Economy

The US plans to deploy B-52 bombers to Australia, in Washington’s latest effort to boost military co-operation with Canberra and send a strong signal to China as tensions mount in the Indo-Pacific.The Pentagon will deploy the B-52s, which carry nuclear or conventional weapons, to Australia’s Northern Territory as part of rotational bomber task forces that conduct exercises with allies. They will be deployed to Tindal air force base for short missions, according to a person familiar with the situation.The US has deployed B-52s to Australia before. In 2018, two of the bombers conducted exercises with Australian forces in Darwin. However, sending as many as six of the aircraft would mark a big increase in presence and comes as the US and Australia seek to work together more closely to counter Chinese activity, particularly near Taiwan.Thanks for reading FirstFT Asia. Do you agree with the US decision to send B-52s to Australia? Will it help deter China? Tell me what you think at [email protected] and I may feature your response in an upcoming newsletter. — EmilyFive more stories in the news1. More than 130 dead after bridge collapse in Gujarat Local authorities have launched a criminal investigation into the collapse of a bridge in the home state of Indian prime minister Narendra Modi. Harsh Sanghavi, the western state’s home minister, announced yesterday that at least 132 people had been killed after cables on the newly reopened Morbi bridge snapped on Sunday.

Emergency workers in boats search the waters beneath the collapsed Morbi bridge in Gujarat state © Siddharaj Solanki/EPA-EFE/Shutterstock

2. Hong Kong to explore legalising retail crypto trades Hong Kong is taking steps towards legalising retail trading of crypto assets, in a reversal that contrasts Beijing’s crackdown on such transactions in mainland China. The Chinese territory’s regulators are also exploring the listing of crypto exchange traded funds, Hong Kong’s financial authorities said earlier today.3. Apple’s supply chain tested as Covid hits Foxconn Apple’s main iPhone assembler in China said it was preparing to shift production to other parts of the country amid a worsening Covid outbreak. Local officials yesterday continued to bus workers away from the Zhengzhou plant, where staff say the company has failed to provide adequate food and a safe working environment during Apple’s peak production period.4. Lula seeks unity in Brazil as Bolsonaro remains silent Luiz Inácio Lula da Silva has pledged to govern for all Brazilians after winning a slim victory in a bitterly fought presidential election — but more than 18 hours after the official result, defeated President Jair Bolsonaro had still not conceded. Financial markets traded cautiously on Monday afternoon local time, with stocks marginally lower and the real currency slightly up against the dollar.5. Biden to float tax penalties on oil companies US president Joe Biden will urge Congress to punish oil companies with higher taxes unless they increase output to bring down prices at the pump, as he steps up attacks on fossil fuel producers in the final stretch of the midterm election campaign.The day aheadBoJ monetary policy meeting minutes The Bank of Japan will release a detailed account of its most recent monetary policy meeting. Israeli election Benjamin Netanyahu will be eager to mount a coup in Israel’s fifth election in less than four years. Leading a rightwing bloc, he is seeking to overcome a small deficit in polling to take a majority in the Knesset and return as the nation’s prime minister.Earnings Companies reporting third-quarter earnings today include Saudi Aramco, Alibaba, Airbnb, BP, Coca-Cola, Electronic Arts, Mondelez, Nippon Steel, Pfizer, Sony, Thomson Reuters, Toyota and Uber.US manufacturing data A national manufacturing gauge collated by the Institute for Supply Management, which is closely watched as a proxy for the strength of the world’s biggest economy, is set to be released today.What else we’re reading‘We must prepare for the reality of the Chip Wars’ President Biden’s recent semiconductor export bans on China have been portrayed as a US declaration of economic war, writes Rana Foroohar. But China’s Made in China 2025 programme, announced seven years ago, spelt out the country’s desire to be free of western technology, paving the way for a formal supply chain decoupling.More from Rana: The performance of the China’s economy will influence the future of regionalisation, writes Rana in our Swamp Notes newsletter — free to read online for the next two weeks.Chinese students are falling out of love with US universities The news that only around half as many Chinese mainlanders are coming to the US to study now as before the pandemic seems a harbinger of worse to come, writes Patti Waldmeir. International students are like unofficial ambassadors between their cultures — halving that group will do nothing to heal the rift between the superpowers.Russia and Ukraine prepare for rigours of winter war Winter has played a big role in Russian and Ukrainian military history. It was decisive in their victories over Napoleon and Nazi Germany, and in what Kyiv-born writer Mikhail Bulgakov called that “great and terrible year” of 1918. More than a century later the weather is set to be a critical factor again as the fighting between Ukrainian and Russian forces enters its ninth month.

