Aurelia Butler

Almost all central bankers in the US and Europe agree rates must rise to tackle soaring inflation. What is open for debate is where they should stop.Monetary policymakers and markets are trying to assess where lies the “Goldilocks”, or neutral, level of rates — the optimal level where an economy is neither overheating nor being held back. But, after almost 15 years of tepid inflation and ultra-low borrowing costs, no one is quite sure what “just right” looks like. “Everybody is trying to understand where the neutral rate is and where the tightening cycle will end up,” said Camille de Courcel, head of strategy for G10 rates in Europe at BNP Paribas. “It will be the driving factor for rates markets in the coming months.”The risk is that policymakers get it wrong and let inflation jump out of control by keeping rates too low, or trigger a brutal recession by increasing too much. US Federal Reserve chair Jay Powell has said he hopes for a “softish landing”, but warned last week that raising rates may cause “some pain”. Bank of England governor Andrew Bailey has talked of a “narrow path” to rein in inflation without sending growth into reverse. European Central Bank president Christine Lagarde said “the challenges we still face are many”. The neutral rate, where price pressures cool and output is near capacity, cannot be measured, only estimated. It is also a moving target that changes over time — before 2008, it was thought to be about 5 per cent in advanced economies. Fed officials think it is now between 2 per cent and 3 per cent, when inflation is at 2 per cent. They raised interest rates by 50 basis points to 1 per cent at their last vote, and are expected to increase borrowing costs by another 50 basis points at each of their next two votes, leaving them on track to hit the range later this year. Others believe the neutral rate is higher; Bill Nelson, former deputy director of the Fed board’s division of monetary affairs, who is now chief economist at the Bank Policy Institute, puts it at between 4.5 per cent and 6.5 per cent. The BoE believes neutral is even lower in the UK. Their forecasts show inflation persistently overshooting the 2 per cent target if interest rates remain at their current 1 per cent level, but falling short of this goal if rates rise to 2.5 per cent. That suggests the Monetary Policy Committee believes the right level lies somewhere in between the two bounds. Eurozone policymakers think it is lower still. France’s central bank governor François Villeroy de Galhau puts the rate at about 1 per cent to 2 per cent, comparing it with “the moment when, while driving your car, you lift your foot from the accelerator pedal as you approach the desired speed”. Fears are mounting that neutral might not be enough. Behind closed doors, officials are becoming increasingly concerned that their economies are now running so hot that rates will need to slam on the brakes. Inflation, now at multi-decade highs on both sides of the Atlantic, could prove stickier than expected, forcing them to tip the economy into a deep contraction, just as Fed chair Paul Volcker did in the early 1980s when he raised the federal funds rate to 20 per cent. Vicky Redwood, a former BoE official who is senior economic adviser at Capital Economics, said: “If high inflation has become more ingrained than we think, then a Volcker-shock style recession probably will be required.”Krishna Guha, a former Fed staffer who is now vice-chair at Evercore ISI, said the question facing all central banks was “will you be forced to go beyond the neutral rate, even if you then have to come back down once inflation is tamed?” Powell said on Tuesday the Fed “won’t hesitate at all” to raise rates above neutral if inflation stays high, adding that officials do not know with “any confidence” where neutral is. “They’ll try in phase one to get back to neutral and then they’ll evaluate,” said Jean Boivin, a former central banker in Canada now at BlackRock, forecasting that at that point “the world will be very different from where it is right now”.With figures out on Wednesday showing UK inflation soaring to a 40-year high of 9 per cent in the year to April, the BoE — which has already raised rates three times this year — is under massive pressure to step up its response. Michael Saunders, one of the MPC hawks, said the central bank would need to move “relatively quickly towards a more neutral stance”, although he gave little hint about whether they would need to increase rates beyond that. Lagarde has made clear that the ECB, which has yet to raise its deposit rate from minus 0.5 per cent but is expected to do so for the first time in a decade in July, aims to “normalise” rather than “tighten” monetary policy, moving towards the neutral rate but not beyond it. The ECB president last week signalled that the bank was in less of a rush than the Fed to reach neutral, saying: “The normalisation process will be gradual.” But Dutch central bank head Klaas Knot on Tuesday became the first top ECB official to raise the prospect of a half-point rate increase in July, rather than the quarter-point rise that is widely expected.Along with being more exposed to the conflict in Ukraine, the ECB is also hampered by the risk of borrowing costs shooting up in heavily indebted southern European countries such as Italy.The spread between Italy’s 10-year borrowing costs and those of Germany has already become the widest since the pandemic caused turmoil in debt markets in 2020. While some ECB officials have talked about launching a “new instrument” to counter this risk, without a firmer commitment Guha said “spreads could blow out and force the ECB to take a timeout on rate rises”. More

