Economy

Top fund management executives have voiced concerns that fragmented regulation will hold them back, as asset managers try to balance the demands of a highly interconnected investment industry against retreats from globalisation. Regulation of the fast-growing sustainable investment sector is an area of concern. European regulators took a lead on defining standards for so-called environmental, social and governance investing this year, with the Sustainable Finance Disclosure Regulation, which aims to improve transparency and prevent greenwashing. But the UK is consulting on its own version of rules, which could take a different approach to the EU in the aftermath of Brexit.“It’s great that the [UK] regulators are consulting on this stuff, but it is our fear that we’ll have a separate set of rules,” Patrick Thomson, chief executive for Europe at JPMorgan Asset Management, told the Financial Times Future of Asset Management event on Wednesday. “My big concern is around the federalisation or fragmentation of regulation. Adding complexity to fit a local narrative might not be the best outcome for customers,” he added.Diverging paths between the UK and its larger neighbour create stresses for fund managers aiming to deliver global strategies to clients. “If there are nuances and differences in regulations across each European market, that makes it very difficult to have a common product across those markets,” said Jeremy Taylor, UK chief executive of Lazard Asset Management.Stockpicking fund managers are also increasingly affected by deglobalisation. As global supply chains have buckled under the pressure of external shocks from the coronavirus pandemic, Russia’s invasion of Ukraine and tensions between the US and China, many companies are now looking closer to home as they consider reversing decades of global outsourcing.Fiona Frick, chief executive of Swiss asset manager Unigestion, said: “In the past 10 to 20 years, companies were mostly valued on revenues. Now it will be on operating profits and how they integrate costs into their model. So we will be more selective with the companies we choose.” She added: “How are they going to react to a world that is becoming less global [with] more onshoring? You have to be much more careful which companies you invest in.”

For investors, being able to assess the impact of economic shifts across supply chains has been essential to valuing companies this year, whether from spiralling energy costs or changing production patterns.“We’ve got a large number of analysts around the world who are able to make informed decisions on companies in China and Taiwan, and other parts of the world who are producing goods, services and equipment for companies in the US or in Europe,” said Thomson. “That is incredibly valuable insight in understanding the challenges that companies are faced with . . . so deglobalisation, yes, [is a factor] but this is still a global investment management industry.” More

Edward Price is principal at Ergo Intelligence. A former British trade official, he also teaches at New York University’s Center for Global Affairs.Question: If chances of a soft landing have “narrowed,” why does the Federal Reserve foresee US unemployment reaching only 4.4 per cent? Answer: It shouldn’t.The forecasts of Fed policymakers — [that] inflation will return to target while unemployment rises only to 4.4 per cent — are reasonable only under quite optimistic assumptions . ..That’s per a new paper from the National Bureau of Economic Research, titled Understanding US Inflation During the Covid Era. Honestly, they really wanted to call it Misunderstanding US Inflation, but after Yellen’s mea culpa, this is the best apology we’ll get. Treasure it:As inflation began to rise in March 2021, Fed Chair Powell predicted that the increase would be “neither particularly large nor persistent.”… Powell’s view was supported by the many economists on Krugman’s . . . “Team Transitory,” including the authors of this paper . . . Today, it is clear that inflation was much higher than we expected.What went wrong? Understanding US Inflation has three ideas.First, Team Transitory didn’t think. At least, not about how price shocks can settle into core (aka underlying) inflation. Maybe that was fair enough. Events and structures are, after all, locked in a Viennese waltz. Disentangling them is tricky, even impossible.Second, Team Transitory didn’t foresee exogenous shocks. Again, maybe fair enough. Russia invaded Ukraine. China stuck to zero Covid. Both snarled up the supply chain to inflationary effect. Fewer ships = fewer chips.But third was unforgivable. Dogmatic economics. Economists have long fixated on unemployment as a measure of labour market slack. However:. . . the unemployment-inflation tradeoff has worsened during the pandemic . . . [how] the inflation rate is now higher for any given unemployment rate, especially when unemployment is low.Thus, the paper proposes something quicker: the ratio of vacancies to unemployed workers. That’s a better measure of labour market tightness (which is becoming more important to inflation dynamics over time).This is the lesson. Don’t ignore high-frequency deviations from core inflation (as Team Transitory did). Instead: “headline inflation = core inflation + headline shocks.” Fast inflation should be added to the slow Philips curvy stuff when calculating the headline rate.Glad that’s settled. Team Transitory snoozed. But we’re still in trouble. See below for the paper’s six pathways to purchasing power oblivion (inflation doom in orange, slightly less inflation doom in blue):

Makes sense. 8.2 per cent annual inflation and a year-on-year 6.6 per cent jump in the core consumer price index are no bueno. Behold:

So, “transitory inflation” is dead. Should we kill a “soft-landing” too? Larry Summers votes yes. He has unemployment reaching 6 per cent. As does Laurence Ball, the paper’s lead author. He thinks 7 per cent The data suggest they’re right. Look at the chart below. As the red line (expenditures) tugs the blue line (rates) up, expect the green line (unemployment) to follow. Get ready for another “shaded area” folks.

