Economy

WASHINGTON (Reuters) – The White House on Wednesday expanded its war on junk fees to the rental housing market, announced a crackdown on price-fixing in food and agricultural markets, and unveiled draft merger guidelines as part of an ongoing push to aid U.S. consumers.President Joe Biden, who has made attacks on corporate greed and power a centerpiece of his administration, will discuss the latest actions with Cabinet members at the fifth meeting of his Competition Council on Wednesday.The White House explained the new measures in a series of factsheets as it marked the second anniversary of the Biden executive order that created the council and launched a government-wide attack on anti-competitive practices.It said four decades of “misguided economic philosophy” had resulted in rising concentration in three-fourths of U.S. industries, costing the median U.S. household up to $5,000 a year in higher prices and lower wages.Hannah Garden Monheit, the newly named director of Competition Council Policy at the National Economic Council, told Reuters the administration would “use all the tools that we have” to curb anti-competitive practices.She said the new actions would build on successes in meatpacking, ocean shipping and consumer junk fees, while driving down inflation.While the junk fee crackdown has found strong bipartisan and public support, industry has chafed at the increased oversight, accusing the Biden administration of “regulatory overreach.”Morgan Harper, a former Consumer Financial Protection Bureau official, said Biden’s drive for more competition was focused on creating more opportunities for small firms and entrepreneurs.”We don’t really have a competitive marketplace unless we have strong government enforcement,” Harper, now at the American Economic Liberties Project, said. “Concentration issues all over the economy are hurting workers, they’re hurting small businesses, and they’re hurting consumers.”RENTAL HOUSING FEESThe White House said three of the largest rental housing platforms – Zillow, Apartments.com and AffordableHousing.com -had agreed to disclose total, upfront data on rental costs. These include application fees that can run to $100 or more per application, and “convenience fees” sometimes charged for paying rent online or disposing of trash.A senior official said the move would not lower fees, per se, but increased transparency should cut them down by giving the tens of millions of renters who use them a chance to comparison-shop.Biden has repeatedly called for federal agencies, Congress and private companies to address surprise fees that can jack up consumers’ cost by 20%. Three of the biggest airlines have already agreed to scrap fees for children to sit with parents.Other actions announced Wednesday included draft merger guidelines that pave the way for tougher scrutiny of planned mergers by Big Tech companies like Amazon.com (NASDAQ:AMZN) and Alphabet’s Google (NASDAQ:GOOGL).One senior official said the goal was to eliminate “various blind spots” that had contributed to consolidation, noting that the Federal Trade Commission had received over 5,000 comments as it was shaping the new guidelines.The White House also announced moves by the Department of Agriculture, joined by 31 states and Washington, D.C., to target price fixing and other anticompetitive behavior in highly consolidated food and agriculture sectors. More

NEW YORK (Reuters) – Investors in El Salvador international bonds are relishing 60% returns this year alone as debt issued by the Central American country recovers from calls of doom and default, with some betting the rally is not quite over yet.Rising tensions between Washington and President Nayib Bukele’s government, dwindling prospects of a financing deal with the International Monetary Fund (IMF) and the fallout from bitcoin becoming legal tender against a wider difficult macro backdrop had seen El Salvador bonds drop to a quarter of face value last July.Fast forward 12 months and two surprise debt buybacks have left the country’s payment schedule very light until 2027, while the appointment of a former IMF official as adviser to the finance ministry has sent the right signals to markets, investors say. A bond maturing in 2025 is trading at 89 cents, up from about 27 cents a year ago.”In the summer of 2022, El Salvador bond prices were divorced from fundamentals,” said Aaron Stern, managing partner and chief investment officer at Converium Capital in Toronto, who has been holding the country’s bonds since last year.”The market was concerned about the administration’s willingness to pay,” he said, but even now El Salvador offers attractive value when compared to a number of better priced emerging market sovereigns.The appointment of ex-IMF official Alejandro Werner resuscitated hopes that an IMF deal might eventually come good – and in the meantime, the country could see more structured policy making.”Bukele has one of the highest approval rates and he has managed that successfully, and there’s also an understanding that you have to