Aurelia Butler

Investing.com — The dollar edges lower after its worst one-day sell-off in months. The debate over inflation and interest rate hikes continues, however, with Philadelphia Fed President Patrick Harker saying he’s open to more than three rate hikes this year and Lael Brainard due in the Senate for her confirmation hearing as vice-chair of the central bank. Delta Air Lines (NYSE:DAL) results may cast light on the impact of a rising wave of Covid-19 cases in the U.S., while another big car plant in one of China’s most important ports shuts down due to you-know-what. Here’s what you need to know in financial markets on Thursday, 13th January.1. Dollar sell-off eases after greenback hits 2-month lowThe dollar stabilized after its biggest daily drop in three months, a sign that global markets believe that the risks of tighter U.S. monetary policy are fully priced in for now.By 6:15 AM ET (1115 GMT), the dollar index, which tracks the greenback against a basket of six advanced economies, was down 0.1% at 94.812, after falling more than 0.6% on Wednesday, on growing hopes that inflation may be close to peaking. Figures released on Wednesday had shown annual inflation up 7% on the year, its highest since 1982, but analysts argued that a combination of factors were making the situation look worse than it is.Talk about tighter policy is unlikely to stop. Philadelphia Federal Reserve President Patrick Harker told the Financial Times in an interview that he’s open to more than three interest rate hikes this year, while Lael Brainard’s prepared remarks for her vice-chair confirmation hearing later Thursday stressed the paramount need to bring inflation down.2. PPI, jobless claims dueArguably a better measure of current inflation dynamics will be posted at 8:30 AM ET, when the U.S. publishes producer price inflation numbers for December.Overall prices are expected to have risen 0.4% in the month, which would be their smallest monthly increase in a year, while core prices are expected to have risen 0.5%, a more modest slowdown after December’s shock acceleration.U.S. jobless claims, due to be released at the same time, are expected to have stayed near post-pandemic lows last week at 200,000.3. Stocks set to open a touch higher; Delta earnings in focusU.S. stock markets are set to open mostly higher later, with risk appetite revived by the latest developments on the monetary policy front.However, gains may be restrained by the consciousness that the shift in sentiment over interest rates has also been driven by the alarming spread of Covid-19 across the U.S. in the last two weeks, raising the likelihood of a short-term drag on growth.  Delta Air Lines earnings, to be released early, may cast further light on that.By 6:15 AM ET, Dow Jones futures were up 48 points, or 0.1%, while the S&P 500 futures contract and the Nasdaq 100 futures contracts were both up by a similar amount.  Benchmark 10-year Treasury yields, meanwhile, appeared to have completed their short-term retracement, edging higher again to 1.75%.Other stocks in focus may include Robinhood (NASDAQ:HOOD), which downplayed an apparently false rumor about it preparing to list contracts in ‘meme coin’ Shiba Inu.4. New record for hospital admissions; China’s port problems worsenU.S. hospital admissions reached a new record high on Wednesday, making it increasingly clear that the greater transmissibility of the Omicron variant is largely offsetting what positives can be drawn from its weaker virulence.Absenteeism remains an acute issue both in the U.S., which has averaged over 780,000 new cases a day for the last week despite a sharp drop on Wednesday, and further afield: France registered over 360,000 new cases for a second straight day on Wednesday, but is still relaxing travel restrictions with neighboring Britain, thinking that there is no point in adding economic harm to the situation when community spread is already so active.Covid-related risks also continue to be evident in China, where Volkswagen (DE:VOWG_p) followed Toyota in closing two plants in the port of Tianjin. Disruptions at the ports of Tianjin, Dalian and Ningbo are leading to increased congestion at Shanghai, the world’s busiest port.5. Oil hits two-month high as sellers run out of roadCrude oil prices rallied to their highest in two months, helped by a cheaper dollar and by indications that large consumer nations are running out of space to sell from their strategic reserves.According to Tanker Trackers’ Samir Madani, the latest U.S. Energy Department sale reduces the Strategic Petroleum Reserve’s holdings to less than 100 days of import cover. International agreements require the U.S. and other advanced economies to hold at least 90 days’ worth of imports.Wednesday’s government data on U.S. inventories, however, showed another large build in gasoline inventories, suggesting that pressure on final demand for fuel is building as the Omicron wave rises.U.S. crude prices inched higher to $82.67 a barrel, while Brent rose 0.1% to $84.78 a barrel. More

