Economy

LONDON (Reuters) – Some asset managers face sanctions for failing to manage liquidity properly, posing risks to market stability and investors’ ability to withdraw money, Britain’s Financial Conduct Authority (FCA) said on Thursday.The suspension of property funds in Britain and difficulties faced by liability-driven investment funds last September have thrown a spotlight on the ability of asset managers to drum up enough cash to meet investor redemptions or collateral calls.The watchdog said its review of asset managers found that while some firms showed very high standards, most fell short in some aspects of liquidity management, with a minority having inadequate frameworks to manage liquidity risks.”As things stand, gaps observed in liquidity management could lead to a risk of investor harm,” the FCA said in a statement.The watchdog had already asked firms to review their liquidity arrangements back in 2019, and boards of asset managers should study the findings of the review, the FCA said.”It’s vital the outliers take quick action. They risk regulatory intervention if they don’t take this opportunity to address weaknesses,” it added.Asset managers should also perform liquidity stress testing diligently, and use liquidity management tools appropriately, it said.Some funds have struggled in stressed markets to meet their promise of daily redemptions, with global regulators on Wednesday proposing a new system of categorising open ended funds to end daily redemption promises that cannot be met.”It is important that fund redemptions operate in line with funds’ terms and the way in which they are marketed,” the FCA said.”Additionally, investors should be able to redeem at an accurate price that reflects the value of their investment, ensuring fairness for both remaining and redeeming investors in the fund,” the FCA added. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.U.S. Treasury Secretary Janet Yellen touches down in Beijing on Thursday for a three-day visit just as trade tensions between the world’s two superpowers ratchet up another notch, while a Malaysian interest rate decision tops the region’s economic calendar.Australian trade data and Taiwanese inflation figures are on tap too, and equity investors will digest a mixed earnings report from Taiwan’s Foxconn, a major iPhone assembler for Apple Inc (NASDAQ:AAPL).Asian stocks go into Thursday’s session on the defensive, underperforming on Wednesday after figures showed that China’s service sector activity expanded at the slowest pace in five months in June.Foxconn’s results may help lift the gloom, after the firm on Wednesday forecast a brighter third quarter ahead of peak shopping season at the end of the year. But that is only relative to a near 14% drop in Q2 revenue year-on-year.China remains front and center for investors. U.S.-China trade tensions appear to be intensifying by the day – the latest flare up coming over Beijing’s restrictions on exports of some metals – not the best backdrop for Yellen’s visit on Thursday.U.S. officials says they expect “candid” discussions, and Washington has said it “firmly” opposes the new export controls on gallium and germanium, which go into producing semiconductors and other electronics.However well – or otherwise – Yellen’s visit goes, there will be no quick fix. Former Vice Commerce Minister Wei Jianguo said the controls are “just a start”.In Malaysia, meanwhile, the central bank on Thursday is expected to leave key rates unchanged at 3.00% and keep them there for the rest of the year, putting it in line with regional peers in India, South Korea, Indonesia and New Zealand who have already ended their tightening cycles.Headline inflation eased to a one-year low of 2.8% in May, but core inflation moderated only a bit to 3.5%, suggesting Bank Negara Malaysia (BNM) will hold its key rate higher for longer.The central bank delivered a surprise hike in May. Last week, it said it would intervene in the foreign exchange market to stabilize the ringgit to counter what it said were “excessive” recent losses.The ringgit was one of Asia’s worst-performing currencies in the first half of the year, losing almost 6% of its value against the dollar.Here are key developments that could provide more direction to markets on Thursday:- U.S. Treasury Secretary Janet Yellen visits China- Australia trade (May)- Taiwan inflation (June) (By Jamie McGeever; Editing by Lisa Shumaker) More