make sure that the country continues to have access to the market… it’s a dollarized economy,” said Shamaila Khan, head of fixed income for Emerging Markets and Asia Pacific, UBS Asset Management.El Salvador’s debt-to-output ratio stood at 77% in December, the lowest since 2019, and is forecast to drop another percentage point this year before rising to 78% in 2024, according to Refinitiv data. Total public debt was $19.7 billion in May from $25.4 billion at the close of 2022.Salvadoran dollar bonds currently yield between 14% and 18%, according to Refinitiv data. These were the best performing among sovereign bonds in the first half of the year, with total returns near 60%. And even after such a run, some say it’s not yet time to cash out.”In a year where carry is the main driver of total returns, investors are going to be reticent to take profits too early,” said BNP Paribas (OTC:BNPQY)’ Nathalie Marshik, a managing director for Latin America fixed income.”El Salvador is somewhat uniquely positioned as one of the highest yielding ‘performing’ distressed credits,” she said, adding that it would take a “significant” fiscal deterioration or a change in the political tone towards the market for bonds to stage another selloff.JPMorgan (NYSE:JPM) moved its recommendation on the country’s hard-currency debt to “overweight” from “market weight”, saying “the external and fiscal picture of the country seem constructive in the short term”.Some wonder how much more road the story has to run, with February presidential elections raising concern about fiscal prudence as Bukele seeks a reelection that is now allowed after a ruling from a friendly court.”Ideally some policy adjustment would be announced early post-elections to appease the market as the current muddle through policy is going to be difficult to repeat in 2024,” Marshik said. More

UK inflation fell to a 15-month low of 7.9 per cent in June, a bigger drop than anticipated that made it more likely that the Bank of England will raise interest rates by only a quarter point next month. Sterling fell and property stocks rallied on the news.Annual inflation was down from 8.7 per cent in May, the Office for National Statistics said on Wednesday. The figure was lower than the 8.2 per cent forecast by economists polled by Reuters, ending a four-month period of price growth exceeding forecasts.It was also in line with the 7.9 per cent forecast by the BoE in May and the lowest since March 2022.Sterling fell to its lowest in a week, trading 0.6 per cent down against the dollar at $1.2952.  Paul Dales, economist at Capital Economics, said that, while the fall in inflation was unlikely to deter the BoE from increasing interest rates from the current 5 per cent at its next meeting, “it may tilt the balance towards a 25 basis points hike rather than 50 basis points”.Markets now give a 60 per cent probability to a quarter point rise to 5.25 per cent at the August 3 meeting. Before Wednesday’s news they had been pricing in a better than even chance that the bank would increase rates by a half percentage point to bring inflation back to its 2 per cent target.Traders now expect BoE benchmark interest rates to peak just below 6 per cent early next year, compared with just above 6 per cent that was expected before the inflation figures.Lower inflation is likely to ease the pressure on mortgage rates after stronger than expected price and wage growth over the previous months had pushed up interest rate expectations and therefore payments for borrowers. Shares in UK property groups and housebuilders surged as investors dialled back their expectations for where interest rates might peak.Persimmon, Barratt and Taylor Wimpey rose 5.7 per cent, 4.9 per cent and 4.8 per cent, respectively, in early trading, helping London’s FTSE 100 rise by 1 per cent.Landsec, one of the UK’s largest landlords, and real estate group Segro were also among the FTSE’s biggest winners early on Wednesday.In one of the most closely watched metrics of Wednesday’s figures, core inflation, which strips out volatile food, energy, alcohol and tobacco prices, declined to 6.9 per cent in June from a 31-year high of 7.1 per cent in the previous month. Analysts had expected core inflation to be unchanged.Services inflation eased to 7.2 per cent in June from 7.4 per cent in May.

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Both core and services inflation are closely watched by BoE policymakers to monitor underlying and domestic price pressures and decide on interest rates.The data will be welcome news for UK prime minister Rishi Sunak, who has pledged to halve inflation this year before a probable 2024 election. Chancellor Jeremy Hunt said: “Inflation is falling and stands at its lowest level since last March, but we aren’t complacent and know that high prices are still a huge worry for families and businesses.”Rachel Reeves, shadow chancellor, said: “Inflation has been persistently high and remains higher than our international peers. This is becoming a hallmark of Tory economic failure.”