In a typical month, Wu, a 28-year-old office worker from Shanghai who says she usually shops without hesitation, spends about Rmb12,000 ($1,780) in the course of her day-to-day life. But in April, when the city was locked down, she was only able to spend around a third of that amount.“What I bought was mostly essential food, such as meat, eggs, milk and vegetables,” she said, adding that on one occasion she purchased 90 eggs in one go. “Although my fridge is full, I’m still anxious.”Across China, where dozens of cities and hundreds of millions of people have been locked down to counter an outbreak of the Omicron variant of coronavirus, the economy is facing a severe slowdown. The inability of consumers such as Wu to spend money is one reason why.Economic data released on Monday captured the depth of the hit from the strict measures for the first time, and the clearest impact was on consumption. Retail sales, a gauge of consumer activity, slumped 11 per cent year on year in April, its worst fall since early 2020. Industrial production, by contrast, dropped 3 per cent.For years, a rise in the average Chinese consumer’s purchasing power was expected to help the economy transition away from an export and construction-driven growth model. But those long-term ambitions are clashing with the country’s zero-Covid strategy, which has been prioritised by President Xi Jinping as he bids for an unprecedented third term in power.China has already embarked on a loosening of monetary policy to counter a property sector crisis, and economists widely expect further stimulus this year. For policymakers, the deeper question is whether conventional monetary or fiscal stimulus can have its desired effect in an environment with such severe restrictions, especially given uncertainty over how long the curbs will last during this outbreak and any others in the future.“If we look at the monetary data so far in April, despite all the stimulus that has already been put in place . . . the loan growth was still relatively weak because of the slow demand,” said Tommy Wu, lead economist at consultancy Oxford Economics. “Obviously, businesses are not willing to take on more loans,” he added.

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Data in the real estate market illustrates the scale of the challenge to stimulate activity. The government cut the effective base rate for mortgage lending to first-time homebuyers from 4.6 per cent to 4.4 per cent last weekend. But in April, home sales by floor space fell 42 per cent year on year — the biggest fall in any month since the virus first emerged two years ago.In addition to loosening mortgage rates, the People’s Bank of China has made several cuts to a ratio that governs the amount of reserves banks hold. But the central bank’s activity has been cautious.“We expect that the PBoC will hold off from implementing stronger support unless they are confident that it will have an impact on the real economy, that there will be a pass-through of these lower rates,” said Carlos Casanova, Asia economist at UBP.Retail sales data showed that catering dropped 23 per cent in April, compared with a 10 per cent fall in overall purchases of goods. Across a breakdown of spending categories, only food, drink, petroleum and medicine rose year on year. Automobile spending fell 31.6 per cent, the most of any category.In Shanghai, which remains closed off roughly seven weeks after a citywide lockdown was first imposed, not a single car was sold in April, according to the Shanghai Automobile Sales Association.

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Meanwhile, unemployment in April surpassed 6 per cent for the first time since early 2020, adding further strains to consumers’ appetite for spending. Iris Pang, chief economist for Greater China at ING, suggested that state-owned enterprises would increase hiring. “Private firms don’t have this capacity any more, after several cycles of lockdowns,” she said.The government unveiled VAT tax refunds in March worth Rmb1.5tn, 90 per cent of which are expected to go to small businesses by the end of the year. Fiscal policy measures in some regions have also included consumption vouchers, but Oxford Economics’ Wu pointed out that the approach was limited because consumers needed to spend in the first place.“In this type of environment, people are just not going to spend,” he said. “You have Covid caution dampening sentiment, you have weak labour market conditions, you have weak income prospects, so it’s very difficult to boost, no matter what you do.”Instead, the sheer scale of the government’s approach to Covid means the response to the pandemic has become the dominant policy tool. But any loosening of that strategy would be a political gamble for a government that has doubled down on its commitment to halt the spread of the virus and when many elderly citizens are unvaccinated.“I think inevitably if there’s a relaxation of lockdown measures in Shanghai you will see a recovery in consumption in June, purely because of pent-up demand,” said Casanova. But he does not expect a “spending spree”, even with policy easing.

