Economy

Market research firm GfK’s consumer confidence index rose to -47 from -49 in September which was its weakest level since the survey was launched in 1974. Economists polled by Reuters had expected a worse reading of -52.The survey of 2,001 people was conducted between Oct. 3 and Oct. 13, covering the period after Prime Minister Liz Truss agreed to a first of several U-turns on tax policy – reversing her decision to axe the top rate of income tax – but before her resignation on Thursday.New finance minister Jeremy Hunt has said he will drop most of Truss’s economic programme, cut public spending and has warned of further difficult decisions on tax as he tries to restore Britain’s economic policymaking credibility. “Households are not just running scared of burgeoning energy and food prices, and the prospect of further base rate rises increasing mortgage costs. They are now facing the likelihood of tax rises and even austerity measures,” Joe Staton, client strategy director at GfK, said. A three-point fall in a measure of consumers’ willingness to make expensive purchases showed how their caution could slow the British economy which already looks set to go into a recession.”Consumers, like governments, are just as capable of U-turns, and today’s economic headwinds indicate a long hard winter,” Staton said. More

The Financial Conduct Authority’s (FCA) latest Financial Lives survey said the total was up 6 million from 2020, when the economy went into lockdown to fight the COVID-19 pandemic.Britons are facing rising food and fuel prices, with inflation now topping 10%, far higher than most pay increases.The survey said there were 4.2 million people missing domestic bills or credit repayments in three or more of the last six months, up from 3.8 million in 2020.”One in four UK adults are in financial difficulty or could quickly find themselves in difficulty if they suffered a financial shock,” the watchdog said in a statement.The survey found that 27% of Black people said they found it a heavy burden to keep up with bills, compared with 15% of all UK adults.The watchdog said it has already begun reminding banks about how to support customers in financial difficulty, who should contact providers in the first instance to discuss options.The FCA said its survey is the largest of its kind, with more than 19,000 people interviewed between February and June this year. More

UK consumer confidence hovered around a 50-year low last month as Britons struggled against a backdrop of soaring inflation, political turmoil and high borrowing costs, according to new data.The consumer confidence index, a closely watched measure of how people view their personal finances and wider economic prospects, edged up only two points to minus 47 in October, from the minus 49 the previous month.The October reading was only marginally better than September, which was the lowest since records began in 1974.Joe Staton, client strategy director at GfK, said not only were households worried about the prospect of rising food, energy and possibly mortgage costs, but also the “likelihood of tax rises and even austerity measures”.He added that for consumers: “This web of uncertainty and turmoil amounts to a ‘new abnormal’.”The consumer confidence figures covered the period between October 3 and October 13, when turmoil in the financial markets pushed up mortgage quotes and policy interest rate expectations on the back of the “mini” Budget.The analysis was done before Jeremy Hunt replaced Kwasi Kwarteng as chancellor, reversing most of his tax-cutting proposals while warning of “eye-watering” public spending cuts, and before Liz Truss stood down as prime minister. The sub-index for spending intentions for big items, such as properties or cars, fell 3 percentage points to its lowest level since the early months of the coronavirus pandemic, GfK reported. Staton said the loss of consumer confidence was “especially worrying” ahead of the Christmas season, which many businesses rely on to strengthen their balance sheets. On Wednesday, official statistics showed that Britain’s food inflation rose to nearly 15 per cent in September, the highest since records began in 1989. Meanwhile, UK wages are not keeping up with inflation and recorded one of the largest falls in real terms since records began in 2001.On Friday, data published by consumer association Which? showed the spending confidence index was very low in October, but largely unchanged from the previous month. According to the Which? data, 8 per cent of households said they have missed a housing, bill, loan or credit card payment in the last month, an increase on recent months.