Grant Fitzner, ONS chief economist, said that in June “inflation slowed substantially to its lowest annual rate since March 2022, driven by price drops for motor fuels”.Led by motor fuel, the price of transport fell by an annual rate of 1.8 per cent last month. Although it remained at historically high levels, food inflation also eased to 17.3 per cent in June, from 18.3 per cent in the previous month. ONS data also showed that the annual growth of producer price inputs, such as parts and materials, turned negative in June for the first time since November 2020. The rate has slowed for the 12th consecutive month from its record annual high of 24.4 per cent in June 2022 to minus 2.7 per cent last month.Despite the larger than expected decline, UK price growth remained higher than in other G7 countries, with economists blaming a combination of surging energy costs and labour shortages.In June, US inflation slowed to a 27-month low of 3 per cent, while price growth dropped to a 17-month low of 5.5 per cent in the eurozone. Dales said: “The UK will probably still have higher rates of inflation than elsewhere for a while yet, but at least the UK is now following the global trend.” Additional reporting by Mary McDougall More

To many people, chatbots and other technology feel like a ticking time bomb, sure to explode their work. But to some, the threat is already here.“This A.I. stuff is getting really crazy.”The voices of Charlamagne tha God, host of the nationally syndicated radio show “The Breakfast Club,” and his guests Mandii B and WeezyWTF filled Ylonda Sherrod’s car as she sped down Interstate 10 in Mississippi during her daily commute. Her favorite radio show was discussing artificial intelligence, specifically an A.I.-generated sample of Biggie.“Sonically, it sounds cool,” Charlamagne tha God said. “But it lacks soul.”WeezyWTF replied: “I’ve had people ask me like, ‘Oh, would you replace people that work for you with A.I.?’ I’m like, ‘No, dude.’”Ms. Sherrod nodded along emphatically, as she drove past low-slung brick homes and strip malls dotted with Waffle Houses. She arrived at the AT&T call center where she works, feeling unsettled. She played the radio exchange about A.I. for a colleague.“Yeah, that’s crazy,” Ms. Sherrod’s friend replied. “What do you think about us?”Like so many millions of American workers, across so many thousands of workplaces, the roughly 230 customer service representatives at AT&T’s call center in Ocean Springs, Miss., watched artificial intelligence arrive over the past year both rapidly and assuredly, like a new manager settling in and kicking up its feet.Suddenly, the customer service workers weren’t taking their own notes during calls with customers. Instead, an A.I. tool generated a transcript, which their managers could later consult. A.I. technology was providing suggestions of what to tell customers. Customers were also spending time on phone lines with automated systems, which solved simple questions and passed on the complicated ones to human representatives.Ms. Sherrod, 38, who exudes quiet confidence at 5-foot-11, regarded the new technology with a combination of irritation and fear. “I always had a question in the back of my mind,” she said. “Am I training my replacement?”Ms. Sherrod, a vice president of the call center’s local union chapter, part of the Communications Workers of America, started asking AT&T managers questions. “If we don’t talk about this, it could jeopardize my family,” she said. “Will I be jobless?”In recent months, the A.I. chatbot ChatGPT has made its way into courtrooms, classrooms, hospitals and everywhere in between. With it has come speculation about A.I.’s impact on jobs. To many people, A.I. feels like a ticking time bomb, sure to explode their work. But to some, like Ms. Sherrod, the threat of A.I. isn’t abstract. They can already feel its effects.When automation swallows up jobs, it often comes for customer service roles first, which make up about three million jobs in America. Automation tends to overtake tasks that repeat themselves; customer service, already a major site for outsourcing of jobs abroad, can be a prime candidate.The AT&T call center where Ms. Sherrod works, in Ocean Springs, Miss. The company has increasingly been integrating A.I. into many parts of its customer service work.Bryan Tarnowski for The New York TimesA majority of U.S. call center workers surveyed this year reported that their employers were automating some of their work, according to a 2,000-person survey from researchers at Cornell. Nearly two-thirds of respondents said they felt it was somewhat or very likely that increased use of bots would lead to layoffs within the next two years.Technology executives point out that fears of automation are centuries old — stretching back to the Luddites, who smashed and burned textile machines — but have historically been undercut by a reality in which automation creates more jobs than it eliminates.But that job creation happens gradually. The new jobs that technology creates, like engineering roles, often demand complex skills. That can create a gap for workers like Ms. Sherrod, who found what seemed like a golden ticket at AT&T: a job that pays $21.87 an hour and up to $3,000 in commissions a month, she said, and provides health care and five weeks of vacation — all without the requirement of a college degree. (Less than 5 percent of AT&T’s roles require a college education.)Customer service, to Ms. Sherrod, meant that someone like her — a young Black woman raised by her grandmother in small-town Mississippi — could make “a really good living.”