Economy

LONDON (Reuters) – Bank of England Deputy Governor Ben Broadbent told investors on Thursday that the big increases in interest rates they had priced in on the back of Prime Minister Liz Truss’s fiscal plans would deliver a “pretty material” hit to the economy. In a speech, Broadbent said it was now unclear how much the Truss government’s energy price cap plan would add to inflation pressure in the medium term after the scheme was drastically shortened by new finance minister Jeremy Hunt.”The MPC (Monetary Policy Committee) is likely to respond relatively promptly to news about fiscal policy,” Broadbent said in the speech delivered at Imperial College in London.”Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen,” he said.Despite falling in recent days, the expectations financial markets for the BoE’s Bank Rate to peak at about 5.25% was “by some distance the largest rise in market interest rates between MPC forecasts since the Committee was founded,” Broadbent said.”If Bank Rate really were to reach 5.25%, given reasonable policy multipliers, the cumulative impact on GDP of the entire hiking cycle would be just under 5% – of which only around one quarter has already come through,” he said.”It would imply a pretty material hit to demand over the next couple of years.”Investors further reined in their expectations of a full percentage-point interest rate increase by the BoE next month and British government bond future prices rose as Broadbent spoke. Rate futures put a 17% chance on a 100 basis-point increase on Nov. 3, down from 25% earlier on Thursday. A whole percentage-point rate hike was seen as a near certainty before Truss was forced to backtrack on her unfunded tax cut plans.Broadbent said in his speech that if government support mitigates the effect of inflation on households – as it is doing with its cap on energy prices – there was a bigger job “at the margin” for monetary policy to do.But there was now uncertainty about the scale of the plan which finance minister Hunt has said will run for six months, not two years as originally planned by Truss, although targeted support would continue after that. “We are unlikely to know for a while precisely the form that will take,” Broadbent said. He sounded doubtful on whether Britain could engineer a “soft-landing” – a U.S. term for bringing inflation back to target without significantly damaging the real economy.”I don’t want to say whether it’s a soft landing, but here we’ve got this huge extra hit to real incomes that the U.S. doesn’t have,” Broadbent said. More

Russia is expected to post a budget deficit of around 2% of GDP this year, as the fallout from Western sanctions and the costs of Moscow’s “special military operation” in Ukraine weigh on the economy and the government’s finances. ($1 = 61.52 roubles) More

Every European country is worrying about high energy prices, and as far as I can tell, each has put government money on the table to support those having to pay them. (Readers, let me know of any exceptions!)But how best to design such support is a thorny question, and an extremely topical one. Just two examples: Germany is setting aside up to €200bn but must now decide how to use that war chest. The UK did things the other way round and adopted an across-the-board price cap, then looked at the price tag and decided — after a bit of ministerial turnover — that the system has to be made more targeted.A useful starting point is to think in terms of two extremes. At one end are universal price caps, where a maximum or guaranteed price is offered to all users, and the government steps in to pay the difference between it and what it costs to get the energy supplied (the wholesale price, say). The other extreme is not to regulate prices at all, and just let the market do its work to match supply and demand. Instead, consumers are given cash support so that while people face higher prices, they get financial help to be able to afford them. Price caps have the advantage of simplicity and generosity. Generosity is also one of their disadvantages: they help everyone, including those who don’t need it (because they are wealthy enough to be consuming more energy to begin with) more than those who do. Cash compensation, on the other hand, is complicated. How much to give, whether and how to means-test it, which criteria to apply for eligibility all have to be decided. It may be hard to get compensation to the right people in sufficient amounts to prevent serious hardship. It also leaves the sticker shock in place, and with it the stress that rising prices cause. But again the disadvantages are also advantages. Because cash compensation can be targeted, you can bring more effective help for less taxpayer cost. And sticker shock is what gives an incentive to economise on energy. For me, the last bit is the decisive difference. Price caps give the wrong incentive — to consume even more of something whose scarcity is the root of the problem. Market pricing with cash compensation will reduce consumption — and