Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Like shoppers, investors are often prone to the so-called left-digit bias — the tendency to place more emphasis on the leftmost digit of a price. Indeed, when the 10-year US Treasury bond yield — a benchmark used to price assets in America and across the world — surged from the high fours to 5.02 per cent on Monday, it caused a stir in financial markets. Yields have now swung back, but still hover at post-global financial crisis highs.Breaching the 5 per cent barrier for the first time since 2007 is a marker of how tight financial conditions are becoming in the US Federal Reserve’s rate-raising cycle, and the growing squeeze ahead for the US economy. The 10-year Treasury yield has risen more than 3 percentage points in the past two years. The high volatility and speed of the sell-off in recent weeks, at a time when liquidity in Treasury markets “remained challenged”, according to a Fed report last week, is concerning too.There are several drivers behind the recent jump in 10-year yields, which are up from 4.6 per cent in mid-October. First, investors have cottoned on to the Fed’s “higher for longer” narrative on rates, particularly as a slew of strong economic data has backed up its rhetoric. Second, the “term premium”, or the additional yield investors need to compensate for holding long-term bonds, has probably risen, according to analysts.The US government’s widening deficit has driven higher bond issuance, while rising spending needs and political turmoil are raising expectations for future Treasury supply too. But demand has fallen, particularly with the Fed shrinking its Treasury holdings via quantitative tightening. Belief that the underlying interest rate could be higher in the long term is also growing. This is pushing up yields, but uncertainty also remains high. While 10-year yields have been on an upward march since the Fed began raising rates, intraday swings are common. Elevated yields could exacerbate fiscal concerns, with spending on interest payments rising. Mortgages and corporate bonds, which are linked to long-term Treasury yields, will become costlier. Stock valuations could be strained. Together, this raises the chance of a deeper and longer economic slowdown, which could pull down yields. Indeed, market skittishness poses its own risks, particularly when Treasury liquidity remains below historic norms. Investors looking to lock in high yields may be reticent to buy if they think prices could fall further. The risk of sharp yield movements could also threaten institutions holding large bond losses, and stoke distressed Treasury sales. The volatility is an inevitable consequence of investors trying to price Treasuries amid heightened uncertainty and following years of the Fed’s bond-buying. The lack of clarity on the economic outlook means a convincing narrative to anchor yields is also far off. Policymakers ought to be alive to the risks of something snapping in financial markets — and can also help to bring stability.For the Fed, higher Treasury yields will obviate the need for further rate rises at next week’s rate-setting meeting. Outlining a clear vision for the economy will, however, be difficult. Jay Powell, the Fed chair, should at least be measured in his communications to avoid adding to the jitters. Monitoring Treasury market liquidity, and efforts to enhance it, will remain important as well.Above all, the US needs to display fiscal prudence. The deficit as a share of gross domestic product is projected to balloon. Higher debt issuance in a market short of buyers will keep upward pressure on yields. Paralysis in the US Congress does not help. High rates, allied with lax fiscal policy and political chaos, are a recipe for a vicious cycle of rising government yields — as Britain can attest from its turmoil a year ago. But if the US has its own Liz Truss moment, the damage will not be contained to its shores.  More

