Aurelia Butler

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThis 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. Ride-share company Lyft jumped 22 per cent yesterday and sportswear maker Under Armour was up 27 per cent. The two companies reported good quarters and upgraded forecasts, after years of uninspiring results. Both are second fiddles to larger competitors Uber and Nike, respectively. Is this an underdog market? Should we expect great things from Pepsi next quarter? Email us: robert.armstrong@ft.com and aiden.reiter@ft.com.The FedIn central banking, boredom is success. Yesterday’s Federal Reserve policy announcement and press conference were, by this measure, successful. A quarter of a percentage point was snipped off the policy rate. Chair Jay Powell said nothing new about how he and his colleagues see the economy. They still think the following: inflation is falling, the economy is sound, and policy is restrictive. And they are still feeling their way towards a neutral rate, which they will only know when they hit it.There was no appreciable market reaction. Well done, everyone.Reporters pressed Powell on what the re-election of Donald Trump, who has made unpleasant noises about the Fed and him in the past, meant for bank policy. Here some non-boring moments managed to slip though. One such moment was the only one-word answer in Powell’s tenure (to the best of Unhedged’s recollection). Would he leave his job before the end of his term, if Trump asked him to? “No.” Next question. Then there was a curt five-worder. Does the president have the ability to fire you or other Fed leaders? “Not permitted under the law.” Noted.Furthermore, Powell made clear that possible changes in policy under a new Trump administration would not be taken into account by Fed policymakers until those policies were enacted: “We don’t guess, we don’t speculate, and we don’t assume.” (Unhedged’s motto: “We guess, we speculate, we assume.” It takes all kinds.)A more paranoid interpreter of Fed statements than Unhedged might wonder if this is strictly true.Powell was asked about the recent rise in long-term interest rates, and whether these higher borrowing costs presented a risk to growth — as he said they did when they were at almost as high a level a year ago, when inflation was still high. The question was clever. The market consensus is the rise in the 10-year Treasury yield is down to “Trumpflation”. The argument is that the next president’s tax, immigration, and tariff policies will increase inflation, and therefore require tighter monetary policy, and increase the deficit, requiring higher compensation to tempt investors to buy the government’s long-term obligations. So the question was about Trump, without mentioning Trump explicitly. Here is part of Powell’s answer:It’s too early to really say where [long rates] settle . . . I will say, though, that it appears that the moves are not principally about higher inflation expectations. They’re really about a sense of more likelihood of stronger growth, and perhaps less in the way of downside risks. So that’s what they’re about. You know, we do take financial conditions into account. If they’re persistent and if they’re material, then we will certainly take them into account in our policy. But I would say we’re not, we’re not at that state right now.In one sense, Powell is quite right. The chart below breaks down the increase in 10-year Treasury yields since they bottomed in late September. The larger part of the increase is accounted for by real interest rates, here proxied by yields on inflation protected Treasuries (Tips), in light blue. Almost 40 per cent of the increase is, however, down to higher break-even inflation (the difference between nominal yields and Tips), in dark blue. Higher inflation expectations are an important part of the picture.Some content could not load. Check your internet connection or browser settings.Yet, the fact that most of the increase is driven by higher real yields does not imply that it is principally about growth expectations. Higher real yields can reflect growth expectations — which draw money away from safe Treasuries and towards riskier assets. But they can also mean investors are demanding more compensation for higher rate volatility in the future — exactly what investors might do if they thought that the US fiscal situation was becoming more perilous. But talking about the latter possibility would draw Powell into a conversation about responding to things that are (at least in the eyes of the market) very much effects of Trump’s expected policies. And Powell has vowed not to talk about expected policies, let alone act on them. Saying the rate increase is about growth lets him off the hook.Powell and his team may be decoding the rise in long rates differently than I am, and may have very good reasons to think it is about growth rather than inflation or the fiscal outlook. The point is not to doubt his sincerity, but to highlight what a delicate balance he will have to strike in the months to come, as the shape of Trump’s policies become clearer — or, worse, do not.One good readEurope’s indispensable nation is in trouble.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 hereChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. Sign up here More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldIt was Treasury Secretary John Connally who famously quipped in the 1970s that the US dollar was “our currency, but your problem”. Today, investors around the world could just as easily replace “currency” with “interest rate”, “stock market” or “geopolitical strategy”. Donald Trump’s win changes all of these, and more.With US stocks making up over two-thirds of global markets, the impact of a second Trump term on equity portfolios is hard to avoid. While UK investors’ direct equity holdings may skew domestic, most pension holdings are invested globally, and most of these end up in US stocks.Last time Trump was elected US stocks rallied. Much of this was simple maths. Trump campaigned in 2016 on a pledge to slash the corporate tax rate from 35 per cent to 15 per cent. His surprise victory saw stocks reprice to capture the earnings kicker, even if he managed only to cut the rate to 21 per cent.This time round, Trump has again pledged to cut the corporate tax rate to 15 per cent. But market expectations of a Republican win have been higher, and the potential earnings kicker more modest.Still, US stocks have reacted well so far, with returns from smaller companies especially buoyed by promises to deregulate and to stifle international competition by way of substantial tariffs. Furthermore, Trump’s economic agenda involves reducing federal tax revenue by $3tn from 2025 to 2034, according to the non-partisan Tax Foundation, boosting growth. So even without a substantial corporate tax giveaway, this magnitude of overall stimulus looks good for earnings. The risk to a stronger US stock market comes, however, from the bond market.Unlike the stock market, the US bond market has hated the result of the election. Yields of short and long-dated bonds jumped, pushing prices lower. This is because tariffs boost inflation, as do larger budget deficits, and lower immigration, complicating the Federal Reserve’s plan to cut interest rates rapidly through 2025. If Trump succeeds in imposing a universal 20 per cent tariff on all imports and raising the tariff on imports from China to 60 per cent we can expect interest rates to be higher for longer. And without a steady diet of rate cuts, bond valuations will continue to sink. What Trump means for your moneyUK investors and mortgage borrowers are likely to feel the effect of new White House policies. Read hereThis matters to every investor, regardless of their exposure to US bonds. As the global monetary hegemon, US bond yields have huge bearing on how interest rates are set across the globe. At some point higher interest rates could also start to undermine equity valuations, which are historically rich. Indeed, Goldman Sachs was already looking for this richness to unwind, providing investors a return from US stocks of only 3 per cent a year over the next decade.Away from US stocks there’s less for investors to be cheerful about. Tariffs designed to bash the earnings of foreign firms could do just that. Chinese equities were boosted this year by government stimulus, and several analysts speculate that further support will be forthcoming to Chinese firms to offset the expected hit from tariffs. But it’s harder to make a bull case for European stocks out of the election result.The currency impact of Trump’s policies are almost as important as the asset price effects. Economists theorise that US tariffs strengthen the dollar, and markets largely agree. So for a European investor, the buck is likely to bring more bang. Barclays believe the extent of forthcoming appreciation will be in the mid-single digit percentage points.Of course, Trump’s approach to European security, the Middle East and Taiwan have the potential of being significantly more important than tax changes for both markets and the world. There’s just so much we still don’t know.The author is an independent analyst and a contributing editor of the Financial Times More

