largest economy. The deal, passed last night in the Senate with bipartisan support, raises the US borrowing limit until 2025 and caps government spending for the next two years. It comes to the palpable relief of investors and corporate America, which had feared a repeat of the showdown in 2011 when the brush with default resulted in a downgrade of the US’s triple A credit rating and a sharp sell-off in equities. This time however the deal led the benchmark S&P 500 to hit a nine-month high overnight while also lifting European equities and oil prices.A self-inflicted disaster may have been avoided, the FT says, but at some point the system is likely to miscalculate and self-detonate. “The sooner the debt ceiling is abolished, and replaced with sensible measures to target debt sustainability, the better,” it concludes. Attention now turns back to the fight against inflation, but new data today has underlined the scale of that challenge, with US jobs growth almost twice as strong as forecast, making it more likely that the Federal Reserve will continue to raise interest rates. The non-farms payroll numbers, one of the last big data releases before the Fed announces its next move, showed 339,000 new posts created in May. The unemployment rate rose slightly more than expected from 3.4 per cent to 3.7 per cent while wage growth edged down, albeit remaining at an elevated annual level of 4.3 per cent. Employment and wage growth are key drivers of inflation, particularly in services, and officials have been watching for a slowdown in these measures to show price pressures were slowing. Loretta Mester, president of the Cleveland Fed, said this week there was no “compelling” reason to wait before implementing another rate rise should data confirm more must be done to bring inflation under control, pushing back against those who argued the central bank should skip an increase at its next meeting. The deal on the debt ceiling has also “relieved a big piece of uncertainty” she added. Need to know: UK and Europe economyBrussels urged the UK to join a trade agreement between European, Middle Eastern and North African countries to ease the risks of post-Brexit car tariffs. A think-tank urged prime minister Rishi Sunak not to enter a car “subsidy race” with the US and the EU.UK house prices fell further in May as rising mortgage rates hit homebuyers and prompted owners to repay loans. Separate Bank of England data confirmed record numbers of households were paying back mortgage debt.Eurozone inflation fell more than economists expected to 6.1 per cent, its lowest level since Russia invaded Ukraine over a year ago, boosting hopes that the European Central Bank might stop raising interest rates this summer.The EU is working on a four-year multibillion-euro financing plan for Ukraine after allies criticised the bloc’s haphazard and unpredictable financial support for Kyiv. Ukrainian president Volodymyr Zelenskyy stepped up pressure for his country to join Nato.Mehmet Şimşek, a former Merrill Lynch economist, is set to return as Turkey’s finance and treasury minister, a move likely to go down well with investors at a time of intense strain on the country’s economy.Need to know: Global economyTop Canadian pension fund CDPQ became the latest western investor to pull back from China. The Bank for International Settlements, the umbrella body for central banks, said financial regulators needed to “up their game” to prevent future bank failures.A leaked draft of the World Health Organization’s new plan for future pandemics shows we haven’t learnt from Covid-19, writes Mariana Mazzucato, who chairs its Council on the Economics of Health for All.Brazil’s top foreign policy adviser Celso Amorim said the west must take “into account” Russian president Vladimir Putin’s security concerns, arguing that a belligerent stance against Moscow risked provoking a wider conflict.Need to know: businessGoldman Sachs warned of a “tougher environment” as it announced more lay-offs, highlighting the increasingly gloomy outlook on Wall Street as dealmaking and the market for initial public offerings falter.Tesla is opening up its proprietary charging network to rival marques in a decision that will shake up the nascent roadside industry.Saudi Arabia is planning a second lithium processing facility in a sign of how supply chains to process the metal for batteries are slowly developing outside China.Ever wondered what happened to that old laptop you dropped off at a retailer for recycling? We put trackers into old machines to find out and got some interesting insights into the UK’s informal trade in waste.Investors are starting to turn to artificial intelligence to guide their dealmaking, raising questions over the traditional roles of human relationships and judgment. Analysts estimate that AI and data analytics will be used in more than three-quarters of venture capital and early-stage investments by 2025.BHP, the world’s largest miner, has to pay $280mn to reimburse 30,000 workers for loss of public holiday payments over a 13-year period.Science round upA group of chief executives and scientists from companies including OpenAI and Google DeepMind warned the threat to humanity from the fast-developing technology rivalled that of nuclear conflict and disease. Sci-fi