Good morning. We start today with a scoop that Xi Jinping personally warned Vladimir Putin against using nuclear weapons in Ukraine, suggesting Beijing remains concerned about Russia’s war even as it offers tacit backing to Moscow. Xi’s warning was delivered during the Chinese leader’s state visit to Moscow in March. Since then, Chinese officials have privately taken credit for convincing the Russian president to back down from his veiled threats of using a nuclear weapon against Ukraine. Russia’s invasion is heavily reliant on support from China, which has helped Moscow to navigate economic sanctions that have excluded it from critical global markets and supply chains.But the war is threatening to scupper China’s efforts to drive a wedge between Europe and the US, according to a senior Chinese government adviser. A Russian nuclear strike on Ukraine or one of its European allies would risk turning the continent against China, the adviser said, while sustained pressure from Beijing to prevent such an act might help improve relations with Europe.Shi Yinhong, professor of international relations at Renmin University in Beijing, said that “Russia has never and will never have China’s approval for using nuclear weapons”. If Russia used nuclear weapons against Ukraine, “China will further distance itself from Russia”, he added. China-Europe relations: The war in Ukraine exposes the flaws in Beijing’s efforts to understand Europe, writes Yuan Yang.War in Ukraine: Ukraine’s president Volodymyr Zelenskyy warned that Russia might be preparing to blow up part of the Zaporizhzhia nuclear power plant as Kyiv’s military reports gains in its counteroffensive. Do you think deterring Putin will help China repair its damaged ties with Europe? Email me your thoughts: [email protected]’s what else I’m keeping tabs on today:US-China relations: US Treasury secretary Janet Yellen will arrive in Beijing and spend four days meeting top Chinese officials and US business leaders. Meta’s new app: Facebook’s parent company is expected to launch Threads, its new social media app, in a direct challenge to Twitter. Economic data: S&P Global releases construction purchasing managers’ index (PMI) for the UK and services PMI for the US, while factory orders figures are due from Germany. Five more top stories1. Federal Reserve officials signalled they intend to resume interest rate increases amid a growing consensus that more tightening is needed to stamp out high inflation in the world’s largest economy. Read more on the Fed’s outlook on the US economy. Go deeper: What explains inflation’s persistence in the face of aggressive rate rises?2. PwC tipped off Google on the timing of a controversial Australian tax law, based on inside information gleaned by one of the accounting firm’s partners. The tech company is the first to be named as a recipient of confidential information in the auditor’s widening scandal. 3. South Korea will allow new entrants to the banking sector for the first time in 30 years, as the government seeks to boost competition in an industry dominated by five lenders. President Yoon Suk Yeol earlier this year accused the country’s banks of enjoying a “feast” of bonuses amid rising interest rates. 4. Sir David Adjaye has stepped back from several roles and projects after an FT investigation revealed that three female former employees have accused the renowned architect of serious misconduct, including sexual assault. Read the full story. 5. US drugmaker Moderna has struck a deal to make messenger RNA drugs for use in China, despite the tensions between Washington and Beijing. The biotech said that it had reached an agreement with authorities in Beijing to research, develop and manufacture drugs that would be “exclusively for the Chinese people”. Here are more details on the deal. News in-depth

Pan Gongsheng, the new People’s Bank of China Communist party chief, is expected to soon also be given the more public additional role of governor © FT montage/Reuters

Pan Gongsheng, the new head of the People’s Bank of China, is set to take the helm at an uncertain moment for the world’s second-largest economy — and for the central bank itself. The bank will be fighting to reset China’s post-Covid recovery, and will be doing so with its own authority weakened after a regulatory shake-up. But Pan’s appointment was welcomed by market participants because of his extensive experience in the sector and western contacts and training. We’re also reading . . . Japan Airlines: In an effort to ditch the environmentally unfriendly suitcase, passengers travelling with Japan Airlines can rent outfits by season, size, formality and colour scheme. Electric vehicles: Upstart carmaker VinFast is hoping to become Vietnam’s answer to Tesla, but the company has hit bumps in the road.Avoiding the evils of AI: Having botched things with social media, let’s hope we can do better with AI, writes Gillian Tett. Chart of the day

As electric vehicles gain popularity worldwide, carmakers are constantly vying for anything that will give them the edge over rivals. After announcing that it expected to produce its “solid-state” batteries as early as 2027, can Toyota grasp this holy-grail battery technology that has long eluded the industry? Take a break from the newsHumanity today is flirting with disaster in the ways we manage water, both on land and at sea. What is to be done? Three new books seek to help recalibrate our relationship to the water that sustains us.