Nearly two in three households reported having made at least one adjustment to cover essential spending, including cutting back on food, dipping into savings, selling possessions or borrowing, according to the research.Official data showed that output in consumer-facing industries, such as cinema, bars and restaurants, fell sharply in August, to 8.9 per cent below their pre-pandemic level. Linda Ellett, head of consumer markets, retail and leisure, at KPMG, said that mortgage rates and rents, and energy price uncertainty after the winter are “significant cost concerns that will play on the minds of many consumers over the coming months”.  More

(Reuters) – U.S. card companies are expected to benefit as pandemic-weary consumers continue to fuel demand for travel, one of the biggest contributors to revenue, despite rising inflation.With more companies resuming business travel and people planning vacations, Visa Inc (NYSE:V), Mastercard (NYSE:MA) and American Express (NYSE:AXP) are likely to see a jump in cross border volume, according to analysts.”So far, despite the macro, you continue to see a somewhat stable consumer,” Wedbush Securities analyst Moshe Katri said, adding that monthly data from Visa and Mastercard showed no hit to payments or cross-border volumes.”Bottom line, the sky isn’t falling, at least yet.”Cross border volumes are a measure of travel demand reflecting spending on cards outside the country they were issued.Pent-up demand for travel, coupled with inflation, was making U.S. travelers spend 35% more in the fall this year compared with 2021, according to a report from travel insurance aggregator Squaremouth.com.American Airlines (NASDAQ:AAL), United Airlines Holdings (NASDAQ:UAL) and Delta Air Lines (NYSE:DAL) have also forecast strong profits for the rest of the year, in a sign that travel demand was offsetting concerns about expensive air fares. GRAPHIC: Change in profit for H1 2022 https://graphics.reuters.com/USA-CARDS/RESULTS/byprjzzwlpe/chart.png THE CONTEXTCard companies tend to make more money when prices surge as they typically charge a percentage of the dollar value of transactions.But high inflation can weigh on consumer spending if it is accompanied by rising interest rates, like in the United States, that could tip the economy into recession.A darkening economic outlook has not yet crimped spending by consumers who remain in good financial health, according to U.S. banking giants that reported earnings earlier this month.American Express, which is more sensitive to interest rate increases as credit cards comprise a large part of the company’s business, remains well-positioned.”AmEx’s (credit) loss rates have stayed firmly in check. Its core customers are likely to have higher incomes, who are expected to be less impacted by inflation,” BofA Securities analyst Mihir Bhatia said.American Express will report its quarterly earnings on Friday, followed by Visa and Mastercard next week.AmEx shares have dropped 12%, while Mastercard and Visa are down 17% and 14% this year, respectively. GRAPHIC: U.S. card issuers stock performance YTD https://graphics.reuters.com/USA-CARDS/RESULTS/klvygeeedvg/chart.png THE FUNDAMENTALS Company Refinitiv revenue Refinitiv EPS estimate estimate American Express $13.50 bln (up 24% $2.41 y-o-y) Visa $7.55 bln (up 23% $1.87 y-o-y) Mastercard $5.65 bln (up 13% $2.56 y-o-y) WALL STREET SENTIMENT** American Express – 15 of 28 brokerages rate the stock “buy” or higher, 11 “hold” and 2 “sell”; median PT $170 – Refinitiv data** Visa – 36 of 40 brokerages rate the stock “buy” or higher and 4 “hold”; median PT $257** Mastercard – 35 of 39 brokerages rate the stock “buy” or higher, 4 “hold” and 2 “sell”; median PT $405 More

WASHINGTON (Reuters) -The St. Louis Federal Reserve said it would “think differently” about appearances by its president James Bullard at non-public events after news reports of his attendance at a private policy forum last week sponsored by Citigroup (NYSE:C).The New York Times first reported Bullard’s appearance at the event, which it noted was unpaid but might conflict with Fed communications rules that discourage Fed involvement in events that offer a “prestige advantage” to profit-making enterprises.”Jim Bullard works hard to maintain the spirit of transparency and active communications to make his views widely known,” the St. Louis Fed said in a statement. It noted Bullard had conducted press interviews with Reuters and appeared at one other public event last week on the sidelines of the International Monetary Fund annual meeting, at which he discussed his policy views in detail. Still, the St. Louis Fed posted a transcript of his remarks to the Citi Macro Forum on its website and added that “we are listening to the commentary around this and will think differently about this in the future.”A review of the transcript showed the Bullard’s comments were in line with his public remarks. During the appearance, which lasted an hour according to an agenda of the event released by the St. Louis Fed on Thursday, Bullard delivered several minutes of opening remarks and then fielded about a dozen questions from the audience. Asked about the future path of rate hikes, Bullard repeated his view that the Fed is moving at a fast clip now to lift rates to a level that they are putting “meaningful downward pressure” on inflation — a minimum of 4.5%-4.75% in his view. Once there, he said, it “doesn’t mean we wouldn’t raise rates further at that point, but we’d raise them further based on data.” Bullard is among the most active of Fed officials in speaking at public events and conducting media interviews, a perch he uses to both explain his policy views and delve into research topics around economics and monetary policy.The Fed has had a trying year on ethics issues, including the resignation of two regional bank presidents for securities trading during the pandemic year, and the recent disclosure by Atlanta Fed president Raphael Bostic that his outside financial manager had made transactions apparently at odds with Fed rules. Federal Reserve and Citi representatives declined to comment. More

