Aurelia Butler

Good morning, and happy Friday.The US has launched a new crackdown on countries and individuals helping the Kremlin evade western sanctions. Meanwhile, Republicans are increasing their attacks on Democrats for dismissing the Wuhan lab leak theory.And scroll down to chart of the day to find out why US borrowing costs have reached their highest level since before the 2007 global financial crisis. Here’s what I’m keeping tabs on today and over the weekend:Scholz meets Biden: The German chancellor makes his first state visit to the White House, with Ukraine on the agenda.Republicans meet: The annual Conservative Political Action Conference resumes today with speakers including ex-US ambassador to the UN Nikki Haley and Georgia representative Marjorie Taylor Greene. Former president Donald Trump and Brazil’s ex-president Jair Bolsonaro close the conference tomorrow.Economic data: The Institute for Supply Management will release its monthly services purchasing managers’ index, which tracks the vast services sector. Chinese politics: China’s rubber-stamp parliament convenes on Sunday. Here’s a preview of what to expect. Thanks for all the feedback so far on FirstFT’s new look. Keep it coming at [email protected]. Have a great weekend.Today’s top news1. The US has renewed efforts to crack down on sanctions dodging amid growing concern that Russia is fuelling the war in Ukraine by funnelling imports through countries such as the United Arab Emirates and Turkey. In other war news: US secretary of state Antony Blinken and Russian foreign minister Sergei Lavrov met for the first time since Russia launched its full-scale invasion of Ukraine.2. Republicans step up attacks on Democrats and the White House over the origins of the Covid-19 pandemic. Republicans, who championed the theory that the virus escaped from a Chinese laboratory, claimed recent comments from US officials vindicated their views. Read why it is a debate that is likely to grow louder ahead of the 2024 presidential election. 3. Adani group shares jumped after a US investment firm bought $1.9bn of stock in four of its companies. The investment by New York-based GQG Partners gives a boost to infrastructure tycoon Gautam Adani after his conglomerate was hit by an attack from short seller Hindenburg Research five weeks ago.4. Koch Industries has appointed a co-CEO from outside the family, with Dave Robertson joining billionaire Charles Koch to lead America’s second-largest private company. Koch will continue as chair, a role he has held since 1967. Learn more about the man with whom Koch is sharing power.5. Brazil’s economy stagnated in the final quarter of 2022. Gross domestic product contracted by 0.2 per cent in the final three months of the year from the previous quarter, when it expanded 0.3 per cent, according to official data released yesterday. How well did you keep up with the news this week? Take our quiz. The Weekend Essay

John Martin’s ‘The Deluge’ (1834) © Yale Center for British Art; Paul Mellon Collection; Bridgeman Images

Scientists warn we are not just facing a mass extinction event, but that one is already under way. The anxieties surrounding the fragility of ecosystems, however, are as old as time. What can we learn about tackling climate shocks from studying thousands of years of humanity’s response to natural disasters?We’re also reading and watching . . . ‘Panic station at Fox News’ The internal unrest at Fox News that followed Donald’s Trumps outrageous claims about the 2020 election has exploded into public view in recent weeks. Read the latest from the Dominion lawsuit. Who to fire? Tech groups, financial services companies and carmakers are all reducing headcount ahead of a potential recession. Here’s how management experts say companies should handle mass lay-offs.🎥 Drive fast: Formula 1 is undergoing a revolution. Ahead of the season’s first race, the FT goes inside the business of F1.Chart of the dayAn avalanche of hot inflation data over the past month has lifted US borrowing costs to levels not seen since before the 2007 global financial crisis. Recent moves have shocked observers and fuelled a debate about how high interest rates will have to go to cool inflation. Read the latest views of investors and economists.Take a break from the newsIn Bali, plastic bags are getting a second life as homeware. Plastic flip-flops have been transformed into art, and recycled bottle caps have been made into a chair as a wave of designers, artists and environmental advocates turn the island’s copious rubbish into upcycled treasures.Additional contributions by Tee Zhuo and Emily Goldberg More