“We’re breaking generational curses,” Ms. Sherrod said. “That’s for sure.”In Ms. Sherrod’s childhood home, a one-story, brick A-frame in Pascagoula, money was tight. Her mother died when she was 5. Her grandmother, who took her in, didn’t work, but Ms. Sherrod remembers getting food stamps to take to the corner bakery whenever the family could spare them. Ms. Sherrod cries recalling how Christmas used to be. The family had a plastic tree and tried to make it festive with ornaments, but there was typically no money for presents.To students at Pascagoula High School, she recalled, job opportunities seemed limited. Many went to Ingalls Shipbuilding, a shipyard where work meant blistering days under the Mississippi sun. Others went to the local Chevron refinery.“It felt like I was going to always have to do hard labor in order to make a living,” Ms. Sherrod said. “It seemed like my lifestyle would never be something with ease, something I enjoyed.”When Ms. Sherrod was 16, she worked at KFC, making $6.50 an hour. After graduating from high school, and dropping out of community college, she moved to Biloxi, Miss., to work as a maid at IP Casino, a 32-story hotel, where her sister still works. Within months of working at the casino, Ms. Sherrod felt the toll of the job on her body. Her knees ached, and her back thrummed with pain. She had to clean at least 16 rooms a day, fishing hair out of bathroom drains and rolling up dirty sheets.When a friend told her about the jobs at AT&T, the opportunity seemed, to Ms. Sherrod, impossibly good. The call center was air-conditioned. She could sit all day and rest her knees. She took the call center’s application test twice, and on her second time she got an offer, in 2006, starting out making $9.41 an hour, up from around $7.75 at the casino.“That $9 meant so much to me,” she recalled.So did AT&T, a place where she kept growing more comfortable: “Out of 17 years, my check hasn’t ever been wrong,” she said. “AT&T, by far, is the best job in the area.”‘Your Biggest Nightmare’Sam Altman, the chief executive of OpenAI, testified before a Senate subcommittee in May. In recent months, OpenAI’s ChatGPT chatbot has made its way into courtrooms.Win McNamee/Getty ImagesThis spring, lawmakers in Washington hauled forward the makers of A.I. tools to begin discussing the risks posed by the products they’ve unleashed.“Let me ask you what your biggest nightmare is,” Senator Richard Blumenthal, Democrat of Connecticut, asked OpenAI’s chief executive, Sam Altman, after sharing that his own greatest fear was job loss.“There will be an impact on jobs,” said Mr. Altman, whose company developed ChatGPT.That reality has already become clear. The British telecommunications company BT Group announced in May that it would cut up to 55,000 jobs by 2030 as it increasingly relied on A.I. The chief executive of IBM said A.I. would affect certain clerical jobs in the company, eliminating the need for up to 30 percent of some roles, while creating new ones.AT&T has begun integrating A.I. into many parts of its customer service work, including routing customers to agents, offering suggestions for technical solutions during customer calls and producing transcripts. The company said all of these uses were intended to create a better experience for customers and workers. “We’re really trying to focus on using A.I. to augment and assist our employees,” said Nicole Rafferty, who leads AT&T’s customer care operation and works with staff members nationwide.“We’re always going to need in-person engagement to solve those complex customer situations,” Ms. Rafferty added. “That’s why we’re so focused on building A.I. that supports our employees.”Economists studying A.I. have argued that it most likely won’t prompt sudden widespread layoffs. Instead, it could gradually eliminate the need for humans to do certain tasks — and make the remaining work more challenging.“The tasks left to call center workers are the most complex ones, and customers are frustrated,” said Virginia Doellgast, a professor at the New York State School of Industrial and Labor Relations at Cornell.Ms. Sherrod has always enjoyed getting to know her customers. She said she took about 20 calls a day, from 9:30 to 6:30. While she’s resolving technical issues, she listens to why people are calling in, and she hears from customers who just bought new homes, were married or lost family members.