© Institute for the Study of War, AEI’s Critical Threats Project, FT research

The nuclear threats that hang over the world Broadly speaking, there are four main scenarios to consider: nuclear normalisation, nuclear blackmail, avoidance of war, and Armageddon, writes Gideon Rachman. It is not hard to see how the use of a Russian nuclear weapon could spiral into an all-out nuclear war — leading to what President Biden himself has termed “Armageddon”.Will Sisi take Egypt’s economy out of military hands? In part, Egypt’s woes have underscored the vulnerabilities of poorer nations to the repercussions of Russia’s war in Ukraine after it triggered capital flight from emerging markets. But economists and Egyptian businessmen say there are more fundamental issues at stake, arguing that the global crisis has magnified the fragility of Sisi’s state-driven economic model.Life & arts British comedian Ahir Shah lets us inside his fantasy dinner party, complete with the cast of Goodness Gracious Me, Gujarati cooking and mango lassis.

© Aaron Marin More

The government of new leftist President Gustavo Petro, who promised on the campaign trail to halt all new oil exploration, is weighing whether it will allow the signing of fresh contracts to shore up the country’s finances.Hydrocarbons represent nearly 40% of exports, 20% of foreign direct investment and between 10% and 20% of the national government’s income, the Autonomous Fiscal Rule Committee (CARF), which oversees public finances, said in a statement.”The nation’s high dependence on these transfers means that a policy of suspending the activity or disincentivizing investment in the sector represents an elevated risk for the fiscal and exchange rate sustainability of the country, with adverse effects on development and economic growth,” it said.Colombia’s capacity to finance its fiscal deficit and debts depends on the willingness of multilateral organizations or bond investors to loan money, the CARF said.”Certainty about future income is indispensable to maintain financing sources and an adequate level of risk,” it said.The high level of public debt is a fiscal risk and high interest rates, increased risk premiums and a deep depreciation of the peso currency will mean higher interest rates on the country’s debt, CARF said.”The previous factors have created a significant increase in the resources which should be assigned to debt servicing. For that reason it is important that planning for the resources which come from the tax reform is done in concurrence with the fiscal rule and its objective to reduce net debt.”Congress is set to vote this week on proposed tax policies that could raise some 20 trillion pesos (about $4 billion) in 2023. More

The central bank has introduced rules in recent months to reduce the gap between the policy rate and lending rates and encourage loans to sectors including exports and production.The latest rule mandates lenders with less than half of deposits in lira in 2023 to hold an additional seven percentage points of government bonds. Authorities have also sought to dissuade forex holdings.The central bank said banks should not direct customers to hold funds from lira loans in demand deposits and they should also not allow lira loans to be deposited in accounts under a scheme that protects against forex depreciation, it said.Such issues are “not supportive of establishing financial stability,” the central bank said, adding that lenders should make the maximum effort to abide by regulations.The central bank had already warned banks last week about conducting forex sale-purchase transactions overnight, saying it will take “necessary measures” if the issue continues.In the past, if central bank requests on various issues have not been followed, it has taken measures such as requiring banks to hold government bonds. More

