Aurelia Butler

(Reuters) – The Federal Reserve takes into account global factors like the strength of the dollar as it sets interest rates, though it ultimately makes policy decisions based on domestic goals, Cleveland Fed President Loretta Mester said on Monday.”We’ve seen what’s going on in financial markets. … The mechanism will be through the financial markets, and whether they are functioning or not,” Mester said on a day of heightened financial market volatility that included a steep drop in the value of the pound. “We are going to set monetary policy that’s appropriate for the U.S. economy, but we don’t set it in a vacuum thinking that we are an independent island and we are not connected to the rest of the world.” More

Regulators from New York, California, Kentucky, Maryland, Oklahoma, South Carolina, Washington and Vermont all filed administrative actions against the company, saying its accounts would qualify as securities and should be registered as such. “Nexo violated the law and investors’ trust by falsely claiming it is a licensed and registered platform,” New York Attorney General Letitia James said, adding she had sued the company and was seeking “disgorgement of any revenues derived from Nexo’s unlawful conduct”.In February, BlockFi had agreed to pay $100 million in a landmark settlement with the U.S. SEC and state authorities that said its interest-bearing product should have been registered as a security. Since then, digital asset platforms have been seeking more clarity on the rules governing such products, saying current regulations remain unclear.”Since the SEC guidance on earn products in February 2022, Nexo has voluntarily ceased the onboarding of new U.S. clients for our Earn Interest Product as well as stopped the product for new balances for existing clients,” the company said.Nexo’s interest accounts promise an annual interest rate as high as 36%, according to California’s Department of Financial Protection and Innovation.The company, however, said the 36% interest was only applicable for one asset, and it does not advertise the high rate. For the majority of assets on its platform, rates offered are in single-digit percentages, Nexo said.The regulatory clampdown comes amid a crypto winter that has seen prices plummet this year as a risk-off sentiment and fears of a looming recession crushed risky assets, forcing some companies into bankruptcy. More

The UK government’s new fiscal plan has increased economic uncertainty and raised the odds of a global recession, a top official at the US central bank warned after sterling touched a record low. Speaking while the pound whipsawed as traders digested UK chancellor Kwasi Kwarteng’s £45bn tax-cutting package, Raphael Bostic, president of the Atlanta branch of the Federal Reserve, said the plan “has really increased uncertainty and really caused people to question what the trajectory of the economy is going to be”. Asked whether the plan and resulting volatility would increase the chances that the world economy tips into recession, Bostic said: “it doesn’t help”. “A basic tenet of economics is more uncertainty leads to less engagement by consumers and businesses,” he said. “The key question will be, what does this mean for ultimately weakening the European economy, which is an important consideration for how the US economy is going to perform.”Bostic’s comments came on the heels of a warning from Susan Collins, president of the Fed’s Boston branch, who said an external shock could tip the US economy into a recession.Speaking at an event on Monday, Collins, whose tenure began in July, highlighted the challenges facing the Fed as it confronts price pressures that have proven much harder to root out than anticipated while spreading to a broad range of sectors.“A significant economic or geopolitical event could push our economy into a recession as policy tightens further,” said Collins, who is a voting member on the Federal Open Market Committee this year and the first black woman to lead one of the bank’s branches. She added: “Moreover, calibrating policy in these circumstances will be complicated by the fact that some effects of monetary policy work with a lag.”Collins and Bostic are among the first top Fed officials to make public remarks since the central bank last week implemented its third consecutive 0.75 percentage point rate rise and signalled further large increases to come.Most officials see the federal funds rate rising to 4.4 per cent by year-end before peaking at 4.6 per cent in 2023. It hovers between 3 per cent and 3.25 per cent.Also on Monday, Loretta Mester, president of the Cleveland Fed, spoke of the global ramifications of the Fed’s aggressive campaign to tighten monetary policy, which has fuelled a significant appreciation of the dollar against currencies globally. “We’re going to set monetary policy that is appropriate for the US economy, but we don’t set it in a vacuum thinking that we’re an independent island and we’re not connected to the rest of the world,” she said at an event hosted by the Massachusetts Institute of Technology. With inflation running at multi-decade highs, Mester said “this is not the time” to worry about the risks of overdoing it in terms of tightening monetary policy and she outlined the very high bar for the Fed to back off its plans to slow the economy.“Wishful thinking cannot be a substitute for compelling evidence. So before I conclude that inflation has peaked, I will need to see several months of declines in the month-over-month readings,” she said.Collins, meanwhile, said it is “quite likely that inflation is near peaking and perhaps may have peaked already”.However, she noted there were some limitations to the Fed’s tools, particularly with regard to relieving supply-related bottlenecks and labour shortages that have helped push inflation to its highest level in about four decades. Like other officials, Collins thinks the job losses accompanying this tightening cycle could be less severe than in the past.Because employers have struggled to find workers — resulting in one of the tightest labour markets in decades — most officials see the unemployment rate rising only as high as 4.4 per cent in the coming years from 3.7 per cent.“There’s a really good chance that if we have job losses, it’s going to be smaller than what we’ve seen in other situations, and that’s what I’m banking on,” Bostic said in an interview with CBS on Sunday. “We’re going to do all that we can at the Federal Reserve to avoid deep, deep pain, and I think there are some scenarios where that’s likely to happen,” he said. More