Good morning. The head of the US Navy has warned that the American military must be prepared for the possibility of a Chinese invasion of Taiwan before 2024, as Washington grows increasingly alarmed about the threat to the island. Admiral Mike Gilday, chief of naval operations, said the US had to consider that China could take action against Taiwan much sooner than even the more pessimistic warnings. The debate in the US about when China might invade Taiwan has intensified since Admiral Philip Davidson, then-head of Indo-Pacific Command, told Congress last year that the Chinese military could take action against Taiwan before 2027. Davidson’s warning was partly played down at the time, but officials have intensified their warnings over the past year. “When we talk about the 2027 window, in my mind that has to be a 2022 window or potentially a 2023 window,” Gilday told the Atlantic Council on Wednesday. “I don’t mean at all to be alarmist . . . it’s just that we can’t wish that away.” Go deeper: In June we reported on how the growing anxiety about a potential Chinese invasion is reshaping the way Washington and Taipei think about defending the country.Thank you for reading FirstFT Asia. Do you think China will invade Taiwan before 2024? Why or why not? Tell me what you think at [email protected].— EmilyFive more stories in the news1. Succession battle begins after Truss quits UK premiership Rishi Sunak, former chancellor, has emerged as the early favourite to become Britain’s next prime minister, after Liz Truss terminated a 44-day premiership marked by economic and political turmoil. Here’s how the leadership contest will work. Bookmark this link to follow the latest developments.More on Truss’s resignation: FT’s Jim Pickard and George Parker look at the turmoil that surrounded the final hours of Truss’s premiership.Opinion: Not even those who predicted that Truss’s premiership would go wrong imagined it would implode quite so rapidly or catastrophically, writes Robert Shrimsley.2. Yen falls to lowest level against dollar since 1990 The yen yesterday slipped past ¥150 against the dollar for the first time in more than three decades as investors remained on alert for another intervention by Japanese authorities to prop up the currency. Elsewhere in Asia, Hong Kong’s Hang Seng index fell to its lowest level since the financial crisis after the city’s new leader stopped short of scrapping restrictions.3. Russian jet ‘released’ missile near UK spy plane over Black Sea A Russian fighter plane released a missile near an unarmed British spy plane patrolling international air space over the Black Sea on September 29, UK defence minister Ben Wallace said, in an incident that Russia later blamed on a “technical malfunction”.4. Germany divided over sale of port terminal stake to China’s Cosco A row has broken out in the German government over whether to let Cosco, the Chinese shipping conglomerate, take a stake in a Hamburg container terminal, with chancellor Olaf Scholz in favour and several ministries opposed on security grounds.5. Tencent steps up buybacks as share price sinks Chinese social media and gaming group Tencent has increased share repurchases to spend more than $3bn this year as the company’s stock price plumbs four-year lows.Have you kept up with the news this week? Take our quiz. The days aheadInflation data Both Hong Kong and Japan will report their September consumer price index inflation rate data today. Steve Bannon sentencing Donald Trump’s former political adviser Steve Bannon is due to be sentenced for contempt of Congress after failing to comply with a subpoena issued by the committee investigating the attack.End of the China’s 20th party congress The week-long congress is scheduled to end on Saturday with a likely third five-year term for Xi Jinping. Corporate China has largely been shut out of Xi’s party congress compared with years past. Women’s World Cup group stage draw New Zealand will hold a draw to on Saturday decide the group stage matches for the ninth Women’s World Cup, which will begin in July 2023 at venues in Australia and New Zealand.What else we’re reading Renault and Nissan close in on deal to save partnership The two carmakers are close to a deal to save their dysfunctional alliance, which rescued the Japanese carmaker from near-bankruptcy 20 years ago and was meant to be a model for how rivals worked together. The deal being discussed would reduce Renault’s outsized voting rights, according to six people with knowledge of the details.Biden goes it alone in his trade assault on China Joe Biden’s move to impose semiconductor export controls is risky, and not just for obvious reasons such as direct Chinese retaliation. A more fundamental hazard is that the US, acting largely without allies, is stoking a major trade and tech conflict it might not always win, writes Alan Beattie. India’s rice farmers on front line of water crisis In the 1960s, India’s “green revolution” heralded a surge in the production of staple crops, which helped prevent the famines that had previously blighted the country. But the intensification of farming has led India to become among the most water-stressed countries in the world.

