Aurelia Butler

Jamie Dimon and Larry Fink have warned investors to brace for the Federal Reserve keeping interest rates higher for a longer period of time, bucking the view that the central bank will cut rates later in 2023.The comments from two of Wall Street’s most prominent executives made the case that the collapse of Silicon Valley Bank and broader struggles among regional US banks will not be enough to deter the Fed from keeping rates elevated in its battle to curb inflation.Dimon, chief executive of JPMorgan Chase, on Friday said there could be consequences for investors and companies which do not prepare for the risk of an extended period of tighter monetary policy. “They saw what just happened when rates went up beyond people’s expectations. You had the gilt problem in London,” Dimon told analysts on Friday during a call to discuss his bank’s first-quarter results. He was referring to the sell-off of UK government debt last year following a botched budget. “You had some of the banks here. People need to be prepared for the potential of higher rates for longer,” he added. Separately, BlackRock CEO Fink said in an interview this week: “Inflation is going to be stickier for longer so the Fed may need to continue to increase 50 or 75 basis points more . . . There’s a lot of stress in the market.” Results from JPMorgan, the largest US bank by assets, as well as Citigroup and Wells Fargo, underscored how the largest lenders are benefiting from higher interest rates by charging more for loans without passing on significantly higher savings rates for depositors.But higher rates for longer could prolong the pain for some of the US regional banks, including many due to report earnings next week. They have come under pressure following SVB’s collapse as investors focus on their holdings of long-dated US Treasuries and the loans they made when interest rates were lower.These assets are now worth less because the Fed rapidly lifted rates over the past 12 months. After three banks failed in a week last month, some customers have pulled money from smaller banks over fears that they may struggle to honour deposits if they have to sell these assets at a loss. If the Fed starts cutting rates, some of those paper losses could be clawed back before assets have to be sold.The regional banks reporting next week include Comerica, Western Alliance and Zions Bank, all of which had their share prices fall sharply during the turmoil in March.At its most recent meeting last month, the Fed raised its benchmark policy rate by a quarter-point to 4.75 per cent to 5 per cent. Several Fed officials considered forgoing a rate rise because of the recent stresses in the banking system, which also included Credit Suisse being taken over by local rival UBS. Markets have for months bet that the Fed will be forced to pump the brakes far sooner than the central bank expects. In the futures market, traders are currently betting the Fed will cut rates to 4.5 per cent by year-end. That implies two rate cuts in the latter half of this year if the central bank raises again in May as expected.For Wall Street financiers, the key concern is that higher rates for longer, and the stresses at regional banks that lend to many small and local businesses, will constrain lending and do further damage the US economy. Dimon said there will be “a little bit of tightening” but that he “wouldn’t use the word credit crunch” to describe what will happen to bank lending. “I just look at that as a kind of a thumb on the scale . . . the financial conditions will be a little bit tighter,” Dimon said.Despite his warnings, the current consensus for a rate cut later this year led JPMorgan to increase its outlook for earnings from lending, known as net interest income, by almost 10 per cent to about $81bn for 2023. JPMorgan’s rosier forecast is predicated on the fact that a rate cut would reduce the need for it to lift rates for depositors in order to stop them transferring cash to higher-yielding products such as money market funds.Dimon’s personal view of the trajectory of inflation is in effect at odds with the bank’s forecast, which is based on market pricing.First-quarter results from the banks on Friday underscored the underlying strength of the US economy and provided another data point that might mean the Fed does not need to lower rates this year. Citi said its credit card customers spent 7 per cent more in the first three months of 2023 than they did in the first three months of last year.The bank’s fees from corporate transactions increased 13 per cent from the year-ago period as well, suggesting a continued increase in economic activity. Wells Fargo also reported a continued increase in consumer spending in its credit card business.Not all Wall Street executives are predicting the Fed will hold firm on rates. Citi chief financial officer Mark Mason told analysts the bank is expecting rates to “flatten” after the second quarter and then trend down towards the end of 2023 to about 4.5 per cent.Wells CFO Michael Santomassimo said on the bank’s earnings call that, while markets are currently pricing in an interest-rate cut later this year, “I do think that you need to be prepared that that’s not going to happen. And I think it’s possible it doesn’t.”Additional reporting by Kate Duguid in New York More