“It’s sort of like you’re a therapist,” she said. “They tell you their life stories.”She is already finding her job growing more challenging with A.I. The automated technology has a hard time understanding Ms. Sherrod’s drawl, she said, so the transcripts from her calls are full of mistakes. Once the technology is no longer in a pilot phase, she won’t be able to make corrections. (AT&T said it was refining the A.I. products it used to prevent these kinds of errors.)It seems likely, to Ms. Sherrod, that at some point as the work gets more efficient, the company won’t need quite as many humans answering calls in its centers. Ms. Sherrod wonders, too: Doesn’t the company trust her? For two consecutive years, she won AT&T’s Summit Award, placing her in the top 3 percent of the company’s customer service representatives nationally. Her name was projected on the call center’s wall.“They gave everyone a little gift bag with a trophy,” Ms. Sherrod recalled. “That meant a lot to me.”‘Look at My Life’Ms. Sherrod at the Communications Workers of America’s regional labor union office where she is a vice president.Bryan Tarnowski for The New York TimesAs companies like AT&T embrace A.I., experts are floating proposals meant to protect workers. There’s the possibility of training programs helping people make the transition to new jobs, or a displacement tax levied on employers when a worker’s job is automated but the person is not retrained.Labor unions are wading into these battles. In Hollywood, the unions representing actors and television writers have fought to limit the use of A.I. in script writing and production.Just 6 percent of the country’s private-sector workers are represented by unions. Ms. Sherrod is one, and she has begun fighting her company for more information about its A.I. plans, sitting in her union hall nine miles from the call center, where she works under a Norman Rockwell painting of a wireline technician.For years, Ms. Sherrod’s demands on behalf of the union have been rote. As a steward, she typically asked the company to reduce penalties for colleagues who got in trouble.But for the first time, this summer, she feels that she is taking up an issue that will affect workers beyond AT&T. She recently asked her union to establish a task force focused on A.I.In late May, Ms. Sherrod was invited by the Communications Workers of America to travel to Washington, where she and dozens of other workers met with the White House’s Office of Public Engagement to share their experience with A.I.A warehouse worker described being monitored with A.I. that tracked how speedily he moved packages, creating pressure for him to skip breaks. A delivery driver said automated surveillance technologies were being used to monitor workers and look for potential disciplinary actions, even though their records weren’t reliable. Ms. Sherrod described how the A.I. in her call center created inaccurate summaries of her work.Her son, Malik, was astonished to hear that his mother was headed to the White House. “When my dad told me about it, at first I said, ‘You’re lying,’” he said with a laugh. With her pay and commissions, Ms. Sherrod has been able to buy a home and give her son, Malik, the childhood she never had.Bryan Tarnowski for The New York TimesMs. Sherrod sometimes feels that her life presents an argument for a type of job that one day might no longer exist.With her pay and commissions, she has been able to buy a home. She lives on a sunny street full of families, some of whom work in fields like nursing and accounting. She is down the road from a softball field and playground. On the weekends, her neighbors gather for cookouts. The adults eat snowballs, while the children play basketball and set up splash pads.Ms. Sherrod takes pride in buying Malik anything he asks for. She wants to give him the childhood she never had.“Call center work — it’s life-changing,” she said. “Look at my life. Will all that be taken away from me?” More

The proposed road map for regulatory reviews, last updated in 2020, includes a focus on tech platforms for the first time.The Biden administration’s top antitrust officials unveiled tougher guidelines against tech mergers on Wednesday, signaling their deepening scrutiny of the industry despite recent court losses in their attempts to block tech deal-making.Lina Khan, the chair of the Federal Trade Commission, and Jonathan Kanter, the top antitrust official at the Department of Justice, released draft guidelines for merger reviews that for the first time include a focus on digital platforms and how dominant companies can use their scale to harm future rivals.The guidelines — which generally provide a road map for whether regulators block or approve deals — show the Biden administration’s commitment to an aggressive antitrust agenda aimed at curtailing