Climate chaos: floods in some areas — such as these in Assam in June — coincide with water shortages elsewhere © David Talukdar/Anadolu Agency/Getty Images

In praise of the long and luxurious sleep The irritating “smug sleeper” seems to be able to survive — thrive, even — on precious little sleep. But “nine-hours-a-night” Jemima Kelly writes that scientific evidence suggests she is wise to value her shut-eye.Is DeSantis a Trump without the drama? Florida governor Ron DeSantis opted for a restrictions-light response to the Covid-19 pandemic that made him a conservative hero. Since then, he has harnessed a combination of intellect and calculated hostility to outsiders, elites and the media to become the potential standard bearer of the US’s populist movement. TravelExplore Arashiyama, one of Kyoto’s top tourist destinations, with our new FT Globetrotter guide. Arashiyama is well worth exploring for its lovely walks dotted with historic temples and gardens, as well as one of Japan’s most famous and iconic bridges. It also happens to be a mecca of Japanese classical literature. More

(Reuters) – Meta Platforms Inc has almost no chance of barring the chair of the U.S. Federal Trade Commission, Lina Khan, from participation in the FTC’s challenge to Meta’s planned acquisition of virtual reality content developer Within Unlimited Inc.But that has not stopped Meta from continuing to wage a campaign for Khan’s disqualification, as evidenced most recently in a filing this week with U.S. District Judge Edward Davila of San Jose, California, who is overseeing the FTC’s bid for a preliminary injunction to block Meta from acquiring Within.The background: Meta and its predecessor Facebook (NASDAQ:META) have been arguing for more than a year that Khan’s pre-FTC speeches, writing and testimony showed so much animus toward Facebook and other big tech companies that she cannot be relied upon to make unbiased decisions as FTC chair.It’s been a complex and multi-pronged effort. Meta first moved formally for Khan’s recusal last October, after she cast the deciding vote for the FTC to file an amended complaint in federal court accusing Facebook of antitrust violations related to its acquisition of Instagram and WhatsApp. The FTC rebuffed the recusal demand, noting that its case against Facebook was being prosecuted in federal court, not in an administrative proceeding, so the company would receive full constitutional protection from the trial judge.Meta then argued that Khan’s bias required dismissal of the FTC’s amended complaint because she cast the deciding vote for the commission to revive its lawsuit. U.S. District Judge James Boasberg of Washington, D.C., rejected that argument last January. The judge ruled that Khan was acting more like a prosecutor than a judge in voting for the FTC to file an amended complaint. Her previous expressions of her policy views about alleged big tech monopolists, Boasberg said, did not require Khan’s recusal under the standard for federal prosecutors.But now Meta is contending that a different disqualification standard applies in the Within litigation, in which the FTC has brought both an administrative proceeding alleging that the proposed deal violates federal antitrust laws and a lawsuit in federal court to enjoin the transaction. In a recusal petition at the FTC last July, Meta lawyers from Weil, Gotshal & Manges said that Khan would be acting as a judge in any administrative case brought by the FTC, so the case would be marred by “the prejudicial effect of her predetermined views of Meta.”Meta subsequently sought to stay the administrative proceeding, arguing, among other things, that Khan’s participation “undermines the legitimacy” of the case. (The petition and stay motion are not in the FTC docket but are exhibits in the preliminary injunction case.)Meta also raised the issue of Khan’s purported bias as an affirmative defense in the preliminary injunction case before Davila in San Jose federal court, though not in a motion calling for her disqualification. Instead, its lawyers at Kellogg (NYSE:K), Hansen, Todd, Figel & Frederick have asserted in an affirmative defense that Khan’s role in the FTC’s merger challenge has so tainted