Economy

Today’s top storiesShares and bonds in Chinese real estate companies surged following news of a 16-point plan from Beijing, reported by the FT on Sunday, to support the ailing sector. The Democrats retained control of the Senate after a midterm election victory in Nevada gave them their 50th seat out of 100. Here’s our explainer on what we’ve learned from last week’s polls and here’s commentator Megan Greene’s take on what it means for investors.Jeff Bezos pledged to give away most of his $124bn fortune during his lifetime. The Amazon founder commented: “The hard part is figuring out how to do it in a levered way. It’s not easy.”For up-to-the-minute news updates, visit our live blogGood evening.Russia’s aggression in Ukraine and tensions over Taiwan were the key issues as world leaders gathered for the G20 summit in Bali today, an event dubbed the “first global summit of the second cold war”.Ahead of tomorrow’s formal meeting, US president Joe Biden — buoyed by favourable results in the US midterms — met his Chinese counterpart Xi Jinping for three and a half hours in their first face-to-face meeting as leaders.After optimistic words about “keeping lines of communication open” and “managing our differences” in a post-meeting press conference, the White House said Biden had criticised China’s “coercive and increasingly aggressive actions” toward Taiwan. House Speaker Nancy Pelosi’s visit to the island this summer had provoked a strong reaction from Beijing, leading it to launch military exercises and suspend routine communications on issues such as climate change. The first and dominant item on the formal G20 agenda tomorrow however remains Russia’s war in Ukraine, followed by a session on global health, with a third on digital issues. None of the G20 (comprising 19 states and the EU) sided with Russia to oppose a UN resolution condemning Moscow’s attempted annexation of parts of Ukraine, but three members — China, India and South Africa — abstained. China says it is neutral on the conflict, but has backed Moscow’s claim that the US-led expansion of Nato is what triggered the invasion. Conspicuous by his absence is Russian president Vladimir Putin, who has sent foreign minister Sergei Lavrov in his place.Separately, CIA chief Bill Burns today warned Russia against using nuclear weapons in the first known in-person meeting between senior officials of the two countries since the invasion, while Nato said it would not pressure Ukraine into peace talks, promising continued support for the country.The G20 meeting also presents a rare moment on the international stage for Joko Widodo, Indonesia’s president and summit host. In an interview with the FT last week, the head of the world’s fourth most populous country expressed frustration that the G20 was being seen as a political forum, rather than the economic and development meeting originally intended. Judging by today’s headlines, he’s likely to remain disappointed.Need to know: UK and Europe economyThe UK’s fiscal watchdog estimates that government borrowing will be a much higher than expected £100bn as chancellor Jeremy Hunt prepares for his Autumn Statement, likely to feature news of higher taxes for all and an overhaul of R&D tax credits. Chief economics commentator Martin Wolf says the Tories need to ditch their outmoded ideology and raise taxes. Here are five things to look out for on Thursday.Eurozone industrial production rose by a more than expected 0.9 per cent in September as supply chain problems eased. One analyst said companies might be bringing forward production to avoid energy supply disruptions this winter.The German government nationalised Gazprom’s German subsidiary in a move it said was designed to safeguard the country’s gas supply. The company’s “over-indebtedness” had left it in danger of insolvency, the economy ministry said.Russian attacks have damaged much of Ukraine’s energy infrastructure, and exacerbated an already dire financial situation for Kyiv, which says it needs $55bn in international assistance for next year. Businesses are clinging on in the darkness. A Ukraine minister warned the state could seize more corporate assets to help the war effort.Our Big Read discusses the legal fallout from a mortgage time bomb that threatens to push Polish banks under and do serious damage to the economy.Need to know: Global economyAnother Big Read, published earlier today, looks at how North Korea has become a cyber crime superpower, particularly in cryptocurrency theft, which has become one of the regime’s main sources of revenue. The global housing market is set for the broadest slowdown since the financial crisis as rising mortgage payments and a deepening cost of living crisis put paid to the pandemic-induced boom.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