Wu, who is still under lockdown, has made a to-buy list for when the city opens up. But she feels that any impulsive spending will only last a day or two because she feels so “insecure”.“My salary has been cut by a third during the lockdown,” she said. “This financial insecurity won’t fade away easily.”Additional reporting by Wang Xueqiao in Shanghai and Gloria Li in Hong Kong More

The writer is a former banker and author of ‘Fortune’s Fool: Australia’s Choices’Competing economic and geopolitical forces mean Australia’s relationship with China requires walking along a barbed-wire fence with a foot on either side, to borrow a phrase from former Queensland politician Joh Bjelke-Petersen.As Australia heads to national elections on Saturday, it is a delicate situation that investors in assets there will have to watch closely. Trade between the countries has not just been hit by China’s slowdown as it pursues a zero-Covid policy and attempts to rein in the debt laden property sector. It also is at risk from Beijing’s attempts to rebalance China’s economy away from commodity intensive infrastructure projects and diversification of raw materials suppliers.The position is complicated by strident Australian criticism of Chinese territorial claims in East Asia, alleged human rights abuses, and authoritarian rule. Australia has rejected foreign investment proposals and banned Chinese participation in Australian ventures, some on undisclosed national security grounds.New legislation allows intervention in various activities for foreign policy reasons. The Aukus treaty has strengthened defence ties with the Anglosphere. Viewing these steps as unfriendly and interfering in its internal affairs, China has imposed restrictions on some Australian imports. The carefully calibrated measures allow continuation of iron-ore exports, reflecting China’s needs and lack of alternative supply.More than 35 per cent of Australian exports of goods and services (including iron ore, coal and LNG, agriculture, forestry and fisheries products) go to China directly. That is greater than the combined total to Japan, South Korea, India, the US and UK. With other exports based on Chinese end demand, the true proportion is higher. Australian imports from China comprise approximately 20 per cent of the total (manufactured goods, telecommunications and information technology equipment, and homewares). China is normally Australia’s largest source of higher education international students (over 160,000 or 38 per cent). China is also its second-largest inbound tourist market (around 1.4mn arrivals) and the largest by expenditure.Australian exports are largely raw materials for which there are alternatives. To reduce dependence on Australian supplies, China has supported the troubled Guinean Simandou project, the world’s largest untapped iron ore deposit with an estimated 2.4bn tons of high quality reserves. In services, other nations can offer sybaritic beach holidays, fresh seafood and luxury brand shops as well as high quality schools and universities.China’s support for Russia in the Ukraine conflict adds complexity. It may allow Beijing to reduce its current reliance on Australian coal, energy and other essential commodities, which will be available at advantageous prices due to the limited market for Russian products. A decision by the US or west to place China under sanctions for collaboration with Russia or over Taiwan would severely disrupt Australia’s ability to sell to its major trading partner.Australia’s high living standards and incomes are sustained by this trading relationship. In 2021, the rise in iron ore export revenues offset losses from international students, inbound tourists and immigration — limiting damage from the pandemic.

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The financial effects of further deterioration in the Sino-Australian trading relationship would be serious. Reduced exports would affect national income and the trade balance flowing through the economy. Public finances are vulnerable. A $10 per tonne rise in iron prices would increase Western Australia’s royalties by around A$800mn a year and Australian tax receipts by around A$3.7bn.One casualty might be the Australian dollar. With around half Australian government bonds and significant amounts of state, corporate and bank debt held by non-residents, investors would suffer losses. A weaker dollar would also result in increased import prices and higher interest rates for Australian households and businesses if that results in higher inflation.Another vulnerability would be Australian resource companies exposed to China, which are more than 80 per cent foreign owned.Given the two nations’ complementary economies, it would be wise for Australia to attempt a modus vivendi with China to mend the commercial relationship. Beyond trade, co-operation is essential for dealing with regional and global issues such as climate change. For British statesman Lord Palmerston, countries had no eternal allies or perpetual enemies, just permanent interests. For the moment, Australia’s economic wellbeing remains dependent on China. More