This article is an on-site version of our Disrupted Times newsletter. Sign up here to get the newsletter sent straight to your inbox three times a weekToday’s top storiesThe main UN agency bringing humanitarian aid to Gaza said it was about to run out of fuel, threatening its ability to help roughly 1mn people displaced by the war in the besieged enclave. Read our full coverage of the Israel-Hamas war.Shares in France’s Worldline, one of the world’s largest payment specialists, fell more than 50 per cent after it warned that revenues and margins would take a hit this year from a deteriorating economic outlook. There was more tumult in the electric vehicle industry as Porsche hit out at the EU’s probe into Chinese EV subsidies, while South Korean battery maker LG Energy Solution echoed Tesla chief Elon Musk by warning of the hit to EV sales from high interest rates.For up-to-the-minute news updates, visit our live blogGood evening.High interest rates are boosting profits at banks across Europe while bankers in the UK can look forward a different kind of boost: a cap on their bonuses is being thrown out.Deutsche Bank today forecast its highest annual revenues for seven years with plans to increase dividends and share buybacks over the next two years. Third-quarter pre-tax profit at Germany’s largest lender rose 7 per cent to €1.7bn.Santander, Spain’s largest lender, reported an increase in net profit of 20 per cent, to €2.9bn. In what is likely to be a common theme in this year’s reporting season, net interest income — the difference between the money lenders make on loans and pay out on deposits — rose 16 per cent.The outlook for Spanish banks, however, was somewhat clouded yesterday by news that Yolanda Díaz, who leads the leftwing Sumar coalition, would push for an extension of the country’s windfall tax on banks and energy companies. The move is part of negotiations to support acting prime minister Pedro Sánchez’s socialist party.Windfall tax worries have also come to the fore in Italy, where UniCredit, the country’s second-largest bank, said yesterday it would set aside €1.1bn as “non-distributable reserves” for 2024 instead of paying the one-off tax, in a move analysts said might set a trend for other lenders. The bank reported a 36 per cent jump in net profit to €2.3bn and upgraded its net revenue forecast.Rising profits from higher interest rates had prompted Italy’s rightwing government to announce the windfall tax in August but the measures have been watered down several times following an investor backlash.In the UK, Lloyds — the nation’s biggest lender and seen as a bellwether for the economy — also beat forecasts, reporting third-quarter statutory profit before tax of £1.9bn, helped by a drop in defaults as well as the high rates environment. It did, however, warn that some of the benefits of higher rates were starting to wane.Barclays has so far proved to be the main exception to the optimistic tone of the earnings season. Its shares fell yesterday after it reported a 16 per cent fall in profits to £1.3bn and a gloomy outlook with “material” cost cuts to come as part of a strategic review concluding early next year. On the plus side, Barclays bankers, along with the rest of their UK peers, could benefit from bigger rewards after regulators yesterday scrapped the cap on bonuses that was inherited from the EU as part of the post-Brexitdrive to boost the City of London.Then-chancellor Kwasi Kwarteng had first announced the UK’s intention to abolish the measure as part of his ill-fated “mini” Budget a year ago. The rule had limited bonuses to twice base pay for employees of banks, building societies and investment firms with the aim of discouraging them from excessive risk taking.Although the move has been slammed by opposition politicians as tone deaf during a protracted cost of living crisis, its supporters say bonus caps tend to push base salaries higher and its scrapping will help bring down the fixed costs of employing a banker in London as opposed to (for example) New York. Others, such as our Due Diligence newsletter (for Premium subscribers), argue the bonus cap never made sense to begin with.Need to know: UK and Europe economyOne year ago, Rishi Sunak became Tory leader and the UK’s new prime minister, promising “economic stability and confidence” after the chaos of Liz Truss and Boris Johnson. Here’s our assessment of how he’s performed over the 12 month-period.New PMI survey data showed UK business activity shrinking for the third month in a row under the impact of high interest rates and falling exports.The UK also faces months of uncertainty about the state of its jobs market after analysts warned that new “experimental” figures (showing a slight upturn in unemployment to 4.2 per cent) were deeply flawed. Commentator Chris Giles says the “official” data is becoming a nonsense.UK public authorities and lenders are clashing over hospitals and schools as Britain’s decades-long experiment with the private finance initiative comes to an end. PFI was launched in the early 1990s to let the public sector build through borrowing from banks and other investors, which would then maintain the assets over decades.The European Central Bank is set to pause its programme of interest rate rises tomorrow following recent disappointing eurozone data including yesterday’s PMI survey that showed business activity retreating more than expected. A Big Read details how Germany’s once prosperous industrial districts are suffering.Need to know: Global economyThe International Energy Agency expects demand for oil to fall by almost half by 2050 if governments follow through on green pledges.Chris Giles rails against an epidemic of rigid or sloppy thinking from central banks in his new newsletter. Here (for Premium subscribers) are his top 10 inflation crimes and misdemeanours.Chief economics commentator Martin Wolf says politics is the biggest threat to China’s economic growth as it grapples with the relationship between communism and capitalism. Columnist Edward Luce praises US president Joe Biden for soothing tensions between Washington and Beijing.Watch: Al Gore, the former US vice-president, tells the FT’s Moral Money Summit why he thinks this year’s COP28 climate change talks in the United Arab Emirates look likely to fail, and what it will take for the world to halt the rise in global temperatures.Need to know: businessCarnival, the world’s biggest cruise company, was ordered by an Australian judge to cover the medical expenses of a passenger who contracted Covid-19 on one of its ships to compensate for its “negligent” handling of the outbreak in a landmark class action ruling.The global slowdown in luxury spending hit Kering’s Gucci and Saint Laurent brands as well as Hermès, maker of Birkin bags. The latter did however defy an industry-wide trend for slower sales in the US — luxury’s biggest market — and Europe.Apple is facing scrutiny from environmental campaigners over its claims that its latest devices are “carbon neutral”, a term the EU proposes to ban as part of a new offensive against “greenwashing”. Apple is one of the “magnificent seven” tech giants that have driven all of the gains in global stocks this year, underlining US dominance of equity markets. Microsoft is another: listen to the new Behind the Money podcast on how it went from combative villain to a conciliatory giant in the eyes of regulators and governments. Ukraine is trying to build up its own arms industry, a difficult task at a time of worldwide shortages of key components and minerals, including gunpowder.A new Big Read takes you inside the blockbuster trial against former crypto darling Sam Bankman-Fried. Cryptocurrencies are back in the spotlight after the US Treasury said they were being used to raise funds by Hamas.The World of WorkIs it time to say ta ta to tattoos in the workplace or should they become more widely accepted? The Working It podcast discusses the etiquette of inking.Some good newsThe hunt for clean energy is taking new and unexpected turns. How about turning chicken feathers into electricity?Recommended newslettersWorking it — Discover the big ideas shaping today’s workplaces with a weekly newsletter from work & careers editor Isabel Berwick. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up hereThanks for reading Disrupted Times. If this newsletter has been forwarded to you, please sign up here to receive future issues. And please share your feedback with us at [email protected]. Thank you More