China’s Singles Day, the world’s biggest retail event, failed to lift the gloom around the country’s economy. Consumers and retailers remain nervous about Xi Jinping’s zero-Covid policy as well as a crackdown on excess.Saudi Arabia is hoping a 50 per cent increase in phosphate fertiliser production can help it become less dependent on oil revenues. The kingdom was emboldened at the COP27 conference last week as demand for oil from the west “exposed hypocrisies” on the use of fossil fuels.Need to know: businessThe US Securities and Exchange Commission has started to demand more details from companies on the impact of inflation on their business. Shipping group FedEx and retailer Costco are among those with a letter from the SEC.As the “free money” era comes to an end, dealmaking is getting tougher, with overall global activity so far this year down a third on last year. For companies with solid balance sheets, however, the current environment makes it the perfect time to strike. High energy prices are leading UK hospitality businesses to cut working hours. The imminent World Cup, normally a boom for pubs showing live games, is unlikely to provide much of a saviour this time around.The head of the world’s second-largest gold miner said the sector outlook was uncertain but played down fears of a price crash. Unexpectedly downbeat financial forecasts from the likes of Qualcomm, AMD and Intel have highlighted how the US chipmaking boom has turned from boom to bust. China’s semiconductor industry meanwhile is still struggling to adapt to new US export controls that limit its ability to obtain or make advanced chips.Artificial intelligence is giving insurers “godlike” powers to make predictions on everything from natural disasters to brain disease, says the head of the company introducing Japan’s firsts dementia prevention insurance.The FT invited readers to nominate European companies using new technology to meet the business challenges of 2022, from the Ukraine war to the climate crisis. Read our Tech Champions series.The World of Work“Our class tries to meet online, but we have to shelter underground during rocket attacks up to three times a day and we often have power cuts.” Studying for a business degree is hard enough, but how about during a war? We talk to Ukrainian managers enrolled in an executive MBA at Kyiv’s International Management Institute. For long-serving staff annoyed with demands from younger colleagues for a better working life, columnist Emma Jacobs has some advice: don’t be the office curmudgeon. One person definitely not sympathetic with WFH is new Twitter boss Elon Musk, who in his first email to staff since taking over, has banned remote working.As the UK economic outlook darkens and we enter the era of polycrisis, now is the time for boards to show solidarity with their workers by restraining bosses’ pay, says columnist Helen Thomas.Get the latest worldwide picture with our vaccine trackerSome good newsA new study that shows that rats move instinctively in time to music (at least to a Mozart piano sonata), something previously only known in man, could shed light on how music and dance became such an important part of the human condition.

The rats’ movement in time to a Mozart piano sonata could help explain people’s love of music and dance © Ali Rıza Yıldız/Dreamstime More

