Economy

LONDON (Reuters) -Ratings agency Fitch lowered the outlook for its credit rating for British government debt to “negative” from “stable” on Wednesday, days after a similar move from rival Standard & Poor’s following the government’s Sept. 23 fiscal statement.”The large and unfunded fiscal package announced as part of the new government’s growth plan could lead to a significant increase in fiscal deficits over the medium term,” Fitch said.Fitch maintained its “AA-” credit rating for Britain, which is one notch lower than S&P’s.Finance minister Kwasi Kwarteng announced 45 billion pounds ($51 billion) of unfunded tax cuts in the Sept. 23 statement alongside large energy subsidies and other measures aimed at boosting growth, but financial markets baulked at the extra borrowing.Sterling fell to a record low against the U.S. dollar and some British government bonds tumbled by the most in decades, forcing the Bank of England to step in to stabilise markets.Fitch said the lack of independent budget forecasts, as well as an apparent clash with the BoE’s inflation-fighting strategy had “negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength”.On Monday, Kwarteng said he would not go ahead with part of the tax cuts – lowering income tax for the top 1% of earners – which the finance ministry had estimated would cost 2 billion pounds a year.Fitch said this was not enough to change its broader assessment.”Although the government reversed the elimination of the 45p top rate tax … the government’s weakened political capital could further undermine the credibility of and support for the government’s fiscal strategy,” Fitch said.The ratings agency forecast Britain’s general government deficit would reach 7.8% of gross domestic product (GDP) this year and 8.8% in 2023, while general government debt would rise to 109% of GDP by 2024.($1 = 0.8833 pounds) More

Good morning. The White House has accused Opec+ of aligning with Russia after Saudi Arabia led the group in agreeing to deep oil production cuts, prompting a backlash from countries already battling surging energy inflation triggered by Moscow’s invasion of Ukraine. The Opec+ group said it would reduce production targets by 2mn barrels a day, equivalent to 2 per cent of global supply, following its first in-person meeting in two years in Vienna. The actual cut in output is likely to be closer to 1mn b/d as many weaker members have struggled to hit production targets in recent months. The decision to cut came despite extensive lobbying by the US government before the meeting and marks a significant breach with the Biden administration, which is seeking to drive down oil and petrol prices ahead of crucial midterm elections in November and to starve Russia of energy revenues. The Biden administration criticised the move on cuts, saying it was a “shortsighted decision” at a time when “maintaining a global supply of energy is of paramount importance”. Saudi Arabia’s energy minister Prince Abdulaziz bin Salman dismissed suggestions that the cartel’s cuts would hurt oil consumers, arguing instead that the group’s actions were intended to encourage long-term investment in oil production. “Show me where is the act of belligerence,” he said in response to questions following the announcement. Energy markets required “guidance without which investment would not happen”.Thanks for reading FirstFT Asia. Share feedback on today’s newsletter at [email protected] or by replying to this email. — SophiaFive more stories in the news1. Musk’s ‘everything app’ plan for Twitter “Buying Twitter is an accelerant to creating X, the everything app,” Musk tweeted on Tuesday after the announcement that he planned to move forward with buying the social media platform. The Tesla and SpaceX chief now insists the deal is part of a master plan to incorporate messaging, payments and commerce into a single product that is two decades in the making.2. Russian troops retreat from Kherson Kirill Stremousov, appointed as acting governor of the Kherson region by Vladimir Putin, said Russia’s troops in the area were “regrouping to get their strength together