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The loan is specifically designated for Subprogramme 2 of the Sustainable Urban Development and Service Delivery Programme. While Subprogramme 1, established in 2021, focused on formulating national-level policies for improving urban services, Subprogramme 2 supports state and Urban Local Body (ULB) level reform actions.Sanjay Joshi, ADB Principal Urban Development Specialist, explained that the programme integrates urban planning reforms through legal, regulatory, and institutional changes. It also emphasizes the capacity building of ULBs and community awareness initiatives to promote systematic urbanization.The comprehensive reform agenda includes the creation of superior urban infrastructure, enhancement of governance systems, and promotion of investment planning to manage urban sprawls. The goal is to equip cities with the necessary tools and resources to effectively manage their growth and development.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

BEIJING (Reuters) -California governor Gavin Newsom met Chinese president Xi Jinping on Wednesday to discuss climate change, raising hopes that China and the United States can find common ground ahead of an APEC summit and COP28 climate meeting next month.Xi and U.S President Joe Biden are expected to meet at the Asia-Pacific Economic Cooperation (APEC) summit in San Francisco in November, although the meeting has not been confirmed. Newsom told reporters after the meeting that he had an opportunity to focus more deeply and substantively on the issue of climate with Xi, while they also discussed Israel and the deadly drug fentanyl.”We’re not going to move the needle on climate change unless the United States and China collaborate together,” he said.There were “strategic red lines” in the relationship between the world’s top two greenhouse gas emitters, but both sides were capable of managing them, he added.During their meeting, Xi told Newsom that there was “huge potential” for the two countries to cooperate on green development and addressing climate change, state broadcaster CCTV said. Xi said climate change could still become a “new bright spot” in the relationship between the two sides.Climate cooperation between the two countries has been disrupted in recent years, with Chinese officials insisting that climate issues could not be treated in isolation from the broader diplomatic and trade disputes between the two sides. U.S. climate envoy John Kerry visited Beijing in July to resume formal discussions with his Chinese counterpart Xie Zhenhua following a year-long hiatus caused by former House of Representatives Speaker Nancy Pelosi’s visit to Taiwan, a self-governing island that China claims. Kerry’s three-day visit also included talks with Foreign Minister Wang Yi and Vice-President Han Zheng, but he did not meet Xi. Newsom began his week-long trip to China on Monday, visiting Hong Kong and Shenzhen before meeting senior officials in Beijing on Wednesday, including Han and Wang.He also signed a memorandum of understanding with China’s planning agency, the National Development and Reform Commission, on climate cooperation. More

The 7.9% average contract rate for a 30-year fixed-rate mortgage during the week ended Oct. 20 was up 20 basis points from the prior week, the Mortgage Bankers Association said. “Mortgage activity continued to stall, with applications dipping to the slowest weekly pace since 1995,” MBA vice president and deputy chief economist Joel Kan said. “These higher mortgage rates are keeping prospective homebuyers out of the market and continue to suppress refinance activity.” The cost of borrowing to buy a house has risen even as the Federal Reserve has put its inflation-fighting rate-hike campaign on pause, after lifting its benchmark policy rate from near zero in March 2022 to 5.25-5.50% in July of this year.The 30-year fixed rate mortgage is up 81 basis points since then, tracking a similar rise in the yield on the 10-year Treasury note, the main benchmark for longer-term U.S. borrowing rates. More

The head of the IMF on Wednesday dubbed the worsening Israel-Hamas conflict as another cloud on the horizon of an already gloomy economic outlook.
“What we see is more jitters in what has already been an anxious world,” IMF Managing Director Kristalina Georgieva told a panel hosted by CNBC’s Dan Murphy.
Georgieva’s assessment that the conflict was adding to “more anxiety in the world” was felt by other senior business figures at the Future Investment Initiative Institute conference.

