Aurelia Butler

Russia has warned the US and Nato to make concessions or face a worsening security situation in Europe as talks began between Washington and Moscow to avert a Russian invasion of Ukraine. The high-stakes negotiations were prompted by Russia’s deployment of about 100,000 troops close to its border with Ukraine and its warnings of military action if the west ignores demands for new guarantees that would reshape Europe’s security architecture.Sergei Ryabkov, Russia’s deputy foreign minister and lead negotiator, said his country would not yield on its demand for Nato to never make Ukraine a member, a pledge the US and the military alliance had already ruled out.“Now the other side must show flexibility. If they are unable to do this, then they will face a worsening situation in their own security,” he told Russian state news agency Ria.Nato warned Moscow to abandon its belligerent foreign policy on the eve of today’s talks and co-operate with the west or face a military alliance steeled for conflict.Jens Stoltenberg, Nato secretary-general, told the Financial Times the US-led defence pact was prepared for “armed conflict in Europe” should negotiations fail, as officials readied for discussions. Today’s bilateral talks in Geneva involving Wendy Sherman, deputy secretary of state, and Ryabkov are the first in a series of diplomatic meetings this week aimed at de-escalating the situation in Ukraine. They will be followed by talks in Brussels on Wednesday between Russia and the 30 members of Nato and on Thursday the Organization for Security and Co-operation in Europe will host talks in Vienna.Do you think the US and Russia can de-escalate the Ukraine crisis? Share your thoughts with us at [email protected]. Thanks for reading FirstFT Americas and here’s the rest of today’s news — GordonFive more stories in the news1. New York City apartment fire kills 19 Hospitals worked through the night to save the lives of people gravely injured by smoke in a fire that killed 19 people, including nine children, in a Bronx apartment building, Associated Press reports. An investigation into the cause of the fire was ongoing, New York City’s mayor Eric Adams told reporters last night.

Mayor Eric Adams at a news conference outside the apartment building where the deadly fire occurred in the Bronx on Sunday © Yuki Iwamura/AP

2. Novak Djokovic wins appeal The world’s top male tennis player has won his appeal against deportation from Australia after a judge ruled that the country’s border authorities had acted unreasonably when they cancelled his visa. The Australian government argued that the Serbian had failed to provide sufficient evidence to justify an exemption to enter Australia without a vaccination.3. US rate rise forecast for March despite weak jobs growth The Federal Reserve is on track to raise interest rates as early as March, economists said, as strong wage growth and falling unemployment shift focus from monthly job creation. Figures released on Friday showed a sharp slowdown in the number of new jobs in December but that the unemployment rate plunged to the lowest level since before the pandemic.4. Bill Gates-backed fund aims to invest $15bn in clean tech Breakthrough Energy Catalyst plans to mobilise as much as ten times an initial investment of $1.5bn from philanthropists and companies to bring down the cost of clean-tech products such as green steel and green hydrogen. 5. China tech stocks rally Chinese tech stocks rallied earlier today after starting the year with a week of sharp falls. Hong Kong’s Hang Seng Tech index gained as much as 2.5 per cent, with Alibaba Health Information Technology rising as much as 14 per cent and short-video platform Kuaishou’s Hong Kong-listed shares advancing 12.2 per cent. The Star 50 index of Shanghai-listed tech stocks climbed about 1 per cent.Coronavirus digestCitigroup will fire US employees at the end of January if they have not been vaccinated or received an exemption, according to a person briefed on the matter.Reinfections are rising among people who caught Covid-19 earlier in the pandemic as the Omicron variant spreads. The strain is threatening to overwhelm the US testing system.International business groups in Hong Kong are pleading with the government to restart flights after executives who travelled home for Christmas have been left stranded.China is tightening pandemic controls in Tianjin, a city of 14m that is 120km south-east of Beijing, after discovery of the first community transmitted cases of the Omicron coronavirus variant.Novartis will seek expedited approval for Ensovibep, a Covid-19 drug developed with biotech group Molecular Partners, after strong trial results showed it could help to treat the disease.The influential Reddit forum r/antiwork has seen its membership balloon during the pandemic from 180,000 in October 2020 to 1.6m earlier this month as Americans re-evaluate their careers.The day aheadMarkets US equities are expected to open higher this morning after a turbulent start to the year. The Nasdaq Composite shed 4.5 per cent in the first five trading days of 2022 as investors ditched fast-growing technology companies in favour of traditional companies that should benefit as the global economy emerges from the pandemic. US Treasuries were under pressure ahead of inflation data due later this week.What else we’re reading Is there an end to supply chain disruption? The chief executive of DSV, one of the world’s largest logistics groups, describes the situation as “the worst I’ve seen” in more than three decades as the company is squeezed between frustrated shipping lines and angry customers. Delays are expected to continue in 2022.What happens when the Web3 bubble pops? Web3 builds on Web 2.0, which was all about social media and user-driven content, taking it to the next level of either utility or hype, depending on your point of view. Rana Foroohar argues that investors should pay less attention to the metaverse and more to those who are using capital to build out the hard assets of the future, such as Tesla and German internet-of-things companies.Apple at $3tn: the enigma of Tim Cook Two years after the death of Steve Jobs, Oracle chief executive Larry Ellison claimed it was inevitable Apple would struggle under Tim Cook — you only had to look, he said, at what happened to the company after Jobs was ousted in 1985. Few predictions have ever been so wrong.The EU vs the City of London As the UK marks the anniversary of its divorce from the single market, bankers and officials confirm a broader picture: rather than a big-bang shift of financial businesses to the EU, the City is enduring a slow puncture that could take decades to play out. How super readers get through 52 books a year How do they do it? Where do they find the time? What do they give up? The expert advice is to get up early, treat bad literature ruthlessly and skim, skim, skim.TechnologyLast week saw the annual unveiling of new gadgets and innovations at CES in Las Vegas. Adrian Justins rounds up the dominant trends to emerge in residential technology and takes a look at the latest products designed for cutting-edge living. More

