Aurelia Butler

Good morning and we start today with a story that has been bubbling all week but yesterday became significantly more uncomfortable for President Joe Biden.It involves the potential mishandling of government documents. The White House confirmed on Thursday a batch of confidential papers had been found in the president’s home in Wilmington, Delaware. US attorney-general Merrick Garland appointed a special counsel to investigate the discovery, which followed an earlier finding this week. Garland called the circumstances surrounding the discovery of the documents “extraordinary” as he appointed Robert Hur, a Washington-based lawyer and former federal prosecutor, to the role of special counsel.The second batch of documents was discovered in Biden’s garage in Wilmington, where he keeps his classic 1967 green Corvette.The latest revelations are embarrassing for the president, who had accused his predecessor Donald Trump of being “irresponsible” when confidential documents were seized by the FBI after a raid on the former president’s Mar-a-Lago mansion last year.The president is also facing awkward questions over the timing of the discoveries. The first batch of documents was found on November 2, less than a week before the midterm elections, but their existence was only confirmed this week. The second group of papers was found by Biden’s legal team in December. Biden’s advisers insist there is no equivalence between the Mar-a-Lago findings and this week’s revelations but it is likely to sour some of the president’s recent successes and could affect the timing of an announcement for a 2024 run for the White House, which was expected in the coming weeks.Dig deeper: Here is everything we know so far about the discovery of the sensitive documents.Do you think there is equivalence between the Mar-a-Lago seizures and this week’s discoveries? Will the episode prove damaging for the president? Email me at [email protected] or hit reply on this email — GordonFive more stories in the news1. Exclusive: Carlyle sounds out Wall Street bankers over CEO role As the private equity titan tries to conclude a months-long search for a new leader, it has entered talks with two Wall Street veterans, the FT reports. The search for a new chief executive was launched following the abrupt departure of Kewsong Lee in August.2. Apple CEO takes pay cut The iPhone maker is targeting a more than 40 per cent cut to Tim Cook’s pay package in 2023, at the request of the chief executive following shareholder criticism. Apple’s compensation committee decided to award Cook total “target compensation” of $49mn, down from a target of $84mn a year before, according to a regulatory filing yesterday.3. China takes ‘golden shares’ in Alibaba and Tencent units Even as it backs away from heavy-handed crackdowns, Beijing is taking a greater role in overseeing China’s powerful tech groups by snapping up small equity stakes in their local operations. The “golden shares” come with special rights over certain business decisions, allowing the state to exert influence on private companies.4. SEC sues Gemini and Winklevoss’s Genesis exchange The crackdown on the cryptocurrency industry is accelerating. The latest enforcement action focuses on the crypto asset-lending programme Gemini Earn, which according to the regulator was not properly registered as a securities offering. To keep up with the rapid developments in the cryptocurrency industry premium subscribers can sign up to the FT’s weekly newsletter. 4. Easing inflation paves way for Fed to opt for quarter-point rate rise Easing inflation in the US has set the stage for the Federal Reserve to reduce the size of future interest rate rises to 0.25 percentage points. The consumer price index for December, published yesterday by the Bureau of Labor Statistics, registered an annual increase of 6.5 per cent, the lowest level in more than a year.

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How well did you keep up with the news this week? Take our quiz.The day ahead Bank earnings Thanks to interest rate rises, analysts estimate JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will report collective net interest income for the final three months of 2022 of almost $60bn when they report today. BlackRock, which plans to cut 500 staff, also releases results. Here is a preview of what to expect from today’s bank announcements.Economic data The University of Michigan’s consumer sentiment index is forecast to report a preliminary reading of 60.5 in December, a slight improvement from 59.7 the previous month, as inflation continues to ease. The metric has sat near historic lows in the past several months.Kishida visits White House Japanese prime minister Fumio Kishida meets US president Joe Biden today, ending a week of visits to five G7 nations to build consensus for the economic group’s annual summit hosted by Japan in May.Trump Organization sentencing A New York judge will pass sentence on the former US president’s business after it was convicted last month on tax fraud charges.Czech presidential elections The Czech Republic starts the first of a two-day election to decide the country’s next head of state. Incumbent president Miloš Zeman cannot run again, having served two five-year terms, but former prime minister Andrej Babiš has confirmed his candidacy. European diplomatic correspondent Henry Foy previews the vote.What else we’re reading A trillion-dollar blind spot for asset managers Despite the ongoing ESG push, firms continue to compete to work for authoritarian states with records of human rights abuses, writes Toby Nangle, former global head of asset allocation at a fund manager.