(Reuters) – Chicago Federal Reserve Bank President Charles Evans on Tuesday said he supports an initial burst of monetary policy tightening, and then a more “measured” pace of rate hikes to allow time to assess inflation and the impact of higher borrowing costs on the job market. “I think front-loading is important to speed up the necessary tightening of financial conditions, as well as for demonstrating our commitment to restrain inflation, thus helping to keep inflationary expectations in check,” Evans said in remarks prepared for delivery to Money Marketeers of New York University. Inflation, running at more than three times the Fed’s 2% target, is “much too high,” Evans said, and the Fed should raise its policy rate “expeditiously” to a neutral range of about 2.25%-2.5%. Fed policymakers have begun doing so. They raised rates by a bigger-than-usual half-of-a-percentage point earlier this month, to a range of 0.75%-1%, and Fed Chair Jerome Powell signaled at least two more such rate hikes to come. The Fed also plans to start trimming its $9 trillion balance sheet next month. But Evans’ preference for transitioning to a more “measured pace” – a phrase that in the past has meant quarter-point rate hikes — sounded a bit more dovish than Fed Chair Jerome Powell, who spoke earlier in the day. The central bank, Powell told the Wall Street Journal on Tuesday, will keep “pushing” on rate hikes until it sees inflation move down in a “clear and convincing way” and will not hesitate to move more aggressively it that does not happen.Evans said that slowing the pace of rate hikes after an initial front-loading would give the Fed time to check if supply chain kinks ease, and to evaluate inflation dynamics and the impact of higher borrowing costs on what called a “downright tight” labor market. Unemployment is at 3.6% and job openings are at a record high. “If we need to, we will be well positioned to respond more aggressively if inflation conditions do not improve sufficiently or, alternatively, to scale back planned adjustments if economic conditions soften in a way that threatens our employment mandate,” Evans said. With inflation pressures as broad and strong as they are, he said, interest rates may need to rise “somewhat” above neutral to bring down inflation. Traders are betting on that, with prices in futures contracts tied to the Fed’s policy rate reflecting expectations for an end-of-year policy rate range of 2.75%-3%.But in Evans’ view that doesn’t mean the Fed will end up triggering a recession, as critics including several former U.S. central bankers have recently warned.”Given the current strength in aggregate demand, strong demand for workers, and the supply-side improvements that I expect to be coming, I believe a modestly restrictive stance will still be consistent with a growing economy,” Evans said. More

SYDNEY (Reuters) – The 10-minute home loan – at the tap of a smartphone screen – is emerging as the next frontier in Australian banking as rising interest rates quash a pandemic-fuelled property boom, eating into mortgage income and renewing focus on cost-cutting tech.The Big Four lenders booked blockbuster profit during the COVID-19 pandemic due to a leap of nearly one-third in property prices since 2020, but raging inflation brought a shock rate hike this month and expectations of several more.That has left banks, which make most of their profit from mortgages, looking to automate every step of the loan process and cut overheads such as staffing and real estate to keep growing profit from what analysts say may be a shrinking pool of money.So far only Commonwealth Bank of Australia (OTC:CMWAY) (CBA), the biggest lender, has put a speed target on its automation drive. It said a fully digitised loan service that went live on Tuesday could process an application in as little as 10 minutes.But in earnings updates this month, National Australia Bank (OTC:NABZY) Ltd (NAB), Westpac Banking (NYSE:WBK) Corp and Australia and New Zealand Banking Group Ltd (ANZ) all pointed to automation to offset the impact of a cooling property market.”They’re incentivised to invest in tech and get up to where CBA is because it drives people online,” said Hugh Dive, chief investment officer at Atlas (NYSE:ATCO) Funds Management, which holds shares of major banks.”They can improve profit without growing their top line.”Citi banking analyst Brendan Sproules in a client note said chief executive officers face an “endless battle to transform their 1970s/80s process and systems into the modern digital age”.”A rising cash rate might just provide the opportunity to accelerate this transformation along faster than we first thought.”Instead of filling in paper forms and supplying documents, to be verified and analysed by back-office staff, a customer would enter the address of a property they planned to buy plus their bank account login. Their computer or smartphone camera would confirm their identity.Algorithms figure out the rest, such as employment history and probable purchase price.A bank employee only steps in if the software picks up discrepancies in the data, people who work on loan automation software said.Some smaller and online-only lenders already automate mortgage applications but – until now – not the Big Four, which dominate Australia’s A$10 trillion ($7.00 trillion) housing market with three-quarters of loans by value.”What we’re seeing right now is a lot of optimisation using existing processes, using existing loan origination systems,” said Hessel Verbeek, head of banking strategy at KPMG Australia.”The room for improvement will include when people actually start to replace some of the key systems.”Banks have not specified how much money they plan to spend automating mortgage approvals, nor how much they would save. Of the A$3.6 billion the Big Four invested in the first half of the 2022 financial year, 35% went to “productivity and growth”, versus 32% a year earlier, showed data from KPMG.NAB, the second-biggest lender, said last week its “investment in customer experience, efficiency and sustainable revenue” rose 46% in October-March from the same period a year earlier, to A$228 million. It said it wants every home loan automated by 2024.ANZ, which has been losing mortgages for two years as understaffing led to a surge in approval times, said it has only begun work digitising processes.”There’s no doubt we’ve got some catching up to do,” CEO Shayne Elliott was quoted as saying in The Australian.SLOW STARTBanks were slow to start automating retail products partly because large compliance and risk management overhauls sapped both investment budgets and management attention since regulatory scrutiny dramatically increased in 2018, analysts and industry participants said.Rebecca Engel, head of Microsoft Corp (NASDAQ:MSFT)’s Australian financial services unit, said there was a “massive increase in investment, deployment, acceptance and trust in technology” by banks in tandem with heightened regulatory attention and higher transaction volume during the pandemic.”The goal should be higher levels of assurance, higher levels of quality, at a lower cost,” Engel told Reuters.”That is driven by technology.”($1 = 1.4282 Australian dollars) More