A school of fish in Cabo Pulmo National Marine Park, Mexico © Benjamin Lowy/Getty Images

Additional contributions by Tee Zhuo and David Hindley More

Federal Reserve officials signalled they intend to resume interest rate increases amid a growing consensus that more tightening is needed to stamp out high inflation in the world’s largest economy.According to minutes from June’s meeting of the Federal Open Market Committee, “almost all” officials who participated said “additional increases” in the Fed’s benchmark interest rate would be “appropriate”.They added the “tight” labour market and “upside risks” to inflation were still “key factors” shaping the outlook nearly a year and a half after the US central bank embarked on an aggressive cycle of interest rate rises to tame price pressures.Some Fed officials had favoured a 25 basis point increase in interest rates in June, rather than the pause in further tightening that was ultimately backed by the committee, according to the minutes. But most Fed officials noted the “uncertainty” about the outlook and said additional information about the economy would be “valuable”. On the economic outlook, Fed officials said they expected growth to be “subdued” for the remainder of the year, even though “banking stresses” had “receded” compared to earlier in the year. According to the account, Fed staff who briefed policymakers at the June meeting stuck by their previous expectation of a “mild recession” starting later this year to be followed by a “moderately-paced recovery”. The June meeting marked the first reprieve in the Fed’s campaign to root out stubborn inflation after it soared to a multi-decade high last year. Having raised the benchmark interest rate at 10 consecutive meetings — at times moving in jumbo three-quarter or half-point intervals — central bank officials opted instead to hold it steady at a target range of between 5 per cent and 5.25 per cent.John Williams of the New York Fed on Wednesday reiterated the central bank’s determination to tackle inflation and said there was “more to do” with regards to interest rate rises. Economic data showed demand was still strong and the housing market had stabilised after a period of softness, he added at a conference. Jay Powell, the Fed chair, has justified the pause by saying the effects of earlier rate rises still needed to fully make their way through the economy, on top of the drag on hiring and growth caused by turmoil among regional banks earlier this year.

But additional rate rises this year are widely expected, with most officials projecting the benchmark rate will eventually hit a range of between 5.5 per cent and 5.75 per cent. That translates to two more quarter-point increases, with the first likely to come at the Fed’s next meeting at the end of this month. Speaking at a forum hosted by the European Central Bank last week, Powell said he would not take “moving at consecutive meetings off the table at all”.The likelihood of further rate rises stems from the surprising persistence of some price pressures, especially in the services sector. The US labour market also remains very strong, helping fuel consumer spending. By raising borrowing costs, the Fed aims to damp demand across the economy.Officials maintain a period of below-trend growth and job losses will be necessary in order to achieve their goal of inflation averaging 2 per cent. According to estimates published in June, policymakers broadly anticipate the economy to grow 1 per cent this year and 1.1 per cent next year as the unemployment rate peaks at 4.5 per cent. In May, unemployment stood at 3.7 per cent.No rate cuts are anticipated by Fed officials until 2024 given the expectation that “core” inflation, which strips out volatile food and energy prices, will remain well above the central bank’s longstanding target. More