the power of companies like Google, Meta, Apple and Amazon.The guidelines, which aren’t enforced by law, follow a losing streak in the courts. A ruling last week prevented the F.T.C. from delaying the closing of Microsoft’s $69 billion acquisition of the video game maker Activision Blizzard. In January, a court sided against the F.T.C. in its lawsuit to stop Meta’s purchase of Within, a virtual reality app maker.The forceful antitrust posture is a pillar of President Biden’s agenda to stamp out economic inequality and encourage greater competition. “Promoting competition to lower costs and support small businesses and entrepreneurs is a central part of Bidenomics,” a senior administration official said in a call with reporters.The new guidelines would apply to all deals across the economy. But they highlight obstacles to competition among digital platforms, including how an acquisition of a nascent rival may be intended to kill off future competition. Such deals, known as killer acquisitions, are prevalent in the tech industry and at the heart of an F.T.C. antitrust lawsuit against Meta, which owns Facebook, Instagram and WhatsApp. The agency has accused Meta of buying Instagram in 2012 and WhatsApp in 2014 to prevent future competition.The F.T.C. and Justice Department also said they would look at how companies used their scale, including their large number of users, to ward off competition. These so-called network effects have helped companies like Meta and Google maintain their dominance in social media and internet search.The agencies also laid out ways in which mergers involving “platform” businesses, the model used by Amazon’s online store and Apple’s App Store, could harm competition. An acquisition could hurt competition by giving a platform control over a significant stream of data, the draft guidelines said, echoing concerns that tech giants use their vast troves of information to squash rivals.“As markets and commercial realities change, it is vital that we adapt our law enforcement tools to keep pace so that we can protect competition in a manner that reflects the intricacies of our modern economy,” Mr. Kanter said in a statement. “Simply put, competition today looks different than it did 50 — or even 15 — years ago.”While they lack the force of law, the guidelines can influence how judges look at challenges to mergers and acquisitions. The effort to update the guidelines has been closely watched by businesses and corporate lawyers that navigate regulatory scrutiny of megadeals.The guidelines were last updated in 2020. In 2021, Mr. Biden ordered the Justice Department and the F.T.C. to update them again as part of a broader effort to improve competition across the economy. The agencies will take public comment on the proposals and could make amendments before final guidelines are adopted.“These guidelines contain critical updates while ensuring fidelity to the mandate Congress has given us and the legal precedent on the books,” Ms. Khan said in a statement.While the F.T.C. experienced the recent court losses, it has forced some companies, including the chip-maker Nvidia and the aerospace giant Lockheed Martin, to abandon some large deals. The Justice Department blocked the publisher Penguin Random House from buying Simon & Schuster, using an unusual argument that the merger would harm authors who sold the publication rights to their books. More

(Reuters) -Brazilian President Luiz Inacio Lula Da Silva said on Wednesday he will send the European Union a counter-proposal on the long-delayed trade deal with the South American bloc Mercosur in the coming two or three weeks.Lula, who spoke after the two-day EU-CELAC (Community of Latin American and Caribbean States) summit in Brussels, said Brazil put together a response that it was now being discussed by the Mercosur bloc, which also includes Argentina, Paraguay and Uruguay.”In two-three weeks time we will deliver the definitive proposal to the European Union,” Lula told reporters, adding he believed the EU would “very easily” agree with it. The EU and the Mercosur bloc completed negotiations in 2019 but the deal has been on hold due to concerns about Amazon (NASDAQ:AMZN) deforestation and Brazil’s commitment to climate change action.Lula, who was elected last year, has promised to overhaul his country’s climate policy.The Commission has proposed attaching an annex to the agreement to show commitments on deforestation and other areas of sustainability and is awaiting Mercosur’s response.In Brussels, Lula said that “for the first time” he was optimistic both parties would conclude the agreement later this year.Although the EU-CELAC summit marked a new era of increased political and economic cooperation between European, Latin American and Caribbean leaders, the meeting was clouded by wrangling over how to address Russia’s war in Ukraine.The Brazilian leader irritated Western countries earlier this year when he suggested the West had been “encouraging” war by arming Ukraine.Lula said it was necessary for countries to “convince Russia and Ukraine that peace is the right way to go”. More

