Aurelia Butler

Good morning. Vladimir Putin has vowed to retaliate against what he claimed were Ukrainian drone strikes on Moscow, which exposed Russia’s growing vulnerability to blowback from his invasion. Russia’s president accused Ukraine of “terrorist activity” and “provoking us to respond with tit-for-tat measures” after strikes hit residential areas in the Russian capital yesterday, which he said were aimed at “scaring Russian citizens and hitting residential buildings.” Although Putin did not say how Moscow would respond and claimed Russia did not attack civilian targets in Ukraine, he made his first reference for several months to a possible nuclear escalation of the war, accusing Ukraine of trying to cause an accident at a nuclear power plant in occupied Zaporizhzhia or use a dirty bomb. Here’s what else I’m keeping tabs on today:GDP reports: The latest growth figures for India and Turkey are due today. The latter will indicate the scale of the economic challenge Turkey’s re-elected president Recep Tayyip Erdoğan will face in his next term. UK trade deals: Britain’s free trade deals with Australia and New Zealand come in force today. (Reuters) Japan factory output: Monthly industrial production figures will be published today. Five more top stories1. A top Chinese scientist said China 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 heated denials. The former head of the Chinese Center for Disease Control and Prevention made the remarks during a BBC Radio 4 podcast.2. Western countries are increasing pressure on Turkey to admit Sweden to Nato, as Stockholm makes a final push to overcome Ankara’s opposition to its membership. The impasse has driven a rift between Turkey and its Nato allies. Opinion: In the FT, Sweden’s prime minister writes that a new anti-terror law entering force on Thursday delivers “on the last part” of an agreement to secure Ankara’s support for entry into the military alliance.3. China has called for “stable and constructive” ties with the US in a meeting with Elon Musk that highlighted the complex relationship between Beijing and the billionaire boss of Tesla, Twitter and SpaceX. Read the full story on Musk’s first visit to Beijing since the outbreak of the coronavirus pandemic. More on US-China relations: In the latest sign of tensions between the two countries, Beijing has declined the Pentagon’s request for a meeting at a security forum in Singapore this week.4. Nvidia has become the first chipmaker to hit a $1tn valuation, leading a surge of enthusiasm across Wall Street for companies seen to benefit from the latest developments in artificial intelligence. Its high-water mark valuation puts it among an elite group of US stocks including Apple, Microsoft, Amazon and Google’s parent Alphabet.5. The head of Goldman Sachs’ private equity business in Asia says she has stopped trying to raise money in the US because of geopolitical tensions between Washington and Beijing. Read more from her remarks at a private equity conference in Hong Kong yesterday. The Big Read

Centerview’s founding partners Robert Pruzan, left, and Blair Effron © FT Montage/Reuters/Dreamstime

Centerview has an envied reputation, earning staggering fees advising on some of Wall Street’s largest transactions despite a modest headcount and largely avoiding the internal drama that has paralysed other banks — until recently. Now, a bitter lawsuit with a former partner is bringing that harmonious culture — and the firm’s future — into question.We’re also reading . . . ‘De-risking’: This D-word has quickly moved from obscurity to ubiquity, writes Gideon Rachman. While the theory behind de-risking is reasonably clear, the practice is much murkier.Business of nature: We need to move nature from the realm of nice-to-haves to the heart of the modern economy, writes Siddarth Shrikanth.The ‘suitcase principle’: Like clothes in a suitcase, white-collar jobs seem to expand to fill the available time, whatever the progress of technology, writes Sarah O’Connor.Chart of the dayA self-made Chinese billionaire with a fascination for the science of metals is posing a fundamental challenge to a traditional motor industry. Bai Houshan dominates a key part of the global market for a vital component of EV batteries. Here’s what the story of his success teaches us about challenging China’s ascendancy in cleantech.Take a break from the news. . . and check out six of Hong Kong’s best rooftop bars. The FT’s Orla Ryan, a relative newcomer to the city, shares with readers where to head for a cocktail for views that are guaranteed to give you a lift. At some, you feel closer to the sky than the ground below. Additional contributions by David Hindley and Emily Goldberg More