European stocks rose on Friday as investors took an optimistic view of a week of data releases that showed economies in Europe and the US were more robust than expected.The region-wide Stoxx 600 was up 0.7 per cent while France’s Cac 40 climbed 0.8 per cent. Germany’s Dax gained 1.1 per cent and the UK’s FTSE 100 rose 0.3 per cent.For much of February, investors were rattled by a series of stronger than forecast economic data points, which spurred fears that the key central banks will keep interest rates higher for longer to combat lingering inflation.“Equity markets now look to be responding more to the brightening growth outlook, which means they are likely in a better place to absorb the prospect [further rate increases],” said analysts at Barclays.Final European S&P composite purchasing managers‘ index data was revised down on Friday from 52.3 to 52. However, both readings still indicated an expansion in activity over the previous month. “That adds to the sense that the data is improving and that the economic outlook in the eurozone has improved,” said Neil Shearing, group chief economist at Capital Economics. “But since it’s been revised down it will temper some optimism.”Data from the US on Thursday showed jobless claims fell to 190,000 in the week ending February 25, fewer than the 195,000 predicted. Figures on Tuesday showed stronger than expected inflation data from France and Spain, two of the eurozone’s largest economies.Markets were buoyed by comments from Atlanta Federal Reserve president Raphael Bostic, who favoured a “slow and steady” approach to raising rates but was open to supporting higher increases if economic data continues to be strong.Futures contracts tracking the blue-chip S&P 500 climbed 0.3 per cent, and those tracking the tech-heavy Nasdaq rose 0.4 per cent, following Thursday’s rally on Wall Street.A key indicator of inflation in the services sector, the US ISM non-manufacturing PMI will be released at 3pm UK time on Friday. US Treasury yields slipped after hitting their highest level in years on Thursday. Two-year notes, which are more sensitive to monetary policy, fell 0.05 percentage points to 4.86 per cent after hitting 4.94 per cent, their highest since 2007, on Thursday. Ten-year notes fell 0.07 percentage points to 4 per cent. Yields on 10-year German government bonds fell 0.04 percentage points to 2.71 per cent.The dollar index, which measures the greenback against six peer currencies, fell 0.3 per cent. The euro rose 0.2 per cent, while sterling was up 0.5 per cent against the greenback.Brent crude oil and WTI, the US equivalent, were both down 0.5 per cent — at $84.32 and $77.81 per barrel respectively. More

Washington has put 28 Chinese groups on a trade blacklist for allegedly breaching US sanctions by sending technology for nuclear and missile programmes to third countries or procuring banned products for China’s military.The commerce department placed the groups on its “entity list”, which in effect prohibits US companies from supplying them with technology produced in America. Some of the companies were blacklisted for providing technology to an Iranian entity previously targeted by US sanctions.Among the better-known Chinese targets are BGI Research and BGI Tech Solutions, part of BGI Group, the largest genomics research company in the country. The US is increasingly concerned that China could use groups such as BGI to obtain Americans’ genetic data.The move is the Biden administration’s latest effort to punish Chinese groups that allegedly violated export control rules by providing or trying to provide technology that would assist the People’s Liberation Army in its rapid military modernisation.The blacklistings are also a response to a range of other activities, including providing Pakistan with nuclear and missile technology and supplying Myanmar and other Chinese groups with surveillance technology that enables repression and human rights abuses.“When we act to stand against proliferators, oppose military aggression in the case of Russia and the People’s Republic of China military modernisation, and protect and advance human rights, we are putting . . . [US] values into action and enhancing our shared security,” said Don Graves, deputy commerce secretary.The targeted companies included Loongson Technology, a chipmaker that originated in the state-backed Chinese Academy of Sciences. Loongson’s core technology is considered China’s answer to Intel and Arm for chip design.The commerce department also targeted Suzhou Centec Communications for acquiring or seeking to obtain US technology for the PLA, as well as for assisting other groups already on the entity list. Centec designs chips for 5G network equipment, a market that used to be dominated by Huawei in China, and for data centres to support Chinese supercomputing.The US also blacklisted 4Paradigm Technology, a group that specialises in artificial intelligence, and Inspur Group, which focuses on AI, cloud computing and big data, for supporting the PLA’s modernisation drive.

The addition of Chinese entities to the list, which has been used to target big groups such as Huawei, comes as relations between Washington and Beijing have hit new lows in the wake of a suspected Chinese spy balloon that flew over the US.Over the past two weeks, senior US officials have warned that China was considering sending ammunition to Russia to support its war in Ukraine. On Thursday, the US also blacklisted DMT Trading, a company in Belarus, and Neotec Semiconductor in Taiwan for helping Russia bolster its defence industry.Six companies — including Galaxy Electronics and Arttronix International — were also added to the list for supplying or trying to provide technology without a required licence to Pasna, an Iranian group that is on a separate Treasury department list of companies that have been hit with sanctions.The Treasury alleges that Pasna has previously tried to obtain metals used in anti-submarine warfare and ocean surveillance.Chinese foreign ministry spokesperson Mao Ning said it “firmly opposed” the new US blacklisting, and called on Washington to maintain “non-discriminatory treatment for Chinese companies”.Additional reporting by Maiqi Ding in BeijingFollow on Twitter: Demetri Sevastopulo More