NEW YORK (Reuters) – Federal Reserve Bank of New York President John Williams said on Wednesday it was the right move for the central bank to hold rates steady three weeks ago, while hinting at some point it may have to raise rates again amid ongoing economic strength. “We still have more work to do” to balance supply and demand and get inflation down, Williams said an event at his bank. He said he’ll be “data dependent” in thinking about future steps for the central bank but added the data support the idea the Fed may need to raise rates further at some point. Williams declined to say whether he believes a July rate increase is needed and noted his staff has yet to begin the work that would help him decide what to do at the next monetary policy meeting. Williams said in his appearance that inflation is still too high for his comfort levels, although he also acknowledged price pressures have eased. “I’m not content” with where price pressures are, Williams said at an event held at his bank. He also said demand for labor remains high and the economy has dealt with rate rises “reasonably well.” Earlier Wednesday, the Fed released minutes for the Federal Open Market Committee meeting, held over June 13 and 14. Then, the FOMC—Williams is its vice-chairman—held rates steady for the first time since starting an aggressive rate rise campaign aimed at cooling high levels of inflation. The minutes said almost all officials favored holding steady while a unnamed minority were open to an increase. Fed rate actions have taken the federal funds rate target range from near zero in March 2022 to its current level of between 5% and 5.25%. Fed officials held steady on rates last month to take stock of how past increases are affecting the economy as inflation pressures have been waning. In recent comments, Fed Chairman Jerome Powell has reiterated his view that the central bank is unlikely to be done hiking rates, and he noted that official forecasts released at that meeting pointed to half a percentage points’ further increases this year. A number of other Fed officials have also spoken in favor of more increases without saying when they might happen. But some, like Atlanta Fed leader Raphael Bostic, have said inflation is already declining in a way that will allow the Fed to hold steady on rates for the foreseeable future. The Fed’s meeting minutes also showed participants viewed the economy as performing very strongly, even as central bank staffers continued to warn about the prospect of a “mild” recession later this year. Williams also said that recent divergences between the Fed’s view more rate rises would be needed compared to market views of looming Fed rate cuts have eased, noting markets “have heard the message” from the central bank. He added that to the extent markets are pricing in rate cuts next year it may just reflect a view that inflation will fall, so that in real terms, lower market rates still imply monetary policy is having the same influence on the economy. More

Federal Reserve officials are debating how high to raise interest rates to fully wrangle inflation. The debate was in focus at their meeting last month.Federal Reserve officials were concerned about sluggish progress toward lower inflation and wary about the surprising staying power of the American economy at their June meeting — so much so that some even wanted to raise rates last month, instead of holding them steady as the central bank ultimately did, minutes from the gathering showed.Fed officials decided to leave interest rates unchanged at their June 13-14 gathering to give themselves more time to see how the 10 straight increases they had previously made were affecting the economy. Higher interest rates slow the economy by making it more expensive to borrow and spend money, but it takes months or even years for their full effects to play out.At the same time, officials released economic forecasts that suggested they would make two more quarter-point rate increases this year. That forecast was meant to send a message: Fed policymakers were simply slowing the pace of rate increases by taking a meeting off. They were not stopping their assault against rapid inflation.The meeting minutes, released Wednesday, both reinforced the message that further interest rates increases were likely and offered more detail on the June debate — underscoring that Fed officials were divided about how the economy was shaping up and what to do about it.All 11 of the Fed’s voting officials supported the June rate hold, but that unanimity concealed tensions under the surface. Some of the central bank’s officials — 18 in total, including 7 who do not vote on policy this year — were leaning toward a rate increase.While “almost all” Fed officials thought it was “appropriate or acceptable” to leave rates unchanged in June, “some” either favored raising interest rates or “could have supported such a proposal” given continued strength in the labor market, persistent momentum in the economy, and “few clear signs” that inflation was getting back on track, the minutes showed.And officials remained worried that if they failed to wrestle inflation under control quickly, there was a risk it could become such a normal part of everyday life that it would prove harder to stamp out down the road.“Almost all participants stated that, with inflation still well above the Committee’s longer-run goal and the labor market remaining tight, upside risks to the inflation outlook or the possibility that persistently high inflation might cause inflation expectations to become unanchored remained key factors shaping the policy outlook,” the minutes said.The minutes underlined what a difficult moment this is for the Fed. Inflation has come down notably on an overall basis, but that is partly because food and fuel prices are cooling off. An inflation measure that strips out those volatile categories — known as core inflation — is making much more halting progress. That has caught the Fed’s attention, especially given signs that the broader economy is holding up.“Core inflation had not shown a sustained easing since the beginning of the year,” Fed officials noted at the meeting, according to the minutes, and they “generally” noted that consumer spending had been “stronger than expected.” Officials reported that they were hearing a range of reports from businesses, as some saw weaker economic conditions and others reported “greater-than-expected strength.”The details of recent inflation data were also disquieting for some at the Fed. Officials noted that price increases for goods — physical purchases like furniture or clothing — were moderating, but less quickly than expected in recent months.While rent inflation was expected to continue to cool down and help to lower overall inflation, “a few” officials were worried that it would come down less decisively than hoped amid low for-sale housing inventory and “less-than-expected deceleration” recently in rents for leases signed by new tenants. “Some” Fed officials noted that other service prices “had shown few signs of slowing in the past few months.”Since the Fed’s meeting, officials have continued to signal that further rate increases are expected. Jerome H. Powell, the Fed chair, said during an appearance last week in Madrid that he would expect to continue with a slower pace of interest rate increases — but he did not rule out that officials could return to back-to-back rate moves.“We did take one meeting where we didn’t move, so that’s in a way a moderation of the pace,” he explained. “So I would expect something like that to continue, assuming the economy evolves about as expected.”The question for investors is what would prod the Fed to return toward a more aggressive path for rate increases — or, on the other hand, what would cause officials to hold off on future rate moves.Policymakers have been clear that the path forward for interest rate increases could change depending on what happens with the economy. If inflation is showing signs of sticking around, the job market is unexpectedly strong and consumer spending continues to chug along, that might suggest that it will take even higher interest rates to cool down household and business spending to a point where companies are forced to stop raising prices so much.If, on the other hand, inflation is coming down quickly, the job market is cooling and consumers are pulling back sharply, the Fed could feel more comfort in holding off on future rate increases.For now, investors expect the Fed to raise interest rates at its July 25-26 meeting. And economists will closely watch fresh job market data set for release on Friday for the latest evidence of how the economy is evolving. More