Patrick Harker, president of the Philadelphia branch of the Federal Reserve, said he would support more than three interest rate rises this year if inflation surged higher, becoming the latest US central bank official to throw his weight behind an increase in March.“I currently have three increases in for this year, and I’d be very open to starting in March,” Harker said in an interview with the Financial Times. “I’d be open to more if that’s required.”The Fed official’s comments follow inflation data for December that showed the US consumer price index jumping 7 per cent year on year for the first time since 1982 — a reading Harker described as “very high, very bad”.Later today Lael Brainard, President Joe Biden’s nominee for vice-chair of the Fed, will tell Congress that the fight against high inflation is the US central bank’s “most important task” in an embrace of its pivot towards tighter monetary policy.“Inflation is too high, and working people around the country are concerned about how far their pay cheques will go,” said Brainard in prepared remarks released ahead of her confirmation hearing before the Senate banking committee today.Her comments come after a similar statement from Jay Powell, Fed chair, who warned at his confirmation hearing this week that inflation was a “severe threat” to the labour market recovery. Do you think the Fed is moving fast enough to combat inflation? Tell us in our latest poll.

Thanks for reading FirstFT Americas. Here’s the rest of today’s news — GordonFive more stories in the news1. Short sellers tuck into Beyond Meat Short positions in the plant-based meat producer’s shares have increased 40 per cent since late October, making it one of the most shorted companies in US markets as investors fret over weaker sales and scepticism grows over the meat-free boom. 2. Coinbase wades into crypto derivatives Coinbase is buying the fledgling futures exchange FairX to gain a foothold in cryptocurrency derivatives. The deal will complement the cryptocurrency exchange’s presence as the biggest US-based spot exchange for digital currencies.3. HR software group pulls IPO New-York based Justworks has suspended its flotation in a sign of strains radiating from the recent sell-off in tech stocks. Justworks was expected to complete a deal to join the Nasdaq last night that would have valued it at up to $2bn but in a statement said it had put the plan on hold “due to market conditions”.4. Epstein accuser permitted to pursue suit against Prince Andrew A civil lawsuit accusing the Duke of York of sexually abusing one of Jeffrey Epstein’s accusers will be allowed to proceed, a New York judge has ruled, in the year the Queen prepares to celebrate her Platinum jubilee. 5. Dartmouth College to ‘remove financial barriers’ for low-income foreign applicants Admission to the Ivy League university by undergraduates from around the world will from this year be selected in the same “need-blind” process as US citizens in an effort to improve the diversity of its intake.Coronavirus digestThe Biden administration plans to distribute millions of free Covid-19 tests to schools around the US in a further effort to keep classrooms open in the face of the latest wave of coronavirus infections led by the Omicron variant.The fate of tennis star Novak Djokovic remains in the balance after Australia’s prime minister deferred making a decision on whether to press ahead with threats to deport him.Boris Johnson yesterday said he thought a “bring your own booze” party in the garden of his official residence in May 2020 was a “work event” as he apologised for attending the gathering. The statement came of the toughest day of the UK prime minister’s premiership.A new artificial intelligence-based early warning system can predict the highest-risk coronavirus variants from their genetic code, according to a study.Opinion: At-home healthcare companies need to avoid alienating customers with shortages, high prices and unmet promises, writes Brooke Masters.The day aheadTPG IPO Dubbed a “next-generation” private equity IPO by industry executives, shares in buyout group TPG will begin trading on the Nasdaq exchange this morning. Each share was priced last night at $29.50, valuing the Texas-based group at $9bn.Analysis Private equity groups have been enriched by the pandemic and now many are rushing to join the public markets. Earnings Delta kicks-off earnings season today. The airline is expected to report an increase in revenue and profits for the fourth quarter compared with the same period in 2020 as more vacationers return to the skies. UK trade negotiations Liz Truss, the UK foreign minster who recently became the country’s chief Brexit negotiator, will hold her first face-to-face talks with EU counterpart Maros Sefcovic.Russia-Ukraine conflict Talks between Moscow and western powers will move to Vienna today. The Organization for Security and Co-operation in Europe will host the negotiations a day after Nato offered to hold further talks on arms control with Moscow after four hours of discussions in Brussels.What else we’re readingRocco Commisso’s football woes The US cable billionaire purchased ACF Fiorentina, the well-known but underachieving Italian club, for €170m. The emotional cost? He’s still counting. “All the bullshit bureaucracy, it’s driving me crazy,” he told the FT’s Murad Ahmed.