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The fight for Disney A buzz of excitement shot through Hollywood after Bob Iger returned to Walt Disney in late November. But behind the fanfare, signs of tarnish had appeared on the Iger halo, blemishes that the activist Nelson Peltz is now making the centrepiece of one of the US’s biggest proxy battles in years.Taiwan must not suffer the same fate as Ukraine The democratic world failed to deter a Russian attack on Ukraine — we must not make the same mistakes with China, writes former Nato secretary-general Anders Fogh Rasmussen. He lays out the lessons the west can learn from the war in Ukraine to prevent one in the Taiwan Strait.How do the Federal Reserve and ECB differ on tackling climate change? An apparent gulf opened up this week between central banks on either side of the Atlantic over their role in battling climate change. Federal Reserve chair Jay Powell told a conference the US central bank must “stick to our knitting”. The European Central Bank takes a different view. Should central banks lead the fight against climate change? Read this explainer to find out. South Korea’s women face ‘boys’ club’ at work For the 26th straight year, South Korea has recorded the worst gender pay gap among OECD economies. The country also has one of the largest gender gulfs in labour force participation. “From the companies’ perspective, female employees are considered to give up their career after marriage and childbirth,” says Kim Nan-joo, a researcher at the Korean Women’s Development Institute.Take a break from the news The FT weekend podcast features a discussion of AI art and the future of human creativity following a recent magazine story. The piece prompted readers to create their own AI works of art. You can see them here.

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Easing inflation in the US has set the stage for the Federal Reserve to reduce the size of future interest rate rises to 0.25 percentage points, even as central bank officials plan to keep throttling the economy for the rest of this year. Following data on Thursday showing annual US inflation declining to 6.5 per cent, the lowest consumer price index reading in a year, traders added to their wagers that the Fed would downshift from a half-point rate rise in December to a quarter-point at its next meeting in roughly three weeks. That would represent a return to normal in one sense, after a string of jumbo 0.75 percentage point rate rises last year heralded one of the most aggressive tightening campaigns in the Fed’s history. Several central bank officials have recently signalled they would be open to a quarter point increase next time while reminding investors there is a sting in the tail: even if the pace of rises does slow down, they still intend to increase the benchmark rate to more than 5 per cent and keep it there throughout this year. “If they do raise by only 25, they’re going to use their language to make sure that we know that we’re still far away from victory and that there is still more to come,” said Gargi Chaudhuri, a strategist at BlackRock. “Higher for longer is the theme.”The reason for the Fed’s caution is that “core” inflation, which strips out volatile food and energy costs, is still far too high and in December it rose by 0.3 per cent compared with the prior month. The headline CPI number fell 0.1 per cent over the same period. A quarter-point rate rise would lift the target range of the federal funds rate to 4.50 per cent to 4.75 per cent, a level that policymakers deem “sufficiently restrictive”. Most officials say the benchmark rate will eventually need to surpass 5 per cent to constrain the economy and bring inflation back under control.On Thursday, the odds that the Fed will deliver a quarter-point rate rise when its two-day meeting wraps on February 1 swelled to 93 per cent, according to the CME Group, up from 77 per cent the day prior. The move came after remarks from Patrick Harker, president of the Philadelphia Fed and a voting member on this year’s Federal Open Market Committee, who said he expects the Fed to raise rates a “few more times this year” and that quarter-point increases are “appropriate going forward”. By adopting a more gradual approach after a string of larger increases, policymakers hope they can take stock of the impact of previous rate rises that will take time to fully feed through to the real economy and reduce the risk of tightening too much. “Smaller changes give us more flexibility,” Susan Collins, president of the Boston Fed, said this week as she indicated she is leaning towards a quarter-point increase. Most officials have yet to explicitly endorse a rate decision for the upcoming meeting, but several have said the smaller option is under serious consideration. Policymakers at the Fed have said they do not want to inflict unnecessary economic pain, but their chief concern is still that price pressures become even more embedded in the economy if the central bank does too little to tame them. Jason Thomas, head of global research at Carlyle, said there was a “residual anxiety” within the Fed, adding: “Until they deter that next round of price increases and they really change the psychology back to the sense that price increases result in lost sales and market share they will not have actually achieved their objective.”Despite a welcome retreat in inflation and signs consumer demand is starting to ebb, the economy on the whole still shows signs of strength — especially the labour market, which continues to add jobs at a robust monthly pace. Wage growth has moderated in recent months, but price increases for a number of services have resulted in fears the Fed does not yet have the situation fully under control. The Fed has sought to alleviate those concerns by pledging to keep interest rates elevated at least through the end of 2023 and refrain from any rate cuts before 2024. Ethan Harris, head of global economics research at Bank of America, expects the central bank to underscore that message at its upcoming meeting by directly contradicting market indicators suggesting it stop short of what has been signalled.