and strike back” less than a week after Russia annexed it alongside three other Ukrainian provinces.Go deeper: US officials and lawmakers have warned that Ukraine must capitalise on its momentum in the east of the country to push back Russian forces before winter sets in.3. Spain and Belgium warn of EU market threat after German stimulus Germany’s €200bn fiscal stimulus package announced last week could have major consequences for the EU single market. As the bloc attempts to muster a unified response to soaring energy prices, some member states warn of unfair competitive distortions if individual states, particularly those with deep pockets, pursue large support measures.4. Teenage chess grandmaster likely cheated more than 100 times Hans Niemann, the 19-year-old at the centre of chess cheating allegations, probably did so over 100 times in online games, says a newly published 72-page statement by chess.com. Unlike cheating over the board, which is viewed as a major crime, there is a widespread tolerance of it online.5. Three scientists share Nobel Prize for advances in ‘click chemistry’ Two Americans — Carolyn Bertozzi of Stanford University and Barry Sharpless of Scripps Research — and a Danish scientist, Morten Meldal of the University of Copenhagen, have won the Nobel Prize in Chemistry for discovering a new way of putting molecules together which is transforming pharmaceutical and medical research, development and manufacturing.The day aheadEuropean Political Community meeting The EPC meeting is set to take place in Prague today, bringing together the leaders of the EU, Ukraine, the UK, Norway, Switzerland and Western Balkan countries.Economic indicators The European Union will share August retail sales figures; Germany and the UK will publish S&P Global construction PMI data; India will share S&P Global services PMI data.Corporate earnings Conagra Brands, Constellation Brands, CMC Markets, Levi Strauss & Co, and McCormick & Company will all post results today.What else we’re readingCan China rebuild its growth model? Without a strong property sector as its key driver for economic growth, consumer spending could become the backbone of a possible economic revival in China. But, almost ten years since President Xi Jinping unveiled a 60-point reform plan to boost consumer-led growth, many of those promises remain unfulfilled. A renewed effort would require Beijing to relinquish some political control.‘Someone will get hurt’ Investors and Wall Street analysts are sounding the alarm about a possible “market accident”, as successive bouts of tumult in US stocks and bonds and a surging dollar cause rising levels of stress in the financial system. “The velocity of things breaking around the world . . . is obviously a ‘neon swan’ telling us that we are clearly now in the market accident stage,” said one market strategist.Asset managers may regret becoming the new banks Since the financial crisis, asset managers and private equity houses have taken over the funding once provided almost exclusively by banks. Now, asset managers are under scrutiny on two continents for their power and importance as well as concerns about the products they sell and once again the focus is on an alphabet soup of acronyms, in particular ESG and LDI, writes Brooke Masters.Airports vs airlines No one loves airports. Passengers begrudge waiting for check-in, baggage drop and security. And investors are aggrieved because their stakes seem less stable and low risk than a few years ago. Increasing costs and environmental restrictions demand a different perspective, writes Peggy Hollinger.The world-changing power of making your bed Physical rituals can improve our lives as individuals, but could they be applied to address wider societal problems, too? If we want to solve collective problems, it sometimes pays to look to physical rituals and habits for the answer.We want your inputFollowing the success of this year’s inaugural ranking of Africa’s Fastest Growing Companies, the Financial Times is compiling its next list of high-growth businesses, to be published in May 2023. Apply now to be considered.

