Aurelia Butler

Goldman Sachs analysts offered their latest thoughts on the banking crisis in the country. They believe it is “too early to have a confident view on the implications of the current banking turmoil for the U.S. economy.”Analysts have flagged tighter credit conditions amid heightened financial stability risks as a headwind for companies.“Reduced credit availability will prove to be a headwind that helps the Fed keep growth below potential despite the support from rising real income and better global growth, not a hurricane that pushes the economy into recession and forces the Fed to ease aggressively. The risks are clearly skewed toward larger negative effects,” they wrote in a note to clients.The investment bank recently increased the chances of the U.S. entering a recession to 35% from the prior 20%. The market currently assigns around a 60% possibility.“Our baseline growth forecast for 2023 of 1.1% on a Q4/Q4 basis remains well above the committee’s 0.4%, so it is not surprising that our baseline forecast of 5¼-5½% for the peak funds rate—with 25bp hikes in May and June followed by no cuts until 2024Q2—is also higher than the committee’s 5-5¼%. Because of the downside risks, our probability-weighted forecast for 2024Q2 is a substantially lower 4%. However, even this estimate is above market pricing of 3½%,” analysts further noted.The banking sector crisis also prompted Goldman Sachs to lower Eurozone growth numbers. On the other hand, China’s growth forecast is increased to 6% YoY. More

The EU has agreed a new trade defence tool allowing it to retaliate against countries using punitive measures such as China’s block on Lithuanian imports over the Baltic state’s relationship with Taiwan.The anti-coercion instrument is the latest in a series of recent unilateral measures Brussels has adopted after declaring China a “systemic rival” in 2019.“This is a vital tool to deter economic intimidation and defend EU interests in an increasingly volatile world,” said Valdis Dombrovskis, trade commissioner. The political agreement between the European parliament, member states and the European Commission was reached on Monday night and is still subject to final approval in the coming weeks.The bloc historically used the World Trade Organization to settle disputes but is increasingly disillusioned as the Geneva-based body’s dispute process has been hamstrung by the US’s refusal to participate in it fully.“This instrument aims to deter third countries from targeting the EU and its member states with economic coercion through measures affecting trade or investment,” said the council of EU member states.Among the measures that could be applied are increased customs duties, the withdrawal of import or export licences and restrictions in the fields of services and public procurement.Once the legislation enters into force — expected in about six months — any member state can ask the European Commission to investigate a case of coercion. If it determines that a country is coercing the member state, and the other governments agree, the commission can draw up a list of potential countermeasures which would be adopted unless a qualified majority of the 27 member states blocks them. The commission is obliged to take into account the impact on businesses.In late 2021, China began an informal embargo on all imports from Lithuania and those from the EU with Lithuanian components after Vilnius allowed Taiwan to open a representative office there. The EU eventually complained to the WTO and the case is ongoing.The commission has said there were several instances every year of economic coercion against EU members. Among other measures targeting Chinese companies, the EU recently set up a mechanism allowing it to penalise companies receiving foreign subsidies that “distort” the internal market and another aimed at forcing open other countries’ public procurement markets. It has also proposed a ban on products made with forced labour. More

The case, which campaign group Greenpeace initiated on behalf of the women, will be heard on March 29 in the Grand Chamber of the European Court of Human Rights in Strasbourg. The case has twice been rejected by domestic courts.Switzerland argues the case is inadmissible, saying the case is without foundation and questioning whether the applicants count as victims.In a sign of its importance, eight other governments (Romania, Latvia, Austria, Slovakia, Norway, Italy, Portugal and Ireland) have joined the case. At least one has echoed Bern in calling for its dismissal.Six lawyers, including two elite UK King’s Counsel lawyers alongside the original team, have prepared the case.Here are some of their arguments:- The case documents, or application in legal jargon, alleges four violations of the European Convention of Human Rights (Arts 2, 6, 8 and 13) including the right to life.