Traders in fed funds futures markets continue to wager the central bank will stop just short of its 5 per cent target and deliver half-a-percentage point worth of cuts by the end of the year, which Harris said amounts to a “misreading” of the committee’s hawkishness. Financial conditions have also loosened in recent months as US stocks have rallied alongside government and corporate bond markets.“For policy to be successful, the markets have to co-operate,” said Harris. “And if they are not co-operating, on the margin you do more, not less.” More

Emerging market governments have raised more than $40bn on international bond markets so far this year, as an easing of global inflationary pressures and hopes of an economic rebound in China clear the way for the fastest January borrowing spree on record.A bruising sell-off that swept global fixed income last year, as big central banks responded to runaway inflation by sharply raising interest rates, effectively shut many borrowers in the developing world out of bond markets for long periods. But money has flooded back into bonds in the new year on further signs that inflation may have peaked in the US and the eurozone, with countries including Mexico, Hungary, and Turkey launching large bond sales.“Last year, patience didn’t really pay off, the market continued to get worse as it went on,” said Stefan Weiler, head of CEEMEA debt capital markets at JPMorgan. “So this year, many sovereign borrowers have jumped through this window of opportunity as quickly as they could.”Fourteen emerging market sovereign borrowers raised a total of $41bn from the start of January up until Thursday, according to data from Dealogic. That far outpaces the early days of any previous January, typically a busy month for debt sales, according to Bank of America strategists — the only year with a larger amount raised across the entire month was 2021 with $48.7bn.The flurry of sales has come as emerging market bond prices rebound from 2022’s heavy losses. A JPMorgan gauge of emerging market foreign currency debt is up 1.7 per cent so far in January, having fallen by 17.8 per cent last year. Investors have dialled back their expectations of further interest rate increases in big developed economies, removing a headwind for emerging market debt.

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Traders are now betting that the Federal Reserve will now increase rates by just a quarter of a percentage point next month after US inflation declined to the lowest annual pace in more than a year.The reopening of China’s economy — a crucial engine of growth in the developing world — as draconian Covid-19 restrictions are lifted has added to the sense of optimism. “The scrapping of the zero Covid policies has happened much faster than most people expected,” said Uday Patnaik, head of emerging markets debt at Legal & General Investment Management. “While [developed] countries are expected to go into recession, if you look at large EM economies, the only one forecast to be in recession this year is Russia.” The scale of issuance also reflects demand from end investors who are warming to fixed income after last year’s bloodbath, according to Patnaik, who participated in recent bond sales by Israel, Turkey and Mexico. He said: “We are seeing interest in new mandates coming into EM partly because yields are so much higher. There is money that needs to be put to work, and issuers are taking advantage of that.”Still, a global downturn could mean the current calm does not last, particularly for riskier emerging debt, some analysts argue. That prospect has made this month’s emerging market borrowing dash all the more urgent, argues Cristian Maggio, head of portfolio strategy at TD Securities.“Some issuers may have decided to front-load,” he said. “If we are right that there will be a recession in several key economies I don’t think market conditions are necessarily going to stay benign.” More