The profitability of UK private non-financial companies remained stable in the final quarter of last year, according to official data released on Tuesday that supports interest rate-setters’ findings that higher corporate profit margins are not pushing up inflation. Figures from the Office for National Statistics showed that companies made a net rate of return of 9.8 per cent in the three months to December 2022, unchanged from the third quarter and below the prevailing rate before the onset of the coronavirus pandemic. The data will underpin the Bank of England’s view that “greedflation”, where businesses drive up inflation by increasing prices beyond the extent that their own price pressures would demand, is not responsible for driving up the rate of inflation, which stood at 8.7 per cent in April. Although the government has suggested introducing price caps on food, now the biggest driver of inflation, BoE governor Andrew Bailey last week said there was no evidence of profiteering among food suppliers or retailers, or other non-energy and non-financial groups. He told MPs that food prices had risen partly because of steeper raw material costs and energy prices, and partly because food producers had agreed to buy commodities at the high prices reached last summer. Bailey said that although corporate profits had increased, the trend was not the result of profiteering but “a story about rebuilding margins that were squeezed, particularly in the early part of last year”.Jonathan Haskel, who also sits on the BoE’s Monetary Policy Committee, said in a speech last Thursday that “the contribution of rising business profits to recent inflation is small”. Tuesday’s figures will reinforce the consensus among members of the MPC, with the 9.8 per cent profit rate in non-financial companies lower than every pre-pandemic year stretching back to 1997 except 2009. Excluding companies operating in the North Sea, the net rate of return on capital recovered in the fourth quarter as wholesale oil and gas prices fell, offsetting a drop in the profitability of energy companies.

However, the level of profitability for companies on the mainland of the UK was still lower than before the onset of Covid-19. The average net profitability of companies operating in the North Sea declined from 23.9 per cent in the third quarter to 12.7 per cent in the fourth quarter, according to the ONS. Most economists expect supermarkets to pass on price cuts in raw materials as they feed through from commodity prices to retail prices over the coming year, helping to bring down headline rates of inflation. Julian Jessop, a fellow at the Institute of Economic Affairs, a free market think-tank, said strong competition among retailers with “tiny profit margins” made price caps “pointless” as a way of lowering inflation. More

Rishi Sunak is set to ignore calls to secure a UK-US trade deal when he visits Washington next week for a bilateral meeting with President Joe Biden.Talks to strike a post-Brexit trade deal were derailed by the Covid-19 pandemic and issues such as whether to allow some US agricultural products into the UK market.Some members of the US Congress had hoped that the negotiations could be revived after Britain and the EU struck a deal over trading arrangements in Northern Ireland earlier this year, removing a huge source of tension between Washington and London.Brendan Boyle, a Democratic congressman from Pennsylvania, said in March that he hoped trade discussions would be held “in short order” as a result of the agreement — although the Biden administration has not prioritised forming full trade deals with other countries.But when announcing Sunak’s trip to the US, Downing Street said on Tuesday the prime minister was not trying to secure a trade agreement, pointing out that bilateral trading relations were already strong.“We are not seeking to pursue a free trade deal with the US,” a spokesperson for Number 10 said. “It’s worth remembering the trade relationship, as it currently stands, is worth £279bn already. We have achieved all of that without an FTA.”However, the spokesperson said the government would seek closer partnerships with some specific states, including Utah, Texas, California and Oklahoma. The UK has set up deals with North Carolina, Indiana and South Carolina.These state-by-state agreements have typically been “memoranda of understanding” to cut barriers to trade and paperwork while promising collaboration in areas such as clean tech and energy infrastructure. US states do not have the power to strike full trade deals with other sovereign nations, however, and so piecemeal agreements with individual states are potentially less lucrative for UK businesses than a full, congressionally approved trade agreement, which could include eliminating tariff barriers.An official with the US National Security Council said a free trade agreement was not on the agenda for the meeting between Biden and Sunak but they would discuss boosting economic ties.Last March, Washington agreed to ease steep tariffs on UK steel and aluminium as the two countries moved to resolve a Trump-era trade dispute. Downing Street said Sunak’s visit, on Wednesday and Thursday, would be a chance for the two countries to enhance their “co-operation and co-ordination” on issues including securing supply chains and transitioning to zero carbon.“It will also be an opportunity to discuss issues including sustaining our support for Ukraine as we build on the success of our G7 summit in the run-up to the Nato summit in July.”Meetings with business leaders and congressional figures are also on the agenda.