Per the paper:All in all, it seems likely that policymakers will need to push unemployment higher than . . . SEP projections if they are determined to meet their inflation goal.Farewell transitory inflation. Farewell soft-landing. You’re both unsellable now.Convinced? Bloomberg’s Jonathan Levin isn’t. He thinks non-farm payrolls, at 261,000 in October, lower the chance of disaster. Unemployment is, after all, a speck at 3.7 per cent. Plus, as the FT’s Colby Smith reminds us, upward price pressures are not distributed evenly across the US. A homogenous inflation target. A heterogenous inflation rate. That makes future Fed hikes harder to read. As do financial stability concerns.Nonetheless, here are the killer questions. What justifies the Fed’s lingering optimism? Does the Fed believe unemployment will reach only 4.4 per cent? Or is the Fed keeping an unrealistically dovish scenario open so that, if rate hikes can slow, it doesn’t appear to have changed its new hawkish approach?Probably the latter. With the “Flexible Average Inflation Target” (lol), the Fed promised to run inflation well above 2 per cent. The Fed can now ill-afford to break its new promise of, erm, doing the exact opposite. For example, it just hiked by another 0.75 bps. The NYT’s Fed watcher Jeanna Smialek:This is the Fed’s dilemma in a nutshell: If you so much as hint you’re going to slow down, financial conditions ease, and that potentially makes it harder to slow down inflation. https://t.co/WdyYMoI6Wl— Jeanna Smialek (@jeannasmialek) November 2, 2022
Maybe Arthur Miller had it right. The Fed is a salesman. And for a salesman, there is no rock bottom. Until, of course, there is.  More

Rivian Automotive has warned that the supply chain disruptions troubling carmakers since last year will be the “limiting factor” in its plan to make 25,000 electric trucks this year.Chief executive RJ Scaringe said Rivian had fewer problems securing parts in the third quarter than in the first half of the year. Still, production at its Illinois factory stopped for five days because it lacked a single part. “That improvement, we’re absolutely seeing,” he said. “But with a vehicle that has hundreds of suppliers and thousands of components . . . it only takes one part from one supplier to stop the line.”Rivian has struggled in the year since it went public at a price of $78 a share. Its market capitalisation of $26bn is about one-third of what it was at its initial public offering, while one important customer, Amazon, agreed to buy trucks from a rival. It had to recall almost all the vehicles it has manufactured because of a nut that needed tightening.But Scaringe told investors on Wednesday that 83 per cent of those repairs had already been made and reaffirmed Rivian’s production guidance, which it had halved in March.The manufacturer reported a smaller adjusted loss before interest, taxes, depreciation and amortisation than Wall Street expected. It lost $1.3bn in the third quarter, instead of the anticipated $1.4bn, on $536mn in revenue.Scaringe and chief financial officer Claire McDonough said that Rivian’s costs have decreased as its plant grows more efficient and it no longer needs to spend money related to launching four new models.

The company added a second shift at its factory and is attempting to increase production. McDonough said there would be a “significant discrepancy” in the fourth quarter between how many vehicles the company makes, and how many it delivers.Rivian also said it would spend $1.8bn on capital expenditures this year, pushing some planned spending into 2023. Analyst Jordan Levy of Truist Securities estimated the reduction lowered Rivian’s capital expenditure for the year by more than 12 per cent.“We view 3Q results as positive for [Rivian] given the company’s notable progress on cost management and operational efficiencies, and would expect shares to outperform tomorrow,” he said in a note.Shares for the manufacturer, which closed at $28.07, rose nearly 7 per cent in after-hours trading. More

BRASILIA (Reuters) – Brazil’s President-elect Luiz Inacio Lula da Silva will offer to host a future global climate change summit when he attends the COP27 United Nations climate conference in Egypt next week, sources told Reuters on Wednesday.Lula plans to announce an overhaul of Brazil’s environmental policies at the summit in Sharm El Sheikh and the creation of a new national climate authority to oversee efforts by all ministries and agencies to combat global warming.The sources, that requested anonymity to be able to speak freely, said Lula will invite the United Nations to hold one of the next COPs in Brazil, possibly in 2025.The incoming leftist president, who takes office on Jan. 1, has vowed to re-establish Brazil’s role as an important player in international efforts to address climate change after its reputation was damaged by far-right President Jair Bolsonaro.Destruction of the Brazilian rainforest hit a 15-year high under Bolsonaro, who rolled back environmental protections, and pushed for more mining and commercial farming in the region.Bolsonaro stopped plans to host COP25 in Brazil in 2019 when, as president-elect, he asked that the meeting not be held in his country.The United Nations is scheduled to organize COP28 in 2023 in Dubai, United Arab Emirates. Where the 2024 summit will be held has not been decided yet, but Australia has proposed hosting it.Lula said on Wednesday that he will only begin to decide on the members of his cabinet when he returns from Egypt.Environmentalists cheered Lula’s election win on Oct. 30 after he campaigned on promises to protect the Amazon (NASDAQ:AMZN) rainforest and restore Brazilian leadership on climate change.Lula is expected to attend the second week of the COP27 summit and he will not be part of Brazil’s official government delegation at COP27 as he will still be president-elect. Bolsonaro is not expected to attend. More