Rocco Commisso: ‘I’m investing in my country’ © The Red Dress

How to recruit a better police force At a time when police violence has created bitter political battles, selecting candidates with authoritarian inclinations can have huge consequences. Gillian Tett argues that we need to shift the debate from issues such as gun control to personality.Austrian citizenship restored to Nazi victims’ families For descendants of Jews who fled the Holocaust, a legal amendment to Austria’s nationality act making them eligible to apply for citizenship reflects changing attitudes, writes Sarah Ebner, FT head of newsletters.Mayonnaise rebuke haunts Unilever This week a top-10 shareholder said Unilever had “lost the plot” and its management prized displaying its sustainability credentials at the expense of running the business. The comments are a sign of shareholder discontent with the pursuit of principles over profit and with sales growth lagging behind at the consumer goods group, investor anger could grow.FashionTo call someone’s style “preppy” can only be, at this point in the history of style, an insult. But at the same time, to say someone’s style is “Ivy” can still be complimentary. Cool brands draw inspiration from it. Serious books are written about it. None of this can be said of preppy style. But the distinction can be hard to grasp, argues Robert Armstrong. More

If your email inboxes are anything like mine, they are heaving with lists of what to watch out for in 2022 and what the biggest risks are to investors/economic growth/world peace. Do check out the start-of-year newsletters from my colleagues — such as Unhedged on what will affect markets, Energy Source on the top three energy themes of 2022, or Trade Secrets about the minefield of trade challenges awaiting us this year.I have refrained from inflicting my own list on you. Partly because there is little added value in repeating the same possibilities that are already on everyone’s minds (inflation accelerating! inflation dropping and monetary policy turning out too tight! war over Ukraine! war over Taiwan! a worsening energy crisis! a coup in the US!). And partly because the biggest risks are the ones most of us, at least myself, are blind to.Instead, it could be useful to dwell on the bigger tectonic shifts happening in how our economies are governed, and how anyone with money at stake should think about them. To me, today feels like 1945 or 1979-81 — pivot points in history where our entire thinking about how to manage the economy (and more besides) changed fundamentally in a short time. The social contract is being rewritten again. The way I have described it in the past is that the old Washington Consensus is giving way to a new Washington Consensus (and a new Brussels-Berlin consensus may be emerging too). Then, the role of the state was at most to set the traffic rules and redistribute the free market’s rewards, but otherwise keeping its hands off the economy. Now, economic planning and state-led economic activity are back.For a good overview of the many ways policymaking is shifting, see the special report on the new interventionism in this week’s The Economist, with articles dedicated to industrial policy, competition policy, regulation and corporate taxation, all four of which demonstrate that governments are more willing to get dirt under their nails in their handling of the economy. The Economist being The Economist, it warns that the tools of economic interventionism were previously “gathering dust for a reason”. But there are good reasons why governments are choosing a less hands-off approach too. One is the by now obvious failures of the past 40 years, which saw slow productivity growth, low investment and too many people excluded from prosperity. Public policy failed to prevent value creation from being distorted into rent extraction. Another cause for a new interventionism is that the 21st-century economy will require some enormous structural shifts that only the state is well-placed to make happen. Above all, co-ordination is needed for all parts of the economy to shift simultaneously to a low- and zero-carbon solution, including huge investments in new infrastructure. Also, the role of public goods is increasing — because the economy increasingly depends on skilled and well-connected populations, and because the cutting-edge activities increasingly involve intangible products and digital services that require smart regulation.Finally, a variety of geoeconomic factors — the fear of strategic dependence on China, Europe’s unwillingness for its decarbonisation efforts to be undercut by polluting trading partners, the fact that more and more trade is in politically sensitive services — mean that the era of purist trade liberalisation is over.How should investors think about these shifts? First, acknowledge