leave more money over for reducing total energy costs.If this sounds like Economics 101, that is a danger sign — because Economics 101 tends to start but also to end with letting prices do the job. This week I debated energy pricing with German economist Sebastian Dullien (do follow him if you are on Twitter), who pointed out the analogy of the energy crisis with famines. With reference to the work by economists Amartya Sen and Jean Drèze, Dullien highlighted that you do not solve famines with the price mechanism — otherwise people die. There always have to be redistributive policies. He encourages us not to be seduced by the standard economic starting point of using price mechanisms to allocate scarce goods in the case of the energy crisis.I had some quibbles with the analogy. One of Sen’s important points is that famines are not typically caused by shortfalls in the production of food but rather a failure to secure everyone’s entitlement to enough food. It is clear that the current energy crisis, in contrast, is due to a shortfall in energy supply in the form of Russian president Vladimir Putin deliberately turning off the gas taps to Europe. There simply isn’t as much gas available as before.But Dullien’s bigger point about the price mechanism stands — on its own, it doesn’t get us anywhere near an acceptable outcome. That is precisely why Putin is wreaking havoc with energy prices and why European governments are rightly looking for policy to remedy the consequences. Still, the price mechanism plays an indispensable part in that remedy. Because price incentives work. They really do. Take a look at the European Commission’s latest quarterly reports on energy markets. EU gas consumption was 16 per cent lower in the second quarter than a year earlier. That is inconceivable without the big rise in prices that took place.Between the extremes are designs that combine the two approaches. One is to compensate a proportion of energy costs above a certain price level, creating a sort of soft price cap. Norway does this — households get 90 per cent of electricity costs above roughly €70/MWh covered in a government-paid rebate on their bills. That blunts a lot of the incentive to save, but at least the rebate only applies up to an allocated amount of energy consumed, so above that allocation the price incentive applies in full.Another design with a similar effect is a tiered tariff, where a price cap applies up to a certain reasonable but modest allocation of energy, and the market-clearing price to the rest. This is the Norwegian rebate model with a 100 per cent compensation rate. That, of course, also keeps the incentive to economise in place, down to the amount allocated under the cheaper price. The size of that subsidised allocation can be means-tested and tailored according to circumstances and is therefore more cost-effective than a price cap. (Social tariffs, where eligible consumers are offered a lower price up to a certain quantity, are a means-tested version of tiered tariffs.)Germany seems set to adopt an approach along these lines, after an expert commission recommended it (Dullien has a nice Twitter thread summary in English). It seems an amount of gas — in general, 80 per cent of consumption — will be subsidised so as to cost no more than €120/MWh. A particularly nice feature of the German proposal is that you get to keep the whole rebate that secures the guaranteed price even if you manage to bring consumption down to less than 80 per cent (the full allocation). In theory, you could come out in profit if you reduced your energy use enough as explained here. The market incentive to economise never disappears. There are, of course, important decisions and trade-offs to make, but they should be within this general sort of design. A crucial decision is how big the subsidised allocation should be. The German reference to past consumption is far from ideal, for example, because it favours those who could afford to be profligate with their energy use — a flat allowance based on household characteristics rather than past behaviour would be better. It is harder still to come up with a reasonable allowance for businesses, where past use may be the best one can get. This leads us to the last point. We often hear warnings that if we don’t manage to reduce energy use enough by the winter, we risk “rationing”. But whenever you set allocations of energy to be supplied below the market-clearing price, you are already rationing. Any policy intervention that segregates specific quantities out of the price mechanism amounts to rationing. You can only avoid it by picking one of the extreme two options we started out with (or not help at all, and let the energy famine rage). So we shouldn’t let the debate be distracted into “pros and cons of rationing” but focus squarely on the kind of rationing that is best.Other readablesThe Ukrainian economy may be growing again.The Federal Reserve is discreetly asking financial institutions whether the US, too, might face hidden instabilities like the UK’s pension fund meltdown.Brussels is increasing the pressure on Poland over the rule of law. Numbers newsFT Alphaville quantifies the UK “moron risk premium”. More