- They say the women’s age and gender places them in one of the categories cited by the U.N. Intergovernmental Panel on Climate Change as being at highest risk of temperature-related mortality. It also cites the IPCC saying heatwaves are becoming more frequent due to climate change. – The case uses emerging evidence that older women are less able to regulate their body temperatures than others. It cites several reports including a 2014 World Health Organization document which says the majority of European studies show women are more at risk of dying from heatwaves. – It says that around 30% of heat-related deaths in Switzerland can be attributed to climate change in recent years, citing a 2021 study published in Nature. – Switzerland is aiming to cut greenhouse gas emissions in half by 2030 and to achieve net zero by 2050. Lawyers for the applicants says its targets are “woefully inadequate”.- They take particular aim at Switzerland’s strategy of purchasing emissions reductions abroad and accounting for them in national targets – a strategy that came under media scrutiny during the COP27 climate summit. – The lawyers call for the Chamber to order rarely granted so-called “General Measures” which in this case mean concrete emission reduction targets within a fixed timeframe. (This story has been corrected to make it clear that the court is European, not an EU court)  More

Thinking about the legacy of his Fourteen Points speech that launched American power into the first world war, President Woodrow Wilson said it would “break the heart of the world” if that world could not be “safe for democracy”. The project of peace without victory, indemnities or annexations, never did come to pass, and not only because Wilson didn’t have the US Senate votes to support the nascent League of Nations. It was also derailed by the steep rise in the 1920s and ’30s of anti-globalism — popular forces pursuing freedom and self-determination against the failures of imperial liberalism — that Wilson’s moralised vision could not restrain. In Against the World, Tara Zahra, offers a panoramic history of how radical discontent with what is conventionally called globalisation, developed between the first and second world wars. Told through a series of short, deftly drawn chapters mixing cutting-edge scholarship with affectingly human stories and connections, a longer-term and very worldly backdrop to current concerns about democracy, deglobalisation, and the so-called “left behind”, comes into view. Her argument has three strands. First, we see the rise of mass politics from the late 19th century to the first world war, an initially European phenomenon that goes global as international congresses and networks tried to fix the political coordinates of everything from female suffrage to trade disputes. In this world, migration was both promise (of a better life) and threat (to “traditional” gendered family values). Then, courtesy of the planned pursuit of economic control in Allied policies of wartime blockade, parts of the world were brought together as never before, while others were excluded from food and resources.

We then watch that world fracture, through contrasting responses to the influenza pandemic of 1918 and the legacies of wartime defeat; the closing of borders (Ellis Island went from reception centre to an alien internment camp); and the hypocrisies of the Versailles peace settlement that failed to deal with minority rights, conscripting mandated territories to follow models of statehood that permitted old imperial politics to continue under new international organisations such as the League of Nations. Finally, we move into the deeply unsettled worlds of the late 1920s and the period following the Great Depression, where mirror images of globalism and anti-globalism pointedly connect, with some depressingly contemporary resonances. Here, fascists such as Mussolini tried and failed to literally drain their own swamps, for population resettlement. Older “national socialist” ideas of autarchic settlement and internal colonisation of the homeland for the breeding of a healthy stock, were presented as hygienic native solutions to a war borne of the forces of imperialistic globalisation. “Alimentary autarchy” became crucial and feeding the people (as well as breeding more of them) brought forth refashioned models of self-sufficiency and the good life. New versions of old peasant recipes were recast to match a return to “family” values, and migration was strictly controlled. Elsewhere garden cities, urban allotments, and new forms of housing appropriate to this, were vigorously debated. Few people were more clear eyed about how reactionary it all sounded, than the Bolshevik, Leon Trotsky, who pointed out that 20 years earlier “all the school books” put the global division of labour and international competition as the driver of human development. By 1930, cries of “Homeward ho! Back to the national hearth”, were heard everywhere. Few tracked the transition from antimilitarist internationalism to antisemitic anti-globalism more pointedly than Henry Ford. Believing that “money lenders” had provoked the first world war, the great automaker proposed to send a “peace ship” to neutral capitals, picking up delegates who supported world peace as best for business. Thereafter, he lent support to the views expressed in the antisemitic hoax, The Protocols of the Elders of Zion, and agreed to Nazi demands that Ford use German parts for German products in its plants.

