Aurelia Butler

Good morning. Rishi Sunak is facing criticism from the rightwing of his party over his “shameful” China policy as he tries to limit the fallout of last week’s dire Tory local election results in England. Former Tory leader Sir Iain Duncan Smith yesterday launched a scathing attack on Sunak’s decision to send his investment minister, Lord Dominic Johnson, to Hong Kong. Johnson’s visit to “renew the UK’s investment ties with the city” was the first visit in five years by a British minister to the territory. Duncan Smith said the visit was part of “project kowtow”, a reference to Sunak’s efforts to engage economically with China despite Beijing’s repressive actions in Xinjiang and crackdown on civil liberties in Hong Kong.Domestically, divisions reappeared between Tory MPs over how to deal with Britain’s housing crisis, exposing a growing north-south split in the party ahead of an expected general election next year. Sunak will meet his cabinet later today to urge his colleagues to pull together after the loss of about 1,000 Tory council seats last week. Here’s what else I’m keeping tabs on today:Australia Budget: Treasurer Jim Chalmers will present the annual federal Budget.Asean summit: The 42nd summit for Association of Southeast Asian Nations member states will kick off in Indonesia.US debt: Joe Biden will meet congressional leaders on Tuesday to discuss the threat of the US defaulting on its debt.Five more top stories1. Russian forces launched a barrage of air strikes on Kyiv ahead of an expected Ukrainian counteroffensive, in what the city’s mayor said was the largest drone attack on the capital since Moscow’s full-scale invasion last year. Related read: The price cap on Russian oil exports has forced the Kremlin to raise the tax burden on producers. Here’s why the move is likely to backfire.2. Beijing yesterday said state security services had raided multiple offices of international consultancy Capvision, accusing advisory groups of ignoring national security risks and sharing sensitive information abroad. The Capvision raids were the just the latest in a string of Chinese actions against consulting groups. 3. US banks expect to tighten lending standards because of worries about rising losses in their loan portfolios and concerns that customers will continue to withdraw deposits, according to a survey from the Federal Reserve. The results of the US central bank’s quarterly Senior Loan Officer Opinion Survey will add to fears the US economy could face a credit crunch this year. 4. The EU’s delegation to Israel has cancelled a diplomatic event in Tel Aviv, after the Israeli government decided to send the extreme-right national security minister, Itamar Ben-Gvir, as its representative. The spat shows just how much relations between Israel and the EU have soured since Benjamin Netanyahu’s hardline new government took office last year.5. The head of PwC in Australia has resigned as chief executive three days after admitting that he had received emails regarding confidential government information on changes to tax avoidance laws. Tom Seymour, chief executive of PwC Australia since March 2020, had used the information to win new business. The Big ReadFew outside Exxon believe it is really transforming its business © FT Montage/Getty Images/DreamstimeExxonMobil, the energy major most dedicated to oil production, seems to be turning over a green new leaf by making new commitments to clean energy. But few outside Exxon believe it is really transforming its business, and its feints towards a green transition illustrate the range of pressures that American oil companies are under.We’re also reading . . . SVB China: Almost two months after the collapse of Silicon Valley Bank, the fate of its Chinese joint venture, SPD Silicon Valley Bank, hangs in the balance.King Jamie: There is no crown. But on Wall Street, at least, Jamie Dimon is America’s answer to King Charles III, writes Patrick Jenkins. Nygard vs Bacon: In a gated community in the Bahamas, a feud between a fashion mogul and a billionaire hedge fund manager has ended in a $203mn defamation payout.Chart of the dayBack in January, the explosive potential of the China reopening trade had the big banks licking their chops. But a few months on, Chinese equities have not so much put in a bad showing as a forgettable one, writes Ethan Wu in today’s Unhedged newsletter. If you’re already an FT Premium subscriber, you can sign up here to get Unhedged every week day. If not, take out a 90-day free trial. Take a break from the news

The view from a room balcony at the Belmond Hotel Splendido in Portofino, Italy

Take a tour of four grand hotels that have benefited from a “glow up” and much-appreciated makeovers. From Santa Monica in California to Portofino on the Italian Riviera, what’s old is new again.Additional contributions by Jonathan Moules and Gary Jones More