Traders are pushing the London Metal Exchange to stop accepting Russian metal, fearing its warehouses will become a stockpile for unwanted material that distorts global prices for commodities like aluminium and copper. The push has pitted users of the world’s largest metals exchange against each other and comes at a critical time, as metal producers and buyers gather in London next week to finalise their contracts for supplies for the year ahead.For the exchange, the dilemma constitutes another problem in a challenging year in which it has enraged some of its biggest users. It is already facing lawsuits from hedge fund Elliott Management and market maker Jane Street over its decision to cancel several hours’ worth of nickel contracts during a historic surge in prices in March. Its latest difficulty comes as large trading houses like Glencore are deciding whether to renew their long-term contracts with Russian producers. With the industry preparing for next week’s annual LME Week get-together, the uncertainty over a ban means that many purchasers are deliberately staying away from deals that may involve Russian metals.“Consumers are saying to the LME, ‘Your contract is not fit for us at the moment, we are self-sanctioning Russian material, we don’t want to dip into the LME warrant pool and pull out a warrant for Russian material’,” said Colin Hamilton, commodities analyst at BMO Capital Markets.Traders said that puts the LME into a difficult position that needs urgent resolution. It plays a critical role in the daily functioning of the market, supplying metals when there is a shortfall or accepting it into its warehouses when there is an excess. Russia produces 6 per cent of the world’s aluminium, 5 per cent of copper, and 7 per cent of nickel.If it continues to accept unwanted Russian material into its warehouses but many of its users shun it, it will create a stockpile. The exchange is worried that the price on its market would reflect the glut of cheap, unwanted Russian metal it holds and not the price charged in deals that are cut directly between producers and consumers. Many of the private deals are already including a premium on the price for transactions that do not include metal supplied from Russia. Chile’s Codelco, the world’s top producer of copper, has offered to sell its metal for $235 per tonne above the LME benchmark three-month contract, which trades at almost $7,450 per tonne, according to a person familiar with the matter. A mismatch would undermine the LME’s role as a marketplace that set a fair and accurate market price.Moreover there are signs that Russian producers are trying to get ahead of any future restrictions by increasing their deliveries to LME warehouses.Since Friday about 200,000 tonnes of aluminium have entered LME warehouses — an unusually high level. While much of the material appeared to come from India, it has stoked fears about a build-up of Russian material. “The market is clearly nervous that there is a big delivery of Russian material coming,” said Hamilton.In an effort to resolve the problem, the LME set out three options for its users in a discussion paper this month, after it became apparent to the exchange that more users might be shunning Russian metal than it had previously believed.According to the LME’s three possible scenarios, it can continue as usual, implement a ban or set volume limits on the amount of Russian material that can be accepted into warehouses. Traders conceded that the third route would technically be the most difficult to implement. Market participants have been given until October 28 to provide feedback.Companies like US aluminium producer Alcoa have led calls for a ban but Russian rival Rusal has warned the move would fuel volatility in the market.An LME ban could jeopardise Russian producers’ supply contracts with buyers and their financing arrangements with lenders, given that both often require metal to be able to be deposited to LME warehouses. Other LME users bristle at the principle of a private company moving ahead of any formal government sanctions. “The pattern of sanctions should be owned by governments. It would be wrong personally for an institution to decide,” said one trading executive. The LME declined to comment but noted in its discussion paper that finding the appropriate balance of action is “paramount”.To date western governments have avoided comprehensive sanctions on Russian metal, in part because its supply of crucial industrial metals would be difficult to replace and the effect would spill over into western economies.Two market sources said Joe Biden’s administration was considering whether to target Russian aluminium through a US ban, raising tariffs, or putting sanctions on Rusal, the largest producer of the metal in Russia. But a US official cautioned that no decision was close. “We are always considering options