General Motors, Toyota and other automakers sold more trucks and sport utility vehicles as supply chain problems eased and demand remained strong despite rising interest rates.Some of the country’s biggest automakers reported big sales increases for the second quarter on Wednesday, the strongest sign yet that the auto industry was bouncing back from parts shortages and overcoming the effects of higher interest rates.General Motors, the largest U.S. automaker, said it sold 691,978 vehicles from April to June, up 19 percent from a year earlier. It was the company’s highest quarterly total in more than two years.Automakers have struggled in the last two years with a shortage of computer chips that forced factory shutdowns and left dealers with few vehicles to sell. More recently, rising interest rates have made auto loans more expensive, causing some consumers to defer purchases or opt for used vehicles.“I’m not saying we are on the cusp of exciting growth here,” said Jonathan Smoke, chief economist at Cox Automotive, a research firm. “But we are now at a turning point where the auto market returns to more balance. It’s the beginning of returning to normal.”The easing of chip shortages has allowed automakers to restock dealer lots, making it easier for car buyers to find the models and features they want, Mr. Smoke said. At the end of June, dealers had about 1.8 million vehicles in stock, nearly 800,000 more than at the same point in 2022, according to Cox data.Sales have also been helped by strong job creation and rising wages, Mr. Smoke said.At the same time, however, higher interest rates and higher car prices have put new-car purchases out of reach of many consumers. In the first half of the year, the average price paid for a new vehicle was a near-record $48,564. The average interest rate paid on car loans in the first six months of 2023 was 7.09 percent, up from 4.86 percent a year earlier, according to Cox. The average monthly payment in the first half was $784, up from $691.“Demand will be limited by the level of prices and rates, which are not likely to come down enough to stimulate more demand than the market can bear,” Mr. Smoke said.Cox estimated that total sales of new cars and trucks rose 11.6 percent in the first half of the year, to 7.65 million. The firm now expects full-year sales to top 15 million, which would be a rise of 8 percent.Several automakers reported solid quarterly sales on Wednesday. Toyota said its U.S. sales rose 7 percent, to 568,962 cars and light trucks. Stellantis, the company that owns Jeep, Ram, Chrysler and other brands, reported a 6 percent rise, to 434,648 vehicles.Honda, which had been severely hampered by chip shortages, said its sales rose 45 percent to 347,025 cars and trucks. Hyundai and Kia, the South Korean automakers, each sold more than 210,000 vehicles, posting gains of 14 percent and 15 percent.Electric vehicles remain the fastest-growing segment of the auto industry. Rivian, a maker of electric pickup trucks and sport utility vehicles, said on Monday that it delivered 12,640 in the second quarter, a 59 percent jump from a year earlier. And on Sunday, Tesla reported an 83 percent jump in global sales in the second quarter.Cox estimated that more than 500,000 electric vehicles were sold in the United States in the first six months of the year, and that more than one million would be sold in 2023, setting a record for battery-powered cars and trucks in the country.Tesla, which does not break out its sales by country, remains the largest seller of E.V.s in the U.S. market. Cox estimated that the company sold more than 161,000 electric cars in the second quarter in the United States. Ford Motor, which offers three fully electric models., reports its quarterly sales on Thursday.G.M. sold more 15,300 battery-powered cars and trucks, but nearly 14,000 were the Chevrolet Bolt, a smaller vehicle that the company will stop making at the end of the year. The company also sold 1,348 Cadillac Lyriq electric S.U.V.s and 47 GMC Hummer pickup trucks. Chevrolet will soon start delivering a new electric Silverado pickup truck, which uses the same battery technology as the Lyriq and Hummer. More