that they are big and that things will not go back to the status quo ante. If anything, these changes are likely to intensify.Second, consider that while individual companies may think they are freer to pursue profits the less governments get involved in the economy, that is not true for the private sector collectively. Preventing market power abuse, controlling “externalities” (where one company’s actions affect the profitability of another), reducing consumer uncertainty about product quality, and ensuring that companies that want to align themselves with decarbonisation are not undercut by those that do not — all these things both increase economic efficiency and require state action. Indeed, the economy is changing in ways that suggest efficiency requires a more active (if not necessarily a bigger) state than in the past. Third, this means that the private sector — and its investors — may benefit from the new interventionism. If it makes for a more efficient economy, there will be more economic surplus from which profits could be paid (and the benchmark is not the status quo ante but an economy under ever more risk from climate change). Enlightened self-interest is real, and different from narrow maximisation.That goes for investors too. They may want to think about how recalcitrant companies, which lobby against or otherwise resist these epochal changes, may harm the other investments in their portfolio. They may also want to have an open mind towards companies that align themselves with broader goals than short-term profits (or even merely long-term profits). Indeed, they may even prefer company leaders that support the right kind of state engagement with the economy.The upshot is that investors’ role is changing too. Passive investors — and here I mean passive in two senses, that of allocating capital passively based on an index and that of not exercising shareholder rights to influence management decisions — are free riders on active ones. But how investors actively influence the companies they own matters more and more when the social contract is rewritten to be less laissez-faire than it was. And that means the free riding of passive investors becomes more and more egregious too.Other readablesAs many will tell you, US inflation reached a 40-year high, with consumer prices rising 7 per cent year on year in December. What most will not tell you is that the month-on-month change, however, fell for the second consecutive month, though remained high at 0.5 per cent. As I have written before, year-on-year differences are a poor guide to price dynamics that are changing fast. In the months to December, US food price inflation slowed (adjusted for seasonal patterns of course). Services inflation slowed. Energy prices are now falling outright. The one subcomponent of inflation that is not slowing is commodities outside food and energy, which picked up strongly at the end of the year. Might Christmas have anything to do with it?I have received a lot of reader comments on recent pieces — keep them coming! Before Christmas, I offered a back-of-the envelope costing of a universal basic income, to go with our film about the case for UBI. Nikhil Woodruff shared a link to an online calculator that does a much more thorough job — try it yourself! I was relieved to find that while it estimates the cost of my example to be a bit higher than I did, it is in the same (expensive but affordable) ballpark. Separately, a friend reminded me of the bizarre tale of then US president Richard Nixon’s push for a UBI.The iPhone is 15 years old, and its maker is worth $3tn. But what has it done to our brains?Numbers newsIn the last quarter of 2021, the rate at which unemployed Americans are finding jobs jumped, says the Conference Board (see chart below). This is the high-pressure economy inflation hawks want to rein in. More

European stocks edged lower on Thursday after a relief rally in the prior session, powered by US inflation data coming in no worse than feared, gave way to questions about how long it would take for surging price rises to moderate.The Stoxx 600 equity gauge fell 0.1 per cent, having ended Wednesday’s session 0.6 per cent higher in response to a 7 per cent annual gain in US consumer prices that investors calculated did not speed up the Federal Reserve’s timetable for withdrawing its pandemic-era monetary stimulus. London’s FTSE 100 was flat after rising 0.8 per cent on Wednesday. Traders continue to expect the US central bank, whose monetary policy decisions affect funding costs and stock market valuations worldwide, to raise its main funds rate three to four times this year to about 1 per cent, after tethering it close to zero from March 2020. This relatively benign outlook for funding costs is based on assessments that US inflation, driven by rebounding