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Just as president-elect Donald Trump was being voted in on a platform of higher tariffs for China, US businesses were striking deals thousands of miles away at Shanghai’s biggest trade fair.Dynamite, a family-run pet food business with 12 stores in Idaho, signed $1mn in orders from Chinese company Pawberry — part of a stream of agricultural deals between the two countries this week that have so far amounted to $711mn.“Every so often you meet someone in business you just click with — we understand each other,” said Joshua Zamzow, chief executive Dynamite, of his business partner at Pawberry. “He understands his market, and he’s taking the products that fit for the China market and just blowing them up . . . sales have begun to explode.”But for businesses large and small, as election results flowed in from Georgia to Pennsylvania, it soon became clear that the wider relationship between America and China was entering a new era of uncertainty. Trump campaigned on a platform of higher tariffs — 60 per cent on Chinese goods — after a first term in which he launched a trade war that is still raging.Daniel Benefield, left, from Rad Beverage International said he hoped his bourbon products would fly ‘under the radar’ More

TOKYO (Reuters) -Japanese household spending fell in September for the second straight month, government data showed on Friday, as higher prices choked consumers’ appetite in a discouraging sign for the central bank’s plans to hike rates further.Consumer spending fell 1.1% from the year earlier, against the median market forecast for a 2.1% decline. On a seasonally adjusted, month-on-month basis, it fell 1.3%, versus an estimated 0.7% drop. Consumption and wage trends are among key factors the Bank of Japan (BOJ) is watching to gauge the strength of Japan’s economy and decide how soon to raise interest rates.September’s pay data released on Thursday showed inflation-adjusted wages falling for the second straight month despite nominal salary making gains and consumer inflation cooling.The yen’s renewed softening with the election of Donald Trump as the next U.S. president could also hit consumption through higher import prices, although the BOJ could in turn be pressured to raise rates if the yen’s fall accelerates.Japan will release preliminary July-September gross domestic product (GDP) data next Friday. The economy likely slowed sharply on sluggish consumption and capital spending, according to a Reuters poll. To view the data on the website of the Ministry of Internal Affairs and Communications, click here: http://www.stat.go.jp/english/data/kakei/index.html More