The European Commission has insisted it will stick by plans to impose tariffs on electric vehicles shipped between the UK and EU from next year after warning that the bloc was losing out in the global battle for battery investments.The British government, backed by carmakers from across Europe, is seeking a deferral of a post-Brexit trade rule it argues will heap excessive costs on to the industry from 2024 to 2027. The requirement under “rules of origin” requires EVs traded across the Channel to have 60 per cent of their battery and 45 per cent of their parts by value overall sourced from the EU or UK or face 10 per cent tariffs. But this week a senior commission official, Richard Szostak, told British and EU parliamentarians that battery investment in the bloc had “fallen off a cliff” and the tariffs would incentivise domestic production. The EU’s share of global investment in battery production dropped from 41 per cent in 2021 to just 2 per cent in 2022, after the US offered large subsidies under its Inflation Reduction Act, he noted.“In addition to the pull factor [from the US’s IRA] . . . we would be adding a push factor encouraging batteries to be bought in China or the US [by not introducing cross-Channel tariffs]. That is the other side of the discussion,” Szostak said. “The EU when judging its interest has to look at both sides of this question,” he added.The slow pace of openings of battery factories across the continent and the UK, along with Chinese dominance in key parts of the process, mean most cars made in Europe will not meet the new rules of origin. EU car lobby group ACEA calculated that its members would face a €4.3bn bill from the levy between 2024 and 2026. The issue is most acute for continental European carmakers that sell large numbers of vehicles in the UK, including VW, Mercedes and Ford because of a new EV quota being introduced by the British government next year. Carmakers must have 22 per cent of their UK sales made up of zero-emission vehicles in 2024. Meeting that target will require the importing of EVs built on the continent. Most Japanese and South Korean EVs can be imported into the UK tariff-free under the terms of their post-Brexit trade deals. This would mean EU carmakers losing market share in the UK if their EVs are hit with 10 per cent levies.Chinese-made vehicles already pay the tariffs but can compete with EU-made EVs because of their much lower starting price.The Society of Motor Manufacturers and Traders, which represents the UK auto industry, has also warned that the introduction of tariffs on EU imports would slow the sale of EVs in the UK, as the extra cost would mean higher prices for consumers.EU-based carmakers are hoping their national governments will pressure the commission to change its approach but admit that has not happened yet. “No one really wants the political signal you get when customs duties on electric vehicles suddenly go up by 10 per cent,” said one industry official. “There is definitely a willingness to talk about this. But it’s still too early to say that the penny has finally dropped and that this will now be changed. We have a long way to go.”In response to Szostak, UK trade minister Lord Dominic Johnson told the meeting of parliamentarians that the two sides should not “try to beggar each other” by building separate supply chains. He wanted “proper cross-border access to each others’ supply chains which makes them more efficient”. “It’s a clear realisation among us all . . . that there is nothing to be gained by having unnecessary friction that reduces trade and welfare and wealth,” he added. A UK government spokesperson said: “The business and trade secretary has raised concerns about the 2024 rules of origin changes for electric vehicles and their batteries with the EU and is determined to find a joint UK-EU solution that ensures the UK remains one of the best locations in the world for automotive manufacturing.”Additional reporting by Guy Chazan in Berlin More