but nothing is moving on this imminently,” a US official said. Any US sanction on Russian exports of aluminium, which is used in aircraft, weaponry, cars and drink cans, would have far-reaching implications for global metals trading.The price of the benchmark aluminium contract on the LME gained sharply last week on reports of the US considering sanctions before paring back to $2,171 per tonne. That is well above its average price over the previous decade but down by almost half from its peak in March. “The LME discussion paper sends the ball back into governments’ side of the court,” said Tommy Bain, Marex’s head warrant trader and chair of the LME warehousing committee. “Without sanctions by the US, the LME is caught between a rock and a hard place.” More

James Bullard, who leads the Federal Reserve Bank of St. Louis, appeared at a Citigroup forum last week in Washington. Reporters were not invited.James Bullard, the president of the Federal Reserve Bank of St. Louis, spoke last Friday at an off-the-record, invitation-only forum held by Citigroup, and open to clients, on the sidelines of the World Bank and International Monetary Fund’s annual meetings in Washington.Mr. Bullard’s remarks touched on both monetary policy and issues of financial stability during a tumultuous week in the global economy. It was the kind of speaking event that the news media would typically be able to attend given the potential for market-moving news, but Mr. Bullard and his staff did not alert reporters.Mr. Bullard was not compensated for his speech, a spokesperson for the Federal Reserve Bank of St. Louis said. But he appeared behind closed doors and in front of Wall Street investors at a critical juncture for markets, when every comment a central banker makes has the potential to move stocks and bonds. It gave the attendees a behind-the-scenes snapshot into the thinking of a voting Fed policymaker and Citi a possible chance to profit from his comments, inasmuch as clients may use the bank’s services in hopes of receiving similar access in the future.“This is not normal,” said Narayana Kocherlakota, a former president of the Federal Reserve Bank of Minneapolis. With a bank’s clients involved, he added, “the optics are terrible.”The Federal Reserve Bank of St. Louis called the discussion informal and said Mr. Bullard had participated in the event in the past. It also noted that he had given an interview to Reuters earlier in the day with remarks similar to those he made at the Citi event, and appeared at other forums in Washington on Friday and Saturday. As a result, they said, the public had access to his views.But a person who attended the speech, who spoke on the condition of anonymity because the forum was meant to be off the record, said Mr. Bullard had also suggested during his comments that based on the historical record, the market gyrations in response to the Fed’s moves had been less pronounced than might have been expected given how much rates have increased. The Reuters article did not include that observation.Mr. Bullard had shared that view on financial stability in public before, the St. Louis Fed spokesperson said.Mr. Bullard gave an interview to Reuters earlier in the day with remarks similar to those he made at the Citi event, a spokesperson at the St. Louis Federal Reserve said.Hiroko Masuike/The New York TimesAt the Citi event, Mr. Bullard also reiterated his view that another large three-quarter-point rate increase could be appropriate in December, which the Reuters article noted.This was not the first time that a Fed official had spoken before an invitation-only group of people who may have benefited from talking to him. In March 2017, Stanley Fischer, then the Fed’s vice chair, gave a closed-door speech at the Brookings Institution that drew some outcry. More commonly, Fed officials meet with economists and traders from banks and investment funds in small-group settings to exchange information about markets and the economy.Our Coverage of the Investment WorldThe decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.A Bad Year for Bonds: This has been the most devastating time for bonds since at least 1926 — and maybe in centuries. But much of the damage is already behind us.Discordant Views: Some investors just don’t see how the Federal Reserve can lower inflation without risking high unemployment. The Fed appears more optimistic.Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home. Here is some advice.College Savings: As the stock and bond markets wobble, 529 plans are taking a tumble. What’s a family to do? There’s no one-size-fits-all answer, but you have options.And Fed officials regularly speak at bank events, though their remarks are typically flagged to the news media and either open to them, streamed or recorded. That was the case with a UBS event where Mr. Bullard was a speaker on Saturday..