Aurelia Butler

The world’s largest sovereign wealth fund has warned that investors face years of low returns as the surge in inflation becomes a permanent feature of the global economy.Nicolai Tangen, chief executive of Norway’s $1.3tn oil fund, told the Financial Times he was “the team leader for team permanent” in the fierce debate over whether the jump in rates was transitory or a lasting threat.Consumer price inflation is running at its highest level for more than two decades in the world’s big industrial economies, in particular in the US, where the annual pace of price growth hit 7 per cent in December, up from just 0.1 per cent in May 2020.Tangen said the oil fund, which owns the equivalent of 1.5 per cent of every listed company in the world, thought inflation “could be stronger than what is generally expected” as the world experiences both high demand and lingering disruption to supply chains.“How will it pan out? It hits bonds and shares at the same time . . . for the next few years, it will hit both” — Nicolai TangenRelated read: The US Federal Reserve could supersize a rate increase to half a percentage point if inflation remains stubbornly high, Raphael Bostic, president of the Fed’s Atlanta branch, said in an FT interview.Thanks for reading FirstFT Americas. Here’s the rest of today’s news — GordonFive more stories in the news1. US plans to impose sanctions on Russian oligarchs The US has drawn up sanctions targeting individuals close to Vladimir Putin and their ties to the west as Washington broadens the list of financial penalties it is ready to impose if Russia invades Ukraine. Liz Truss, UK foreign secretary, will today set out new legislation to sanction Russian oligarchs should the Kremlin order an invasion of its neighbour. Go deeper: The Ukraine conflict has shone light on deepening ties between Beijing and Moscow. It has also presented the first foreign policy challenge to Germany’s new government.Explainer: Will Russia be cut off from Swift, the international payments network, if it invades Ukraine? Here’s why it is so important.2. Crypto risks ‘destabilising’ emerging markets, says IMF official Sharp price swings in cryptocurrencies are causing “destabilising” capital flows in emerging markets, a senior IMF official has warned. Tobias Adrian, head of monetary and capital markets at the fund, also said the use of crypto in place of traditional currencies posed “immediate and acute risks”.3. UAE intercepts missile attack from Yemen The United Arab Emirates said it intercepted a missile fired from Yemen this morning as Iran-allied Houthi rebels escalate their cross-border attacks on the Gulf state. The missile launch, the third in recent weeks, took place during a visit to the UAE by Israeli president Isaac Herzog.4. Portugal’s ruling Socialists win snap election The country’s centre-left ruling Socialist party led by António Costa, prime minister, won a parliamentary election yesterday with an absolute majority after voters penalised the far-left parties that triggered the snap poll. Meanwhile, Italian lawmakers have elected incumbent president Sergio Mattarella for a second term.5. Zambia’s president vows not to favour Chinese creditors Hakainde Hichilema has promised not to favour Chinese creditors over western bondholders as he seeks a resolution to the nation’s debt crisis, which is seen as a test case of whether Beijing will accept losses from a surge in loans to Africa in the past decade.Keep up with the news throughout the day with Top Stories Today, a short-form audio digest of headlines. Find the latest episode here.Coronavirus digestAlmost half of US Covid-19 hospitalisations this winter could have been avoided if it had matched vaccination coverage in leading European countries, an FT analysis has found.Spotify is adding content advisory warnings to podcasts that discuss Covid-19 as the streaming service responds to a backlash against its popular presenter Joe Rogan.Winners are emerging in corporate America’s response to the supply chain crisis following a wave of spending on capacity and support for weaker vendors.China’s manufacturing and services activity edged close to contraction in January as its zero-Covid strategy compounded a property-led slowdown. Japan’s response to the pandemic has included restrictions that have heavily limited new foreign arrivals. Never has so much soft power been shed so quickly, one senior Japanese diplomat said.When can the world move on from the pandemic? Scientists and officials are locked in a debate over “pandemic versus endemic”.Opinion: Covid has revealed the limits of the state in controlling or understanding a powerful force of nature, writes Ruchir Sharma.The days aheadEconomic data: The Chicago purchasing managers’ index is expected to show activity in the Midwest eased in the first month of the year. The Federal Reserve Bank of Dallas is due to release its business index for January. Mexico’s economy is forecast to have contracted 0.3 per cent in the final quarter of 2021 from the previous three-month period, and Canada releases wholesale inflation data.Monetary policy Mary Daly, president of the San Francisco Fed, will speak virtually on topics including the economy, inflation and the labour market at the Breakingviews Predictions 2022 event hosted by Refinitiv. Esther George, president of the Kansas City Fed, will discuss the economy and the outlook for monetary policy at the Economic Club of Indiana’s January luncheon.White House Joe Biden is set to speak at the National Governors’ Association later this morning, before hosting Qatar’s emir, Sheikh Tamim bin Hamad Al Thani, at the White House later this afternoon, in what will be the monarch’s first in-person meeting with the US president.Markets Equity markets are expected to open higher in New York this morning after an upbeat earnings report from Apple helped tech stocks rally on Friday. European and Asian shares started the week in positive territory.Chinese new year’s eve Mainland Chinese markets will be shut for the Lunar New Year holiday this week. With the Year of the Tiger kicking off on Tuesday, author Fuchsia Dunlop recounts last year’s banquet, cooked in splendid isolation.What else we’re reading Automation exacts a toll in inequality When humans compete with machines, wages go down and jobs go away. But in recent decades, something in this relationship began to break down. GDP growth in the US has slowed and inequality has risen. Rana Foroohar examines why.Air taxis: fantasy or realistic promise? Flying cars made a giant swoop forward in the past year, with a crowd of start-ups raising more than double the amount over the previous decade on the promise of making “urban air mobility” a reality. But will the exuberance evaporate?Eric Trump has his moment in the spotlight in NY fraud probe During his father’s presidency Eric Trump tended to be overshadowed by his older siblings while he focused on running the family business. But the three-year investigation by the New York attorney-general Letitia James threatens to shine a spotlight on his activities.The paradox that leads professionals into temptation The greater a manager’s sense of professionalism, the more likely they are to accept a gift or bribe, argues Andrew Hill. Worse, high-minded professionals may be more susceptible to unconscious bias towards gift-givers because they are convinced they know how to ignore their blandishments.