NEW YORK (Reuters) – Argentina’s insistence on its deficit spending plan is putting it on a fresh collision course with the International Monetary Fund, though analysts predict the country will be forced to change tack and clinch a deal to avoid a bigger crisis.The Argentine government and the IMF have been locked in talks for more than a year. Argentina is trying to avoid a default with the IMF as $19 billion in payments loom this year, part of a $45 billion debt that needs to be refinanced to help restore the South American nation’s credibility with markets.Finance minister Martin Guzman last week said the sharpest sticking point in negotiations with the Fund was how and at what speed Argentina should reduce its fiscal deficit. He presented an economic plan that involves five more years of running deficits and printing money to patch the holes. Guzman said the Fund’s proposal would “halt the economic recovery that Argentina is having,” while his plan “would give continuity to this strong recovery.”The IMF did not comment for this article, but last month said Argentina needed to reduce the monetizing of its fiscal deficit and raise interest rates above inflation. For a related graphic on Argentina schedule of payments to the IMF, click https://graphics.reuters.com/ARGENTINA-IMF/PAYMENTS/znvnekdoopl/chart.pngMany international investors reacted to Guzman’s statement with disappointment. The details in the presentation were “disappointingly scant,” said Stuart Culverhouse, head of sovereign & fixed income research at Tellimer in London.Without a strong rise in agricultural prices, “it’s not clear where growth is going to come from, absent a credible policy framework,” Culverhouse said.Siobhan Morden, a managing director at Amherst Pierpont Securities, described the plan as a “defiant approach to insist on a failed economic model.” “The presentation from Minister Guzman looked more like political theatrics than any rational technical discussion of an economic program,” she said in a research note.The government’s strategy seems to rely on demanding leniency from the Fund to even out what it perceives as a politically motivated program approved in 2018 to benefit then-President Mauricio Macri.But the Fund itself has criticized the previous plan as too fragile to tackle Argentina’s economic and political reality and too accepting of overly optimistic economic projections by the government.Guzman’s proposal also appears to be built on optimistic forecasts.His plan predicts economic growth at almost double the rate of the current market consensus, which is shared by the IMF. And inflation is forecast to reach only 33% in 2022, while many expect it to remain above 50%.A program with the IMF is widely seen as Argentina’s only option to avoid economic meltdown. A failure to reach agreement would trigger a default with the Paris Club of state lenders, which last year insisted that Argentina reach a deal with the IMF as part of its own debt deal with the country. And with its sovereign bonds in dollars yielding close to 20% across various maturities, the government already finds itself shut out of international debt markets. That would leave little option but to print more money to fund the deficit, according to many economists.”Absent access to external markets and amid low domestic savings, a slower fiscal consolidation path implies higher monetary assistance and therefore higher inflation and wider financial imbalances in terms of the parallel-official FX gap,” Diego Pereira, chief economist for the Southern Cone & Peru at JPMorgan (NYSE:JPM), said in a client note.The controlled, official exchange rate is around 103 pesos per dollar, while the parallel black market one is close to 205.CRUNCH TIMEOn Thursday, Argentina’s central bank raised rates on its 28-day note by 200 basis points to 40%, an implied 48.3% annualized rate according to JPMorgan, and still below inflation forecasts of 50% and beyond.Goldman Sachs (NYSE:GS) called the move a “very small step on a long road towards monetary and financial normalization,” while saying the “current monetary-fiscal policy mix and extensive set of capital and financial controls is unsustainable and inconsistent with medium-term socially inclusive growth.”Analysts agree that a deal is likely to happen eventually, given what is at stake.”First of all you avoid having a default with the IMF, which in itself wouldn’t trigger a default on the (sovereign) bonds, but it would negatively affect the pricing,” said Carlos de Sousa, emerging market debt strategist at Vontobel Asset Management in Zurich.A deal also is the base case for JPMorgan’s Pereira, although he predicted negotiations could experience a temporary stalemate in the coming weeks. In the end, the pain of any fiscal adjustment likely to be demanded by the IMF would be far less than the economic turmoil caused by a potential default on the Fund’s loans, he said.”An agreement with the IMF before the end of March seems a necessary condition to avoid more disruptive scenarios,” he said. More