Good morning. Bank of America, reporting second-quarter results yesterday, drove home the message sent by other large banks last week: credit quality is still fine, the consumer is still fine, interest rate margins are still fine. The shares rose 4 per cent, and the whole sector rallied. Note, however, that bank stocks still have not approached the levels that prevailed before the banking micro-crisis in March. I’m not sure if that makes sense or not. Send me your thoughts: [email protected] bondsAt various points in the past year or two, Unhedged has noted the appeal of owning bonds at the short end of the curve. As the Fed had increased rates, the short end offers a chance to get some meaty returns and then reassess things in just a year or two when the smoke, literal and figurative, has cleared. That argument looks as strong now as it ever has. One-year Treasury yields are above 5 per cent. Inflation, depending how you measure it, is 3 per cent-ish. With stocks not looking terribly cheap, why not take your 2 per cent after-inflation return and see what the equity market offers in the summer of 2024?It seems to me, however, that the improving inflation outlook increases the appeal of the long end of the curve, too. The 10-year Treasury yield has not moved much since the autumn of last year, but the inflation situation is both clearer and more benign. Rates volatility appears to be easing off. If we are one the way back to normal after a bout of supply-shock inflation, then locking in a 3.8 per cent yield for 10 years — when pre-pandemic long yields were quite consistently below 3 — seems like a logical bet.None of this is to suggest I know something the bond market doesn’t. If long yields have not fallen much as the news on inflation has improved, there is a reason for that. But the basic thought seemed worth exploring. So (being fundamentally a stocks guy) I got in touch with my favourite fixed-income people and asked as simple question: is duration risk becoming more attractive?“Yes it is. Bought US 10s around 4 per cent so enjoying some returns.” That’s Scott DiMaggio, co-head of fixed income at AllianceBernstein. He was, presumably, too busy earning money to add much detail. Jim Sarni of Payden & Rygel, made his argument more explicit: “investors are better off being smart than lucky.” That is to say, investors who need income should lock in yields in the middle of the curve — five years or thereabouts — without worrying about whether they are getting peak yields. “The risk of being too short is greater than the risk of being too long. If cash flow is important to you, you might not see these yields again. You need to lock some of that in.” Dec Mullarkey of SLC Management agrees: It’s certainly getting close to an environment where duration can generate gains. The positive tone for both headline and core inflation and a Fed that is about to settle close to its terminal rate are all constructive for extending duration. With real rates still close to a post GFC high and inflation cooling, the Fed should have room for sizeable rate cuts next year to support trend-like growth.The argument against adding duration is equally simple, though: lower inflation and, to an extent, falling rates are already largely priced into the market. The futures markets anticipates more than six quarter-point rate cuts by January of 2025. Five-year inflation break-evens have been parked near 2 per cent for several months now. The inverted yield curve also indicates that falling rates are priced in. Bond yields can’t be expected to fall much when what is expected to happen happens. “The curve already prices in a decent fall in rates and spreads are just normal to slightly tight so you aren’t locking in anything special — either for rates or for spread,” Greg Obenshain, who manages corporate bonds at Verdad Capital, told me. Unhedged’s regular interlocutor Ed Al-Hussainy, of Columbia Threadneedle, agrees that deflation is largely priced in, but he is long 5- 7-year bonds all the same. A real yield of 2 per cent on a 5-year “is not a bad starting point,” he says. He is worried, though, that the battle against inflation is not quite won, which makes it hard to bet aggressively against the short end of the curve: I’m a bit nervous here. The odds that the fed funds rate exceeds 5.25-5.5 per cent by the end of the year are around 25 per cent. The Fed would have to revise their inflation forecast lower to justify this pricing. We’re not quite there yet.Thomas Tzitzouris of Strategas also frets that inflation is not dead yet and adds, furthermore, that bets on higher bond prices at the long end have to contend with the fact that the Fed is still shrinking its balance sheet — increasing the supply of long-duration assets. Further relaxation of the Bank of Japan’s yield curve control program could pull money out of the US bond market, too. He’s cautious. I keep coming back to Sarni’s point, though: trying to be smart rather than lucky. We don’t know how close we are to the end of inflation and the peak of rates, but we know we are close. We don’t know where yields are going, but we know that is better to invest at significant positive real yields than at the near- or below-zero real yields that have predominated for so long. Adding a little duration makes solid sense. One good readA great interview with Joyce Carol Oates: “You suddenly realise that the human experience is going to be your experience. When that starts to happen to you, it is quite stunning.” More