Finance ministers from some of the world’s largest economies refused to have their optimism dented by the gloomy message delivered by top IMF officials at the fund’s spring meetings in Washington this week. Despite IMF forecasts highlighting the potential for a hard landing for the global economy, Bruno Le Maire, France’s finance minister, said the prospects for his country were “solid”. Jeremy Hunt, UK chancellor, thought the IMF was over-egging the pessimism, especially about Britain. “They’re just one of a number of forecasters,” he said. “The IMF have undershot on the British economy for quite a long time — I think every year since 2016 bar one, they have undershot.”Janet Yellen, US Treasury secretary, echoed the sentiment. “I wouldn’t overdo the negativism about the global economy,” she said. “The outlook is reasonably bright.” Kristalina Georgieva, IMF managing director, hit back, saying that while the outlook was “not horrible” and the global economy was “not in recession”, no one was looking at growth forecasts and saying “oh, these are fabulous numbers”. Georgieva’s deputy, Gita Gopinath, highlighted the fund’s concerns that political tensions would weigh on the economy, warning countries against “going down the slippery slope of fragmentation”. The fund’s medium-term projections, which cover the next five years, are at their lowest level since globalisation really took off in the 1990s, with IMF officials increasingly concerned that weaker trade links will lower efficiency and raise prices. Gopinath said that supply shocks risked becoming more frequent, which would mean that policymakers faced “much more serious trade-offs”. Daleep Singh, who served as deputy director of US president Joe Biden’s National Economic Council and is now at PGIM Fixed Income, agreed, saying the primacy of national security over economic goals “likely means lower levels of growth and higher levels of inflation”.

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The rich advanced-economy G7 bloc indicated on Wednesday that those economic trade-offs were a price worth paying for more security, saying that supply chains needed to adapt as a way of “protecting our shared values”. Some finance ministers, such as Germany’s Christian Lindner, were also concerned about the threat posed by the demise of Silicon Valley Bank and Credit Suisse, such as the prospect of more banking failures. The optimists drew attention to strong labour markets, China’s emergence from its zero-Covid policy and Europe’s lower wholesale energy prices, which have helped the region avoid a recession. Jean Boivin, head of the BlackRock Investment Institute, blamed the disagreements on the fact that there was a “genuine high degree of uncertainty” about the outlook, and the global economy was yet to fully recover from the onset of the coronavirus pandemic. This was not a “traditional business cycle”, where the data would point to resilience. Instead, blockages in supply chains and a tight labour market suggested that “more needs to be done to bring inflation down”, he said. A rare consensus formed over the view that central banks needed to stay the course in keeping borrowing costs high after a series of aggressive rate rises throughout 2022. Raghuram Rajan, professor of economics at Chicago university, attacked governments for triggering price pressures in the first place, singling out US inflation as the result of “pretty extravagant” borrowing and spending. But differences in what Georgieva called the “interpretation” of the outlook led to difficulties in deciding how serious banking turmoil would need to be before rates were cut. Pierre-Olivier Gourinchas, IMF chief economist, admitted that it was a “fuzzy area” which the fund was trying to think about more carefully. Adam Posen, head of the Peterson Institute for International Economics, a Washington-based think-tank, said tightening credit conditions was what the Fed intended to do all along in response to last year’s surge in inflation. “That’s the point in a sense,” he said. “It is a feature, not a bug.”Some central bankers insisted that the separation of monetary and financial policy was paramount and needed to continue. Andrew Bailey, governor of the Bank of England, said its actions last autumn in helping the UK resolve its pension funds crisis did not stand in the way of monetary policy decisions. “What we have not done — and should not do — is in any sense aim off our preferred setting of monetary policy because of financial instability,” he said. However, others signalled that the banking stress was influencing their thinking on interest rates. Joachim Nagel, head of Germany’s Bundesbank, said the European Central Bank would “need to assess whether the recent turmoil has led to an excessive tightening of credit conditions”. He added that, if it has, that “could have an impact on our policy stance”.Fragmentation was also a feature of the crucial debate on debt relief for the rising number of distressed sovereigns. China, now the world’s largest bilateral creditor, continued to block progress, although it did attend discussions on the topic, and its central bank governor Yi Gang paid lip service to the idea of co-operating with globally-agreed frameworks.