(Reuters) – A union for U.S. federal government employees filed a lawsuit on Monday claiming a law setting a $31.4 trillion debt ceiling is unconstitutional as political leaders seek to avoid a historic default expected as soon as next month. The National Association of Government Employees (NAGE) says the debt limit law adopted in 1917 violates the U.S. Constitution’s separation of powers because it forces the president in the event of a default to cut spending already authorized by Congress.The lawsuit filed in Boston federal court says the Constitution’s 14th Amendment requires the president to find funding to meet the country’s debt obligations. The union in the complaint said it will seek an order temporarily blocking the debt limit law while the case proceeds. The White House has examined the possibility of using the 14th Amendment to avert a debt-ceiling crisis, but Democratic President Joe Biden on Friday said he was not yet ready to try the untested legal strategy. The relevant clause has been largely unaddressed by the courts, and legal experts disagree about what it requires from Congress and the presidency.The union said in the lawsuit that Congress cannot impose a debt limit “without at least setting the order and priority of payments once that limit is reached, instead of leaving it to the president to do so.” The union is seeking to strike down the law setting a debt limit and to block the Biden administration from limiting borrowing in the event of a default so it can continue funding government agencies. The lawsuit names Biden and Treasury Secretary Janet Yellen as defendants. A spokesman for the Treasury Department declined to comment. The White House did not immediately respond to a request for comment. The U.S. reached its debt limit in January, and Yellen at the time told Congress that she would suspend investments in federal government workers’ retirement and health benefit funds to avoid an immediate default. Yellen has warned that the U.S. could run out of cash to meet its obligations as early as June 1.The union, which represents 75,000 government workers, said in Monday’s lawsuit that its members have already been harmed by Yellen’s extraordinary move. A default would further harm government workers by triggering furloughs and layoffs, the union said. Republicans in Congress have called for any increase in the debt ceiling to be tied to massive spending cuts. But Biden and other Democrats have insisted that raising the debt limit should not be linked to budget talks.Biden and congressional leaders from both parties are due to meet on Tuesday, but an immediate deal to avert a default is not expected. More

(Reuters) -Credit conditions for U.S. business and households continued tightening in the first months of the year, according to a Federal Reserve survey of bank loan officers, but the results seemed to mark the accumulating impact of Fed monetary tightening rather than the cliff-like decline in credit some feared after the March collapse of Silicon Valley Bank.The Fed’s quarterly Senior Loan Officer Opinion Survey, or SLOOS, among the first measures of sentiment across the banking sector since the recent run of bank failures, showed a net 46.0% of banks tightened terms of credit for a key category of business loans for medium and large businesses compared with 44.8% in the prior survey in January – a modest, stepwise change.For small firms, conditions were slightly more stringent with a net 46.7% of banks saying credit terms were stiffer now versus 43.8% in the last survey.Banks reported that firms of all sizes were showing less demand for credit than three months earlier.Credit access may be just part of the story, with banks also reporting they were capping loans sizes and raising the cost of borrowing. On the consumer side, banks said soft demand prevailed again for credit card, automobile and other forms of household credit, although not to the degree seen at the end of last year. Banks on balance showed diminished willingness to provide consumer installment loans, and were also limiting the size of auto loans for example.”It wasn’t a sea change…The tightening in standards probably wasn’t as severe as one might imagine given the banking stress,” wrote J.P. Morgan Chief U.S. Economist Michael Feroli. But the drop in demand, particularly the more than half of banks seeing a drop in small firms wanting to borrow, “appears to paint a grim picture about the outlook.” The tightening also reflected modestly rising concerns among banks about the need to conserve capital and maintain adequate liquidity amid a weaker economic outlook. Mid-sized banks, the Fed said in reporting the survey results, seemed particularly stretched. “Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023,” the release said. “Mid-sized banks reported concerns about their liquidity positions, deposit outflows, and funding costs more frequently than the largest banks.”ADDED SIGNIFICANCE The quarterly loan officer survey has taken on particular significance since the failure in early March of Silicon Valley Bank and the ongoing potential for stress among regional banks in general.The Federal Reserve has been raising interest rates aggressively to control inflation since March of 2022, and a main way that works is by increasing the cost of borrowing money for businesses and households and discouraging major investments and purchases. The impact was felt quickly through things like rising home mortgage rates, and the last three SLOOS surveys, dating to the start of the rate hikes, have shown a rising net share of banks tightening standards.But policymakers don’t want the credit tightening to go so far as to cause a recession.The Fed had the results of the latest survey in hand at its policy meeting last week, and while officials proceeded with an expected quarter point rate increase they also opened the door to calling it quits – with the effects of a possible credit shock still to be determined. “The strains that emerged in the banking sector in early March appear to be resulting in even tighter credit conditions for households and businesses,” Fed Chair Jerome Powell said in a press conference on Wednesday. “In turn, these tighter credit conditions are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.”Economists expect credit to continue tightening in coming months, with the survey serving as a leading indicator of how bank credit is likely to evolve over time.The net share of banks tightening commercial loan standards for large and middle-sized firms, for example, rose from 24% for the survey covering the April through June period to 45% for the survey covering roughly the last three months of the year.Economists who study the SLOOS responses say rising shares of banks tightening standards gradually work their way into slowed economic activity, and can even be a precursor to a downturn. “Just like Fed hikes, there is a long and variable lag from the impact of tighter lending standards on the economy,” Michael Kantrowitz, chief investment strategist with Piper Sandler & Co. wrote on Monday. “This confirmation of tighter lending standards pushes recession odds even higher.” More