An apparent gulf has opened up between central banks on either side of the Atlantic over their role in battling climate change.Jay Powell, chair of the US Federal Reserve, said the guardians of the world’s currencies should “stick to our knitting and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals”. “We are not, and will not be, a climate policymaker,” Powell told a conference organised by the Swedish central bank this week.At the same event, Isabel Schnabel, a member of the six-person executive board of the European Central Bank, advocated greater action to address climate change. The German economist pledged to “ensure that all of the ECB’s policies are aligned with the objectives of the Paris Agreement to limit global warming to well below 2C”. The stark difference in approaches raises questions over whether monetary policymakers should lead the fight against global warming or play a much less active role. Are environmental issues behind diverging attitudes to inflation control? No. It is important to look past the huge rhetorical divide and concentrate on what they are saying about inflation. The ECB’s position is clear, if a little convoluted. It worries that high interest rates to control inflation will undermine the green transition by raising the cost of investing in wind, solar, hydrogen and other clean energies necessary for moving to a net zero carbon world.

Isabel Schnabel, left, of the ECB and Jay Powell, chair of the US Federal Reserve © FT Montage/Bloomberg

But Schnabel was clear that this concern was subordinate to the ECB’s mission to control inflation. While she recognised a “dilemma” about the damage high rates pose to green investment, the answer was to control inflation so borrowing costs could come back down. “By bringing inflation down in a timely manner, monetary policy restores the conditions that are necessary for the green transition to thrive,” she told the conference, demonstrating the ECB’s settled stance on monetary policy after raising rates rapidly to 2 per cent in recent months. The Fed’s governors do not have a similar dilemma to resolve, so the US policy is simpler. “Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise rates to slow the economy,” Powell said, adding that the Fed’s independence allowed it to take the necessary measures on rates. Where else are Fed and ECB policy fundamentally aligned?They are aligned on two other important issues. First, that the primary role for green intervention lies not with independent central banks but with governments. Powell said that “in a well-functioning democracy, important public policy decisions should be made, in almost all cases, by the elected branches of government”. Schnabel concurred, saying, “governments must remain in the lead in accelerating the green transition”.Second, they agree central banks have a role when supervising the banking system in ensuring commercial banks understand and manage financial risks from global warming. These include weather-related risks to infrastructure that banks have financed or fossil fuel assets that might become near-worthless in future. This is a “narrow, but important” responsibility, according to Powell. ECB president Christine Lagarde pledged in 2021 to “ensure that every bank is making swift progress in embedding climate risks into their organisations”. And where do their policies differ?The most significant divergence is in how much they want to talk about their role in addressing climate change. In sticking to its “knitting”, the Fed does not want to make any waves on the subject, while the ECB has made a commitment to analyse, advise and act to reduce carbon emissions. Addressing climate change was an important outcome of its 2021 strategy review, where it made a commitment to further incorporate environmental concerns into its monetary policy framework.Concrete action is more limited, but the ECB has begun to tilt its portfolio of corporate bonds towards companies with better climate scores, something Schnabel committed to extending this week. The ECB is also looking at setting tougher environmental conditions if banks want to use bonds as collateral in the central bank’s financing operations.The Fed does not have a corporate bond portfolio, having unwound its coronavirus programme in 2021, and has no plans to “green” its collateral framework.Why do these differences persist?The Fed has a tightly defined mandate of seeking “maximum employment and price stability”, while the ECB has a wider remit, which says it should also support the eurozone’s economic policies so long as price and financial stability are maintained. These policies include a green transition, so ECB rate-setters have concluded they have a responsibility to take some action against climate change. The differences, though small compared with the rhetorical gulf, relate to different political pressures. The Fed must demonstrate it is not straying from its clearly circumscribed freedom to act on inflation and employment; the ECB faces pressure to do more to aid the transition — so long as it does not lose control of inflation. Nick Robins, professor at the London School of Economics, said all central banks now recognised climate change’s “material risks” to financial systems. “Where they diverge depends very much on the differing mandates they are given by legislators and the political environment they operate in — and these differences were on display this week.” But the ECB’s looser interpretation of its remit comes with risks. Paul Tucker, former deputy governor of the Bank of England, said green policies could backfire on unelected European central bankers if they became controversial.“Although climate change is vitally important, Powell is right that independent central banks cannot decently make discretionary choices in this area in order to, as it were, tax polluters,” Tucker said, warning that “elected governments could impose legal constraints on the assets that central banks can buy or lend against”. More