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}What we consider before using anonymous sources. Do the sources know the information? What’s their motivation for telling us? Have they proved reliable in the past? Can we corroborate the information? Even with these questions satisfied, The Times uses anonymous sources as a last resort. The reporter and at least one editor know the identity of the source.Learn more about our process.What is notable about Mr. Bullard’s Citi meeting is that it was neither an information-gathering excursion with a handful of people nor a publicly available speech. About 40 people attended the event, which had a formal agenda and was advertised to Citi clients, two people familiar with it said. Mr. Bullard spoke for 10 minutes before answering attendee questions.“It’s important, even mission-critical, that the Fed is in open dialogue with all sectors of the economy,” said Kaleb Nygaard, who studies the central bank at the University of Pennsylvania. “Much of the letter, as well as the spirit, is that the central bankers are supposed to be on the receiving end of the information.”The Citi forum also featured central bankers from outside the United States — including Anna Breman, deputy governor of Sweden’s Riksbank, and Olli Rehn of the European Central Bank’s governing council — but at least some of their appearances were flagged to the news media and some of their speeches were published.It is not clear if Mr. Bullard’s speech violated the Fed’s communication rules, but some outside experts said they seemed to tiptoe near the line.The Fed’s rules do not explicitly bar central bankers from closed-door meetings, though they do say that, “to the fullest extent possible, committee participants will refrain from describing their personal views about monetary policy in any meeting or conversation with any individual, firm or organization who could profit financially” unless those views have already been expressed in their public communications.The rules also say officials’ appearances should “not provide any profit-making person or organization with a prestige advantage over its competitors.” That Citi was able to offer a closed sit-down with a central bank official may have given it such an advantage, even if his remarks did not break major news.“Citi is flexing here” in its ability to offer “privileged access,” said Jeff Hauser, director of the watchdog group the Revolving Door Project, explaining that for investors, a chance to understand a central banker’s thinking in real life is a valuable source of financial intelligence.“There are few better sources of information on the planet than a member of the Federal Open Market Committee,” he added. “Their every utterance is treated as potentially market moving.”Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, had failed to correctly report trading activity in a managed retirement account for several years.Valerie Plesch/BloombergThe Federal Reserve Board and Citi declined to comment.The news comes just as an ethics scandal that has dogged the central bank for more than a year appears to be on the verge of bubbling back up.The Fed’s ethics rules came under scrutiny last year after three central bank officials were found to have made financial transactions during 2020, when the Fed was actively shoring up markets at the onset of the coronavirus pandemic and officials had access to market moving information.All three resigned early, though some cited unrelated reasons, and the Fed ushered in a sweeping overhaul of its trading rules. But last week, one official — Raphael Bostic, president of the Federal Reserve Bank of Atlanta — disclosed that he had failed to correctly report trading activity in a managed retirement account for several years. His retirement account had several trades on key dates in the market meltdown of 2020, though he said he had no knowledge of the specific trades, since he used an outside money manager.Norman Eisen, a senior fellow in governance studies at the Brookings Institution and an expert on law, ethics and anti-corruption, said Mr. Bostic’s trades appeared “benign” relative to those of the other officials.Of Mr. Bullard’s appearances, he said that at first glance, “it’s not an ethics violation, but it’s not a great look.” More

Nestled near Europe’s rooftop, Finland spent decades leveraging its location to become a popular gateway for Asian travelers. Its flagship airline, Finnair, offered flights from Tokyo, Seoul and Shanghai to Helsinki that, by crossing over Russia, were hours shorter than flights to any other European capital. Airport chiefs invested nearly $1 billion in a new terminal with streamlined transfers. There were signs in Japanese, Korean and Chinese, and hot water dispensers for the instant noodle packets favored by Chinese tourists.Then Russia sent troops across Ukraine’s border on Feb. 24, and overnight the carefully constructed game table was overturned.Russia closed its airspace to most European carriers in response to bans on Russian planes. What was once a nine-hour flight to Helsinki when routed over Russia’s 3,000-mile expanse would now take 13 hours and as much as 40 percent more fuel because it had to