the litigation that the FTC cannot ultimately prevail and moreover that it would be unfair to grant a preliminary injunction to the FTC, given the agency’s “patently improper and inequitable conduct.”Khan has declined to step aside from the merger challenge. We know this from an Oct. 6 letter from the FTC to Weil Gotshal in the administrative proceeding. The letter said that under the FTC’s recusal rules, Khan’s decision to remain in the case will now be reviewed by the other FTC commissioners.Meta informed Davila of that procedural development in a filing this week in the preliminary injunction case, noting that it could be relevant to the FTC’s motion to strike Meta’s affirmative defenses.Meta, as I mentioned, is almost certain to lose on the recusal issue before the full commission. FTC rules require that an individual commissioner’s decision not to recuse can only be overruled by a majority of the other commissioners. At the moment, there are only three FTC commissioners other than Khan, following the departure of Republican commissioner Noah Phillips. It’s unlikely that two of those three would vote to kick Khan off the Meta merger challenge.In response to my query, Meta sent a statement about its recusal efforts: “We have previously expressed concern about Chair Khan’s impartiality in matters involving Meta, and we have the same concerns with regard to this case.” An FTC spokesman referred me to the agency’s recusal rules.So why is Meta pushing so hard on an issue it has already lost once and is likely to lose again? To tease out that question, I talked to Louis Virelli, a professor at Stetson University College of Law. (Virelli correctly predicted last year that Meta’s disqualification play in the case before Boasberg would fail.)The company, he said, has a stronger argument for Khan’s recusal in the Within merger litigation because the FTC chair is acting as an adjudicator in the administrative proceeding. But the FTC’s internal standard for recusal is “very vague and open-ended,” Virelli said, leaving plenty of room for the commissioner’s discretion. If Meta ends up losing the FTC’s administrative case, it will probably cite Khan’s refusal to recuse as one of its grounds for appeal, Virelli said, but the bar is very high in such appeals.In the meantime, though, Virelli said, Meta can point to its protest of Khan’s ongoing participation in the administrative proceeding to argue against a preliminary injunction in federal court.Remember, Meta is not asking Davila to order Khan off either the preliminary injunction case or the administrative proceeding. It is instead relying on its assertion that the administrative proceeding is tainted to refute the FTC’s arguments that it will ultimately prevail on the merits of the administrative proceeding and that the equities weigh in favor of blocking the deal while that case is litigated.The company is paying a lot of lawyers across two parallel cases to play this multi-dimensional chess game. We’ll know more about whether the stratagem accomplished anything when the preliminary injunction case goes to a hearing in December.Read more:FTC files slimmed-down complaint in fight with Meta over Within acquisitionFacebook judge rejects argument for FTC chair’s recusal: ‘Courts must tread carefully’Facebook’s backup argument to toss FTC case is public policy pickle More

The Conference Board’s Leading Economic Indicators index indicated that conditions worsened in September.
While not usually considered a major data point, the LEI, combined with Fed rate hikes, is signaling trouble for the economy.
“We went from a Fed that was way too easy to being irresponsibly tight,” said Joseph LaVorgna, chief U.S. economist at SMBC Capital Markets.

Employees work at the BMW manufacturing plant in Greer, South Carolina, October 19, 2022.
Bob Strong | Reuters

The economy sent a low-key signal Thursday that a recession is looming — and that the Federal Reserve could be making a policy mistake by continuing to try to slow things down.
According to the Conference Board’s Leading Economic Indicators index, conditions worsened in September, with the gauge down 0.4% from the month before and off 2.8% for the six-month period.