energy prices and bottlenecks in supply chains disrupted by coronavirus, will soon peak. “People like the comfort blanket of what feels like the mathematical certainty that a 7 per cent inflation rate cannot continue,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors. But this was preventing investors from “asking the tough questions,” he added, about how far US inflation would fall and the possibility of the Fed needing to raise interest rates beyond what markets expected. “If we are looking at 3.5 per cent inflation by the end of the year, the Fed will still have a lot of wood to chop,” he said. “CPI was expected to be bad and therefore the ability to shock was relatively low,” added Deutsche Bank strategist Jim Reid. “Most forecasters think the peak for inflation is sometime soon, but the pace of the glide path is open to debate.”Wall Street stock markets rose after the inflation report before ending Wednesday’s session with muted gains. In Asia, Hong Kong’s Hang Seng index drifted 0.1 per cent lower on Thursday while the Nikkei 225 in Tokyo lost 1 per cent. Later on Thursday, economists polled by Reuters expect separate US inflation data to show producer prices, the measure of what businesses pay their suppliers, rose 9.8 per cent in the year to December. Futures markets implied the blue-chip S&P 500 share index and the top 100 stocks on the technology-focused Nasdaq Composite would trade flat in early New York dealings. The yield on the 10-year US Treasury note rose by about 0.03 percentage points to 1.75 per cent on Thursday as the price of the benchmark government debt instrument fell. The dollar index, which measures the US currency against six others, dipped just under 0.3 per cent after dropping to its lowest point since November earlier on Thursday morning. The euro added 0.3 per cent against the dollar to $1.147. While the European Central Bank has ruled out raising interest rates this year, Fed rate rises are so well priced in to markets that further dollar strength is unlikely, analysts at Citi commented. “We now arguably approach peak Fed-hawkishness in the near-term,” the Citi team commented in a note to clients. “Risks are now tactically biased toward a stronger [euro].”Brent crude, the oil benchmark, added 0.2 per cent to $84.87 a barrel. More

Good morning. I don’t think I can remember a major data release that came in as closely in line with expectations as yesterday’s CPI report. Calling around to economists and strategists yesterday, all of them struggled to name something in the report that didn’t fit with their own or consensus targets. Not sure what that signifies, if anything. Send me an email: [email protected] bad as we thought is plenty bad enoughWell, here we are:

The blue solid lines are core inflation, which excludes food and energy, compared with a year ago and with last month. The dotted green lines include all items. The annual rate of inflation is accelerating, for the third month in a row. Monthly increases are steady, with the interesting wrinkle that headline has fallen just below core, because food and energy prices both fell last month (a phenomenon most observers do not expect to last).As expected, goods were the big driver. The egregious example remains used cars, which rose 37 per cent from the year before, handily beating the S&P 500. This confirms my plans to liquidate my 401k and retire on the proceeds from selling my 12-year-old Mazda, which at its current rate of appreciation will be worth $2.7m in 2041.Shelter prices, which everyone is watching closely because of their link to wages and their tendency to persist, were hot, but not hotter: the monthly growth rate was in-line with the previous two months. But this data lags, and CPI rent will get higher before it gets lower. It currently reflects neither the huge spike in rents at mid-year or the cooling in rents we have seen very recently. Earlier this week, I wrote that panic was merited when we saw sharp acceleration in services prices (outside of healthcare and transport). The reason for worry is that we have a good theory of why goods inflation might go away. The pandemic has pushed demand away from services towards goods; stimulus payments have meant total demand has not fallen, possibly even risen some; when the pandemic subsides, demand will shift back towards services, and goods prices will normalise. But if strong demand and limited labour supply force wages higher, and those wage increases leak into services, that’s evidence we are heading for a big, sticky wage-price spiral.Well, the wage-sensitive services I was warning about did accelerate in December, if not exactly sharply. Prices of everything from haircuts to house cleaning to legal services and funerals picked up from November, to greater or lesser degrees. These are volatile series, and we