Andrew Hill: ‘Deep professionals should recognise the risk of undue influence and avoid exposing themselves to it in the first place’ © Dom Mckenzie

Amnesty row clouds Bloody Sunday anniversary The shootings 50 years ago this weekend went down in history as one of the worst atrocities in Northern Ireland’s three-decade Troubles. But London’s planned amnesty for all Troubles-era crimes has united unionists, nationalists and politicians in opposition as victims’ families fight for prosecutions.Work & careersIf much of a workforce is only coming into the office two or three days a week, it makes for a lot of underused space. Enter the much-despised hot desk, with predictable results, writes Pilita Clark. More

On average, the difference between assets and liabilities at U.S. public pension funds, known as the “funded ratio,” remains “unsatisfactory” at less than 75%, sovereign investor specialist Global SWF said in a report.To boost returns, many will likely have to focus on alternative assets, including private equity and private credit, Diego Lopez at Global SWF told Reuters.”Certain pockets of real assets including logistics properties and infrastructure may also benefit from increased interest, and hedge funds will continue to be an important part of US [public pension funds’] portfolios.”Assets held by sovereign wealth and public pension funds globally rose to a record $31.9 trillion in 2021, thanks to rising U.S. stock and oil prices, and investments rose to their highest for several years, Global SWF said in a previous report.For pension funds, that means they have more assets to cover future liabilities. For instance the California Public Employees’ Retirement System (CalPERS), which manages the largest U.S. public pension fund, grew its assets more than $92 billion in the fiscal year ending in June 2021, according to its 2020-21 financial report.That growth boosted the funded ratio of its Public Employees’ Retirement Fund to an estimated 80% at the end of June last year from 70% a year earlier. CalPERS declined to comment.But the U.S. national average for funded ratios – calculated as a comparison between public pension funds’ actuarial valuation of their assets and liabilities – remains below 75%, with a $1.3 trillion shortfall, Global SWF said.”To make things worse, the working population is expected to decrease from 64% to 57% by the end of the 21st century,” it said, which is likely to exacerbate that funding gap. More