“The US LEI fell again in September and its persistent downward trajectory in recent months suggests a recession is increasingly likely before year end,” said Ataman Ozyildirim, senior director of economics at the Conference Board. Ozyildrim noted that the weakness in the index was “widespread” as high inflation, a decelerating jobs picture and tighter credit conditions are pressuring the economy.

The index looks forward using 10 metrics that include manufacturing hours worked, jobless claims, building permits, stock market indexes and credit spreads.
Normally, the LEI is not considered a major data point. It’s not necessarily that the measure isn’t a good snapshot of the economy, but more that the data points that go into the index are already known, so there’s not much new information.

A reverse trend for the Fed

However, in the present conditions, the index is of greater significance as it comes at a time when the Federal Reserve is looking to tighten the screws further on growth in an effort to bring down rampant inflation.
That bucks a general historical trend where the Fed is usually loosening policy when the outlook turns darker. However, Fed officials are stressing that they’re far from finished when it comes to raising rates.

“We went from a Fed that was way too easy to being irresponsibly tight,” said Joseph LaVorgna, chief U.S. economist at SMBC Capital Markets and a former senior economic advisor to then-President Donald Trump. “When this basket is signaling the weakness that it’s showing, what the Fed typically does is not raise rates. But in this case, it’s not only raising rates aggressively, but with a commitment to continue raising rates aggressively.”
LaVorgna’s research shows that in previous downturns in the leading indicators, the Fed was always cutting rates or in pause at the same time. This was the case in early 2020, the financial crisis in 2008 and the recession in the early part of the 21st century — among multiple other economic contractions.

He is concerned that the Fed’s insistence on tightening policy will have even worse outcomes ahead.
“The lags in the policy mean the full effects of Fed actions have not yet been wholly felt. Worryingly, the Fed is not done,” LaVorgna said in a client note.
LaVorgna is not alone in his belief that the Fed is overdoing its efforts to tamp down inflation that continues to run around its highest levels since the early 1980s.
In a recent CNBC interview, Starwood Capital Group CEO Barry Sternlicht said the central bank is risking “unbelievable calamities if they keep up their action, and not just here, all over the globe.” Goldman Sachs CEO David Solomon, JPMorgan Chase CEO Jamie Dimon and Amazon founder Jeff Bezos in recent days all have expressed concern about a recession ahead, though they have not singled out the Fed’s actions.

Disappointment on inflation

However, Philadelphia Fed President Patrick Harker said Thursday he thinks the central bank still has work to do before it can relax as he said he’s seen a “disappointing lack of progress” in the inflation fight.
“What we really need to see is a sustained decline in a number of inflation indicators before we let up on tightening monetary policy,” said the central bank official, who is a nonvoting member of the rate-setting Federal Open Market Committee.
Thus far, the inflation data indeed has not been on the Fed’s side.
In addition to the typical headline metrics such as the consumer price index and the Fed’s preferred personal consumption expenditures price index, the Cleveland Fed’s “sticky price” CPI rose 8.5% on an annualized basis in September, up from 7.7% in August. The measure looks at items such as rent, the price of food away from home and recreation costs.
Services inflation has been particularly nagging, rising 7.4% in September on a 12-month basis, up from 6.8% in August, according to Trading Economics. That has happened as the economy has transitioned back to services from high goods demand for much of the Covid era.

Critics, though, say the Fed is following too many backward-looking data points. But policymakers also are fighting a battle against inflation expectations that, while drifting lower now, could turn higher especially now that gasoline prices are rising again.
“The challenge for the Fed is we haven’t seen the true leading indicators be leading in the sense that inflation has still stayed persistently elevated in the face of these leading indicators that would suggest otherwise,” said Jeffrey Roach, chief economist for LPL Financial.
In Roach’s view, the only bright spot is that financial markets could be close to pricing in all of the damage from higher rates and inflation. Also, the continued decline in the LEI at least could give the Fed reason to slow the pace of its rate hikes. Roach expects the Fed to hike by another 0.75 percentage point in November, then decelerate to a 0.5-point move in December, which is not the market expectation.
“In a nutshell, this report does not likely change anything for the November meeting,” Roach said. “However, you could argue that this does build a case for a downshift in December.”

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