Kristalina Georgieva, managing director of the International Monetary Fund, at a press conference at the IMF Headquarters on April 14, 2023.
Kevin Dietsch | Getty Images News | Getty Images

The head of the International Monetary Fund on Wednesday dubbed the worsening Israel-Hamas conflict as another cloud on the horizon of an already gloomy economic outlook.
“What we see is more jitters in what has already been an anxious world,” Managing Director Kristalina Georgieva told a panel hosted by CNBC’s Dan Murphy at the Future Investment Initiative Institute conference in Riyadh.

“And on a horizon that had plenty of clouds, one more — and it can get deeper.”  
Georgieva said that the economic fallout from the war, now in its third week, would be “terrible” for the sides involved, as well as have significant repercussions for the region. Those include negative impacts on trade and tourism.

“It is terrible in terms of economic prospects for the epicenter for the war,” she said. “[There will be] negative impact on the neighbors: on trade channels, on tourism channels, cost of insurance.”
Georgieva noted that countries including Egypt, Lebanon and Jordan were already feeling the ramifications.
“Uncertainty is a killer for tourists inflows. Investors are going to be shy to go to that place,” she said.

She did not reference the economic implications of the conflict for the wider global economy, but noted that the outlook was already stagnant.
Georgieva’s assessment that the war is adding to a sense of “a more jittery world, more anxiety in the world” was felt by other senior business figures at the FII conference.
Dubbed “Davos in the desert,” the event typically focuses on economic and investment prospects around the Middle East region. This year, it has been overshadowed by Israel’s ongoing offensive against the Gaza Strip, following the Oct. 7 terror attacks carried out by Palestinian militant group Hamas against Israel.
The hostilities came as Israel had been making moves to normalize diplomatic ties with its neighbors, including Saudi Arabia.
Georgieva said the IMF’s first priority was “the tragic lost of life” caused by the offensive and called for a resolution as soon as possible.
“The sooner there is a resolution, the better,” she said. More

The president of the World Bank said Tuesday that it will be some time before progress toward a more peaceful Middle East can resume in earnest.
Ajay Banga told CNBC that the onset of the Israel-Hamas war has thrown nascent normalization talks off course.
“I think it’s clearly going to be a little while until this sort of works out one way or the other,” Banga told Dan Murphy.

MARRAKESH, MOROCCO – OCTOBER 13: Ajay Banga, President of the World Bank Group, speaks during the International Monetary Fund (IMF) meeting in Marrakesh, Morocco on October 13, 2023. (Photo by Abu Adem Muhammed/Anadolu via Getty Images)
Anadolu Agency | Anadolu Agency | Getty Images

The president of the World Bank on Tuesday said that it will be some time before progress toward a more peaceful Middle East can resume in earnest.
Ajay Banga told CNBC that the onset of the Israel-Hamas war has thrown nascent normalization talks off course, making regional cooperation much more difficult.

“We were working towards a more peaceful Middle East and many countries in this region have begun to speak to each other about the opportunity of moving forward with a new platform of being together,” Banga told CNBC’s Dan Murphy.
“I think it’s clearly going to be a little while until this sort of works out one way or the other,” he added.

Banga was speaking at the Future Investment Initiative Institute conference in Riyadh, where business leaders are gathered to discuss economic and investment prospects of the Middle East region.
This year, the event has been overshadowed by Israel’s ongoing offensive against the Gaza Strip, following the Oct. 7 terror attacks carried out by Palestinian militant group Hamas against Israel. The hostilities came as Israel had been making moves to normalize diplomatic ties with its neighbors, including Saudi Arabia.
The World Bank chief said that the conflict could have ramifications not only for the region, but also for the wider global economy — most notably for energy markets.

Oil prices have climbed in the more than two weeks since the onset of the violence amid concerns over supply constraints within the energy-rich region.
Banga also spoke of the potential impact on food and fertilizer prices, which similarly spiked in the wake of the Russia-Ukraine war.
“Other such things we saw when Russia came into Ukraine — that food and fertilizer and oil spiked,” he said.
“The world took a little while to come back from that, I’m worried that that will be another piece of danger,” Banga added.
It comes as the world economy confronts a new era of higher interest rates and slower growth, “something we’ve not been used to,” he said.
Banga’s comments were echoed on Wednesday by the head of the International Monetary Fund, who dubbed the Israel-Hamas conflict as another cloud on the horizon of an already gloomy economic outlook.
“What we see is more jitters in what has already been an anxious world,” Managing Director Kristalina Georgieva told a panel at the FII conference.
“And on a horizon that had plenty of clouds, one more — and it can get deeper.”   More