The writer is on leave as a senior fellow at the Hoover Institution at Stanford University and author of ‘The World According to China’China has repeatedly caught the world off-guard. Its Belt and Road Initiative launched in 2013, its management of Covid at home and abroad and, most recently, its emergence as the world’s biggest auto exporter and leader in electric vehicles have all surprised large segments of the international community.Typically, the element of surprise in international politics relies on a determined effort to deceive or do the unexpected. But the Chinese government has perfected the art of surprise by default. The opacity of its system enables China to routinely shock the rest of the world and force others to spend time, energy and money adjusting their expectations and policies in response.There is no way to avoid all surprise, but we improve the odds by adopting a comprehensive framework for understanding China: one that pays attention not only to its on-the-ground reality, but also its long-term ambition; not only to Chinese leaders, but also to Chinese society; not only to the view from outside China, but also to that from within.Chinese policy reflects a mix of both on-the ground reality and long-term ambition. The startling rise of China’s EV sector, for example, was not an overnight miracle. It was a long-term national strategic priority.In 1999, China put in motion targets, timetables, and a range of central and local government actions that supported domestic clean vehicle production and complicated efforts for foreign manufacturers.

Progress was, at times, grim. Top-down mandates yielded electric buses without seats and cars without batteries. As late as 2020, China missed its goal of 5mn units by several million. But, last year, China produced 5.8mn EVs. Now, as China prepares to unleash its cars on the rest of the world, automakers — particularly in Europe, where the economic barrier to Chinese EV imports is low — are left struggling to respond.But ambition does not always translate into reality. Beijing planned 1,000 Confucius Institutes to promote Chinese language and culture in universities worldwide by 2020, but there are just over half that number. Its Thousand Talents programme did recruit 8,000 scientists and engineers to China from overseas during 2008-2018, but few were top-tier — and only 390 were born outside China.And, of course, Belt and Road has been a complicated mix of success and failure — cementing China’s economic, political, and strategic influence in some countries, while prompting significant popular backlashes in others.For the international community, though, there is also a price to pay for overestimating China’s success.Its government’s support for Russia is evident: presidents Xi Jinping and Vladimir Putin in 2020 declared that the “friendship between the two states has no limits”. But we must not assume there is no discourse or dissent within Chinese society. A number of academics have publicly denounced Beijing’s strong support for Moscow.

And, as Russia’s internal challenges and external failings mount, internal pressure on Beijing to modify its position may increase. The Chinese government’s Covid U-turn demonstrated how even a seemingly unshakeable policy can be shaken given the right domestic pressures.Spending time in China is essential to avoid surprises. Its political environment may not be as welcoming to foreigners as previously, but that means more, not fewer, foreigners should travel there. Analysts, journalists, businesspeople and students need to be in China to plumb the complexity and nuances of the country and its politics.As travel to China opens up, leaders in the US and elsewhere are taking the opportunity to engage with their Chinese counterparts and witness how the country works. No good coach would actively ignore the opportunity for a first-hand look at the mindset and playbook of a top competitor.President Xi has set out an array of grand-scale initiatives to promote China on the global stage. Some will come to fruition, some will not. But, by looking at China through a range of lenses, the international community has the best chance of avoiding missed opportunities and costly surprise. More