NEW YORK (Reuters) – Cyrus Vance Jr, whose 12 years as Manhattan district attorney was notable for a criminal probe into Donald Trump’s business as well as high-profile sex crime cases, is joining the law firm Baker McKenzie as a partner.Vance, 67, was named global chair of the firm’s cybersecurity practice. He will also join the firm’s North American litigation and government enforcement practice and its global compliance practice.”Cybercrime is a huge issue” in business, Vance said in an interview. “If we work collectively to fight cybercrime, that will strengthen and provide greater protection for the community.”A Democrat, Vance became district attorney in 2010 as the handpicked successor to Robert Morgenthau, who made that office, now with about 600 lawyers, among the country’s most powerful in law enforcement.As crime rates fell, Vance stopped prosecuting lower-level crimes, while starting cybercrime and antiquities trafficking units and using hundreds of millions of dollars forfeited by large banks to bolster law enforcement and make streets safer.Vance suffered a setback in 2011 by dropping charges that former International Monetary Fund chief Dominique Strauss-Kahn sexually assaulted a hotel housekeeper, after the accuser’s credibility came into question.But he successfully prosecuted Hollywood movie producer Harvey Weinstein in 2020, winning a conviction for sexual assault and rape and a 23-year prison sentence.Vance also had successes from probing whether Trump and his Trump Organization fraudulently manipulated real estate values to save on loans and taxes.He obtained eight years of the former Republican president’s tax returns, twice defeated his U.S. Supreme Court appeals, and last July brought tax fraud charges against Trump’s company and its longtime chief financial officer.Alvin Bragg, Vance’s successor and also a Democrat, now oversees that probe.Vance said he has not been in touch with Bragg, but before leaving office wanted to be sure his successor and the office had “everything they needed.”He said “essential communications” began in January to join Baker McKenzie, whose annual revenue is about $3.1 billion.”Adding a prosecutor of Cy’s stature is a huge addition,” said Scott Brandman, managing partner of the New York office. More

Chair Jerome Powell last week pointed to an economy in “a different situation” from the last interest-rate hiking cycle, highlighting a tighter labor market, the fastest inflation since the 1980s and stronger economic growth. The last time the central bank raised rates from zero in 2015, the economy was emerging slowly from the global financial crisis and a long recession marked by weak households. This time, the Fed is playing catchup amid decades-high inflation and a swift rebound in demand from the Covid-19 shock.To tame prices, Powell and his colleagues are prepared to raise interest rates in March, the first of at least three hikes in 2022, according to Wall Street economists. Some see increases at each of the seven remaining meetings this year. Last week, the Fed said it’d be “nimble” and “move steadily,” versus at a “gradual” pace back in 2015.“It’s night and day,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics Inc. “The last time we were lifting off, the Fed was raising rates in anticipation that inflation was going to get back up to 2%. Now they’re raising rates in an environment where they’re trying to get inflation down to their target.”In a press conference Wednesday, Powell said that the Federal Open Market Committee was “of a mind” to raise rates in March, and didn’t rule out hiking at every meeting to tame inflation. He also said the labor market was consistent with full employment, pointing to plentiful jobs and higher wages. Here’s a look at the three main factors Powell cited as a precursor to what is set to be the Fed’s most aggressive one-year hiking cycle in decades: InflationInflation today is the hottest in nearly 40 years. Consumer prices have skyrocketed amid a confluence of supply-chain constraints — driven by Covid lockdowns and quick reopenings globally — and a dearth of manufacturing and delivery workers. Across the U.S., especially in smaller cities in the heartland, that means higher costs being passed down the supply chain for months ahead. The most recent figures point to escalating pressures. The personal consumption expenditures price gauge, which measures what Americans pay for goods and services, rose 5.8% in December from the prior year, the most since 1982.Employment costs rose from the same month in 2021 by the most in two decades — some economists fear that could propel a wage-price spiral in which employers raise prices even further to offset higher pay for workers.“Back then, they were trying to get ahead of inflation and ahead of wages,” said Aneta Markowska, chief U.S. financial economist at Jefferies. “Now, they’re not ahead, they’re way behind.” Labor MarketThe labor market is in better shape today by many historical standards. The employment-to-population ratio for prime-age workers — or the share of employed 25- to 54-year-olds out of that population — rose to 79% in December, higher than the 2015 period. The unemployment rate is now down to 3.9%, versus 5% six years ago.Job openings remain near a record and the share of people leaving their jobs for others matches the highest level ever, just some of the factors contributing to rising wages.“We have a pretty tight labor market, we have labor shortages which are mostly pandemic related. That’s going to continue keeping upward pressure on wages,” Sweet said.The Fed is counting on continued strength in the job market as policy makers raise rates. At the same time, the central bank’s view of full employment now includes an increased focus on minority groups, who still lag the general population: Black unemployment rose in December compared to a decline among White Americans.MarketsThe Fed is much more optimistic on economic growth this time around. According to the central bank’s latest projections, gross domestic product will expand at a 4% rate this year, more than double the longer-term estimated pace. In December 2015, the central bank called for GDP to rise 2.4% in the year ahead.The upbeat view is supported by expectations for healthy consumer spending as households are flush with cash, thanks to a stock-market rally that’s helped add trillions of dollars to household wealth in the pandemic, as well as unprecedented government stimulus and record home valuations. The collapse of the housing market, of course, was at the root of the 2008 recession that preceded the 2015 tightening cycle.The Treasury market also has a much different tone these days. Traders are currently pricing in an average annual inflation rate of nearly 2.9% from now through January 2027. In December 2015, it was 1.2%.Credit risk gauges remain below pre-pandemic levels, indicating that investors see a path for the Fed to tighten without damaging corporate access to funding.©2022 Bloomberg L.P. More