swoop around borders.Finnair’s competitive advantage as the fastest connection from Asia and a travel hub for Europe vanished in a wisp.The sudden disintegration of Finnair’s business model is part of the wide-ranging economic upheaval that the war in Ukraine is causing for businesses around the globe.Companies that invested or traded heavily with Russia were immediately affected, and more than 1,000 have withdrawn operations from Russia, according to a database compiled by the Yale School of Management.Juho Kuva for The New York TimesNearly $1 billion was spent to build a terminal in the Helsinki, Finland, airport to streamline transfers for passengers from outside Europe.When Russia closed its airspace, Finnair could no longer pitch itself as the fastest connection from Asia.“The Asia strategy had been 20 years in the making,” Topi Manner, Finnair’s chief executive, said.High energy prices have blitzed a wider range. The Hungarian Opera House’s Erkel Theater will temporarily close because it cannot pay its energy bill. Hakle, one of the largest manufacturers of toilet paper in Germany, declared insolvency because of soaring energy costs, while ceramic, glass, chemical, fertilizer and other factories across Europe have been forced to scale back or shut down.The snack food industry, unable to get sufficient supplies of sunflower oil from Ukraine, has had to scramble for substitutes like palm oil, forcing manufacturers to rejigger supply chains, production and labeling, since they could no longer boast that their products were “nonallergenic” and “non-G.M.O.”The closed airspace caused Japan Airlines and ANA to cancel flights to Europe. And this month Virgin Atlantic said it was ceasing all traffic to and from Hong Kong because of Russia’s ban. For Finnair, though, the fallout has been extreme.“The Asia strategy had been 20 years in the making,” Topi Manner, Finnair’s chief executive, said from the company’s headquarters, next to the Helsinki terminal in Vantaa. Services were tailored to meet the tastes of its Asian customers. Half of its in-flight movies are dubbed or subtitled in Japanese, Korean and Chinese. Meal offerings include crispy chicken in Chinese garlic and oyster sauce and Korean-style stir-fried pork in spicy sauce with bok choy and steamed rice. The airline’s ground staff in Helsinki are fluent in the region’s native languages.Market Square in central Helsinki.Before the coronavirus pandemic, half of the airline’s revenue was generated by travelers from Asia. Passengers that used Helsinki as a hub to transfer to other destinations accounted for 60 percent of the revenue.But with “no end in sight” to the war, Mr. Manner said, the airline’s management quickly concluded “that Russian airspace will remain closed to European carriers for a long time and we need to adapt to that reality.”This summer, Finnair operated 76 flights between Helsinki and Asia, compared to 198 in the summer of 2019. Overall, the airline is going at 68 percent of its capacity. Operating losses in the first half of this year amounted to 217 million euros.“We really have to regroup,” Mr. Manner said.In some respects, Finnair has been regrouping ever since the pandemic hit in early 2020 and virtually halted world travel. China’s “zero Covid” policy, which continued to lock down Shanghai and other major cities this year, sharply reduced East-West traffic, hampering Finnair’s recovery compared with airlines that have large domestic markets or operate in other regions. Finnair, half of which is owned by the government, fought to survive by furloughing employees, cutting costs and raising 3 billion euros in new financing.Juho Kuva for The New York TimesThe new terminal was expected to draw 30 million passengers by 2030, a projection that has been thrown out by the uncertainty now facing Finnair’s Asia strategy.The project aimed to improve services for the connecting passengers from Asia who would never leave the airport.A 2017 publicity campaign by the state-owned company that runs Finland’s terminals primarily targeted customers from China.“We created a path through the pandemic,” Mr. Manner said, but it always was intended to lead “back to the Asia strategy.”No longer. Last month, the company officially announced an about-face.“We started to pivot our network toward the West,” Mr. Manner said, expanding its partnership with American Airlines, British Airways and other carriers. In the spring, it launched four new weekly flights from Dallas-Fort Worth and three from Seattle. New routes from Helsinki to Stockholm, Copenhagen, Mumbai, India, and Doha, Qatar, have also been unveiled. As jet fuel prices skyrocket, the airline is also renting out planes and crews to other airlines, and it plans to shrink the size of its fleet and staff, and to slash costs.Finnair, which has lost 1.3 billion euros over the past three years, said it hoped to return to profitability in 2024.