Japanese auto parts maker Denso said late last month that it would build a major production plant for power chips with Taiwanese foundry UMC, a move that highlights the growing demand for these specialised semiconductors used in everything from electric vehicles to trains to wind turbines.But the announcement is also another sign of what Japanese government and industry experts say is the domestic chip industry’s greatest weakness: fragmentation.Denso chose to partner with the local unit of a Taiwanese chip manufacturer, while its four domestic peers are also investing in their own production plants.Power chips are a type of semiconductor used for regulating electricity flows, and are essential for everything from electric vehicles and air conditioners to data centre servers and factory robots.This segment accounted for close to 10 per cent of the $555bn global chip industry in 2021, and demand is expected to grow in line with the broader semiconductor market, according to World Semiconductor Trade Statistics. “They are indispensable devices for the global transition from fossil fuels,” said Hideki Wakabayashi, a professor at the Tokyo University of Science and a member of an advisory panel at Japan’s Ministry of Economy, Trade and Industry (Meti).The question for Japan’s chipmakers is whether they will be able to hold on to their niche. The world’s biggest power chipmaker — Germany’s Infineon Technologies — boasts a 21 per cent global market share, equal to Japan’s top five manufacturers combined.Experts say the relatively small scale of Japanese chipmakers makes it difficult for them to scale up production and marketing. Japanese manufacturers are also cautious about making big investments, lest their peers do the same and an oversupply results.