Brazil’s presidential election on Sunday offered some hope. One of the world’s biggest democracies voted peacefully after a bitter election campaign and its institutions have held firm against attacks by President Jair Bolsonaro on everything from the voting system to the rules of the game. Former president Luiz Inácio Lula da Silva is now set to govern Latin America’s biggest economy for a third time, but only by a slim margin: the veteran left-winger prevailed by 1.8 percentage points after an unedifying campaign more akin to a street brawl than a political debate. World leaders were swift to offer congratulations to the victor. President Joe Biden pointedly remarked that Lula’s win followed “free, fair and credible elections”. His message was a timely reminder to Bolsonaro and his hard-right supporters that the US will resist any attempt to question the result.Bolsonaro himself, a former army captain who served in uniform during Brazil’s dictatorship and has vowed that only God can remove him from the presidency, remained silent for hours after the result was announced. He had not publicly recognised his defeat at the time of writing, but would be extremely ill-advised to do otherwise — blocking a peaceful transition could pose serious risks to stability in one of the top dozen global economies. Lula pledged in his victory speech to govern for all Brazilians. Doing so will be hard. Though he won international fame for pulling millions out of poverty during his 2003-10 administrations, Lula’s reputation at home was tarnished by corruption scandals and the economic mismanagement of his chosen successor, Dilma Rousseff; many Brazilians backed him this time as the lesser of two evils.His unwieldy electoral coalition stretched from the left to the centre-right. Its members united to stop Bolsonaro because they believed that he threatened democracy. Now the election is over, the alliance may fracture. Deep as they are, political divisions are not Brazil’s only problem. Real growth in gross domestic product per capita has averaged zero since 2011. The boom years of the 1960s and 1970s, when Brazil grew at more than 7 per cent a year, are a distant memory.Much of the explanation has to do with governance. Brazil remains a relatively closed economy and has failed to develop internationally competitive exports outside agribusiness and mining. Despite levying taxes at levels close to the OECD average, much public spending is misdirected into feather-bedding bureaucrats or oiling political machines. Brazil spends more of its GDP on education than France or Germany, yet the quality of public-sector schools is poor. Investment and productivity are low. Congress is in hock to a host of special interest groups.Today’s fraught geoeconomic climate offers Brazil major opportunities. The country is rich in food, fuel and metals and has a flourishing renewable energy sector. It is located far from global conflict spots and has traditionally sought good relations with the US, China, Europe and Russia.Lula should act quickly on his pledges to slash Amazon deforestation, which has boomed under Bolsonaro, and make Brazil attractive to ESG investors. He should push for swift ratification of the long-stalled trade deal between the South American Mercosur bloc and the EU. He should name a finance minister with the confidence of market investors and outline a credible plan to finance his campaign promises.Ultimately, though, Brazil will only flourish if its political and economic elite show the same unity of purpose in modernising the country that they have shown in defending democracy. More