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The country’s FX reserves stood at $416.77 billion at the end of September, down $19.66 billion from $436.43 billion a month earlier, the Bank of Korea said on Thursday.While still among the largest in the world, the country’s reserves fell to the lowest level since end-July 2020 and saw the second-biggest monthly decrease on record after a $27.42 billion decline in October 2008. Reserves have fallen in nine out of the last 11 months.The central bank cited measures to ease volatility in the foreign exchange market, an apparent reference to dollar-selling intervention, as a factor that contributed to the losses, along with declines in the converted value of non-dollar assets and financial institutions’ foreign currency deposits. The won ended September with a monthly loss of 6.5% against the dollar, the fastest in 11 years, after touching the weakest level since March 2009, while the U.S. dollar index rose 3.2%. More

As the U.S. inflation debate intensifies, the signals are getting murkier. For investors, this makes markets more skittish and day-to- day moves harder to predict, and makes Fed forecasting even more difficult than it already is. On Wednesday, the headline U.S. services ISM purchasing managers index reading for September was surprisingly strong, declining far less than expected to 56.7 from 56.9. ADP employment figures for September were also stronger than expected.On the other hand, the ISM prices paid index fell to 68.7, the lowest since January last year. And Tuesday’s “JOLTS” jobs data show job openings fell in August at the fastest pace in nearly 2-1/2 years. Oil prices spiked higher on Wednesday after OPEC+ announced a whopping 2 million barrels a day production cut, yet Brent’s year-on-year rise – which factors into inflation forecasting models – is ‘only’ 13%. Graphic: Brent oil – futures and year-on-year change – https://fingfx.thomsonreuters.com/gfx/mkt/mopanxyoava/OIL.png Also this week, U.S. breakeven inflation rates on inflation-linked bonds, from two-years maturities out to 20 years, have slid as low as 2.15% – close to the Fed’s 2% inflation goal – while the University of Michigan’s consumer inflation expectations have fallen too.Another four Fed officials will be on the tapes on Thursday, hopefully shedding some much-needed light on the inflation debate. For now, it seems like investors are itching for the Fed to pivot, but are not fully confident one would be merited. Wall Street clawed back opening losses on Wednesday despite the spike in Treasury yields to keep its solid start to the quarter on track. The S&P 500’s surge of 5.7% was its best start to a new quarter in decades. Key developments that could provide more direction to markets on Thursday:India services PMI (September)Australia trade balance (August)Philippines unemployment (August)Euro zone retail sales (August)Fed’s Mester, Cook, Evans and Waller speakIMF’s Georgieva speaks ahead of IMF/World Bank meetings More

Good evening,Today’s meeting of the Opec+ oil producers in Vienna could well be its most significant gathering in years.Saudi Arabia and Russia have led the push for deep cuts in production to lift prices, much to the dismay of US president Joe Biden, who had been banking on keeping them down ahead of crucial midterm elections next month.The reduction of 2mn barrels a day, or 2 per cent of global supply, agreed this afternoon, sets Opec “on a collision course with the free world”, according to one analyst. “They have sided with Russia in the name of protective oil market management — just as consumers across the world are battling inflation and the rising cost of living.”The head of Saudi Aramco, the world’s biggest crude oil producer and the world’s most valuable company, warned yesterday that global markets were incredibly tight. Supply could be dented further later this year when western sanctions tighten against Russian exports.The surge in global energy costs triggered by Russian’s invasion of Ukraine is increasing tensions over support for Kyiv and is set to dominate next week’s annual meetings of the IMF and World Bank, while the G7 has been working on proposals to cap the price of Russian oil. As well as punishing Moscow, the cap will also save emerging markets $160bn a year, according to the US Treasury.Preliminary support for the cap was agreed by EU member states today, while European Commission chief Ursula von der Leyen said the EU should also adopt a ceiling on the price of gas to help contain electricity prices. But, as our Europe Express newsletter (premium) points out, EU capitals remain at odds over much of the bloc’s response to the energy crisis, ahead of an informal leaders summit in Prague on Friday.Germany in particular has come under fire for failing to co-ordinate with fellow EU members over its €200bn fiscal stimulus. The “double ka-boom”, says the FT editorial board, risks undermining EU unity. Charles Michel, president of the European Council, writes in the FT today of the need for a genuine “energy union” to tackle the crisis by slowing consumption, ensuring security of supply and reducing prices.