Sharp price swings in cryptocurrencies are causing “destabilising” capital flows in emerging markets, and the use of crypto in place of traditional currencies poses “immediate and acute risks”, according to a senior official at the IMF.“Crypto is being used to take money out of countries that are regarded as unstable [by some external investors],” said Tobias Adrian, the IMF’s financial counsellor and head of its monetary and capital markets department. “It is a big challenge for policymakers in some countries,” Adrian said in an interview with the Financial Times, noting that “cryptocurrency markets have lost about $1tn in value since the peak”.The IMF last week urged El Salvador to stop recognising bitcoin as legal tender, reiterating its warning that official adoption of the digital asset last year presented “large risks” for the stability and integrity of the country’s financial system.Nayib Bukele, the president of El Salvador — which is seeking more than $1bn in financing from the IMF — plans to raise money by selling bonds linked to the world’s biggest cryptocurrency. The scheme has drawn criticism from some of the international investors that own debt already issued by the government. Adrian said some emerging markets and developing economies now faced “immediate and acute risks” as a result of their existing established currencies being replaced by crypto assets, a process that has been dubbed “cryptoisation”.“Capital flow management measures will need to be fine-tuned in the face of cryptoisation,” said Adrian. “Applying established regulatory tools to manage capital flows may be more challenging when value is transmitted through new instruments, new channels and new service providers that are not regulated entities.”

Signs of closer correlation between the performance of cryptocurrencies and other financial assets in developed countries, such as US technology stocks, government bonds and even crude oil are also troubling the IMF.Officials at the Washington-based fund believe that sharp deleveraging episodes in cryptocurrencies are feeding into sell-offs in equity markets.“The correlation between crypto and equity markets has been trending up strongly. Crypto is now very closely tied to what is happening in equities. We can’t just dismiss it,” said Adrian. The IMF has urged national and global regulators to establish a co-ordinated, consistent and comprehensive approach to supervising cryptocurrencies — a daunting task, given the speed at which digital assets are moving into mainstream finance.“Agreeing global regulations is never quick. But if we start now, we can achieve the goal of maintaining financial stability while also enjoying the benefits which the underlying technological innovations bring,” said Adrian.

Video: Where crypto ‘anarchy’ will end | Lex Megatrends More