Nick Thomas-Symonds, Labour’s trade spokesperson, said Sunak’s trip was evidence of “broken promise after broken promise from this Conservative government on trade”. “A US deal was promised by the end of 2022 in their 2019 manifesto that Rishi Sunak was elected on, now it is clear talks are not even starting and the Tories don’t even want to pursue one,” he said. Sunak and Biden have met several times in recent months — in San Diego in March, in Belfast in April and during the G7 summit in Japan in May.The UK did not have any bilateral trade deals for the 40 years it was inside the EU because all such policies for member states are conducted through Brussels.Two of the new free trade agreements it has since struck — with Australia and New Zealand — will take effect this week.White House press secretary Karine Jean-Pierre said the two leaders would discuss “efforts to continue strengthening our economic relationship” and that they would also “review developments in Northern Ireland”. More

The head of Mercedes-Benz has called for a delay in post-Brexit rules that would add stiffer tariffs on shipments to and from the UK and Europe from next year, saying the car supply chain in Europe was not yet self-sufficient enough to meet tougher sourcing requirements.The German carmaker’s chief executive Ola Källenius said January 2024 was “too soon” to bring in tariff rules set out in a post-Brexit trade agreement, rules intended to encourage more local sourcing of vehicle components. Under these so-called rules of origin, electric cars exported between the UK and the EU will need to have 45 per cent of their parts sourced within the two regions to avoid 10 per cent tariffs. Källenius joined other European carmakers lobbying for a delay, including Stellantis boss Carlos Tavares who on Tuesday called for the phase-in date to be pushed back to 2027, warning the current timeframe was a “lose lose” situation for both the EU and the UK.“As the production capacity of Europe’s battery industry is not yet sufficient, to demand stringent rules of origin poses a major challenge for the competitiveness of our industry,” Källenius said at the inauguration of a cell manufacturing plant in northern France, the first of four planned car battery plants planned in the region. The factory — which will supply Mercedes’ electric cars and is part of its battery partnership with TotalEnergies and Stellantis — was a step in the right direction towards building a standalone European car manufacturing industry, at a time when the region was trying to wean itself off dominant Chinese and Asian batteries, Källenius added. “But all in all, the first of January 2024 is too soon. We need more time for this transition and we would therefore appreciate political support, together with our British partners, in this matter,” Källenius said. The looming deadline and backlash from carmakers has highlighted the scale of Europe’s challenge to catch up with Chinese and South Korean battery producers, the main suppliers globally to electric vehicle manufacturers. Mercedes’ joint venture with Stellantis and Total, called Automotive Cells Co or ACC, is set to get under way this year with an initial 13 gigawatt/hour capacity at a plant in Douvrin, in northern France. Two more factories are expected to launch in Germany and Italy by 2030, with the aim eventually of supplying 2mn batteries a year. These are among a handful of similar projects carmakers are trying to progress across Europe, many of which are supported by state subsidies. French ministers on Tuesday said government support would help make local production competitive compared to Asian or US-made alternatives. They also vaunted the lower carbon footprint of the European plants, which would add to the products’ appeal for car manufacturers trying to comply with increasingly strict emissions rules.But battery supplies and production for now are constrained and dependent on Asia, just as carmakers are already racing to try and outdo each other with new electric models.

Tavares said a consensus was emerging that 2027 would be a reasonable phase-in date for the new tariff rules. These could deal a further blow to Britain’s struggling car industry, not least because of Stellantis, the group behind Vauxhall, also threatening to close its UK factory of Ellesmere Port unless the tariff issue is renegotiated. “It’s a technical adjustment that should not create too much trouble,” Tavares said on Tuesday, asked about delaying the phase-in to 2027. “Without [a deal] this looming deadline will create a lose-lose situation [for Britain and Europe]. As both will lose from it, it would be in both their interests to change the date.” More