SEOUL (Reuters) – South Korea’s central bank raised its policy interest rate by 25 basis points on Friday, making a widely expected move that many economists also predicted would mark the end of a tightening cycle that began in 2021.The Bank of Korea said its seven-member monetary policy board had decided to raise its policy interest rate to 3.50%, the highest since late 2008. It did not elaborate on the decision.Financial markets showed a muted reaction ahead of the central bank governor’s news conference. Three-year treasury bond futures stood 8 ticks above the previous close and the won was 0.75% firmer against the dollar.The rise matched a prediction by 36 out of 40 economists in a Reuters poll, in which the remaining four had expected the central bank to hold the rate steady at 3.25%. Friday’s decision marked the 10th interest rate rise since the current tightening cycle began in August 2021 and brought the total amount of increase to 300 basis points.The decision follows Governor Rhee Chang-yong’s remarks this month that the central bank’s policy stance would continue to focus on stabilising prices. It would also pay attention to achieving a soft landing for the economy, he said.Annual consumer inflation in South Korea has been falling since hitting a 24-year high of 6.3% in July, but the current rate of around 5% is still more than twice the central bank’s target of around 2% over the medium term.Like its peers globally, the Bank of Korea is faced with growing pressure to adjust its policy stance as domestic consumer and corporate spending fades and global trade slows.Rhee is due to hold a news conference at 0210 GMT to explain the policy decision. More

WASHINGTON (Reuters) – A new global sovereign debt “roundtable” that will include China, other creditors and some borrowing countries will meet for the first time next month on the sidelines of a Group of 20 finance officials meeting in India, IMF Managing Director Kristalina Georgieva said on Thursday.Georgieva, the first person from an emerging market economy to head the International Monetary Fund, told reporters debt relief was critical for heavily indebted nations to avoid cuts in social services and other repercussions.The Bulgarian economist, who has pushed hard for quicker movement on debt relief, said she would travel to Zambia in two weeks, and hoped the African country would become the second nation after Chad to complete a debt treatment process under the Common Framework. The framework was set up by the Group of 20 major economies and the Paris Club of official creditors in October 2020 to help countries weather the COVID crisis, but it has been plagued by long delays.U.S. Treasury Secretary Janet Yellen and other Group of Seven have grown increasingly frustrated about what they see as foot-dragging by China in moving forward on debt treatments for countries seeking help. China, for its part, argues that multilateral institutions should also required to accept reductions in the debt they are owed.Georgieva said reforms were needed, noting that Ghana was debating whether to seek relief under the G20 Common Framework, but remained concerned about how that process would work and how soon a debt treatment could be agreed.She said the new roundtable would not substitute for the Common Framework, but would seek to work on transparency, timing of debt treatments, how to set cutoff dates for loans to be considered, and other issues that were not fully resolved.”The main objective of the roundtable … (is to) bring everybody around the table at the most senior levels,” she said.It was not yet clear which borrowing countries would participate, Georgieva added, but the intention was to invite G20 members who were also borrowers, since the inaugural meeting would take place in India at next month’s meeting of G20 finance officials.Additional meetings were expected in April at the spring meetings of the IMF and World Bank, she said.Georgieva first discussed the new roundtable last month after a visit to China, noting it would also include private sector creditors and multilateral institutions such as the IMF and World Bank.The IMF estimates that 60% of low-income countries are in or near debt distress, along with some middle-income countries, but Georgieva said she did not believe the world was facing a systemic debt crisis with contagion risks.She said she was seeing greater willingness in Beijing – now the world’s largest sovereign creditor – to accept rescheduling of debt or interest rate changes, although officials there remained skeptical about actual debt reductions.”Of course it is much better if debt reduction is done upfront, not through a reprofiling but with a … haircut,” she said, adding the IMF was continuing discussions with China as lender about the value of having countries actually being able to service their debts. More