Today’s top storiesEurozone inflation hit a record 10.7 per cent in October, keeping the pressure on the European Central Bank to continue raising interest rates. Separate data showed the bloc grew 0.2 per cent in the third quarter, despite fears that it was heading into recession. Alternative unofficial data show consumers cutting back on discretionary spending.Leftist Luiz Inácio Lula da Silva narrowly beat incumbent Jair Bolsonaro to become Brazil’s new president. Lula, who served two terms as leader between 2003 and 2010, inherits a deeply divided and economically troubled country.The likely collapse of Britishvolt, the UK battery start-up, marks the end of the dream of a homegrown industry champion for the UK. The company is preparing to enter administration after failing to secure additional funding.For up-to-the-minute news updates, visit our live blogGood evening.Wheat and corn futures jumped today after Russia’s withdrawal from a UN-backed deal that allowed millions of tonnes of grain to be shipped through Black Sea ports, delivering a potentially “catastrophic” blow to food supplies for poorer countries.Russia pulled the plug on Saturday in reaction to attacks on its ships in the port of Sevastopol, part of the territory Moscow annexed from Ukraine in 2014. It has been criticising the deal for some time, arguing it was not sending grain “to the poorest countries”. UN data show rich countries received more than half of the shipments, led by Spain. Middle-income countries including Turkey and China accounted for about a quarter, while lower and lower-middle income countries such as Egypt and Ethiopia received just over a fifth. The UN however says the deal was not intended to send grain directly to poorer countries but to make grain more accessible to all by lowering market prices.Ukraine and Russia are crucial to world wheat supplies, accounting normally for almost a third of global exports. But, as the Lex column (for Premium subscribers) points out, Ukraine will be lucky to export just a third of its usual crop this year. The collapse of the Black Sea deal means many shippers will be unwilling or unable to send vessels into harm’s way and farmers are likely to plant less wheat next year if the war continues. The US, the EU and the International Rescue Committee all condemned Russia’s decision. The US said the deal had already allowed 9mn tonnes of food to be exported and urged “all parties to keep this essential, life-saving initiative functioning”. The IRC said the poorest nations such as Yemen and Somalia would be particularly affected. “The UN-brokered deal brought a ray of hope — now this hope is shattered again,” it said.Meanwhile, Russia is rebadging grain looted from Ukraine, a practice revealed in our new Big Read. Using documents and photos, our investigations team reveals a complex shadow operation managed by private companies and arms of the Russian state.Despite Moscow withdrawing its support for the Black Sea deal, Ukraine said a dozen ships carrying grain had left its ports today. It is unclear how Russia will respond but its spokesperson said that without its backing, the process would become “more risky, dangerous and unguaranteed”.A Ukrainian government adviser said Russia was using food, cold and prices as weapons. “Putin’s Russia is waging a hybrid war against Europe, taking Africa and Middle East hostage,” he said, a theme echoed by Alexander Gabuev from the Carnegie Endowment for International Peace.“Why is Moscow disrupting the grain deal now?” Gabuev asked. “The answer is: Putin needs leverage as things go south for him on the battlefields in Ukraine, so the threat of global food crisis needs to be put back in the Russian toolbox of coercion and blackmail.” Need to know: UK and Europe economyOfficial data showed the effect of Covid on UK retail and transport was worse than thought. The Bank of England said UK households were becoming more cautious about rising prices and borrowing costs. Here are four things to watch out for at its rate-setting meeting on Thursday.The UK government is set for a tussle with City of London regulators after confirming it would press ahead with new powers which enable ministers to over-rule the watchdogs. Tensions are growing between the EU and the US over the Biden administration’s climate legislation which offers big subsidies to industries to encourage green technologies and which could tempt businesses away from Europe.German finance minister Christian Lindner said it was cheaper for individual states to raise debt to address the energy crisis, rather than try to do so through common borrowing by the EU, fuelling criticism that Berlin has done too little to forge a joint response. Acer, the EU energy regulator, has admitted the plan for a new price benchmark for imported gas will be difficult to put into practice.Need to know: Global economyOECD tax chief Pascal Saint-Amans has warned of trade wars unless last year’s global deal on taxing multinationals is implemented. The OECD says the reforms mean governments could collect more than $150bn in extra taxes each year.The global economic crisis has exposed the fragility of Egypt’s state-driven model and forced it to take out new loans from the IMF. Some analysts argue President Abdel Fattah al-Sisi needs to reduce the army’s role in the economy to allow the private sector to flourish and attract more foreign investment.Our Big Read examines how the Democratic Republic of Congo has become the battleground for a proxy war over precious resources such as cobalt, a key component for the battery industry.FT contributing editor and academic Adam Tooze says the entanglement of political and economic shocks around the world is giving currency to a new term: the polycrisis.Need to know: businessThe worsening Covid outbreak around the Foxconn plant in Zhengzhou poses a serious challenge for Apple, which has based most of its supply chain in China. Official data showed the country’s manufacturing sector contracted faster than expected in October thanks to the strict pandemic lockdowns.Indonesia, the world’s largest nickel producer, is looking at setting up an Opec-style cartel for nickel and other battery metals to take advantage of the electric car market. However, the burgeoning new sector could be hit by copper shortages, according to the head of US mining group Freeport-McMoRan. An electric car can use three times the amount of copper than a traditional engine. As the first mass-market self-driving cars prepare to launch in the UK, the insurance industry remains deeply divided over how to handle a revolutionary new model of transport. The World of WorkEmployers are still unsure how to manage hybrid work, says the FT editorial board. While labour markets are tight, workers are freer to put pressure on employers to accommodate them, but this is unlikely to last. “The challenge for leaders,” it concludes, “will be whether to manage, or override, the choices of staff whose individuality they celebrated during the pandemic”.Get the latest worldwide picture with our vaccine trackerSome good newsThe African Wildlife Foundation and Nature’s Best Photography have announced winners of their awards for pictures that bring “immediate and long-lasting impact to public understanding and stewardship of wild Africa”.One of the winners from this year’s awards in the Art in Nature section More