“The global financial crisis and sovereign debt crisis spurred the EU to create a banking union, to ensure the stability of the banking sector. The pandemic taught us to pool our resources in the health sector . . . We must now do the same in the energy sector . . . Doing too little too late is not an option. It’s time to take a quantum leap.”Latest newsSTMicroelectronics to build chip plant in boost for EU supply chainKwarteng to meet UK bank chiefs over mortgage market turmoilClimate failure costs will surpass economic hit of change, says IMFFor up-to-the-minute news updates, visit our live blogNeed to know: the economyUnder-pressure UK premier Liz Truss sought to reassure markets in her flagship Conservative party conference speech after a rebellion over benefits payments had spread among her MPs. Columnist Sarah O’ Connor says making the poor poorer is a false economy.Meanwhile, the argument is still raging over the government’s proposed tax cuts, while economists have cut their 2023 UK growth forecasts. Economics editor Chris Giles outlines five ways to reduce the country’s debt.Latest for the UK and EuropeUkraine warned it was being “squeezed by uncertainty” on financial support from the EU. Kyiv is counting on $38bn in budgetary assistance from its international partners in 2023, or about $3.5bn a month.Eurozone producer prices in August rose by an annual rate of 43.3 per cent, up from 38 per cent in the previous month and the fastest pace since records began in 1981. Households are suffering too: mortgage costs rose to 2.26 per cent, the highest since August 2015.Global latestThe US is set to impose sweeping export controls to slow Chinese efforts to obtain semiconductors for supercomputers and military use.The impact of falling house prices in China is spreading to local government finances and the broader economy. Read our new series on the country’s property crash and Beijing’s response. Chief economics commentator Martin Wolf characterises President Xi Jinping’s upcoming third term as a “tragic error”.China is also facing difficult policy choices as its period of rapid export growth comes to an end, writes Michael Pettis of Peking University.India’s foreign exchange reserves have shrunk by nearly $100bn this year as its central bank defends the rupee against a surging dollar. But new FT analysis suggests the country’s monetary tightening and foreign exchange interventions have helped prevent a much larger depreciation of the kind seen in other Asia-Pacific currencies.Need to know: businessElon Musk’s on/off purchase of Twitter could be back on. Musk has offered to go ahead at the previously agreed price of $44bn, but the company’s lawyers remain wary.H&M, the world’s second largest clothing retailer, said it was positive about regaining its position in China after being hit by a long-running, state-fuelled consumer boycott after it distanced itself from the use of forced labour in the province of Xinjiang.Since the 2008 financial crisis, asset managers have replaced bankers as “undisputed kings of the financial hill” but are now facing increasing scrutiny from US and European governments and are finding it decidedly uncomfortable, says US investment and industries editor Brooke Masters.Niklas Zennström, co-founder of Skype, says European tech companies must learn to embrace failure. “The downturn is Europe’s opportunity to develop essential DNA. For tech, as for people, resilience is power,” he argues.Buying rights to songs and bundling them up has become one of Wall Street’s hottest trends over the past few years, turning music into an asset class. But what happens now that interest rates are rising and the global economic outlook dims? Listen to our latest Behind the Money podcast. The World of WorkGot a tyrannical boss or a toxic colleague? Pick up some tips from the latest episode of the Working It podcast with guest Amy Gallo, author of Getting Along: How to Work with Anyone (Even Difficult People).Sir Edward Troup has hit out at new UK tax rules for freelancers, arguing that they will do nothing for growth and undermine the wider integrity of the tax system.Get the latest worldwide picture with our vaccine trackerSome good news . . . For anyone dreaming of the ultimate retro runaround (or who just has a problem with parking), we have some great news: the bubble car is back! The Microlino comes from the same Swiss inventor as the Micro Scooter. And you can fit three of them into a standard parking space.Swiss inventor Wim Ouboter has rebooted a motoring icon for the commuter age More