The writer is a professor at Columbia Business School, author of ‘The Wall and the Bridge’ and was chair of the Council of Economic Advisers under President George W Bush US inflation has been extremely high since the economy emerged from Covid-19 (although annual consumer price growth slowed to 7.7 per cent in October). Much analysis of this phenomenon has centred on the mix between “supply” and “demand” factors and Federal Reserve policy errors. While both areas are important, so, too, are fiscal spending excesses. Understanding this can offer lessons to policymakers about what to do now and how best to respond in future crises.During the pandemic recovery, supply factors such as high energy prices, broken supply chains and business closures played a part in fuelling inflation. Research by Julian di Giovanni at the Federal Reserve Bank of New York suggests that supply shocks may account for 40 per cent of inflation, with the remaining 60 per cent explained by shocks to aggregate demand. Certainly excess demand remains a very important generator of high inflation.The Fed’s expansionary monetary policy in the post-pandemic period, along with forward guidance and a new framework suggesting the maintenance of these policies, raised demand in an economy hit by supply constraints. Even as early as late 2020, the Fed was arguably behind the curve. By not raising the federal funds rate until spring 2022, it lost control of inflation. But while the central bank can be faulted for misjudging the state of aggregate demand and remaining behind the curve for so long, fiscal policy also contributed significantly to pushing up inflation.The Covid-19 experience is instructive. While the initial economic shock reflected supply chain disruptions and lockdowns, there were real risks of sharp declines in aggregate demand from job losses and lost production and investment. Fast-moving responses such as the Cares Act, passed in March 2020, focused on maintaining worker incomes and business continuity during the lockdown. Early action did forestall a collapse in aggregate demand but as the economy’s recovery took hold, additional federal spending — particularly the blowout in the American Rescue Act — added to demand in a supply-constrained economy. Again, this proved a recipe for inflation.Economists, notably John Cochrane of the Hoover Institution, have formalised the link between fiscal policy and inflation. Suppose, Cochrane has argued, that during the pandemic and the recovery, the government significantly increased expenditure, electing not to cut other spending or raise taxes (this is, in fact, similar to the fiscal path followed). And suppose also that the government will not default on Treasury bonds issued. To cover the higher borrowing, “revenue” must come from reduced values of nominal debt via higher inflation. Accommodating the above-baseline spending in the Trump and Biden administrations would require a burst of inflation in the short term to reduce the real debt value.Under this interpretation, inflation will remain elevated until the cumulative effect on the price level reduces the real value of the debt sufficiently to pay for the higher spending. Because this increase in prices was largely unanticipated, nominal interest rates on Treasury issuances did not at first rise. And, while the price level jump from spending is permanent, inflation should revert to trend if the Fed pursues policies consistent with its 2 per cent inflation objective.To consider excessive government spending as a culprit along with the Fed’s loose monetary policy, it is useful to draw a contrast with policy in the global financial crisis of 2008 and the subsequent economic recovery. As in the pandemic, the Fed kept short-term nominal rates at zero for a long time and expanded its balance sheet more than fourfold. Both inflation and inflationary expectations remained anchored at around 2 per cent — with actual inflation sometimes lower — during the decade after the onset of the financial crisis. A key difference, though, was that fiscal policy expansion was comparatively weak relative to that of the pandemic recovery.Particularly following last week’s midterm election results, there are three lessons for today’s policymakers. First, large spending increases in a crisis have consequences for inflation and not just for real aggregate demand in the economy. Second, to reduce the risks of spending blowouts and attendant inflation, policymakers could consider pre-committing to more modest spending in response — on unemployment insurance benefits, individual rebates and/or transfers to state — triggered by changes in output or employment. Finally, despite the temporary fiscal surge, the Fed should pursue monetary policy consistent with its long-term objectives for inflation. More

Federal Reserve Vice Chair Lael Brainard indicated Monday that the central bank could soon slow the pace of its interest rate increases.
“I think it will probably be appropriate soon to move to a slower pace of rate increases,” she told Bloomberg News in a live interview.

Lael Brainard, vice chair of the US Federal Reserve, listens to a question during an interview in Washington, DC, US, on Monday, Nov. 14, 2022.
Andrew Harrer | Bloomberg | Getty Images

Federal Reserve Vice Chair Lael Brainard indicated Monday that the central bank could soon slow the pace of its interest rate increases.
With markets expecting a likely step down in December from the Fed’s rapid pace of rate increases this year, Brainard confirmed that a slowdown if not a stop is looming.

related investing news

Goldman Sachs expects inflation to ‘fall significantly’ in 2023

10 hours ago

“I think it will probably be appropriate soon to move to a slower pace of rate increases,” she told Bloomberg News in a live interview.
That doesn’t mean the Fed will stop raising rates, but it at least will come off a pace that has seen four consecutive 0.75 percentage point increases, an unprecedented pattern since the central bank started using short-term rates to set monetary policy in 1990.
“I think what’s really important to emphasize is we’ve done a lot but we have additional work to do both on raising rates and sustaining restraint to bring inflation down to 2% over time,” Brainard said.
Brainard spoke a week after the Fed took its benchmark interest rate to a 3.75%-4% targeted range, the highest level in 14 years. The Fed has been battling inflation running at its highest level since the early 1980s and continued at a 7.7% annual pace in October, according to the Bureau of Labor Statistics.
The consumer price index rose 0.4% last month, less than the Dow Jones estimate for 0.6%, and Brainard said she has seen signs that inflation is cooling.