Consolidation is needed, experts say, before the country’s share in the global market slips further — Japan lost 1.2 percentage points from 2020 to 2021.Some are attempting to turn words into action.Fumiaki Sato, co-founder of Sangyo Sosei Advisory, a boutique investment banking company, aims to establish a chip foundry that would provide manufacturing services for any and all of Japan’s power chipmakers. The idea is to create a power semiconductor equivalent of Taiwan Semiconductor Manufacturing Company (TSMC), the worlds largest contract chipmaker, said Sato, a former vice-chair at Merrill Lynch Japan.“Each company invests in its production capacity. If they need more, they could come to us,” Sato told Nikkei Asia. Building a chip factory costs up to ¥100bn ($765mn), he said. “Companies see it as a risky undertaking, even at a time when demand is widely expected to grow. There is always a risk of oversupply.”Sato is looking at acquiring an old chip plant in Niigata, central Japan, from Onsemi of the US, and his initiative was awarded a subsidy from Meti last year. But so far, the plan has yet to move forward.Sato cited challenges such as securing more funding and potential customers.One factor that has held back expansion of capacity is the nature of power semiconductors themselves. They are designed to handle high-voltage equipment, and are often built to individual product specifications rather than mass-produced.But the industry could undergo a radical shift as mass production of electric vehicles starts, leading to calls for cheaper standardised chips, said Masao Taguchi, a former head of Fujitsu’s semiconductor business. “Power semiconductors could become more standardised, resulting in companies capable of scaling up production dominating the market,” he said. “That’s what has happened in the DRam market,” he added, referring to how Japanese chipmakers lost out to South Korean rivals in the memory chip market.Infineon of Germany has pulled ahead in the race for scale. It operates two large fabrication plants for 300mm wafers, one in Dresden and the other in Villach, Austria. Denso’s facility will only come online in the first half of next year.Toshiba is building two 300mm production facilities, one scheduled for operation in the current fiscal year and another for fiscal 2024. Mitsubishi Electric will start mass-producing 300mm wafers only in fiscal 2024.Fuji Electric, a key supplier to Toyota and Honda, said that it was not chasing market share and keeps its capital investment under close control. It said it was preparing to develop a 300mm facility but declined to elaborate on the timeframe.An industry official said that “consolidation is unlikely to occur unless it becomes really necessary”.Policymakers, meanwhile, are keeping a close eye on the situation.Meti reconvened its semiconductor industry strategy panel on April 14 to discuss, among other things, a strategy for strengthening the power semiconductor industry.Demand for such semiconductors is expected to “grow fast” and “could outstrip supply”, said Kazumi Nishikawa, director of METI’s IT industry division.The ministry has recently provided subsidies to Japanese chipmakers to help them upgrade their ageing plants, but Nishikawa said this was a short-term fix, not a long-term solution. “As a top producer of power semiconductors, Japan has a responsibility to the rest of the world for supply,” he said.The government is expected to spell out concrete support measures for the industry once a bill is passed to beef up the nation’s economic security, he said. Those measures are expected to be part of next year’s budget.Meti scored a victory last year when it helped persuade TSMC to build a chip plant in Kumamoto, southern Japan, but the ministry said there was more to be done. “We’ve managed to get to the start line,” Nishikawa said of the TSMC deal. “Progress in the chip industry is fast. Pause your efforts, and you’ll fall behind.”One of the biggest tasks for the industry will be tackling Japan’s keiretsu system, in which companies form close affiliations and focus more on serving each other than the broader market. Breaking down this system will be crucial to reorganising Japan’s fragmented chip industry.Taguchi, the former Fujitsu executive, sees a leader in Toshiba, which created the world’s second-largest flash memory maker, Kioxia. “Toshiba has high global recognition. It can become a rallying point for the Japanese semiconductor industry,” he said.Wakabayashi, the Tokyo University of Science professor and member of the Meti strategy panel, also stressed the importance of being competitive on a global scale.“Major customers of power semiconductors are likely to be global automotive suppliers — Denso, Bosch and Continental,” Wakabayashi said. “Denso is keeping up a good fight, but the others are Europeans.”A version of this article was first published by Nikkei Asia on May 12, 2022. ©2022 Nikkei Inc. All rights reserved.Related storiesToshiba, Rohm pursue power chip tech to cut energy loss in halfJapan fights for lead in advanced chip and EV materialsJapan’s chip industry squeezed as foreign governments boost investmentJapan puts all chips on the table to lure semiconductor makers More

China’s top economic official met dozens of executives and industry experts on Tuesday, pledging “support” for technology companies amid a deepening economic slump. Liu He, a vice-premier and President Xi Jinping’s closest economic adviser, said China “must support the platform economy, and sustain the healthy development of the private economy”. He added that China should better “balance the relationship between the government and the market, and support digital companies to list on domestic and foreign exchanges”, according to state media. Video footage from state broadcaster CCTV showed Baidu founder Robin Li and Qihoo 360 founder Zhou Hongyi at the meeting. Markets were closely watching news of the meeting put on by China’s top political consultative body in the hope it could signal an end to Beijing’s regulatory crackdown on internet companies. “It’s not accurate to say the crackdown is going to ‘end’, how can it end?” said an investment manager at a leading Chinese tech company, adding that Liu’s remarks served only to stabilise market expectations. Thanks for reading FirstFT Asia. Email me at [email protected]. Here’s the rest of today’s news — EmilyFive more stories in the news1. Musk raised prospect of Twitter takeover as early as March More than a week before Elon Musk’s initial 9.2 per cent stake was disclosed as a passive holding and more than two weeks before going public with a $44bn hostile bid, the billionaire had already held several days of negotiations about joining Twitter’s board and had started to discuss a takeover as early as March 27, according to new documents. 2. US accused of undermining Taiwan defences US business groups have accused their government of undermining Taiwan’s defences by only approving the sale of weapons it believes would be essential for the democratic country to resist a full Chinese invasion. The group’s letter highlighted an increasingly fierce debate among US policymakers and arms manufacturers over how to best help arm Taiwan.3. Biden visits Buffalo after racially motivated shooting US president Joe Biden denounced white supremacy as a “poison” running through American politics after blaming a “hateful and perverse ideology” for the deadly racially motivated mass shooting at a supermarket in Buffalo, New York. Go deeper: As Buffalo grieves after America’s latest racist attack, the tragedy fits longstanding pattern of rightwing extremism, say experts.