The IMF has outlined an “overwhelming” case for tackling climate change that would dwarf the short-term increase in costs to the economy forecast as a result of a shift in energy to renewable sources by 2030.The short-term costs would increase as a result of “further procrastinating” by governments globally in the effort to lower greenhouse gas emissions by the necessary 25 per cent over the next eight years to limit global warming.The fund estimated a lowering of global growth caused by implementing climate change policies by the end of the decade, stating that a “rapid” transition towards low-carbon technologies would cost the global economy between 0.15 and 0.25 percentage points of GDP growth annually to 2030. For China, the US and Europe, GDP growth costs are forecast to be lower, ranging from 0.05 to 0.2 percentage points annually.It would also cause an increase of between 0.1 and 0.4 percentage points of inflation a year compared with the baseline, assuming governments had budget-neutral policies, the IMF said.However, there was “overwhelming evidence” that “any short-term costs will be dwarfed by the long-term benefits (with respect to output, financial stability, health) of arresting climate change,” it added.While there was “little consensus” on the near-term macroeconomic consequences of climate change policies, it said, the costs would be “manageable” if “the right measures are implemented immediately and phased in gradually over the next eight years”.Under the terms of the 2015 Paris Agreement, 189 countries agreed to limit global warming to below 2C and preferably to about 1.5C. Temperatures have already risen at least 1.1C because of human activity in the industrial era.Earlier this year, the UN’s Intergovernmental Panel on Climate Change report found that a 43 per cent cut to global greenhouse gas emissions by 2030, compared with 2019, would be needed to meet the goals of the Paris climate accord.The IPCC report, compiled by 278 scientists across 195 countries, found that without immediate action the world was on track for a 3.2C rise in temperatures by the end of the century.The IMF said reaching such goals would require a large increase in greenhouse gas emissions taxes, regulations on emissions and significant investment in low carbon technologies.Greenhouse gas taxes should be introduced immediately and increased in “small and predictable increments”, the fund said, and combined with incentives for investment and research into carbon-neutral technology that would help shift consumption patterns to low-carbon alternatives.Earlier this year, a report by the World Bank found that carbon pricing schemes cover around 23 per cent of total greenhouse gas emissions. But only 4 per cent of global emissions are presently covered by a carbon price that is high enough to reduce emissions by the amount needed to meet 2030 climate targets.The IMF put forward three policy scenarios that could lower emissions by 25 per cent by 2030, all funded by income from greenhouse gas taxation. They included a mix of redistributing the income from greenhouse gas taxes among households, using it to reduce labour taxes and using it to subsidise investment in electric vehicles and clean energy generation. More

Global growth is at serious risk, as energy and food supply shocks from the war in Ukraine add to disruption from the Covid-19 pandemic. New digital and low-carbon technologies have started a global race to reach critical mass in production, given extra impetus by geopolitical rivalries. The need to innovate and create high-growth sectors is acute, and a new respectability for state intervention has created a particularly lively debate. Industrial policy or deregulation? State-directed investment or lower tax?The questions have a fresh urgency, yet governments have been trying for decades to build up internationally dominant sectors. What lessons have been learnt?Since the UK seems to be giving its body to economic science at the moment by contemplating all sorts of things that no one else (perhaps for good reason) would touch, assessing its prospects compared with near-neighbours might be instructive. Liz Truss’s government, in the rare moments its ministers can get away from the Conservative party’s civil war, has set in motion a whole conveyor belt of supply-side wheezes. Their ideas, laid out on Wednesday in her mercifully short party conference speech, are heavy on the deregulation side (relaxing planning laws, cutting taxes) and light on public investment.One is a “salad offensive”, aiming to grow more cucumbers, lettuce and tomatoes in the UK. Ignoring the silly name, it’s a perfectly reasonable project. Technology can dramatically change productivity in agriculture. Britain’s output of soft fruit rapidly increased in recent years thanks to improvements in polytunnel efficiency extending the growing season into the winter. The UK has always been dependent on soft fruit imports, but over the past decade British growers became sufficiently productive to start exporting significant amounts to continental Europe.Putting up plastic tents is relatively cheap and simple, and the only deregulation it needs is leniency from the local planning authorities. To see more impressive agricultural productivity at work, the British agriculture minister Ranil Jayawardena is planning a fact-finding trip to the Netherlands. He will visit a nation that, despite being small and densely populated with expensive land and labour and a cool damp climate, has become the world’s second-biggest exporter of tomatoes — in fact the