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In previous years, debt distress would have been the talk of the meetings, but this year it was just one of a wide number of unresolved issues. With less of the lending coming from G7 governments and their banks than in the past, it was also an easier one to ignore. If that is good news for advanced economies, the lack of fixes for global problems suggests that the IMF will continue to fret about the world’s economic prospects in the months ahead — even if some of the most powerful finance ministers think it is being too gloomy. Additional reporting by Martin Arnold in Frankfurt More

PARIS (Reuters) – Hours before France’s top judges breathed new life into his widely denounced plans to make people work longer for their state pensions, President Emmanuel Macron was his usual defiant self.”Never give up, that’s my motto,” he said, as he visited Notre-Dame on the anniversary of the fire that almost consigned the country’s most celebrated cathedral to history.Macron’s ratings are in tatters and most of France loathes his pension overhaul, but the constitutional court on Friday ruled that the legislation to raise the retirement age by two years to 64 was in line with the French Republic’s founding charter.That verdict clears the way for the 45-year-old president to enact the law, offering him a political lifeline he aims to use to pursue a broader reform agenda after a tumultuous few months marred by strikes, protests and violence. Macron’s challenge will lie in soothing widespread anger not only at his pension overhaul but also at a perceived disdain for democratic institutions after, lacking a majority in parliament, he rammed the pension bill through without a final vote.One government source familiar with the executive’s thinking said the president had set his course: measures to improve daily lives, including health and education provision, and a “full-employment law” designed to accelerate a drop in unemployment to 5%.Macron must also “show goodwill,” said Bruno Cautres, a political analyst with Sciences-Po university. In that vein, he invited trade unions to the Elysee Palace for talks next Tuesday, a presidency official said. Union leaders rejected the offer, however, and said they would keep up their fight.Helping Macron’s cause, turnout in nationwide protests has fallen in recent weeks. “Even in France, strikes don’t last forever,” a government official said.TACKLING ‘INJUSTICE’Macron said in an interview in March that the pension protests showed the French were crying out for more social justice, and hinted at how he plans to deliver that. “What did this anger show? A feeling of injustice. People say: it’s always the same ones who work and who have to make efforts,” he said in the interview with TF1 and France 2. He criticised the “cynicism” of companies that use government money but channel their profits into share buybacks and pledged to make them spend more of that money on staff instead.He also reiterated a campaign promise to make people on income support work 15 to 20 hours a week to maintain their welfare payments. Such a measure would likely be popular with right-wing voters but risk angering the left.It would also need to find its way through parliament, where Macron has lost his working majority and debate has become increasingly fractious. The conservative Les Republicains’ (LR) party, which the government had hoped it would be able to count on for support, has emerged deeply divided from the pension reform saga.”There are gaping wounds in the country,” LR lawmaker Aurélien Pradié, who rebelled against the pro-pension reform party line on the reform, said on Twitter. “You’d have to be blind or irresponsible not to see the reality.” Four of Macron’s own lawmakers this week announced they would no longer sit among the party’s ranks, weakening his standing in parliament yet further. Meanwhile, the relationship between Macron and his prime minister, Elisabeth Borne, has taken a battering. Borne was livid at leaked off-record attacks on unions that Macron made while in China and let that anger be known, sources have said. So while the pension reform is on the statute books, Macron has much political capital still to regain.”It’s a short-term victory,” Jean-Daniel Levy, a political analyst for Harris Interactive, said on RTL radio. “His governing style appears solitary, authoritarian and out of touch. That’s the main challenge for the president today.” More

WASHINGTON (Reuters) -A committee of Sri Lanka’s international private creditors sent its first debt rework proposal to the country’s authorities regarding over $12 billion in bonds outstanding, according to three sources with direct knowledge of the matter.It is the first bondholder proposal after the island-nation of 22 million people defaulted on its debt a year ago. It is a first formal step to engage with the country’s authorities, said one of the people, who asked not to be named because discussions are private.Details of the proposal were not immediately available.Representatives for the government did not respond to a request for comment. A spokesperson representing the creditor committee declined to comment.The group of about 30 creditors includes global investment companies Amundi Asset Management, BlackRock (NYSE:BLK), HBK Capital Management and T. Rowe Price Associates.Bondholders and government officials met in Washington this week, with legal and financial advisers for both sides present, said two sources.Separately, the Paris Club of creditor governments said on Friday it aims to start negotiations to restructure Sri Lanka’s bilateral debt after a committee was set up by French, Japanese and Indian finance ministers, and representatives of Sri Lanka.China, Sri Lanka’s biggest bilateral creditor, did not join the announcement.After the COVID pandemic that ruined the tourist sector, a spike in prices of imports following the start of the Ukraine war, and economic mismanagement, Sri Lanka fell into its worst financial crisis in more than seven decades.Sri Lanka secured last month a $2.9 billion program from the International Monetary Fund to tackle its huge debt burden. More

“Things are looking up, but only slowly – we must not be satisfied with that,” BDI President Siegfried Russwurm told the newspaper.Even with the improved outlook, Germany still lags behind the forecast for global trade of 2.5% export growth, according to BDI figures cited in the report.Export growth has slowed considerably since Germany’s post-pandemic recovery. Exports grew by 2.9% in 2022 and 9.1% in 2021.The BDI president said Germany was falling behind other countries where energy prices are not as high.”The reality is that energy-intensive companies in particular are increasingly relocating parts of their production abroad,” Russwurm said. More

