Aurelia Butler

Household net worth edged down to $149.3 trillion from a record $149.8 trillion at the end of last year, the Fed’s quarterly snapshot of the national balance sheet showed. The drop was driven by a $3 trillion fall in the value of corporate equities – a plunge that has worsened in the current quarter – while real estate values climbed another $1.7 trillion. It was the first decline in household wealth since the first quarter of 2020, when the onset of the coronavirus pandemic shook financial markets and caused a short but deep recession.Still, the report showed household balance sheets overall remained healthy through the first three months of the year – some $32.5 trillion above pre-pandemic levels – and looked likely to continue to support strength in consumer spending in the face of high inflation.Of particular note, bank account balances rose, with checkable deposits and currency rising about $210 billion to $4.47 trillion, and time and savings deposits up about $90 billion to $11.28 trillion. That added cash may help maintain consumer outlays even as the Fed seeks to tamp down demand and slow price rises. As yet is unclear whether the net effect will be to cushion decelerating growth as the Fed raises interest rates so as to achieve the desired soft-landing, or to dull the impact of higher borrowing costs so much that the central bank ends up needing to push up rates so far and fast that it triggers a recession.So far, the long-awaited consumer shift from buying goods to buying more services appears to have simply pushed inflation pressures over into services, rather than cooled price pressures overallStocks have continued weakening into the second quarter over concern about a surge in inflation to 40-year highs and whether the Fed’s aggressive response to it could stall the economy. The decline suggests Americans’ wealth likely took another hit from the start of April onward. More

How well did you keep up with the news this week? Take our quiz.China is building hundreds of thousands of permanent coronavirus testing facilities and expanding quarantine centres across many of its biggest cities as part of its zero-Covid policy, despite the economic and human toll on the world’s most populous country.Residents of Shanghai woke up yesterday to an announcement that lockdown measures and mass testing would be conducted in the Minhang district, home to more than 2mn people, for at least two days. The directive was issued just a week after President Xi Jinping’s administration declared victory in defending the city from the pandemic after a punishing two-month lockdown. Tough restrictions in scores of cities have driven the country to the edge of recession for just the second time in three decades. But even though measures have been eased in many areas, experts believe the government’s virus infrastructure programme is designed to sustain the mass-testing and quarantine policies through 2023. Yanzhong Huang, a senior fellow for Global Health at the Council for Foreign Relations think-tank, said such measures demonstrated Beijing’s commitment to zero-Covid “despite this growing social, economic cost associated with this approach”. “The government believes they could outrun the virus. But we know for the Omicron variant this is not realistic. And for an even more transmissible variant, that will make it even less feasible,” he said.

Share your feedback on this newsletter be emailing [email protected]. Here’s the rest of the day’s news — EmilyThe latest on the war in Ukraine On the front line: Two Britons and a Moroccan national have been sentenced to death by a court controlled by Russian-backed separatists after being found guilty of working as mercenaries for Ukraine.Energy: The Biden administration has called on India not to go “too far” as it increases imports of discounted Russian crude that has lost buyers in Europe.Opinion: Martin Sandbu argues why ending energy imports from Russia remains essential.Five more stories in the news1. ECB takes hawkish turn to counter record-high inflation ECB president Christine Lagarde yesterday announced plans to lift interest rates above zero for the first time in a decade by September. The ECB surprised markets by signalling it was likely to raise rates by half a percentage point in September, in addition to a planned quarter-point rise in July — a bigger increase than expected.2. State Street knocks down Credit Suisse takeover rumours The US custody bank denied it was in talks to acquire Credit Suisse, knocking back a report that it was pursuing the troubled Zurich-based lender. State Street on Wednesday had initially declined to comment on a report from a Swiss blog that it was preparing an offer, exacerbating sharp moves in the shares of both lenders.3. Apple goes in-house for lending service Apple is making its biggest move into finance by offering loans directly to consumers for its new “buy now, pay later” product, taking on a role played in its other lending services by banking partners such as Goldman Sachs.4. Runs on Chinese local banks Thousands of desperate depositors in China have been fighting for almost two months to recover their savings after a bank run that has raised concerns over the financial health of the country’s smaller lenders. Analysts said an economic slowdown sparked by President Xi Jinping’s zero-Covid policy is also worsening the problem.5. Iran to remove 27 cameras from nuclear facilities Iran has warned the UN atomic watchdog that it is removing 27 cameras used to monitor nuclear activity from its facilities, in an escalation of the Islamic republic’s stand-off with the west.The day aheadInflation figures China and the US will report consumer price index data on Friday. US stocks and government bonds dropped on Thursday ahead of the release. China will also announce producer price index figures. See how your country compares on rising prices with our inflation tracker.Philippines Independence Day The country will have a public holiday on Sunday commemorating the country’s independence from Spain in 1898.G7 science ministers meeting Officials will gather in Frankfurt on Sunday to discuss opportunities to collaborate on the study of long Covid, carbon capture and removal, and research “values”, said Bettina Stark-Watzinger, Germany’s minister for education and research. (Science Business) Join us June 16-17 for the FT Future of Finance, live-streamed from the heart of The Next Web (TNW) tech festival. Register here.What else we’re reading Singapore’s wealthy pursue luxury cars despite inflation The price of food, energy and other necessities is soaring globally. But in Singapore, the rich still want luxury cars. People in the city-state are paying the highest amount in decades just for the right to own a premium car, official data showed on Wednesday.The global race for supercomputing power From modelling climate change to developing products, the capabilities of machines are speeding up as the US, China and Japan jockey for computing speed. China, in particular, has exhibited explosive growth in supercomputing since the late 2000s.