Breaking up is hard to do. Just ask Apple. The iPhone maker has been trying to reduce its dependence on China, its third most important market and the place where most of its products are assembled. It has already shifted the production of some of its products to Vietnam and India after coronavirus-related lockdowns caused massive supply chain disruption during the pandemic. Yet the reality is the US’s most valuable company remains overwhelmingly reliant on the Asian country. Beijing’s insistence on sticking to its zero-Covid policy means Apple’s problems in China risk becoming a recurring feature.Video footage of workers from Foxconn, one of Apple’s main suppliers, scaling fences to escape the factory that they worked in — prison-break style — offers a timely and vivid reminder of this.The manufacturing complex in Zhengzhou, known as “iPhone City”, accounts for about 60 per cent of Foxconn’s iPhone assembly capacity, according to analysts.Foxconn said it was prepared to shift production to other plants. The disruption came just after Apple launched its new iPhone 14 and ahead of the all-important holiday season. It could affect more than 10 per cent of global iPhone production capacity, according to one estimate.Look at Apple’s third-quarter results and one could shrug off the latest supply chain woes. In an otherwise brutal earnings quarter for Big Tech, Apple’s sales and profits growth both topped estimates. But a chunk of this growth was driven by production bottlenecks that had delayed sales in the previous quarter. Rising labour costs, a slowing Chinese economy and growing tensions with the US over trade and Taiwan give Apple plenty of reasons to reduce its reliance on China. To be fair, Apple already gets many of its components from elsewhere. But the vast majority of its products are still assembled in ChinaChina’s reliable energy grid and efficient transport infrastructure, not to mention the network of local suppliers, makes it particularly hard for Apple to hang up on the country. More

The writer is an FT contributing editor and global chief economist at KrollWhenever there’s an economic consensus on anything, it’s worth considering how it might be wrong. There seems to be general agreement that inflation and rates will be higher for longer, and “team transitory” has been defeated. But what if we are at an inflection point on inflation? This is the question policymakers should be asking. By one key measure, inflation in the US has already peaked. In fact, it peaked in March, the same month that the Federal Reserve began raising the benchmark rate.The New York Fed’s underlying inflation gauge has largely been ignored for decades. That’s understandable, and not just because of the snoozer of a name. There wasn’t any significant underlying inflation in the years after the global financial crisis. While the Fed and financial markets are fixated on the 2 per cent inflation target, the UIG isn’t primarily a level forecast. Its real value is in predicting inflection points. It correctly anticipated the lasting high inflation we are now observing. And while it’s still high, the UIG is suggesting it will be abating.The media and the public are obsessed with the consumer price index, while the Fed’s target is based on the personal consumption expenditures index. Both can be “noisy”, since they include the prices of volatile items such as energy and food. But they are not the only price measures. The Atlanta Fed tracks nine other indices for inflation that aim to strip out noise. They show inflation somewhere between 4.7 and 7.3 per cent in September.Most of these gauges remove data to try to identify underlying inflation. Core CPI excludes energy and food costs, for example, while trimmed mean and median measures strip out components with the largest changes in prices to smooth out the index. But the risk with these indices is that they can miss large price moves — up or down — that could be a signal of inflation changing direction.The UIG is constructed differently, removing noise rather than items from the index. The idea is that movements in trend inflation happen alongside related changes in the trends of other economic and financial factors. The index looks at moves in prices, the labour market, financial markets and the real economy every month and checks the historical data going back to 1995 to see if similar moves had previously lasted at least a year. If so, they are included in that month’s UIG and if not, they are filtered out as noise.You really can’t use the UIG to forecast the level of inflation, as has sometimes been suggested. Where it matters is in showing when the inflation trend is changing, and on this it has a decent track record in both normal and unprecedented times. When CPI hit a peak in 2018, for example, UIG clearly showed the peak while core CPI and trimmed mean and median indices suggested inflation would continue rising. In mid-2009, UIG showed a trough in inflation while the other measures took another year to reach a nadir.What about during the pandemic? Core CPI did a good job of signalling a bottom for inflation in mid-2020 before rising, but dipped in the third quarter last year, wrongly suggesting that inflation would come down. The trimmed mean and median inflation indices failed to indicate a shift towards higher inflation, showing a trough more than six months after CPI and core CPI. UIG found a bottom roughly in line with headline CPI and then started a steady climb upwards, rightly ignoring the slump in the third quarter of 2021. Of these metrics, it provided the earliest and most reliable signal for a rise in underlying inflation.The Fed is now looking for signs that trend inflation has peaked and that monetary tightening is bringing inflation back towards its target. Much to its alarm, core inflation dipped in the second quarter of this year before accelerating in August and September. Median and trimmed mean inflation have been on a steady upward climb, with no signs of stabilisation. But the UIG peaked in March 2022, stabilised at high levels and has been gradually falling since July.All the different gauges for inflation suggest it is way above the Fed’s target. But we know monetary policy works with long and variable lags, and there is a danger overtightening could spark a recession. The central bank aims to look through transitory factors and set policy based on the underlying trend. The UIG shows the trend is finally starting to reverse course. With rates now restrictive, that suggests it’s time for Fed officials to consider slowing their tightening path. More