And in this new world where independence meant both spiritual renewal as well as economic self-sufficiency, few were more recognisable than Gandhi, whose focus on spinning and domestic khadi — hand-spun cloth — production was foundational to his sense of how self-determination both for India and for individual Indians, could be realised. It was an ideal he pressed on sceptical cotton workers in Lancashire, telling them to try the same if they wanted better working conditions. As a brilliant historian of migration and of central Europe, it is no surprise that Zahra, who teaches at the University of Chicago, tracks so many of her concerns through the decline of the Habsburg empire and the ebb and flow of its migratory politics. Before the Great war, Austria-Hungary was the world’s largest free-trading zone, dually sovereign, manifestly composite, impeccably modern and archaically traditional. It was both the “world of yesterday” brought vividly to life by novelist Stefan Zweig, but whose imperial pomp and circumstance were viciously mocked by contemporaries such as Karl Kraus and Robert Musil, as wholly unfit for purpose. Its disintegration into at least seven competing nation states and smaller territorial units, made it ground zero for experiments in a new world order, where hyperglobalisation and anti-globalism mixed unstably, as they continue to do. Consider the didactic, megalomaniacal Czech shoe merchant Tomáš Bat’a, who flew his aeroplane from Zlín over Europe, the Middle East, and India, to establish vast production and supply networks with the ambition of shoeing the barefooted millions of the Indian subcontinent, soaring above Europe’s tariff walls below. Bat’a made a fortune doing so until, like so many in Zahra’s story, he was tarred with the virulently conspiratorial brush of being part of a shadowy Jewish elite somehow in control of international finance, profiting from globalisation while others stagnated. It has never been certain that democracy, markets, and nation-states, can reliably foster forms of globalisation that bring peace and profit rather than war and depravity. But it remains depressingly obvious just how pervasive the antisemitic lineaments of modern anti-globalism are, and there seems little to suggest their diminution any time soon.Against the World: Anti-Globalism and Mass Politics Between the World Wars by Tara Zahra WW Norton £27.99, 400 pagesDuncan Kelly teaches political thought at the University of CambridgeJoin our online book group on Facebook at FT Books Café More

Investing.com — Bitcoin wobbles after U.S. regulators clamp down on Binance. House price and consumer confidence data are due, Walgreens and Micron report earnings and oil extend gains after surging on a combination of factors.1. Crypto hit by CFTC action against BinanceCryptocurrencies had the wind taken out of their sails as the Commodity Futures Trading Commission accused Binance of illegally selling its derivatives trading services in the U.S., the latest in a series of regulatory measures that appear aimed at walling off crypto from the mainstream financial universe.The CFTC’s charges revolve largely around how Binance facilitated market-making for large, professional high-frequency outfits based in Chicago and elsewhere, not least by instructing them to log on via Virtual Private Networks to disguise their physical location.“Give them a heads up to ensure they don’t connect from a us Ip. Don’t leave anything in writing,” founder and CEO Changpeng Zhao wrote in an email cited by the CFTC.Bitcoin, which has profited recently from a surge of negative news flow from the traditional financial sector, fell to its lowest in a week but bounced at the $27,000 level.2. Fed blames SVB management for collapse; house price, consumer confidence data dueThe Federal Reserve’s top banking supervisor blamed Silicon Valley Bank executives for the collapse of the bank, calling it a “textbook case of mismanagement” that left the bank prey to a sudden loss of confidence as interest rates rose.In testimony to Congress, Michael Barr batted away suggestions that the bank’s supervisors had been asleep at the wheel. His comments came hours after the Federal Deposit Insurance Corp. said it faced losses of around $20 billion on its deposit insurance fund in resolving the SVB case. While First Citizens (NASDAQ:FCNCA) bank agreed to buy most of SVB’s loan book with the help of cheap financing from the FDIC on Monday, a large part of its loans will remain on the FDIC’s books.Barr’s testimony continues in the House of Representatives later Tuesday.The U.S. data calendar meanwhile includes updates on house prices and the Conference Board’s consumer confidence survey.3. Stocks drift ahead of open; Micron, Walgreens set to reportU.S. stock markets are set to edge lower at the opening, lacking conviction despite the apparent calming of tensions over the stability of second-tier banks, which were extending Monday’s gains in premarket trading.By 06:25 ET, Dow Jones futures were up 39 points or 0.1%, but S&P 500 futures