In case you hadn’t noticed, an incredibly bold experiment in social dirigisme is unfolding not in France, where linguistically and spiritually it belongs, but in the land of the free.The Frenchwoman writing these lines confesses she has been flabbergasted by the conditions, unveiled this week, attached to $39bn in grants and loans in the US Chips act, which is designed to encourage the development of an entire semiconductor manufacturing ecosystem in America. What US commerce secretary Gina Raimondo has outlined is a far-reaching attempt to bend employer behaviour, not only in the field of industrial and financial strategy — chipmakers must agree not to expand in China for a decade and refrain from stock buybacks — but also in how they treat their staff.Among some of the most striking features — and after the administration had to scale back its legislative plans on childcare — companies applying for the funds will have to demonstrate that they will provide “affordable, accessible, reliable and high-quality child care”. Child care should be within reach for low- and medium-income households,” states the documentation, “be located at a convenient location with hours that meet workers’ needs, grant workers confidence that they will not need to miss work for unexpected childcare issues, and provide a safe and healthy environment that families can trust.” Applicants must also “describe any wraparound services — such as adult care, transportation assistance, or housing assistance”. They are “strongly encouraged” to sign collective bargaining deals with unions ahead of building new plants. This is language that France’s pre-eminent Socialist president François Mitterrand would have been proud of.In the US, companies have so far refrained from complaining publicly about these provisions but they have not gone unnoticed.“Affordable childcare is an admirable goal but it has nothing to do with semiconductors,” tweeted Steven Rattner, former auto industry adviser to Barack Obama. “If we want the CHIPS act to work, it can’t be used as a pack mule for unrelated policy priorities.”Economist Joseph Stiglitz expressed a more positive view. “Worker scarcity is a significant challenge in our economy, especially in high-tech industries. The provision that companies receiving CHIPS money provide childcare for workers is an important component,” he said. “We need a market economy that not only reflects values but encourages and develops these values from the outset.”In Europe, the initiative will be closely watched. “They are using industrial policy to push social policies,” said Shahin Vallée, former EU adviser to Emmanuel Macron and now senior fellow at DGAP, the German Council on Foreign Relations. “There has been a profound ideological shift in the US, and in Europe, we still haven’t adjusted to it.”The statist Charles de Gaulle would also have been envious of Joe Biden’s industrial volontarisme: broadly that where there’s a will, there’s a way. The Chips act, combined with the Inflation Reduction Act and its $369bn in grants, loans and tax credits for the rollout of renewable energy and clean technologies, are the most significant attempts to revive industrial policy in the western capitalist world since the aftermath of the second world war.This sea change has deeply unsettled European companies and policymakers, triggering a rethink of industrial policy at EU and national level, and spurring attempts by Brussels to loosen state aid and national subsidy rules.European business leaders, who complain that the EU is about sticks and not enough carrots, have called for similar incentives in the form of direct funding and tax credits. But they would surely be less keen on the significant strings that the US has also attached.As one French government official pointedly said: “If we were doing this in France, we would be described as communists.” More