Mourners comfort the family of 86-year-old Ruth Whitfield, one of those killed in the Buffalo shooting © Scott Olson/Getty Images

4. Powell says Fed will keep tightening Chair Jay Powell said the Federal Reserve will continue tightening monetary policy until it sees “clear and convincing” evidence that inflation is coming back down towards the central bank’s longstanding 2 per cent target. 5. Indian insurer LIC slips in historic stock market debut Shares in Life Insurance Corporation dropped more than 8 per cent on their stock exchange debut on Tuesday, as India’s biggest initial public offering landed at a turbulent time for global asset markets. The latest from the war in Ukraine Mariupol: Ukraine has confirmed that an operation is under way to rescue its troops from a Mariupol steel mill after nearly three months of bombardment.Energy: Russia will probably be permanently shut out of the global energy market once Europe weans itself off the country’s oil and gas, according to energy executives. Explainer: Can Russia be made to pay for destruction in Ukraine?The day aheadJapan GDP and industrial production data First-quarter gross domestic product and industrial production figures are set to be released. Japan’s economy expanded 5.4 per cent in the fourth quarter of 2021 after Covid curbs eased.G7 development ministers meeting Officials will gather in Berlin on Wednesday. Join us in person or online at the FT Business of Luxury Summit on May 18-20 to hear from luxury leaders including British Vogue, Valentino, Zegna and YSL.What else we’re readingBiden’s China strategy cannot work with weapons alone The asymmetry of Biden’s China policy increases the danger of what everyone fears — a conflict with China, writes Edward Luce. A superpower that is happy to discuss military aid and weapons, but reluctant to talk of trade and investment, is telling both partners and foes that it speaks just one language.Kishida seeks to awaken ‘animal spirits’ in Japan’s start-up scene As prime minister Fumio Kishida attempts to revitalise Japanese capitalism, the local start-up scene will be one place to start. But the challenges are not just financial — they also include the deep-seated cultural forces behind Japan’s risk aversion, writes Tokyo correspondent Antoni Slodkowski.

Fumio Kishida’s government is taking a more proactive stance to foster innovation. The prime minister has said he wants some of the money from Japan’s gigantic ¥200tn government pension fund to flow into start-ups © Bloomberg

The Penguin Book of Indian Poets — a feast of literature It is a truth universally held in India that while novelists might win acclaim, big advances and gleaming trophies, poets are the monarchs of literature. And The Penguin Book Of Indian Poets, an anthology of poems exclusively written in English, is vast in scope and ambition.New York mayor urges JPMorgan chief to ride subway to work “We’re telling our corporate leaders: ‘Hey, get on the train!’” Eric Adams said in an interview with the Financial Times. “We need to advertise that New York is back.” Only about 40 per cent of workers have returned to New York City offices in spite of repeated exhortations from the mayor, posing a dire threat to the city’s economic livelihood.NBA extends global reach with international stars Nikola Jokić of Serbia last week became the fourth foreign-born player to win the US National Basketball Association’s most valuable player award. The success of international players is the result of a multi-decade effort by US sports to build fan bases abroad.Food & drinkLet the drinks menu at Plaza Khao Gaeng, chef Luke Farrell’s new southern-Thai canteen in London’s Arcade Food Hall, transport you to south-east Asia as you sip on cafea yen (iced coffee, condensed milk, evaporated milk), cha yen (iced black tea, condensed milk) or cha kieow yen (iced green tea, condensed milk and squirty cream).

Cafea yen Thai coffee © Plaza Khao Gaeng More