“We have raised rates very rapidly … and we’ve been reducing the balance sheet, and you can see that in financial conditions, you can see that in inflation expectations, which are quite well-anchored,” she said.
Along with the rate hikes, the Fed has been reducing the bond holdings on its balance sheet at a maximum pace of $95 billion a month. Since that process, nicknamed “quantitative tightening,” began in June, the Fed’s balance sheet has contracted by more than $235 billion but remains at $8.73 trillion.

WATCH LIVEWATCH IN THE APP More

Americans grew more worried about inflation in the October, with fears emanating primarily from an expected burst in gasoline prices.
A New York Fed survey showed inflation expectations for the year ahead rose to 5.9%, while the three-year outlook increased to 3.1%.
Home prices were expected to nudge higher by 2%, tied for the lowest since June 2020.

A Sheetz customer gets gasoline at a gas station in Plains, Pennsylvania, U.S. October 19, 2022. 
Aimee Dilger | Reuters

Americans grew more worried about inflation in the October, with fears emanating from an expected burst in gasoline prices, a Federal Reserve survey showed Monday.
Inflation expectations for the year ahead rose to 5.9%, up half a percentage point from September to the highest level since July, according to the New York Fed’s monthly Survey of Consumer Expectations. Three-year expectations also accelerated to 3.1%, while the five-year outlook rose to 2.4%, respective increases from 2.9% and 2.2%.

At the root of the heightened worries was an expected jump in prices at the pump, which have been declining over the past month.
Respondents think gas prices will increase by 4.8% over the next year, up from 0.5% in September for the biggest one-month increase in survey data that goes back to June 2013.
The year-ahead projection for food prices increased, with consumers now anticipating a 7.6% increase, up from 6.8% in September. The outlook for medical costs and rent were little changed, with the latter up 0.1 percentage point, while the expectations for college costs fell to 8.6%, a 0.4 percentage point decline from September.
The survey comes less than a week after the Bureau of Labor Statistics reported that inflation, as gauged by the consumer price index, rose 0.4% in October. That was lower than the 0.6% Dow Jones estimate for the monthly gain, while the annual rise of 7.7% was half a percentage point lower than the previous month.
Fed policymakers have been raising interest rates aggressively this year to bring down inflation. A series of increases has brought the central bank’s benchmark rate up about 3.75 percentage points, with markets expecting additional hikes into the early part of 2023.

The increases have had some impact already, particularly in the housing market, where 30-year mortgage rates around 7% have impacted sales and prices.
Home prices were expected to nudge higher by 2%, the same as September and tied for the lowest since June 2020.
The Fed’s efforts to cool the red-hot labor market also are projected to have some impact. Some 42.9% of respondents expect the unemployment rate to be up a year from now, representing the highest level since April 2020.
The survey, however, showed a median expectation for household income of 4.3% in the next year, a record level. Spending growth rose a full percentage point to 7%.
Credit is expected to be harder to come by — a record-high 56.7% think it will be more difficult to get financing a year from now.
A separate gauge released Monday from the quarterly Survey of Professional Forecasters also pointed to higher inflation coupled with lower economic growth. The survey sees GDP growth of just 1.6% this year and 1.3% in 2023, while CPI inflation is projected to be 7.7% in 2022 and 3.4% in 2023, up from previous estimates of 7.5% and 3.2% respectively.