WASHINGTON (Reuters) -The U.S. Federal Aviation Administration on Friday granted a long-awaited license allowing Elon Musk’s SpaceX to launch its Starship rocket to orbit for the first time, clearing the way for a test flight crucial to the company’s goals in space.”After a comprehensive license evaluation process, the FAA determined SpaceX met all safety, environmental, policy, payload, airspace integration and financial responsibility requirements,” the FAA said in a statement on Friday, adding that the license is valid for five years.The launch, from SpaceX’s Starbase rocket facilities in Boca Chica, Texas, is slated for Monday April 17, the company affirmed on Twitter. Regulatory notices filed earlier on Friday indicate liftoff could occur anytime from 5:30 a.m. to 2 p.m. Central time. More

China is refusing to let US secretary of state Antony Blinken visit Beijing over concerns that the FBI will release the results of an investigation into the downed suspected Chinese spy balloon.Four people familiar with the negotiations said China had told the US it was not prepared to reschedule a trip that Blinken cancelled in February while it remains unclear what the administration of President Joe Biden will do with the report.The FBI has been analysing debris salvaged from the balloon since it was shot down in February. The US says the craft was spying on sensitive military sites, but China say it was a weather balloon blown off course by weather. Chinese officials are concerned the Biden administration could release the FBI report along with physical evidence from the balloon, and that its findings could be made public during Blinken’s trip to China.China’s foreign minister Qin Gang raised the issue with Americans attending the China Development Forum in Beijing last month, said three people familiar with the meeting. Qin described the FBI investigation as another example of the issues that have made it difficult to stabilise US-China ties, one of the people said. US officials stress the crisis was sparked by China flying the balloon through the country’s airspace. The FBI and National Security Council declined to say whether the investigation would be made public.The issue has also sparked divisions inside the Biden administration, with some officials wanting to declassify the evidence for public release to show that the balloon was conducting surveillance. Congress is also likely to press for the release of the FBI’s conclusions. But others say releasing the information would derail efforts to restart badly needed high-level engagement between the countries at a time when US-China relations are at their lowest level since the two countries established diplomatic relations in 1979. Blinken was supposed to meet President Xi Jinping in China in February but abruptly cancelled his trip because of the balloon.Bonnie Glaser, a China expert at the German Marshall Fund, said Beijing’s stance reflected its concerns about how the US would continue to use the episode. “Beijing is distrustful of US intent and worries the US will use the information gleaned from the balloon investigation in ways harmful to Chinese interests,” Glaser said.Dennis Wilder, a former Asia adviser to George W Bush, said there was a “good chance” Beijing would not give the green light while uncertainty about the FBI report remained. “In many ways, we are more eager for this visit than they are,” he said. “They don’t have the incentive to make this visit happen quickly. In that sense, for the Chinese, the downsides of waiting are not great.”China had also been reluctant to agree to a Blinken visit because of frustration that US lawmakers, including House Speaker Kevin McCarthy, met Taiwan’s president Tsai Ing-wen this month, said several people familiar with the situation. The Chinese embassy in Washington said Beijing was “firmly opposed to the US continuously making use of the [balloon] incident for political purposes and hyping up the ‘China threat’.” Spokesperson Liu Pengyu said China “cannot but seriously question the independence, openness and transparency of the so-called investigation”. He said both countries had an obligation to “calmly and prudently handle some unexpected situations” after Xi and Biden had agreed about the importance of maintaining communications at all levels.While the two sides fail to reach agreement about a Blinken visit, there has been some engagement. Rick Waters, the top state department China official, recently visited Beijing and Cui Tiankai, a former Chinese ambassador to the US, visited Washington. In other areas, however, there has been almost no engagement. Michael Chase, the Pentagon’s top China official, has been unable to meet his Chinese counterpart in Washington since he visited Taiwan in February, in only the second visit to the island by a senior defence official in four decades.China “continues to decline requests for engagement with the secretary of defence, the chairman of the joint chiefs of staff, [Indo-Pacific commander] Admiral [John] Aquilino, and other senior department of defence officials,” said Martin Meiners, a Pentagon spokesperson.Asked by the Financial Times this week about his travel plans, Blinken said it was “important to maintain channels of communication” to China to make sure both sides were “speaking to each other clearly”.“When it comes to my own visit to China, when the conditions are right I’ll certainly look forward to pursuing that,” the top US diplomat added.Follow Demetri Sevastopulo on Twitter More