SINGAPORE (Reuters) – The dollar took a breather on Friday, on track to cap off a wild week with a slight gain as markets weighed the impact of Donald Trump’s impending return to the White House and what that would mean for the U.S. economy and its rate outlook.Beijing concludes its five-day meeting of the Standing Committee of the National People’s Congress (NPC) later in the day, which investors will be closely watching for more details of China’s stimulus measures that could in turn lift the yuan and Antipodean currencies.The dollar further unwound some of its sharp gains from earlier in the week as traders closed out profitable bets on a Trump presidency after his election victory.That helped lift sterling back toward the $1.30 mark, while the yen similarly got some respite and hovered closer to the 153 per dollar level.The euro fell 0.07% to $1.0795 and was headed for a 0.35% weekly fall, weighed down by a resurgent dollar and amid a political crisis in Germany, where the already awkward coalition led by Chancellor Olaf Scholz collapsed late on Wednesday.The Federal Reserve on Thursday cut interest rates by 25 basis points as expected, but flagged a cautious and patient approach to subsequent easing.”(The) meeting doesn’t change the view that the Fed is still on the path to lower rates and another rate cut in December is likely unless the inflation and labour market data surprises materially to the upside,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management.”For 2025, however, the picture will be complicated by potential for trade and tax policies to add to the inflation outlook.”The U.S. central bank’s rate trajectory has been clouded by Trump’s election victory as his plans for hefty tariffs are seen as stoking inflation.Traders have since reacted to the outcome of the election results by trimming bets on Fed cuts next year.”If the incoming Trump administration does indeed levy significant tariffs or adopt other inflationary policies, then we believe the Fed funds rate may bottom out next year closer to 4% than to 3%,” said Wells Fargo (NYSE:WFC) chief economist Jay Bryson.Sterling last traded $1.2983, recovering from its fall to a roughly three-month low earlier in the week.The pound had rallied 0.8% on Thursday after the Bank of England cut interest rates but said it expected UK inflation and growth to pick up more quickly than it had previously anticipated.The yen eased 0.14% to 153.15 per dollar.Against a basket of currencies, the dollar ticked up 0.03% to 104.44, on track to gain just above 0.1% for the week. It had rallied a sharp 1.53% on Wednesday as “Trump trades” picked up strongly.FURTHER SUPPORTFriday’s main event revolves around the outcome of China’s NPC Standing Committee meeting, with anticipation of further support from Beijing having cushioned some of the impact from a second Trump presidency on Chinese assets over the past few days.The President-elect has threatened to impose 60% tariffs on U.S. imports of Chinese goods.The yuan was last a touch lower at 7.1532 per dollar in the offshore market, while the Australian dollar, often used as a liquid proxy for its Chinese counterpart, dipped 0.13% to $0.6673.The New Zealand dollar was little changed at $0.6022.”I think it’s very likely that we will see significantly more fiscal and monetary stimulus from Beijing, which could offset some of the trade headwinds,” said David Chao, global market strategist for Asia Pacific ex-Japan at Invesco.”All eyes are on what may emerge from China’s policy toolkit after the conclusion of the NPC standing committee meeting.”Data on Thursday showed China’s exports grew at the fastest pace in over two years in October as factories rushed inventory to major markets in anticipation of further tariffs from the U.S. and the European Union, as the threat of a two-front trade war loomed large. More

The Recruitment and Employment Confederation/KPMG said its gauge of starting pay for permanent roles slowed to 52.5 in October from 52.8 in September for its weakest level since February 2021 during the coronavirus pandemic. REC’s permanent placements index fell to 44.1 from 44.9 in September and the rate of contraction was the steepest since March. The survey said firms held off hiring amid uncertainty in the lead-up to the new Labour government’s budget.”There is little in the pay data in today’s report that suggests the Bank of England should step away from further cuts to interest rates, which will also boost business confidence,” REC chief executive Neil Carberry said. The BoE, which is watching pay growth closely as it tries to gauge how much inflation pressure remains in the economy, reduced borrowing costs by a quarter-point to 4.75% from 5% on Thursday. It said further cuts were likely to be gradual.REC said vacancies fell for the 12th month in a row, suggesting less demand for staff, and the number of available candidates for jobs rose for the 20th successive month – with businesses reporting the sharpest pace of increase in temporary staff availability in nearly four years. Jon Holt, group chief executive at KPMG, said measures announced by finance minister Rachel Reeves in last week’s budget could push firms to slow their hiring further.Reeves on Oct. 30 unveiled 40 billion pounds ($51.94 billion) in tax rises, much of it through higher social security contributions paid by businesses alongside an increase in the minimum wage for most adults, changes that are likely to hurt hiring and pay growth.”With many of the tax rises announced in last week’s budget impacting businesses, the expectation from some chief executives is that this could further dampen hiring as companies grapple with absorbing any extra costs,” Holt said.($1 = 0.7701 pounds) More