The LME debacle raises serious questions for the City of London This episode threatens to undermine the Square Mile’s claim to ensure a level playing field, writes Gillian Tett. LME’s reforms are sensible, albeit hopelessly belated. But they may not be enough to rebuild confidence.‘The product is dead. There’s no more Spacs’ Rising interest rates, a weakening stock market and warnings of a regulatory crackdown have fed disillusionment with an earlier frenzy of special purpose acquisition company deals. Now, as some banks adopt a far warier approach, focus is starting to shift to what the future holds for the once hot asset class.Who would want to own a hotel now? It is still a grim time to be in hospitality after stringent lockdowns and international travel bans slashed demand. But Sonesta, a little-known yet rapidly expanding hotel company, thinks it has cracked the code to post-pandemic travel.TravelFT Weekend editor Alec Russell recently visited Athens to see 3,000 years of history — on a tight timeline: just three days. Here’s what was on his itinerary.

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NEW YORK (Reuters) – Bridgewater’s Karen Karniol-Tambour, co-chief investment officer for sustainability, said on Thursday that the U.S. stock market has not yet priced in an economic slowdown in the United States.”Profits are extremely high and it seems very unlikely they can remain this high at unprecedented levels forever,” she told the audience at the Sohn Investment Conference.Although the S&P 500 is down 14.8% this year, Karniol-Tambour believes investors have only taken into consideration a rise in interest rates, ignoring a very significant economic slowdown and higher volatility brought by persistent inflation.”The market is not really reflecting a significant economic slowdown,” she said. Bridgewater, founded by Ray Dalio, manages $150 billion in assets. More

The head of Britain’s largest union has warned of potential strikes this year if the government does not heed its call for inflation-linked wage increases for staff in the NHS and local government. Christina McAnea, general secretary of Unison — which represents 1.3mn mostly public-sector workers — said prime minister Boris Johnson had “no idea” about the huge financial strains facing ordinary people at the moment. She urged Johnson to find £10bn this year from tax rises to fund pay increases in line with inflation, which is expected to rise to 10 per cent within months. The intervention by McAnea, whose union is a donor to the opposition Labour party, comes amid growing industrial unrest this summer, with three days of RMT strikes set to cause chaos on the rail network at the end of this month. The government is trying to hold imminent pay settlements to just 2 per cent — or 3 per cent in some instances — while inflation is racing far ahead because of the global energy price shock. Wage deals for public-sector workers are already lagging those on offer in the private sector, where employers have been offering big bonuses to keep hold of scarce staff. Official data shows average total pay growth was 8.2 per cent in the private sector in January to March, against 1.6 per cent in the public sector — one of the biggest gaps on record. McAnea told the Financial Times that the rising cost of fuel bills and soaring petrol costs meant many public-sector workers were struggling. Without inflation-proof pay rises, many staff in public services would quit to find better-paying jobs elsewhere, she warned. “The government in Westminster has completely forgotten who got the country through the pandemic and the impact on public-sector workers of that,” she said. “Care workers who were having to hold the hands of dying patients because the families couldn’t get to them . . . for [the government] to say, you need to show pay restraint, is completely inappropriate.” 