“It will take some time before the company gets to see if this is the right decision,” said Jaakko Tyrväinen, an airline analyst with SEB, a Nordic financial services group.For the new Helsinki terminal — which opened in June — a strategy shift was also needed.Central Helsinki.An estimated 30 million passengers were expected by 2030, up from the nearly 22 million that the existing terminals handled in 2019. Those projections are now irrelevant, and airport officials say the situation is too uncertain to make any meaningful update to that figure. Next year, 15 million travelers are expected to pass through.Perhaps more pointedly, the project, begun nearly a decade ago, was designed to improve services for transfer passengers from Asia — a majority of whom would never leave the airport.A multimedia publicity campaign that Finavia, the state-owned company that runs the country’s airline terminals, rolled out in 2017 for Helsinki airport — code letters HEL — primarily targeted customers from China. With a nod to the 2004 film “The Terminal,” the campaign, “Life in HEL,” featured Ryan Jhu, a popular Chinese actor and social media influencer, living for a month in the terminal.Now, Helsinki has an expansive new terminal dedicated to non-European transfer traffic but very few travelers.Juho Kuva for The New York TimesThe project to build the new terminal was begun nearly a decade ago.The spacious aukio, or meeting plaza, includes a wraparound video installation depicting Finnish landscapes.The upshot to the changes forced upon Finnair is vastly fewer connecting passengers in a terminal designed for them.On a recent weekday afternoon, the long, snaking lanes created to handle crowds at passport control were deserted. The spacious aukio, or meeting plaza, where passengers could sit and watch a wraparound video installation depicting Finnish landscapes, hosted a lone woman with a backpack. Moomin Shop, which sells merchandise related to the Finnish cartoon characters — particularly popular with Japanese visitors — had no customers. The Moomin cafe, farther down the main hallway, was mostly deserted.“Mornings are normally slow,” said Liccely Del Carpio, who works at the Moomin store, adding that business often picks up later in the afternoon. “All in all, it’s been OK.”The European terminal was bustling, but most of the shops and cafes that stretched along this terminal’s long hall were empty. Several other spaces were unleased or shuttered.Sami Kiiskinen, the vice president of airport development at Finavia, said that the hundreds of millions of euros in loans used to construct the airport would ultimately be repaid, but that “the schedule of paybacks must be reconsidered.” Negotiations are happening, he said.Yet, despite the likelihood that the war in Ukraine will drag on and Russian airspace will remain closed to European traffic, Mr. Kiiskinen is optimistic.“We still believe in our strategy,” he said. Major infrastructure developments like airports are designed on a 50-year horizon, he said. “Putin is not going to be there forever.”Juho Kuva for The New York TimesOn a recent weekday afternoon, a cafe branded for Moomin merchandise, cartoon characters popular with Japanese visitors, was mostly deserted.Sami Kiiskinen of Finavia, which runs the terminal, acknowledged the problems facing the project’s finances but remained optimistic over the long run: “Putin is not going to be there forever.”The new terminal at the Helsinki airport is just one of numerous commercial ventures across Europe that have been affected by Russia’s invasion of Ukraine. More

Successive US administrations have been chuntering about encircling, outflanking or wrongfooting China’s economy for so long it’s quite startling when one seems to mean it. The Biden administration’s announcement on October 7 of new semiconductor export controls achieved what Donald Trump failed in four years of flailing about with trade policy — it credibly threatened that the US and China, at least their high-tech sectors, will be decoupled by force. The prophesied “weaponised interdependence”, the exploitation of trade and finance linkages to exert geopolitical pressure, now appears to be here.The breadth of the controls was a big advance on Trump’s earlier measures. In particular, the prohibitions on US citizens and green card holders working in China’s semiconductor industry meant hundreds of employees, including from the world-leading Dutch manufacturer ASML, stopping work within days. Biden’s move is risky, and not just for obvious reasons such as direct retaliation. Beijing could indeed block exports to the US of critical materials like rare earths, or flood the world with cheap basic chips to build market share and encourage dependence. 