“Asset quality has further improved, but there are concerns for loans that have benefited from moratoria and public guarantee schemes not least due to general uncertainty due to Covid-19 variant, Omicron,” the European Banking Authority said in its latest quarterly “risk dashboard”.”Profitability has stabilised at levels above those seen before the pandemic. The majority of banks expect a rise in operational risks mainly due to elevated cyber risks.”The non-performing loan (NPL) ratio of loans that turn sour, fell 20 basis points quarter-on-quarter to 2.1%, while return on equity, a key measure of profitability, was 7.7%, up from 2.5% in the same quarter in 2020, and 5.7% in the third quarter of 2019.The core ratio of capital to risk-weighted assets in the third quarter of last year was 15.4%, down 10 basis points on the prior quarter but still well above regulatory requirements, EBA said.The EBA findings are based on a sample of 131 banks covering more than 80% of the EU’s banking sector assets. More

The UK government has offered contracts worth £34.5m to companies to train new lorry drivers as it battles to alleviate an ongoing supply chain squeeze caused by the Covid-19 pandemic and Brexit.The money for the HGV “Skills Bootcamps” has been widely welcomed by the industry, which has seen driver numbers shrink by a quarter since 2019, leaving gaps on supermarket shelves and helping to spark last October’s petrol shortages.The government’s one-year investment amounts to more than it spent on HGV driver training over the previous eight years combined, according to analysis by the data provider Tussell. It is expected to provide training for up to 11,000 drivers.Industry experts said the intervention had been necessary because low profit margins and endemic poaching of drivers had not incentivised the industry to invest in training, which costs approximately £4,000 per driver.“This money is incredibly welcome,” said Sally Gilson, policy manager for skills at the Road Haulage Association. “Our sector works to wafer-thin margins, with 80 per cent of our membership having 15 trucks or less. They don’t have £4,000 per person to spend on training.”Training providers said that early indications were that rising wages and a growing public understanding of the importance of logistics professionals was encouraging people into the industry.Richard Weston, strategy manager at Mantra Learning, a Manchester-based training company that was awarded a £5m contract under the scheme, said the company had received 4,000 applications since launching on December 6.“The response has been phenomenal,” he said, adding that Mantra was offering 50,000 drivers who held HGV licences but were not using them two- to four-week courses to enable them to reactivate their licences.Weston said the volatile market for drivers, which had seen wages reach up to £70,000 a year in hotspots, had meant that demand for drivers had not translated into commercial investment in training.“If you are going to invest in training a driver, the chances are that that driver is going to get up and leave when offered a higher wage. It gets very difficult to ensure that you get a return on your training investment, which is why some public funding is needed,” he said.According to the annual skills report of Logistics UK, the industry body, the number of lorry drivers in employment fell by nearly a quarter during the Covid-19 pandemic, with the number of EU drivers down by one-third and many older British drivers retiring.The squeeze — from 308,000 drivers in the second quarter of 2019 down to 236,000 two years later — saw wages rise by 8 per cent over the same period, to an average of £13.08 an hour, with average earnings for a driver now around £35,000-£40,000 a year.Rona Hunnisett, of Logistics UK, said the grants, which are part of the government’s £2.5bn National Skills Fund, would help attract a new generation to an industry where the average age of drivers is now over 50. “This is a good way to raise awareness of the sector and a great opportunity to show there are good, meaningful jobs with good wages on offer,” she added.