second-biggest global agricultural exporter overall by value.Dutch growers have a history of raising plants in greenhouses, thanks to the flower industry, and of agricultural innovation more generally. For decades they’ve been building a fertile ecosystem of research, development and production. Specialist companies have produced complementary products for high-tech indoor vegetable and fruit farming such as innovative lighting and climate and water management systems.Could this be replicated? How did the government help? Well, it wasn’t through shelling out market-distorting subsidies or relying on heavy trade protection. The Dutch government has supported farmers in various ways, not least by financing the public Wageningen University, one of the world’s best agribusiness research centres. But it comes under the beady eye of the European Commission’s competition directorate with its state-aid rule book. The EU does have import tariffs on fresh tomatoes, but those do much more to protect southern European countries such as Italy: the Netherlands is competitive on the global market.Nor was it deregulation that did it. Unlike the UK, the Netherlands has remained very firmly in the EU with its complex web of rules on food hygiene and horticultural standards. It also has high labour costs and a commitment to reduce carbon emissions. Dutch growers pride themselves on their low environmental impact. EU regulations are among the world’s toughest, so being practised in complying with them helps their farmers to meet standards in markets elsewhere.In other words, the UK government’s general attitude towards supply-side reform — leave the EU’s regulatory orbit and reduce labour and environmental costs — is in this case, and probably in many others, unhelpful. There are, of course, arguments for getting rid of some domestic regulations such as excessive planning restrictions. But meeting product rules is crucial to accessing international markets, and leaving the EU has increased export barriers. Those British soft-fruit farmers who were breaking into the continental market now say the extra cost of food hygiene inspections and shortage of EU workers have undone all their work.Building world-class sectors really isn’t a simple question of the state being absent or present in the market. It is about which interventions to make and for how long and why. These are often fine judgments. But to trade in a modern economy is to regulate, and voluntarily giving up export markets and introducing the deadweight of compliance under the guise of cutting red tape is clearly the wrong way to go about [email protected] More

Ukrainian forces have pushed the Russian army into humiliating retreat in Kherson. Moscow claims the region — and three others — as its own. Vladimir Putin recently hinted he could use nuclear weapons in response to Ukrainian advances. If he does, harsher sanctions should be part of the wider western riposte.What options are there? Sanctions have so far included asset and funding freezes. These have hit the Russian central bank and big commercial peers Sberbank and VTB. A swath of oligarchs and Kremlin officials are pariahs abroad. Much more could be done. Researchers say current sanctions are on course to shrink the Russian economy by as little as 4 per cent in 2022. Trade with the US and EU was still worth $183bn in the first six months of this year.Expect a full trade and travel embargo from the US and EU if Russia uses tactical nukes in Ukraine. This should include EU states banning all further purchases of Russian oil and gas. Full sanctions on Gazprombank, the main payments conduit, would be required. Europe would need to ration energy carefully through the winter. The EU already plans to ban oil imports starting in December. The G7 is working on a price cap on Russian oil exports to neutral countries using the leverage of the EU’s large shipping fleet. Such measures have left Urals oil at a steep discount to Brent. To widen the gap further, the west should consider secondary sanctions. These would fall heavily on Indian energy groups, currently enthusiastic buyers. The west should also contemplate secondary sanctions on banks in unaligned countries. The US recently managed to stop Turkish banks accepting Russia’s Mir payments card.Much of the Russian economy remains open to the west in “non-essential” sectors. These are vulnerable to fresh sanctions. Machinery and transport equipment account for the bulk of EU exports to Russia.Confiscating Russian assets would be a more radical move. The Kremlin says $300bn of central bank reserves have been frozen overseas. But taking a portion of that would involve counterproductive disregard for the rule of law.Better to shore up existing sanctions. These have been poorly implemented and are sometimes easily circumvented. Ship-to-ship oil transfers are one brazen example. Hurting Russia means hurting the global economy. But the first ever bellicose use of nukes in Europe would require a corresponding economic response. Putin, who is fond of citing nuclear precedents, should expect that. More