WATCH LIVEWATCH IN THE APP More

The ECB has raised rates by a combined 200 basis points since July, its fastest pace of tightening on record, and market pricing suggests it is just over halfway done with the next move in the form of a 50- or 75-basis-point hike coming in December. Fabio Panetta, a member of the ECB’s board, argued that excessive hikes could deepen a downturn as policy tightening is already set to cut more than one percentage point from GDP growth each year until 2024. “If we were to compress demand in an excessive and persistent manner, we would face the risk of also pushing output permanently below trend,” Panetta said in a speech in Florence.”For as long as inflation expectations remain anchored, monetary policy should adjust but not overreact,” he said. “The uncertainty surrounding supply and demand dynamics requires us to remain prudent as regards how far the adjustment needs to go.” While policymakers argue that inflation expectations are by and large “anchored” near the ECB’s 2% target, a key market-based long-term indicator stands at 2.36% while the European Commission’s latest forecast puts 2024 inflation at 2.6%, indicating upside risks. Cypriot policymaker Constantinos Herodotou, meanwhile, argued that a slowdown in the pace of hikes could soon come.”The closer we are to the neutral range of interest rates … the rate of increase in interest rates may need to be adjusted to ensure that we have sufficient evidence from the real economy over the effects of monetary policy,” he told Greek newspaper Naftemporiki.The neutral rate, the level at which growth is neither stimulated nor slowed, is seen by economists somewhere between 1.5% and 2%, suggesting that the ECB’s 1.5% deposit rate is already at the lower edge of many estimates.In a notable concession to policy hawks, Panetta argued that tightening could even reach a level where the ECB would restrict growth, but this needs solid justification.”Being prudent does not rule out the possibility of us having to move from withdrawing accommodation to restricting demand,” Panetta said. “But in the absence of clear second-round effects, we would need convincing evidence that the current shocks are likely to keep having a more adverse effect on supply than on demand.” More

The NBP left its main interest rate on hold this month, with Governor Adam Glapinski saying the bank wanted to return price growth to the 1.5-3.5% target range gradually to avoid suffocating the economy.Glapinski has repeatedly pointed to factors out of the bank’s control – such as the war in Ukraine, rising commodities prices and the economic rebound after the COVID-19 pandemic – as responsible for inflation.The bank said that the withdrawal in 2023 of anti-inflation measures such as cuts to VAT on fuel and gas would add 1.9 percentage points to inflation.Prime Minister Mateusz Morawiecki this month said that the measures cutting VAT on gas and fuel would be replaced in 2023 by a new system that would require energy companies to shoulder the burder of keeping household bills down.According to the NBP’s latest gross domestic product (GDP) projections, the Polish economy will shrink in the first quarter of 2023 but will avoid the two consecutive quarters of contraction viewed by many economists as a recession.On an annual basis, GDP growth is expected to slow to 0.7% in 2023 from 4.6% in 2022. It had previously forecast GDP growth of 1.4% in 2023.”The downward revision of domestic economic growth in 2023 is a consequence of the stronger negative impact of the Russian military aggression against Ukraine on economic developments in Poland and abroad,” the report said. More

The protest by the unofficial Platform for the Defence of Transport comes a day after a large rally against the Madrid region’s public health policy and 11 days after Spain’s main unions held a general demonstration against rising living costs.Hundreds of protesters in high-visibility vests marched through central Madrid from Atocha train station to parliament, waving posters with slogans such as: “we don’t want subsidies, we want solutions”. The month-long strike by truckers in March and April brought Spanish supply chains to a halt, caused food shortages, triggered a bout of inflation and hit quarterly economic growth.The Platform for the Defence of Transport called for another open-ended strike on Monday, seeking changes in road freight regulation to protect margins and keep truckers’ costs down.Local media reported that traffic was flowing as normal on Monday in the crucial supply chain centres in the port of Barcelona and the wholesale food markets in Madrid and Seville, the country’s fourth largest city.The truckers eventually obtained a 1 billion euro ($1.03 billion) package that included rebates on the price of diesel fuel and a 1,200-euro cash bonus. But they say the rebates have been overtaken by the rise in fuel prices since then.”There are many people who are going bankrupt in the transport sector because they can’t cover their expenses,” said Nuria Hernan, whose husband owns a truck. “It’s not worth going out to work,” the 45-year-old added.($1 = 0.9668 euros) More