Good evening,The pound’s fall to a record low today triggered turmoil in financial markets and a late statement from the Bank of England and Treasury did little to settle investor nerves.The central bank said it would assess the turbulence in UK financial assets at its next planned meeting in November after sterling lost as much as 4.7 per cent to trade as low as $1.035 against the dollar earlier today.The market jitters also led the government to issue a statement bringing forward plans for a new “medium-term fiscal plan” to be published on November 23.UK government bonds remain under heavy selling pressure, with the 10-year gilt dropping in price, pushing yields up by 0.38 percentage points to 4.2 per cent. Two-year yields, which are particularly sensitive to interest rate expectations, have surged to 4.5 per cent, from 3 per cent at the end of August.While the investor sentiment following UK chancellor Kwasi Kwarteng’s vow to stick with his debt-financed tax cuts and energy subsidies is clear, the fiscal shift has prompted mixed reactions among Conservative MPs.Many have expressed fears about the effect on sterling, with former chancellor George Osborne saying: “You can’t just borrow your way to a low-tax economy . . . you can’t have small-state taxes and big-state spending.” However, farming minister Mark Spencer praised the agenda as “ambitious” and said it would “stimulate growth within the economy that benefits us all”.Meanwhile, Paul Marshall, chief investment officer of Marshall Wace, accused the BoE of having “lost control of the UK bond market”, adding: “Its timidity is now having an impact on both the gilt market and sterling. That is the essential context for the market reaction to the mini-Budget. Once you lose market confidence, it is doubly hard to win it back.”But finance and economics commentator Toby Nangle put the blame for the market reaction squarely at the feet of Kwarteng. “It largely reflected financial markets getting increasingly concerned about the direction of UK macroeconomic policy,” he said. “Nothing in gilt markets in the past 35 years — not the UK’s ejection from the Exchange Rate Mechanism, 9/11, the financial crisis, Brexit, Covid or any Bank of England move — compares with the price moves in reaction to the chancellor’s mini-Budget,” he added.