writer Ted Chiang talks about the limits of AI in his Lunch with the FT.China sent its first civilian into orbit as it prepares to launch a manned mission to the Moon by 2030 and achieve what President Xi Jinping has called the country’s “eternal dream” of becoming a space power.A top Chinese scientist said the country had investigated whether Covid-19 might have originated in a Wuhan laboratory — the first admission from a senior official that Beijing took the so-called lab leak theory seriously after years of denials.German start-up Proxima Fusion has secured initial funding to develop a revolutionary fusion energy machine that it hopes can provide a source of abundant, emissions-free power. Technological progress over the past decades is in no small part due to computer chips getting tinier, but have we finally reached the limits of what is possible? A new Big Read investigates. Something for the weekendTry your hand at the range of FT Weekend and daily cryptic crosswords.Some good newsScientists have discovered how to make more accurate predictions of genetic mutations that cause disease in humans after applying AI techniques to a database of DNA from apes, monkeys and lemurs. Owl monkeys in Argentina. The project used the genetic information of primates to analyse the DNA of 454,000 human participants in the UK Biobank project © Emilio White & Owl Monkey Project More

Many governments around the world are managing their public finances like a spendthrift teenager with their first credit card — regularly raising their credit limit with little regard for the mounting debt pile. Unlike adolescents, nations do not have the bank of mum and dad to bail them out. They are instead disciplined by financial markets, and central banks cannot endlessly keep buying their debt without stoking inflation. Indeed, as interest rates and demands for spending have risen, governments across the world can no longer ignore their elevated levels of debt.Although inflation and the economic recovery from Covid-19 have shrunk public debt from its peak, it is still well above pre-2020 records at about 96 per cent of global gross domestic product — or $86tn. Expensive lockdown support packages in rich nations are largely to blame. In Europe, energy subsidies since Russia’s invasion of Ukraine have added to the load. Pandemics and wars require a robust response, but with significant spending pressures ahead advanced economies will struggle to restrain borrowing.The US finally reached a political settlement to suspend its $31.4tn debt ceiling for two years this week, but its deficits remain on course to rise over the next decade. The EU is wrangling over fiscal rules that have been suspended since March 2020. The UK is projected to meet its target to have its debt ratio falling within five years, but only if the government sticks to tight post-election spending plans.High debts were less of a problem after the financial crisis, when interest rates were at record lows. Now that rates have shot up rapidly alongside total debt, interest spending as a share of GDP is set to remain elevated in many countries over the coming decade. Governments have been caught off guard by the shift in monetary policy. Japan could be next. With national debt standing at more than twice its GDP, if its central bank starts to normalise rates its interest spending will push even higher.High interest burdens come just as spending pressures are also rising. This includes the costs of acting on climate change, defence commitments prompted by rising geopolitical tensions, and rising health and pension outlays as populations age. Inequality has also raised demands on benefits, and national industrial policies are back in vogue. These pressures come before the fiscal space necessary to battle the next crisis is even factored in. With the growth outlook uncertain and the potential for rates to stay higher for longer, caution is warranted. As Britain’s gilt crisis last year showed, imprudent fiscal plans will lead investors to demand higher yields — and financial market instability is a real risk. With poorer nations already paying a premium to borrow, higher debts and rates risk arresting their development. A record number of developing nations are at risk of a debt crisis — Zambia, Sri Lanka and Ghana are among recent defaulters. Opaque borrowing from China has complicated matters. China’s borrowing has also surged, with “hidden debt” owed by local governments looking ominous.Caught between political and budgetary constraints, governments will need to get smarter about how they manage their finances. Structural reforms and investments in skills and infrastructure will take on greater importance. Patient capital could also be better deployed to help deliver on growth and the green transition. Taxes will also need to be more effective — for example more comprehensive carbon pricing would help shift the onus on decarbonisation away from public subsidies. Developing countries will need to get better at collecting taxes, while global efforts on debt restructuring and raising the firepower of international financial institutions remain vital. Borrowing cannot keep rising forever without consequence. It is time for governments everywhere to stop ducking the hard choices. More