Eurozone inflation surged to a record high of 10.7 per cent in October, keeping the pressure on the European Central Bank to continue raising interest rates despite a sharp slowdown in growth in the third quarter.The increase in eurozone consumer prices accelerated from 9.9 per cent in September, which was already the highest in the 23-year history of the euro. The latest high, reported on Monday by the European Commission’s statistics arm Eurostat, also outstripped the 10.2 per cent expected by economists polled by Reuters. It was the 12th consecutive month that inflation has set a record high in the eurozone, taking it to more than five times the ECB’s 2 per cent target.Claus Vistesen, an economist at Pantheon Macroeconomics, said the latest inflation figures were “a proper Halloween nightmare for the ECB”.Real interest rates in the region remain deep in negative territory. The central bank raised its nominal policy rate by 0.75 percentage points last week to 1.5 per cent to tackle “far too high” inflation and said more increases were likely, despite signs the euro area is on the verge of a recession.Gross domestic product figures published on Monday by Eurostat confirmed eurozone growth slowed in the third quarter, rising 0.2 per cent from the previous quarter. The figure was in line with expectations, but marked a slowdown from growth of 0.8 per cent in the previous quarter. Growth accelerated slightly in Germany, but France, Italy and Spain reported sharp slowdowns.Ken Wattret, head of European analysis and insights at S&P Global Market Intelligence, predicted the “energy-related constraints on economic activity during the winter” would cause a “short but sharp recession”, with euro area GDP shrinking 1 percentage point between the final three months of this year and the first quarter of next year.Investors interpreted ECB president Christine Lagarde’s comments last Thursday that it had made “substantial progress” in tightening monetary policy and a recession was “looming much more on the horizon” as indications the central bank could soon start to slow the pace of rate rises.Since then, however, the ECB has sought to distance itself from the idea that it was nearing a “dovish pivot” and Lagarde told Irish broadcaster RTE’s The Late Late Show on Friday evening that “defeating inflation is our mantra, our mission, our mandate”.Monday’s stronger than expected rise in eurozone inflation — despite a sharp fall in wholesale energy prices in recent weeks — is likely to make it harder for the ECB to consider slowing or stopping its tightening of monetary policy anytime soon.Klaas Knot, head of the Dutch central bank who sits on the ECB’s rate-setting governing council, told Dutch TV show Buitenhof on Sunday it was “possible” it could raise rates by 0.75 percentage points for a third consecutive time in December, despite a recession “becoming more and more likely”.Eurostat said energy prices rose 41.9 per cent in October, up from 40.7 per cent the previous month. Prices of food, alcohol and tobacco rose 13.1 per cent, up from 11.8 per cent in September.The closely tracked measure of core inflation, which excludes more volatile energy and food prices to give economists a clearer idea of underlying price pressures, rose 5 per cent, up from 4.8 per cent in September.Eleven of the euro area’s 19 countries had double-digit levels of inflation and in the three Baltic countries it remained above 20 per cent. However, inflation slowed in almost half the bloc’s member states.Economists expect the eurozone to fall into recession next year as the soaring cost of living pushes households to cut back on spending, while sharply higher energy costs force industrial groups to scale back or shut production across Europe.The US economy outperformed many of Europe’s largest countries with quarterly growth of 2.6 per cent in the July to September period, while China reported quarterly growth of 3.9 per cent. More