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European equity and fixed income markets also fell today as investors fretted over the impact on the global economy of aggressive interest rate rises, as policymakers try to stamp out soaring inflation.“Markets picked up today where they left off on Friday as Monday morning started on a ‘risk off’ footing, with yields making fresh highs around the world without much relief in sight,” said analysts at Citigroup.Latest newsEnrico Letta to stand down as leader of Italy’s Democratic party after poll defeatOECD cuts global forecasts and cautions on European economyAldi vows to do ‘whatever it takes’ to keep UK price advantageFor up-to-the-minute news updates, visit our live blogNeed to know: the economySusan Collins, president of the Federal Reserve’s Boston branch, has warned that the US economy is at risk of tipping into a recession as its central bank seeks to ensure high inflation does not become more deeply entrenched. “A significant economic or geopolitical event could push our economy into a recession as policy tightens further,” said Collins in her first public remarks since taking up the position.Meanwhile in Germany, recession fears have dragged business confidence to 28-month low in Europe’s largest economy. The Ifo Institute’s index of business confidence slipped to 84.3 points, down from 88.6 last month and below the 87.1 forecast given by a group of economists in a Reuters poll. “The German economy is now clearly in a downturn,” said Melanie Debono, an economist at Pantheon Macroeconomics.But there is some positive economic news, according to Ruchir Sharma, FT contributing editor and chair of Rockefeller International. There are seven countries, including Vietnam and Saudi Arabia, that “defy the prevailing pessimism” and “share some combination of relatively strong growth, moderate inflation or strong stock market returns”.Latest for the UK and EuropeThe Kremlin has sought to calm Russian society after President Vladimir Putin’s decision to mobilise the army’s reserves led to protests and prompted people to flee across the few remaining open borders. Images of crowded airports and queues of cars at Russia’s land borders have undermined the Kremlin’s portrayal of the call-up as a widely accepted measure.Italy has elected its first female prime minister and put Giorgia Meloni’s arch-conservative Brothers of Italy on course to lead the country’s first far-right government since the second world war. Global latestThe Supreme Court’s ruling to overturn Roe vs Wade is upending US midterm elections by energising Democrats and presenting challenges to Republicans. As our Big Read explains, volunteers found the topic “dominating doors” during recent canvassing operations.China’s decision to end Hong Kong’s Covid quarantine measures on Friday has led business people to ask what does Beijing’s relaxing of the rules mean for the mainland’s zero-Covid policy?Elon Musk’s Starlink has activated its satellite broadband service in Iran after the US allowed private companies to offer uncensored internet access to the country amid protests that have caused more than 40 deaths. Starlink users are able to bypass a country’s terrestrial communications networks, freeing them from internet censorship, but a special terminal is needed to receive a signal.Need to know: businessApple has begun producing its iPhone 14 model in India. The company, which makes most of its iPhones in China, has been shifting some of its production elsewhere as geopolitical tensions rise between Washington and Beijing and China’s harsh pandemic policies disrupt business.The boss of KPMG’s United Arab Emirates business has attempted to shore up his position by sending the firm’s biggest clients a statement signed by its 30 capital partners swearing their unity and allegiance to the firm. The client note, seen by the Financial Times, comes on the back of a series of leaks from inside KPMG Lower Gulf alleging serious problems at the accounting firm, including nepotism, cronyism and a culture of fear.Alan Jope is to retire as chief executive of Unilever at the end of 2023, following investor discontent over a lacklustre performance during his time leading one of the world’s largest consumer goods groups.The World of WorkDespite surging inflation and recession fears, every sector — from tech to hospitality — is facing a fight for the top candidates. Management editor Anjli Raval explores the talent wars, including 40 per cent pay rises and free gym membership.Young entrepreneurs are exploiting TikTok’s influence to build viable businesses in real life, or IRL as the kids say. Teen influencers are making thousands of pounds by joining up with peers to hold pop-up events.Some good news . . . If you need a distraction from today’s market turmoil, FT Alphaville has you covered with this fun piece.Alternatively, if you’re more of a practical person, in a recent review of over 100 studies, scientists have determined that exposure to cold water and air is truly good for you. Experts say cryotherapy could prevent or reduce diabetes, obesity and cardiovascular disease. (Good News Network)

Taking cold water swims or baths during winter has been found to reduce the risk of diabetes © Reuters More

France’s finance minister has pledged additional aid for larger companies hit by high energy prices, as the head of the eurozone’s central bank warned that the region was facing “unprecedented shocks”. Bruno Le Maire, France’s economy minister, vowed his government would help to shield businesses from spiralling gas and electricity prices, saying he would push to double the state aid available for industrial companies and other medium-sized businesses struggling with energy bills to up to €100mn. The measure requires sign-off from Brussels, but a €3bn pot already earmarked for helping companies will be rolled into 2023. “Inflation is a poison for democracies, history has shown that,” Le Maire said as he outlined a budget for next year dominated by price-busting measures. France has already shielded households and smaller businesses from the surge in energy prices, capping increases at 15 per cent. Russia’s invasion of Ukraine has squeezed gas supplies to Europe, pushing up prices of fuel, food and many other products, eroding household spending and hitting industrial production. Inflation is expected to reach a new eurozone record of 9.7 per cent when pricing data for September is published on Friday, while concerns intensify that the region will enter recession next year.Christine Lagarde, president of the European Central Bank, told lawmakers on Monday that growth would “slow substantially” in the coming quarters. However, with inflation almost five times the ECB’s target of 2 per cent, the European parliament heard that monetary policymakers would not be deterred from raising rates. The central bank has already increased borrowing costs by 1.25 percentage points since July. The OECD warned on Monday that Europe risked being pushed into a recession next year if a harsh winter exacerbates the region’s energy shortages and natural gas consumption is not reduced at least 10 per cent to avoid it being rationed for power-hungry industrial groups. The Paris-based organisation representing the world’s richest countries said Europe would be the hardest-hit region as it slashed its forecasts for global growth next year by 0.6 percentage points to 2.2 per cent.Its forecast for eurozone growth was cut from 1.6 per cent to 0.3 per cent and it predicted Germany, the eurozone’s largest economy, would contract 0.7 per cent next year, down from its forecast for growth of 1.7 per cent three months ago.EU gas storage, even at its current levels of about 80 to 90 per cent of capacity, might be insufficient to tide the bloc over a typical winter without it falling to dangerously low levels, the OECD added.If governments are forced to ration gas supplies it would knock a further 1.25 percentage points off eurozone growth next year, it said, while adding 1.5 percentage points to its baseline forecast for inflation in the bloc to be slightly above 6 per cent next year.Concerns about the energy crisis and a looming recession caused German business confidence to fall for the fourth consecutive month to a new 28-month low, according to the Ifo Institute’s benchmark survey of 9,000 companies.