were down 0.1%, and Nasdaq 100 futures were down 0.2%.Stocks likely to be in focus later include Lyft (NASDAQ:LYFT), up 5% in premarket after appointing a new CEO, and Meta (NASDAQ:META), after reports that the Facebook owner will cut bonuses for some executives. Salesforce (NYSE:CRM) is also in focus after Elliott Management said it no longer intends to nominate directors to the company’s board with the software giant performing better than expected in the last quarter.Walgreens Boots Alliance (NASDAQ:WBA) reports earnings before the open, while chipmaker Micron (NASDAQ:MU) leads a long list of names reporting after the bell.4. Israel simmers as Netanyahu pauses controversial judicial reformIsrael came off the boil after Prime Minister Benyamin Netanyahu delayed the passage of his controversial judicial reform bill until the next session of parliament in May. Netanyahu was responding to massive demonstrations that swept the country at the weekend.The bill’s critics say it undermines democracy, by allowing the government too much power over the appointment of judges. It’s a particularly controversial point given Netanyahu’s own legal problems in recent years.The shekel rose to its highest in six weeks in response.5. Oil extends gains after China forecasts solid rise in 2023 importsCrude oil prices extended Monday’s chunky gains, which came in response to news of Turkey suspending exports from Kurdistan through a pipeline to the Mediterranean.Prices were also underpinned by research from China’s largest oil company suggesting that the country’s imports will rise by more than 6% this year to 540 million tons, reflecting the end of COVID-19-related restrictions on economic activity.By 06:40 ET (10:40 GMT), U.S. crude futures were up 0.5% at $73.16 a barrel, while Brent was up 0.3% at $77.89 a barrel.The American Petroleum Institute releases weekly data on U.S. stockpiles at 15:30 ET. More

UK grocery prices rose at a record pace this month, adding £837 to the average household’s annual bill as the cost of living crisis held its grip on shoppers, according to new sector data.Supermarket prices increased at an annual rate of 17.5 per cent in March, market research group Kantar said on Tuesday, the highest reading since records began in 2008, with the cost of eggs, milk and cheese rising fastest.“Unfortunately, it’s more bad news for the British public, who are experiencing the ninth month of double-digit grocery price inflation,” said Fraser McKevitt, head of retail and consumer insight at Kantar.Britons have been increasingly turning to cheaper supermarkets in response to financial pressures, the research showed. Lidl was the fastest growing chain in the category with sales rising by an annual rate of 25.8 per cent, pushing its market share to 7.4 per cent. Aldi secured a new record market share of 9.9 per cent, driven by a 25.4 per cent rise in sales. People also sought to reduce their grocery bills by buying cheaper label items, with own-brand sales up 15.8 per cent, the data showed. Consumers also shopped around in search of better deals. Footfall at all grocers rose, pushing the frequency of visits to their highest level since the start of the Covid pandemic, apart from over the Christmas period, Kantar said. “Shoppers are taking action and clearly hunting around for the best value,” said McKevitt. The data showed that more shoppers were turning to independent shops when certain groceries were not available at larger supermarkets. The volume of tomatoes, peppers and cucumbers bought in these stores rose 32 per cent, 26 per cent and 21 per cent, respectively.Research from the British Retail Consortium, released on Tuesday, underscored the sharp rise in food inflation, which last month grew at its fastest pace since records began in 2005. Shortages of fruit and vegetables contributed to the price acceleration, according to the BRC. Bad weather in Europe and north Africa combined with high electricity costs across the continent have limited the availability of fruit and vegetables this year, pushing prices up. Last week, the Office for National Statistics reported that inflation jumped to 10.4 per cent in February, up from 10.1 per cent in January. This disappointed expectations of a decline, with the cost of food and non-alcoholic beverages rising at their fastest pace for 45 years. Walid Koudmani, chief market analyst at online investment platform XTB.com, said: “People may need to cut back on discretionary purchases to compensate for the higher cost of groceries,” which could negatively impact the economy. High inflation could push the Bank of England “to further increase interest rates, leading to reduced investment and slower economic growth,” he added.Andrew Bailey, governor of the BoE, said on Monday that recent turmoil in the banking sector, which started with the collapse of the Silicon Valley Bank, would not deter the central bank from controlling inflation with high interest rates. More