Her plea came as Johnson insisted that the government would hold firm in the face of higher wage demands, warning that a “wage-price spiral” would lead to higher interest rates — forcing up rents and mortgages and the cost of borrowing for business and government. “When a country faces an inflationary problem, you can’t just pay more and spend more,” he said in a speech in Lancashire. “You have to find ways of tackling the underlying causes of inflation. If wages continually chase the increase in prices, then we risk a wage price spiral.”Some 25,000 Unison members working in schools are balloting for strike action in Scotland this week. Meanwhile Unison with the GMB and Unite unions have submitted a joint submission to local government for a pay rise for 1.4mn council and school workers of either £2,000 or keeping pace with retail price index inflation — which is generally higher than the consumer price inflation rate targeted by the Bank of England.Other unions representing public-sector workers are also threatening industrial action over pay: the Public and Commercial Services union is preparing to ballot its civil service membership, while the National Education Union is moving towards a potential ballot in the autumn. McAnea said Boris Johnson’s government had been ignoring union leaders for years and had instigated the toughest industrial action legislation in Europe: “They just don’t talk to us,” she said.She added that Unison took part in hundreds of disputes every year which did not result in strike action but did result in higher wages for members. “We don’t want to bring our low-paid workers out to strike but if there’s no alternative what else can people do?” she asked. McAnea said that Unison members already paid a disproportionate amount of their income on fuel, housing and transport costs. “They lead what my mother would call a hand-to-mouth existence where there’s no money left at the end of the week or month to save for anything.” More

OTTAWA (Reuters) -Hot inflation is the Bank of Canada’s primary focus as it raises interest rates, a senior central bank official told Reuters on Thursday, making it clear that the bank was willing to accept a housing market correction in order to curb consumer price gains.Senior Deputy Governor Carolyn Rogers (NYSE:ROG), in an interview with Reuters, said higher interest rates will weigh on housing and highly-indepted Canadians, but are needed to curb inflation, which is running at a 31-year high of 6.8%.The Bank of Canada last week raised its policy rate to 1.5% from 1.0%, its second consecutive 50-basis point increase, and said it was ready to act “more forcefully” if needed. With borrowing costs rising, home sales have dropped sharply in recent months and prices have come off peak levels.”Of course we look at this, but we look at more than housing,” said Rogers. “And at the end of the day, the really important thing to remember is our target is inflation … so that’s our primary focus when we’re making our decisions.”The Bank said earlier the housing market had been unsustainably strong and a moderation would be healthy.Rogers made clear the central bank is also keeping an eye on the small but growing number of Canadians who are heavily indebted after stretching to buy homes at elevated prices. A correction could restrict their access to credit and dampen consumer spending.”We know very well that they’re the folks who will be most affected by interest rate increases. It’s something we’re going to watch closely,” she said. “But all Canadians are affected by high inflation and that’s our mandate.”Despite those higher prices, consumer spending is strong, said Rogers. “There’s a lot of pent up demand, to travel, to spend, to get together. And that’s having an effect on demand in the economy generally,” she said.Earlier, Bank of Canada Governor Tiff Macklem said inflation would dictate how fast interest rates go up, reiterating that the bank might need to make more increases in a row or consider a larger than 50-bp move.Money markets see a 40% chance the bank will hike by 75-bp at its next decision on July 13, with rates expected to hit 3.25% by year-end, a level not seen since 2008.Macklem said higher rates were needed bring domestic demand more in line with supply, though the bank was aiming to avoid overcooling the economy.”We don’t want to choke off demand. We want to get rid of the excess demand, the excess part of it,” he said.The Canadian dollar was trading 1.1% lower at 1.2695 to the greenback, or 78.77 U.S. cents, after touching its weakest since May 30 at 1.2698. More