The Ifo index of business confidence, published on Monday, dropped to 84.3 points, down from 88.6 last month. Economists polled by Reuters had expected a smaller decline to 87.1.Clemens Fuest, president of Ifo, said the economy was “slipping into recession”. “Pessimism regarding the coming months has grown decidedly; in retail, expectations have fallen to a record low.” France, the region’s second-largest economy, is expected to grow 0.6 per cent next year, according to the OECD, which cut its forecast from 1.4 per cent in June.The French government has budgeted a net €16bn to cap increases in electricity and gas prices for consumers and some of the smallest businesses at 15 per cent next year. It follows roughly €24bn spent this year on the so-called price shield.Paris has delayed some difficult decisions on spending with a goal to keep the public sector deficit steady at 5 per cent of gross domestic product next year. It aims to bring it down to 3 per cent, or within EU-imposed limits, by 2027, according to the budget plans. More

Sterling fell to its lowest level ever against the dollar on Monday, prompting analysts to compare its trajectory to that of an emerging market currency. The drop followed sterling’s plunge in the wake of UK chancellor Kwasi Kwarteng’s £45bn tax-cutting package on Friday. But the British pound has risen and fallen against the US dollar in the past, and since the second world war the direction has been consistently downward. In the postwar Bretton Woods system of fixed but adjustable exchange rates, sterling was initially set at $4.03 but the UK was unable to sustain the rate because of persistent trade deficits and currency outflows. A large devaluation in 1949 was followed by another in 1967, and there were regular sterling crises with fixed exchange rates until the Bretton Woods system collapsed in 1971. In 1985, when the dollar was unsustainably strong, the pound reached its previous post-Bretton Woods low of just over $1.05. Below, the FT looks at the significance of the current sterling crisis. Why is sterling under pressure now?Over the past 70 years, the persistent depreciation of sterling against the US dollar mostly reflects higher inflation in the UK than in the US, requiring a lower exchange rate to equalise price levels in both countries. There is no doubt that recent falls in sterling represent the perception of a problem with the UK’s currency rather than simply US dollar strength. Sterling has gone down almost 3 per cent against the euro over the past week and more than 7 per cent against the currencies of the UK’s main trading partners since the start of August.