Job cuts are very much on corporate minds. A first round of swingeing culls hit the technology sector in November. US companies including Goldman Sachs, Microsoft and Amazon followed by laying off nearly 103,000 people in January, the highest monthly total since the height of the pandemic.Now the misery is spreading, as executives hunker down ahead of a possible recession. Tech groups are retrenching further after overestimating how much the pandemic changed customer habits. Financial companies and consultants are dealing with choppy markets and reduced deal flow. Meanwhile, carmakers are having to adjust to rising demand for electric vehicles.Management experts caution that there are better and worse ways to reduce payrolls. Some of the biggest employers may be falling into common traps that could inflict lasting damage on morale and future growth. One of the worst mistakes, they agreed, is to give employees the sense that quick fix cost-cutting targets — rather than longer term strategic plans — are driving the process.“To have a skittish response to the threat of tumultuous economic times will set a company back,” said Angie Kamath, dean of New York University’s School of Professional Studies. “Making very sharp turns right now is a mistake . . . [and] smells to me of very poor management.”A striking example in the recent mass redundancies is McKinsey, the consultancy famous for advising other businesses on how to bring down costs. The company is cutting up to 2,000 of its 45,000 people, hitting divisions that do not serve clients directly, such as human resources, technology and communications. Until recently McKinsey’s headcount had been growing and it has been an active participant in a bidding war for top recruits. McKinsey, Bain and Boston Consulting Group increased annual base pay for MBA hires in the US to more than $190,000 last year, one of the biggest rises this century. Employers must act fastManagement experts warn companies embarking on mass lay-offs not to let the process drag on. “The worst thing people can do is to do it very slowly and painfully,” said Kairong Xiao, associate professor of finance at Columbia Business School. “If you say, ‘we’re going to do it in three months’, during those three months no one is getting work done.”Wall Street banks Goldman and Morgan Stanley, which are making big cuts after bulking up headcount significantly during the pandemic, have taken contrasting approaches.At Morgan Stanley, 1,800 redundancies, slightly more than 2 per cent of staff, were made in early December, with little build-up or angst. Goldman, which is cutting 3,200 jobs, 6.5 per cent of its headcount, moved more slowly. Team leaders were instructed in early December to draw up lists of employees who could be let go. News of the planned cull leaked, kicking off weeks of uncertainty about who was on the way out.

Chief executive David Solomon admitted to Goldman Sachs executives last month that he should have reduced headcount sooner © Mike Blake/Reuters

The anxiety was not helped by a year-end voicemail message from chief executive David Solomon, instructing employees that lay-offs would be announced in early January. Younger employees reportedly dubbed the day of reckoning as “David’s Demolition Day”. When the axe finally fell, managers described the process as “brutal”. Solomon ended up offering a mea culpa to the bank’s senior executives, telling them he should have cut jobs sooner. “If you do it in one fell swoop, it is an action plan,” said Brandy Aven, an associate professor at Carnegie Mellon’s Tepper business school. “That is a much better situation than piecemeal, because that starts to degrade [employees’s views of] your competence and your benevolence.”At Amazon, the process that led to 18,000 job losses, the most in the company’s history, was also lengthy. Last year it imposed a hiring freeze, followed by job cuts in lossmaking or experimental units, such as the team behind the Alexa voice assistant.Early talk of cuts in the region of 10,000 jobs prompted an admission in January that nearly twice that number would need to go. In a note to staff, chief executive Andy Jassy said “these changes will help us pursue our long-term opportunities with a stronger cost structure”.Some soon-to-be Amazon employees described offers being rescinded while they were in the process — quite literally packing their bags — of relocating to Seattle to start a role. Internal discussions on workplace communications tool Slack, seen by the Financial Times, showed frustrated employees feeling they had been left in the dark. In an interview shortly after the losses were announced, Jassy told the FT his company had no intention of any more cuts.Consider where to swing the axeOnce the need for job losses is clear, companies have choices about where to make them. It can be easy to target the most recent arrivals, management experts say. But that wastes the money that has just been spent to recruit and train them and may leave the company missing a generation of workers in the future.“A better approach is to use it as an opportunity to think about the strategic direction of the company,” Columbia’s Xiao said. When cuts focus on non-core businesses, “the whole team is gone and there is nothing personal about it.”Job losses announced by Ford last month were specifically driven by larger business decisions at the US carmaker: a shift to electric cars and a thinner vehicle line-up.

A worker assembles an integrated drive module for a Ford electric car. The company is planning more redundancies as it takes fewer people to build electric models © Mauricio Palos/Bloomberg