However, the industry did caution that the government should look to sustain its investment beyond the scope of the current round of HGV “bootcamps”, which will run until the end of November, with an option to continue for a second year.Officials said the Department for Education was considering options for extending support to HGV training. Alex Burghart, the skills minister, said the government was keen to push the courses. “We want more adults to take advantage of these free courses and get on the path to well-paid careers,” he said.Shane Brennan, the chief executive of the Cold Chain Federation, warned against the risk of a “sugar-rush” of rising wages, signing-on bonuses and training subsidies, when many new entrants were leaving the profession within two years.“Our job as an industry is not just to get drivers in through the door but to ensure they see this as a life-long career,” he said. More

Upheaval in eurozone debt markets has left benchmark German borrowing costs on the cusp of climbing above zero for the first time in nearly three years, in a sign that investors believe major central banks are close to withdrawing their pandemic-era stimulus.The country’s 10-year bond yield traded at minus 0.03 per cent on Monday, after climbing last week to its highest level since May 2019, as a global drop in government debt prices spread to the most important reference point in European markets. Midway through last month, the gauge stood as low as minus 0.4 per cent.The rapid pick-up in yields, led by the US, reflects growing confidence among investors that the Omicron variant will fail to derail the global economic recovery, potentially enabling central banks to dial back purchases and bump up interest rates.“European Central Bank demand has been so important to the negative-yield story,” said Mike Riddell, a portfolio manager at Allianz Global Investors. “It makes sense that a reduction in purchases would lead to a rise.”

Taking the lead from Bunds, Italy’s 10-year bond yield also rose to an 18-month high of 1.34 per cent on Monday, following last week’s data showing eurozone inflation hit a new record of 5 per cent in December.Germany’s 10-year yields first cracked below zero in 2016 after the ECB cut interest rates to under 0 per cent to tackle its last big challenge: the Greek debt crisis. The once unthinkable shift in yields in to negative territory meant that investors were effectively willing to pay Berlin for the privilege of lending the country money, even for a decade. Yields later picked up somewhat, but renewed ECB stimulus in the face of an economic slowdown crammed them back below zero in 2019. The outbreak of Covid meant they stayed there. At its December meeting, the ECB announced it would continue its asset purchases after its emergency bond-buying programme runs out in March, but at a slower rate than investors had expected. That, in combination with signs that the US is edging towards tighter policy, has pushed this reference rate back up towards the threshold.Some economists worry that Germany could be dragged in to a recession — two consecutive quarters of negative growth — due to restrictions imposed to contain the spread of Omicron.Yet most believe this will delay but not end the rebound in Europe’s largest economy and still expect Germany to produce strong growth this year, supported by high levels of public spending under the new government before stricter fiscal rules snap back next year.Sven Jari Stehn, chief European economist at Goldman Sachs, said this upbeat outlook meant he expected German 10-year bond yields to reach 0.3 per cent by the end of this year. “The joint increase in European bond yields and equity prices since the global monetary policy shifts in mid-December suggests that the rise in Bund yields is primarily due to improving growth sentiment,” he said.Germany suspended its limit on budget deficits in response to the pandemic, but its historic aversion to loose fiscal policy has kept Bunds in short supply in recent years while the ECB has snapped up an ever larger share of the market. But the creation of the EU’s €800bn recovery fund — with backing from Berlin — raises the prospect of Brussels’ own debt becoming a benchmark asset to rival Bunds. Meanwhile, incoming chancellor Olaf Scholz has signalled a greater openness to borrowing than his predecessor Angela Merkel — albeit within the constraints of a constitutional limit on budget deficits.