That perception in international financial markets reflects a view that the UK’s economic policy is moving in the wrong direction, just as it did after Brexit when sterling lost 10 per cent of its value. The view holds that borrowing for permanent tax cuts is a reckless gamble by the government of Prime Minister Liz Truss that will increase the UK’s trade deficit, push up inflation and do little for growth. Robert Wood, UK economist at Bank of America, said: “UK asset prices reacted to the fiscal package in a way more akin to an emerging market, with sterling and gilts selling off.”The government has responded by saying it will not hold a spending review to raise public service expenditure this autumn in a bid to demonstrate fiscal responsibility. But markets are more focused on what ministers have announced rather than with their promises. Should we worry? Financial markets reflect the opinion of the vast majority of orthodox economists that initiating the largest tax cuts for 50 years is the wrong policy when unemployment is low and there is little spare capacity in the economy for additional non-inflationary growth. The concern about Truss’s repeated pledge to ditch Treasury “orthodoxy” is that a rapidly falling pound will have unpleasant effects for most people in the UK and will curtail the government’s ambitions. The falling value of sterling will increase inflation. The Bank of England has a rule of thumb that 60-90 per cent of the drop in the exchange rate would be felt in higher import prices. A 7 per cent depreciation in sterling’s value, therefore, should add 1.5 to 2 per cent to prices over two to three years. This will exacerbate the UK’s already high inflation and its cost of living crisis. The higher rate of inflation and the need to attract foreign investment to finance the UK’s gaping trade deficit will also require higher interest rates. Financial markets now expect the BoE to raise rates to over 5 per cent next year, and the cost of government borrowing has shot up. Two-year borrowing costs have risen from 0.4 per cent a year ago to almost 4 per cent. These higher borrowing costs will hit households and companies thinking about investment. Though exporters will gain from UK products being cheaper in international markets, the government’s borrowing for growth might even have the reverse effect. Sushil Wadhwani, an asset manager and former BoE policymaker, said at the weekend: “It is very easy to see how the Truss-Kwarteng fiscal expansion leads to growth falling [with] a combination of interest rates having to go up a lot in response to a markets crisis and falling confidence.”What can be done?There are four possible avenues available to the UK authorities if they want to stem the decline in sterling. First, the government could order the BoE to intervene in currency markets, buying sterling with foreign currency reserves. This is problematic, according to Sir John Gieve, former deputy governor of the Bank of England. “We don’t have very many reserves compared to the scale of currency market so I think that is not seen as an effective weapon,” he told the BBC on Monday. The second is for the government to reverse its fiscal policy changes, but that would be extremely difficult for a new chancellor and prime minister. Third, the BoE could raise interest rates to increase the return available to people holding money in the UK, much like many emerging economies have done this year. The central bank has indicated that further interest rate rises will be coming at its November meeting, but financial markets want action more quickly. Fourth, senior officials at the BoE could seek to reassure markets by making clear that they will take immediate action if inflation or public borrowing get out of control. Talking up the pound, especially with the promise of higher interest rates to come, could be an effective weapon in restoring confidence. What will the government do? Kwarteng does not intend to reverse the debt-fuelled tax-cutting plan he set out last Friday. Indeed, he said on Sunday that there was “more to come” in terms of cutting the tax burden.Chloe Smith, work and pensions secretary, on Monday reiterated that the chancellor would not change course. “The government is absolutely focused on delivering the growth package as we set out,” she said.In an attempt to reassure markets that Kwarteng did not intend to ramp up spending ahead of a general election — further adding to debt — the Treasury said on Sunday that it would stick to current spending plans until 2025.“It’s more important than ever that departments work efficiently to manage within existing budgets, focusing on unlocking growth and delivering high quality public services,” it said.Gerard Lyons, who has been advising the new Truss government on economic policy, said on Monday that Kwarteng should stick to his course and that the BoE should put up rates to move away from “cheap money”. More

(Reuters) -U.S. stock indexes headed for a lower open on Monday as investors worried that the Federal Reserve’s aggressive push to curb inflation may tip the country’s economy into recession.At 8:32 a.m. ET, Dow e-minis were down 139 points, or 0.47%, S&P 500 e-minis were down 21 points, or 0.57%, and Nasdaq 100 e-minis were down 51 points, or 0.45%.The Fed’s latest signal that high interest rates could last through 2023, sent the three major U.S. stock indexes tumbling between 4% and 5% last week, with the Dow Jones index coming within spitting distance of a bear market on Friday.”The Fed seems to be alluding to the fact that they can raise rates, halt inflation from rising without creating a recession … they were totally wrong the first time on inflation and unfortunately, they’re going be wrong on avoiding a recession,” Peter Cardillo, chief market economist at Spartan Capital Securities, said.In premarket trading on Monday, cyclical stocks traded lower on worries that such sharp rate hikes could rattle the economy.Boeing (NYSE:BA) Co, Chevron Corp (NYSE:CVX), Caterpillar Inc (NYSE:CAT) and JPMorgan Chase & Co (NYSE:JPM) fell more than 1% each, while growth stocks including Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), Amazon.com Inc (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) Inc shed between 0.3% and 1.3%.The benchmark S&P 500 index on Friday briefly dipped below its mid-June closing low of 3,666, erasing a sharp summer rebound in U.S. stocks, before paring losses and closing above that level.The index will be seen testing its lowest level since late December 2020, if it continues to decline past the opening bell, a sign that Cardillo said could trigger another bout of selling as investors focus on the technical aspect of the market.Sentiment across global markets was bleak after the sterling briefly touched all-time lows earlier in the session on worries that the new British government’s fiscal plan threatened to stretch the country’s finances to their limits. [MKTS/GLOB]In a bright spot, shares of casino operators Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS) Corp and Melco Resorts & Entertainment (NASDAQ:MLCO) jumped between 5.4% and 10.8% after Macau planned to open to mainland Chinese tour groups in November for the first time in almost three years.The CBOE Volatility index, also commonly known as Wall Street’s fear gauge, hovered near three month highs. More