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. China is already building domestic tech capacity through Xi Jinping’s dual-circulation strategy, a shift towards self-reliance in the Chinese economy.The US has traditionally calibrated export controls to allow American companies to maintain overseas earnings while keeping China technologically a generation or so behind. If Washington abandons that for strict controls and an all-out tech race, it needs to maximise efficiency in international supply networks — for example, incorporating Europe’s lead in early-stage chip research and machine manufacture.If you’re going to start a fight, best be part of a gang. Semiconductor supply chains are blindingly complex. Cutting off China might suddenly reveal vulnerabilities the US didn’t know were there. Unhelpfully, Biden’s broader security-related trade strategy has too strong an element of onshoring for comfort. The US chips act, though supposedly co-ordinated with the EU’s version, seems set to create duplication through creating parallel supply chains. To be fair, the US spent months trying to persuade the EU and other allies to adopt similar export controls in the way they co-ordinated trade bans on Russia. However, the EU’s approach to controls remains based on the granular targeting of products drawn from a multilateral list of restricted technologies rather than the US’s broad-spectrum approach. Having failed, Washington went ahead on its own. Perhaps because of that diplomatic effort, the cries of betrayal from the EU have been subdued. The US controls could hurt European companies in several ways, including restricting the use of US components in machinery and restraining the sale of chips destined for Chinese supercomputers, as well as deterring the employment of American citizens. But as with the tax credits for North American-made electric vehicles in Biden’s Inflation Reduction Act (IRA), the EU and other affected allies are seeking clarifications and exceptions rather than threatening World Trade Organization litigation or something stronger.It helps to have a relatively constructive interlocutor in the Biden administration after the irascible caprice of Trump’s White House. After complaints, the US quickly issued temporary waivers to the China-based semiconductor operations of the Korean companies SK Hynix and Samsung. ASML, a jewel in the EU’s crown, said yesterday it wasn’t much affected by the new controls.However, there isn’t always co-ordination among allies. In a much-discussed speech recently, Chrystia Freeland, the Canadian finance minister, declared herself a fan of the newly fashionable sport of friendshoring, or building supply networks with like-minded countries.Freeland lauded the extension of the IRA’s tax credits for electric vehicle battery components to any country with which the US has a trade agreement. But credits for car assembly itself remain confined to autos built in North America. A tax break initially reserved for US production was extended to Canada and Mexico after determined lobbying by Ottawa. The EU, Japan and South Korea, which remain excluded from the charmed circle of tax preference, might reflect that some friends are (in this case literally) closer than others. Of course, dealing with Europe over trade and national security can be infuriating. Germany ignored decades of warnings about dependence on Russian gas. The EU must approach the China issue in good faith, not driven by its export lobby.Co-operation will be good for both sides. The more of a complex supply ecosystem that lies within a co-ordinated national security alliance, the more it will be resilient to coercion from hostile third-country governments or shocks from pandemics or other forces of nature. The US has taken a big risk. It’s better not to take it alone. More

FUNDAMENTALS* Spot gold inched down 0.1% to $1,627.04 per ounce, as of 0049 GMT. Prices earlier hit their lowest level since Sept. 28 at $1,624.98. * U.S. gold futures were down 0.1% at $1,632.60. * The dollar index held steady, having risen 0.8% on Wednesday, while the benchmark 10-year Treasury yields hit a peak since mid-2008. [USD/]* U.S. economic activity expanded modestly in recent weeks, although it was flat in some regions and declined in a couple of others, the Fed said on Wednesday in a report that showed firms growing more pessimistic about the outlook. * With latest data showing inflation continuing to run at more than three times the central bank’s 2% target, the report may do little to temper expectations for a fourth straight 75-basis-point rate hike next month. * While gold is considered a hedge against inflation, higher interest rates increase the opportunity cost of holding the bullion, which yields nothing.* Euro zone consumer inflation was marginally lower in September than estimated earlier, data showed on Wednesday, but still at a record high, underlining market expectations of more rate rises before the end of the year.* Holdings of SPDR Gold Trust (P:GLD), the world’s largest gold-backed exchange-traded fund, fell 6.08 tonnes on Wednesday, their biggest one-day outflow since July. * Spot silver fell 0.4% to $18.36 per ounce, platinum dropped 0.6% to $878.52 and palladium slipped 0.6% to $1,988.78. DATA/EVENTS (GMT)0115 China Loan Prime Rate 1Y, 5Y Oct0645 France Business Climate Mfg, Overall Oct1230 US Initial Jobless Clm Weekly1230 US Philly Fed Business Indx Oct1400 US Existing Home Sales Sept More