WASHINGTON (Reuters) – Lawmakers are expected to put top U.S. bank regulators on the defensive over the unexpected failures of regional lenders Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) when they testify before Congress on Tuesday. Top regulatory officials for the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Treasury Department are testifying before congressional committees on the swift collapse of the two banks earlier this month, which set off a broader loss of investor confidence in the banking sector.Regulators have vowed to review their rules and procedures after the twin failures while insisting the overall system remains sound. Tuesday’s hearing at the Senate Banking Committee will give lawmakers the chance to press watchdogs on what went wrong on their watch, and push preferred policy prescriptions.In prepared remarks released before the hearing, top officials from the Fed and FDIC said depositor funds are safe and sound. But they both said they are reviewing what led to the bank failures, and what rules need to be changed to prevent such collapses in the future. “There will be politicking at both hearings with progressives and conservatives looking to score political points,” said Jaret Seiberg with TD Cowen.”But we also expect substance as lawmakers press the officials on what went wrong at these banks and what the message should be for uninsured depositors.”The turmoil set off fresh recriminations in Washington, as some Democrats and Republicans sharply criticized regulators for allowing the banks to get to such a state. Critics have noted how both firms, but particularly SVB, rapidly grew in size and ended up with huge amounts of uninsured deposits. Those funds quickly fled at signs of trouble, according to Fed Vice Chair for Supervision Michael Barr in his prepared testimony.”It’s very clear that the regulators had the authority to do their jobs, to supervise. They just didn’t,” said Sen. Tim Scott of South Carolina, the top Republican on the Senate Banking Committee, at a banking industry conference last week.Barr promised in his testimony an “unflinching” look at how SVB was supervised, but also noted it ultimately falls to bank management to address shortcomings, not supervisors.Some Democrats, including major bank critic Senator Elizabeth Warren of Massachusetts, have also argued a 2018 bank deregulation law is to blame. That law, mostly backed by Republicans but also some moderate Democrats, relaxed the strictest oversight for firms holding between $100 billion and $250 billion in assets, which included SVB and Signature.”The officials sitting before us today know that their predecessors rolled back protections,” said Senate Banking Committee Chairman Sherrod Brown, a Democrat from Ohio, in his prepared opening statement. “We will be watching all of the regulators to make sure they assess the damage, hold those accountable responsible for their actions, and fix what is broken.”In their remarks, both Barr and FDIC Chairman Martin Gruenberg indicated they are looking into tightening rules for banks and applying stricter oversight for firms similar to SVB.The hearing is expected to be the first of several. The House Financial Services Committee will hear from the same regulators Wednesday, and congressional leaders have already said they want to question former CEOs of the two banks on what went wrong.Regulators will be able to highlight some positives. The FDIC announced Monday that it had found a buyer for SVB’s deposits and loans in First Citizens Bancshares. While bank stocks remain under pressure, no U.S. firms have faltered in the two weeks since the Biden administration announced broad depositor guarantees and new emergency liquidity for banks in need.Gruenberg said in his prepared testimony that the “vast majority” of banks are not seeing material deposit outflows. More

The current splash on the FT’s homepage is quite rightly on a fascinating new paper on “China as an international lender of last resort”, which details Beijing’s Belt and Road Initiative debt problems.The paper — written by Sebastian Horn of the World Bank; Brad Parks, a research professor at William & Mary; Harvard’s Carmen Reinhart; and Christoph Trebesch, a director at the Kiel Institute — explores both direct loans through state-controlled or state-owned banks and through swap lines with the Chinese central bank. They found 128 bailout loans worth $240bn to 20 countries between 2000 and 2021. The vast majority ($185bn) was extended over the past five years of the study, and almost half happened in 2019-2021. Moreover, People’s Bank of China swap lines are far more meaningful than direct loans. The paper (you can find the full thing here, and the data set here) argues that China has in practice “launched a new global system for cross-border rescue lending to countries in debt distress”, which has made the global financial system more opaque and fractured.We build an encompassing new data set on China’s overseas bailouts between 2000 and 2021 and identify several new insights. Importantly, we find that the People’s Bank of China’s (PBOC) global swap line network has recently