Both countries said a treaty would be finalized “as soon as possible.”The announcement came as El Salvador was receiving a donation of fertilizer and wheat flour from the Asian nation, which El Salvador said would “mitigate the impact of the worldwide economic crisis.” Bukele said the trade agreement with China was “very important” for El Salvador due to China’s economic strength. “For a long time, El Salvador had been isolated from that potential,” he said.The move is part of the countries’ growing closeness, with China having also offered to buy El Salvador’s distressed external bond debt, a Salvadoran official was reported as saying earlier this week.On Monday, a Salvadoran court upheld a suspension of El Salvador’s free trade agreement with Taiwan, which China’s ambassador to El Salvador Ou Jianhong celebrated.”We express our gratitude and appreciation for this ruling on the basis of the One China Principle,” she said at the time. The One China Principle is the position held by China that both China and Taiwan are part of “one China.”The Central American nation ended diplomatic relations with Taiwan in 2018, a year before Bukele took office. More

A slew of positive data, including the lowest unemployment rate since the start of pandemic, strong remittance inflows and a rise in reserves supported better than expected gross domestic product (GDP) growth in the July to September period, Finance Secretary Benjamin Diokno told Reuters.”All these will be summarised by the higher than expected Q3 GDP growth rate,” Diokno said. Analysts polled by Reuters forecast third-quarter GDP grew 6.3% on an annual basis. Official data will be released at around 0200 GMT.The Southeast Asian nation’s second-quarter GDP grew 7.5% versus a year ago. More

In a joint statement issued after the 11th meeting of the U.S.-Ukraine Trade and Investment Council, the two countries said they would work to improve the underlying 2008 Trade and Investment Cooperation Agreement.In opening remarks, U.S. Trade Representative Katherine Tai urged the delegations “to work together to create an environment that encourages companies and individuals to live, work, and invest in Ukraine,” the statement said, underscoring the importance of predictability, transparency and the rule of law.U.S.-Ukraine bilateral trade in 2021 totaled about $4.4 billion. More

WASHINGTON (Reuters) – Ukrainian Economy Minister Yulia Svyrydenko on Wednesday said Russia’s attacks on civilian infrastructure and rolling blackouts could result in a bigger contraction of gross domestic product in 2022 than the earlier forecast of a 35% drop.​ Svyrydenko, in Washington to meet with senior U.S. officials, told reporters the Ukrainian government would continue to need foreign budgetary assistance, but was also taking steps to reduce costs by cutting staff and privatizing smaller state-owned enterprises.Ukrainian President Volodymyr Zelenskiy last month said his country would need $38 billion to cover next year’s expected budget shortfalls, and an initial $17 billion to begin work on the most urgent infrastructure repairs.Svyrydenko, who also serves as first deputy prime minister, said those sums had not yet been revised to reflect the massive damage inflicted on civilian infrastructure by Russia since Oct. 10, and resulting electricity outages.She said people and businesses in the capital Kyiv were dealing with blackouts of six or more hours a day, affecting economic output.”The problem is that companies are not working. If the blackouts are going to continue during the next few weeks, GDP might fall more,” she said, citing ministry estimates that economic output dropped by as much as 39% in October, after a contraction of 35% in the August-September timeframe.Asked about comments from Republican leaders in Congress suggesting they would curtail U.S. aid to Ukraine, Svyrydenko said Ukraine’s fight was an existential one and the world order would change if it lost.She said she had not met with any Republican leaders, but noted that the United States had consistently made good on its promises since the war began on Feb. 24.Biden on Wednesday said Washington had not given Ukraine “a blank check” but he expected U.S. aid to continue despite a likely Republican takeover of the House of Representatives.Ukraine was providing clear records about its spending of international aid, she said, adding that work was continuing on setting up a coordinating platform for international funds.Her talks with U.S. officials were largely technical, focused on specific needs including transformers, generators and even LED light bulbs that could help save power.Svyrydenko said Ukraine is also seeking a yearlong extension of the suspension of U.S. steel tariffs to help steelmakers, and she discussed the issue with U.S. Trade Representative Katherine Tai and other U.S. officials.Tai’s office did not address the steel tariffs, but said the U.S. trade chief encouraged Kyiv to enact reforms to create a more conducive business investment. Tai and Svyrydenko also agreed to work to upgrade a bilateral 2008 trade and investment accord to support Ukraine’s efforts to establish a more transparent and predictable business environment.Svyrydenko also met on Tuesday with U.S. Commerce Secretary Gina Raimondo, who pledged continued support for Ukraine, including help to rebuild infrastructure. More