need more confirmation of this trend. But I do not like this one tiny little bit.It is especially worrisome because real (post-inflation) wages are falling. Workers have good reason to respond to pervasive price increases by demanding more pay. Olivier Blanchard of the Peterson Institute put the problem this way in an email:If I am a worker, I look at 2021, and I conclude I have lost quite a bit of real income (actually, based on my perception of the prices I see every day, I believe inflation has been substantially more than 7%). The labour market is tight; good time to ask for a wage increase, or threaten to quit, or if there is any kind of union, go on strike . . . This is the wage price loop . . . This is where the uncertainty is. This is what may force the Fed to do even more than it is slowly promising to do.It does not have to happen this way, as Blanchard acknowledged. As Don Rissmiller of Strategas put it to me, there is a wage-price spiral happening already in some low-wage areas such as leisure and hospitality. But:There is still a way out, especially for the high-wage professions. People are asking for flexible work. They don’t want more pay, they want to work at home Monday and Friday . . . it’s one more pressure-release valve. Certainly there is the risk, and the biggest risk we’ve had in a while, that we are heading into some sort of wage-price cycle. But there is a chance that the Fed can act now and stop the services inflation.How can you stop inflation with less-negative real rates?The Fed projects, and the bond markets expect, that at the peak of this rising cycle the policy rate will be about 2 per cent, or a touch more. That means the Fed and the market think the central bank will halt inflation while never pushing real rates above zero. This is a strange idea, on its face. Think of it this way. If all goes as expected, in a year short-term rates will be all of 1 per cent higher than they are now, and still very negative in real terms. How is that going to constrain the economy in any meaningful way? It seems a stretch to think such a small change would constrain either consumer or corporate spending significantly. The range of views on this puzzle is remarkably wide. Paul Ashworth of Capital Economics argued that “even the Fed easing its foot off the accelerator a bit” can actually make quite a large impact on the real economy. Not only are marginal decisions about whether or not to take on debt are affected, but a higher cost to borrow diverts resources away from other forms of spending. Given that the neutral rate of interest (the rate that would pervade if the economy were running at potential, with full employment and constant inflation) appears very low right now, small changes in rates can be significant, even if real rates stay negative. (To be clear, Ashworth does not think that 200 basis points of increases will get inflation back to 2 per cent, but he thinks it will help).My colleague Martin Wolf disagreed. As a mechanical matter, he thinks the policy won’t cool the economy to any significant degree. He says it all comes down to credibility:The actions themselves don’t really matter. What matters instead is the confidence that the Fed is serious about its goals. Then, if what it has done is not enough, the Fed will do more — much more. So, the signal is the policy and the signal on its own might be enough . . . but that only works to the extent that the intentions revealed are believable. The smaller the credibility of its intentions, the more the Fed will need to do to show it’s serious …For 40 years the Fed has lived on [Paul] Volcker’s credibility. Maybe it will have to show it means it once again. That would be a nightmare. And that is also why letting inflation rip is dangerous. The more that needs to be done, the less credible the needed actions become. That is why a Volcker became necessary in the 1970s.Rissmiller takes still a third view. The endgame of a Fed tightening cycle is an inverted yield curve, which shakes confidence, which in turn can lead to tightening credit conditions:An inverted curve is hard to deal with, if you assume the future is more uncertain the present. It hurts confidence, and the financial sectors’ ability to make profits . . . you at least get a situation where, with an inverted curve people will become concerned and take less risk . . . and then if the tide goes out a bit, someone [a big creditor] has a problem, and then credit spreads widen, and it all becomes self-reinforcing.These views likely have a fair amount of overlap, and are not mutually exclusive. But the diversity of opinion about how monetary policy under low rates and inflation works is an unnerving fact that investors should keep in mind when trying to predict what happens next. One good readDecentralisation is not worth the bother. More