Chief executive Jim Farley estimates that about 40 per cent fewer people will be needed to build electric models in future because they contain fewer parts and are simpler to design and engineer.“The amount of work needed to be done [in electric cars] is less because of that simplification, and the fact these are electrified products,” said Tim Slatter, head of Ford in the UK.The carmaker is also reducing the number of models it offers in Europe, eliminating the Fiesta, its smallest car, and the slightly larger Focus. It has already axed the Mondeo, its once-popular family car. Slatter said the latest redundancies in Europe — which follow cuts in other parts of the company last year — would “make sure the business is set up for the future”.Staff will leave over the next two years, on a “voluntary” basis, while Ford also has a “proactive programme to retrain people,” he added.Rank and yankSome companies intend to use job cuts to weed out poor performers, but their assessment systems may not be up to the task, said Carnegie Mellon’s Aven. “With ‘rank and yank’ [programmes], the underlying assumption is that some people are better,” she said. “It’s reductive. You can miss key measures and thwart your overall performance. It is really important to look at how this person contributes to overall organisational performance.”Last September, Facebook owner Meta’s chief executive Mark Zuckerberg ordered directors to draft lists of 15 per cent of their teams to be put on performance review. Less than two months later, Meta laid off 11,000 people, 13 per cent of its total workforce at the time — the deepest single-day cull in its history.The cuts were largely performance based and affected all departments, although certain areas such as recruitment were harder hit. Meta is now exploring further redundancies, according to insiders. Zuckerberg said last month that he planned to be “more proactive” about cutting low-performing or low-priority projects, and to “remove some layers in middle management to make decisions faster”. The shake up has been nicknamed “the flattening” internally. One disappointment about the 2023 lay-offs is that few companies appear to be trying to find creative ways to cut labour costs, NYU’s Kamath said. Some businesses are clearly facing cyclical pressures, yet there seems little appetite for trying furloughs or moving people to part time until business picks up again. “Those are viable options and companies should think more about that,” she said. “The war for talent is expensive. With the cost of severance and signing bonuses, [lay-offs can be] a wash.”Additional reporting by Peter Campbell, Joshua Franklin, Dave Lee, Hannah Murphy and Michael O’Dwyer More

An avalanche of hot inflation data over the past month has lifted US borrowing costs to the highest point in a decade and a half, intensifying debate over how much further interest rates must rise to rein in soaring consumer prices. The yield on the two-year Treasury note hit 4.94 per cent on Thursday, a level last reached in 2007 before the global financial crisis. Yields on 10-year and 30-year Treasuries this week broke through 4 per cent for the first time since November. The moves follow weeks of unrelenting data showing inflation in the US running hotter than economists had expected, putting pressure on the Federal Reserve to redouble efforts to tamp down growth by raising interest rates. “I don’t recall this dramatic of a reassessment of economic conditions in such a short time period, with the exception of major shocks like Covid-19 and the collapse of Lehman Brothers,” said Rick Rieder, global chief investment officer for fixed income at BlackRock, the asset manager. He added: “I would never have thought you would have seen this kind of re-acceleration in inflation.”The latest in the string of hot inflation data was a report released on Thursday that showed unit labour costs — the average cost of labour per unit of output — rose 3.2 per cent on an annualised basis in the last quarter, revised up from a previous estimate of 1.1 per cent. Last week came an acceleration in the Fed’s preferred gauge of inflation, the personal consumption expenditures price index, to 0.6 per cent month on month in January from 0.2 per cent in December. Early in February, the US reported that consumer price index in January had cooled less than economists had forecast. The initial trigger for the bond sell-off was a US jobs report on February 3 that said more than half a million workers had been hired in January, nearly three times what economists had expected. Taken together, the economic data has dashed hopes the Fed will soon be able to pause interest rate increases. The outlook for borrowing costs will be in focus next week as Fed chair Jay Powell testifies in front of Congress just days before the next jobs report, in which the US is expected to report that 215,000 people were hired in February. On Thursday, Fed governor Christopher Waller said that if inflation and jobs data cool off, he would endorse a peak in interest rates between 5.1-5.4 per cent, up from current levels of 4.5-4.75 per cent. But if the data continues to come in too hot, “the policy target range will have to be raised this year even more”, he said. Futures markets show investors are now betting that the Fed’s critical policy rate will peak at 5.45 per cent in September before dipping slightly to 5.33 per cent at the end of the year, higher than the Fed’s last forecast of 5.1 per cent, issued in December. At the start of February markets had been pricing in a peak in rates in the second quarter just below 5 per cent, with two interest rate cuts by the end of 2023. “Markets have caught up with the data and the Fed. That is evident in the move in Treasuries,” said Adam Abbas, co-head of fixed income at Harris Associates.

Adding to evidence of resilient US economy was data Thursday showing a drop in new unemployment claims in the week that ended on February 24. Weekly initial claims figures have been less than 200,000 since early January after spending much of last year above that level. Stronger jobs data suggests upward pressure on wages, one big driver of inflation. “The market had gotten way ahead of itself with the ‘inflation is dead’ narrative,” said Matt Raskin, head of US rates research at Deutsche Bank.The Fed next meets on March 21-22. Economists expect the central bank to lift its policy rate by another 0.25 percentage points, matching the increase announced at its meeting last month. The rate of increase is less than the half-point and 0.75-point rises the Fed executed several times last year.“The Fed has a problem because they have already moved down to 0.25 percentage points. The status quo does not work for the US central bank right now,” said Ajay Rajadhyaksha, global chair of research at Barclays. More