been used as a financial rescue mechanism, with more than USD 170 billion in emergency liquidity support to crisis countries. In addition, we document that Chinese state-owned banks and enterprises have extended an additional USD 70 billion in rescue loans for balance of payments support. In total, China’s overseas bailouts correspond to more than 20% of total IMF lending over the past decade and bailout amounts are growing fast. However, China’s rescue loans differ from those of established international lenders of last resort in that they (i) are opaque, (ii) carry relatively high interest rates, and (iii) are almost exclusively targeted to debtors of China’s Belt and Road Initiative. Our results have implications for the international financial and monetary system, which is becoming more multipolar, less institutionalized, and less transparent.In reality, the rescue loans are to a large extent actually a bailout for China’s banks, which have underpinned much of the estimated $838bn Belt and Road Initiative lending and have taken painful hits as a result. This probably helps partly explain why China has proven so difficult to deal with in many debt restructuring situations, such as Zambia and Sri Lanka. The swaps are the most interesting aspect of the paper. Since 2008 the PBOC has set up swap lines with almost 40 overseas central banks. Officially their purpose was to promote the use of the renminbi for trade and investment purposes, and they long remained dormant. However, that appears to be changing, with Argentina, Mongolia, Surname, Sri Lanka drawing them down shortly before or after sovereign debt defaults; and Pakistan, Egypt and Turkey doing so to ease balance of payments crises. FTAV’s emphasis below: Our findings suggest, however, that the swap lines are increasingly used in situations of financial and macroeconomic distress, as they can help to bolster gross reserve holdings and address short-term liquidity needs. Out of 17 countries that have made PBOC swap line drawings thus far, only four did so in normal times, with no apparent signs of distress. Thus, a main insight is that China’s swap line network has become an increasingly important tool of overseas crisis management. In total, 170 billion USD have been extended by the PBOC to central banks of countries in financial or macroeconomic distress. This amount involves a large number of rollovers, as short-term PBOC swap loans are often extended again and again, resulting in a de facto maturity of more than three years, on average. You can see the rising importance and usage of the swap lines in this FT chart recreated from the paper’s data:The swap lines’ usefulness to countries in debt distress is complicated by whether China will allow them to be drawn and swapped for dollars, which is what most countries need to service their international debts or pay for imports.In Argentina’s case this was known to have been granted, the paper notes, but without authorisation the swap might be of “limited use” in a classic balance of payments or debt crisis — with one important caveat. The renminbi drawn down could be used to flatter a country’s gross foreign exchange reserves, but because they are short-term in theory they are typically not reported as debt. The swap lines can therefore be used as “window dressing” to make a country appear financially healthier than it really is. The paper’s conclusions pulls no punches either:We show that China’s role as international crisis manager has grown exponentially in recent years following its long boom in overseas lending. Its position is still far from rivaling that of the United States or the IMF, which are at the center of today’s international financial and monetary system. However, we see historical parallels to the era when the US started its rise as a global financial power, especially in the 1930s and after WW2, when it used the US Ex-Im Bank, the US Exchange Stabilization Fund and the Fed to provide rescue funds to countries with large liabilities to US banks and exporters. Over time, these ad hoc activities by the US developed into a tested system of global crisis management, a path that China may possibly pursue as well. Our findings have major implications for the evolution of the international financial system, as cross-border rescue operations become less institutionalized, less transparent, and more piecemeal. China has demonstrated that a major creditor country (notwithstanding its current status as an emerging market) can create a large system of cross-border rescue lending to nearly two dozen recipient countries, while at the same time keeping its bailout operations largely out of public sight. Much more research is needed to measure the impacts of China’s rescue loans, in particular the large swap lines administered by the PBOC so as to gauge the full extent of debt distress in EMDEs and recalibrate what we understand as the global financial architecture.There’s lots to think about here. FTAV will share its own thoughts soon, but yours go in the comments below. More