(Reuters) -Federal Reserve policymakers on Thursday expressed relief that inflation continued easing in December, paving the way for a possible step down to a quarter point interest rate increase when the U.S. central bank meets in just under three weeks.U.S. consumer prices fell in December in the first month-to-month decline in more than 2-1/2 years, and underlying inflation slowed, government data showed on Thursday. In the 12 months through December, the so-called core CPI increased 5.7%, the smallest gain since December 2021 and fresh evidence the Fed’s aggressive rate increases are having the desired effect.”We are in fact constraining the economy and presumably in the process constraining inflation. That means for me I can be a little more nuanced,” in deciding the size of upcoming rate increases, Richmond Federal Reserve president Tom Barkin said in comments to reporters in Richmond. After raising rates by half a point at its December meeting, Barkin said he was “in concept supportive of a path that is slower but longer and potentially higher” depending on how inflation behaves.”Hikes of 25 basis points will be appropriate going forward,” Philadelphia Fed president Patrick Harker said in a speech to a local group in Malvern, Pennsylvania, adding that once rates get just above 5%, “I expect that…will be restrictive enough that we will hold rates in place to let monetary policy do its work.” The December inflation data was “welcome news,” Atlanta Fed president Raphael Bostic said in an interview with CBS News. “It really suggests inflation is moderating and that gives me some comfort that we might be able to move more slowly.” The Fed set the target policy rate between 4.25% and 4.5% at its December meeting. Data since then has shown inflation easing and the labor market slowing modestly from the torrid pace of job and wage growth through much of 2022.The data has kept the Fed’s hope of a “soft landing” in view, and led policymakers this week to talk more openly of scaling rate hikes back to the quarter point increments the Fed used more commonly in recent decades.In contrast to the first half of 2022, when those most concerned about inflation called for larger rate increases, no one is publicly pressing their colleagues for a half point increase – even as some have remained open to the idea.”It is encouraging that we got some information today that went in the right direction,” on inflation, St. Louis Fed President James Bullard said at an event organized by the Wisconsin Bankers Association.Bullard noted inflation remains far above the Fed’s 2% goal, and he repeated that he would like the central bank’s policy rate to exceed 5% “as soon as possible.”But, after a year in which he was an outspoken advocate for larger increases, Bullard did not push back against smaller increases moving forward.Still, Fed policymakers remain aligned around further hikes – whatever the size – and a final destination somewhere above 5%. “We still have work to do. Inflation is too high, and we will need to stay on the case until it is sustainably back to our 2% target,” Barkin said in comments to the Virginia Bankers Association.The economy continues adding jobs even as growth slows, Barkin noted. If anything, he said, recent data on economic activity has delayed the risk of recession.HIGHER FOR LONGER?U.S. stocks rose after the release of the CPI data. Traders of futures tied to the Fed’s policy rate bet heavily on a downshift to quarter-percentage-point hikes starting at the Jan. 31 to Feb. 1 meeting and a pause just below 5%, with rate cuts priced in for later in the year. That view remains in contrast to where Fed officials insist they are heading: Not just a bit higher, but with a bias to remain there for the potentially extended period of time it may take for inflation to slow credibly toward the Fed’s target.The Fed’s Dec. 13 to 14 meeting minutes show no central bank policymaker expected any rate cuts for all of 2023. Atlanta Fed President Raphael Bostic this week said his base case is that rates will remain high through 2024. While inflation over the last three months has gone in the “right direction,” Barkin said on Thursday that “you have to be careful about declaring victory too soon…Inflation is going to be more persistent than a simple drop down to 2%,” possibly requiring rates to say at a restrictive level longer than anticipated.Fed policymakers have repeatedly said they want to avoid repeating the mistakes of the 1970s, when the central bank raised rates and then cut them when inflation appeared to recede, only to have to raise borrowing costs even higher to bring the price pressures back in line.The Fed ultimately pushed borrowing costs and the U.S. unemployment rate into double-digit territory during that period before stopping the upward spiraling of prices.Fed policymakers say they do not expect the unemployment rate, currently 3.5%, to rise much more than a percentage point in the course of the current inflation fight. More