Some investors think these shifts could help to alleviate the shortage of German debt relative to that of freer-spending governments such as Italy’s.“You had the [EU] recovery package, then a change of government in Germany,” said Ludovic Colin, a bond portfolio manager at Vontobel Asset Management. “They haven’t become Italy overnight, but they maybe became a tiny bit more Italian. “If fiscal policy is now going to help create growth and potentially inflation, the long-term need for the ECB to keep rates at [minus 0.5 per cent] could disappear,” he added,Still, some analysts are sceptical about a sudden sea change for German yields. Camille de Courcel, head of strategy for G10 rates Europe at BNP Paribas, said ECB purchases would still exceed Germany’s €54bn of expected net bond issuance by €17bn this year, even if they are €88bn lower than last year. “We expect the sell-off to continue in to the end of the year, albeit in a limited fashion,” she said.Markets are now pricing in an interest rate rise from the ECB this year, an unlikely prospect given the squeeze on living standards caused by high inflation, according to Rabobank strategist Richard McGuire.“It’s going to be tough for German yields to escape the gravitational pull of negative territory,” he said. “We have clients telling us that if they hit zero it’s time to buy. A positive risk-free rate in the eurozone would be a big change, but I find it hard to believe this is a regime shift.” More

The writer is the Alfred Lerner professor of banking and financial institutions at Columbia Business School and a former governor of the US Federal ReserveThe US Federal Reserve has been mugged by reality. Current inflation now exceeds 6 per cent, a level not seen in almost 40 years, and is proving to be far more persistent than Fed policymakers have projected. Why is Fed monetary policy behind the curve in tightening monetary policy to control inflation? Three flaws in the Fed’s monetary policy framework have led to overly expansionary monetary policy.First, there has not been enough focus on demand shocks. The Fed has based its view that the inflation surge would be shortlived on the extensive negative supply shocks that Covid-19 has imposed on the economy. Although, negative supply shocks are surely one source of the surge in inflation, the Fed has not paid enough attention to very strong positive demand shocks. Pent-up demand from households who were unable to spend during the pandemic and extraordinary expansionary fiscal policy promoted by the Biden administration have led to high demand for goods and services. It is true that inflation will be temporary when it is the result of supply bottlenecks that dissipate over time. But strong positive demand shocks result in persistent high inflation, which is what we are experiencing currently.The second flaw is the Fed’s view of the Phillips curve, the theory that unemployment and inflation have an inverse relationship. Officials have pronounced that the Phillips curve is dead because unemployment is below its “natural rate” (where the economy is at a full employment level). That supposedly meant higher employment rates are no longer an important factor driving inflation higher. Research that I presented with co-authors at the US Monetary Policy Forum several years ago suggests that the Phillips curve is not dead, but rather is hibernating. A weak link between unemployment and inflation depends on the Fed taking pre-emptive strikes against rises in inflation, a policy that it has now abandoned. Instead, the Fed has committed to keep monetary policy expansionary until full employment has been reached. A summary by the policy-setting Federal Open Market Committee of economic projections suggests this will occur at a natural rate of unemployment of around 3.5 per cent.Unfortunately, past economic research indicates that the natural rate of unemployment is a number that is notoriously hard to estimate. Indeed, other indicators of labour market tightness, such as the high number of unfilled jobs and rising wages, hint that we have already hit full employment, so the natural rate of unemployment is above the 3.5 per cent target level. Underestimates of the natural rate of unemployment have led to severe inflationary policy mistakes in the past: the so-called Great Inflation period of the late 1960s and 1970s is a classic example, where the Fed assumed that the natural rate of unemployment was around 4 per cent when later evidence demonstrated it was a couple of percentage points higher.A third flaw is the Fed’s poor execution of the new “average” inflation targeting framework. The Fed’s switch to an average inflation target, where the target is a 2 per cent average over a specified horizon, say five years, is a policy I and many other economists have advocated. However, the Fed has been unwilling to communicate the horizon for the average, which in effect makes the 2 per cent inflation target less credible. A long horizon means that inflation can stay above the 2 per cent level for a very long time without raising the average very much. The unwillingness of the Fed to provide more information about the horizon for the average inflation target has therefore weakened the Fed’s credibility to keep inflation near 2 per cent. Inflation expectations may now become unanchored, which makes persistent high inflation a much likelier possibility. Although US CPI inflation is highly likely to come down from its current level of 6.8 per cent as supply bottlenecks from Covid diminish, it will continue to substantially exceed the Fed’s target. The Fed needs to recognise the flaws in its monetary policy framework and return to more pre-emptive policies to control inflation. If it doesn’t, the outcome will not only be persistent inflation well above the 2 per cent objective, but eventually far higher interest rates to drive inflation back down, which will do serious harm to the economy.  More