Economy

NEW YORK (Reuters) – Futures tied to Wall Street’s fear gauge on Wednesday sent a signal that has historically marked intense selling pressure in markets, but has sometimes preceded stock market rebounds.The October VIX futures rose 0.28 points above the November futures on Wednesday, the widest margin since mid-June, after Wall Street’s main indexes sold off following a 75 basis point interest rate hike by the Federal Reserve.VIX futures, which plot volatility expectations for several months ahead, normally remain upward sloping, with near-term futures relatively less pricey than those that target coming months.An inverted curve, when near-dated contracts are more expensive than later dated ones, suggests investors are growing more worried about near-term events, raising the cost of hedging. Such a signal has occurred prominently five times since 2020, with two instances followed by market rebounds, including the most recent one in mid-June.”It’s usually a sign all the risk is being pulled into the here and the now,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group.”That’s why often we will look at it as a capitulation indicator,” Murphy said.The two nearest VIX futures last inverted in June, amid a bout of intense selling that drove the S&P 500 (SPX) to its bear market low. The index rebounded 17% soon after, though most of that rally has been reversed on fears the Fed will be more hawkish than previously anticipated.While an inversion this time may indicate intensifying selling pressure, it does not necessarily signal an immediate end to the market’s recent slide, Murphy said. For instance, the two front month VIX futures remained inverted for a month – from mid-February through mid-March – before the stock market sell-off in the first quarter took a breather. More

(Reuters) -Three major U.S. banks said on Wednesday they will hike their prime lending rates by 75 basis points, bringing the rates to their highest since the global financial crisis of 2008. JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C) and Wells Fargo (NYSE:WFC) & Co said the new rates would take effect on Thursday.The move follows a similar hefty hike by the Federal Reserve as it attempts to tame stubbornly high inflation in the United States.Hopes of a soft landing have waned in recent months as the Fed remains steadfast in its decision to keep raising rates until data shows a sustained pullback in consumer prices.Central bankers expect to raise the rate to 4.6% by the end of next year, according to the median estimate of all 19 Fed policymakers. A hike in interest rates typically boosts banks’ profitability, since they can earn more net interest income – a metric that gauges the difference between the money banks earn on loans and pay out on deposits.However, too high interest rates can tip the economy over into a recession and squeeze consumer demand for loans, which can ultimately hurt lenders.”Higher interest rates are going to lead to a slowdown in both consumer borrowing as well as corporate borrowing,” said Lance Roberts, chief investment strategist and economist at RIA Advisors.”This is going to impact economic growth to a great degree as we move further into 2023,” he added.On Wednesday, Fed Chair Jerome Powell said U.S. central bank policymakers are “strongly resolved” to bring down inflation from the highest levels in four decades and “will keep at it until the job is done,” a process he repeated would not come without pain. More

Investors in Asia could be waking up to more volatility after the Federal Reserve’s latest jumbo rate increase and message about future hikes. The U.S. central bank on Wednesday raised rates by 75 basis points for a third straight meeting as it is bent on taming the steepest surge in inflation in 40 years. That action was largely expected but may have offered some relief after markets had priced in a small chance of a mammoth 100-basis point hike.Instead, it was what comes next that appeared to seize the market’s attention. Another 125 basis points in hikes are now signalled for the last two meetings of 2022, with investors bracing for more to come early next year. New Fed projections show its policy rate topping out at 4.60% in 2023.In his press conference following the Fed’s statement, Chair Jerome Powell said achieving a soft landing for the economy is “very challenging.” Policymakers see the need to lift the policy rate to a “restrictive level” and “keep it there for some time,” Powell added.Already-harried markets had trouble agreeing on a direction in the hours following the Fed’s decision and Powell’s ensuing comments.Two-year U.S. Treasury yields burst well above 4% in the immediate aftermath of the Fed’s statement but then eased closer to that level. Stocks dove, recovered, and then slid again, with the benchmark S&P 500 ending down 1.7%. The dollar index hit a fresh two-decade high, then edged back.Digesting the Fed may take longer, as initial reactions to the central bank’s meetings can be misleading. What’s more, investors on Thursday will have other central bank actions to contend with, including in Japan, England and Switzerland.Key developments that could provide more direction to markets on Wednesday: Bank of Japan monetary policy decisionTaiwan, Indonesia central bank meetingsBank of England policy decision Swiss National Bank monetary policy meeting More

Federal Reserve officials released both an interest-rate decision and a fresh set of economic projections on Wednesday, estimates that Wall Street was keenly awaiting as it tries to understand what the next phase of the central bank’s fight against rapid inflation will look like.Officials raised borrowing costs by three-quarters of a percentage point, their third-straight jumbo increase, taking their official interest rate to a range of 3 to 3.25 percent. But they also penciled in additional increases for the rest of this year and next, projecting that rates would reach 4.4 percent by the end of the year and climb to 4.6 percent by the end of 2023.Here’s how to read the numbers released on Wednesday.The dot plot, decodedWhen the central bank releases its Summary of Economic Projections each quarter, Fed watchers focus obsessively on one part in particular: the so-called dot plot.The dot plot shows the Fed’s 19 policymakers’ estimates for interest rates at the end of 2022, along with the next several years and over the longer run. The forecasts are represented by dots arranged along a vertical scale.What Federal Reserve officials think rates should be in the next two years. More

Good evening,It’s been another day of government efforts to deal with the energy crisis across Europe, including an unprecedented package of support for businesses in the UK and the biggest corporate bailout in Germany since the 2008 financial crisis.In a long anticipated announcement, the UK said it would cut the wholesale price of energy for companies and public organisations by more than half this winter, stepping in “to stop businesses collapsing, protect jobs and limit inflation”.Businesses gave a cautious welcome to the proposals but many still expect to see substantial rises in their bills compared with previous years. Bosses are also worried about what might happen once the six-month scheme ends in March, warning that the lack of clarity could hit investment. In contrast, support for households runs for two years. The package for business is also much more complicated and gives little incentive to conserve energy, says the Lex column.The EU is also facing questions about its package of aid for households and businesses, funded by a €140bn windfall tax on energy companies, as member states demand more flexibility on how the plans are implemented.Germany, meanwhile, has announced the nationalisation of struggling utility Uniper — once Europe’s biggest importer of Russian gas. The company has been hobbled by having to buy more expensive gas on the spot market after Moscow cut off supplies. Policymakers feared its failure would have serious repercussions for Europe’s biggest economy.In tandem with support with bills, Brussels continues its quest for alternative energy sources. Today, it announced €5.2bn of public support for its second hydrogen project, a sector regarded as essential for the transition to more sustainable energy.However, green ambitions face stiff resistance from fossil fuel companies. Former US vice-president and longtime environment campaigner Al Gore, told the Financial Times that European governments must push back against corporate efforts to capitalise on the energy crisis by locking consumers into long-term dependence on hydrocarbons.At least $50bn of spending is planned by EU governments this winter on fossil fuel infrastructure and supplies to replace shortfalls from Russia, but Gore insisted that the search for energy security must not be allowed to hamper the green transition.“We need to move quickly in spite of the geopolitical situation we’re facing — indeed, because of it,” he said.Another reminder of the power of legacy oil and gas companies comes from Gore’s own country, where lawmakers are investigating “deceptive” PR tactics employed on behalf of the oil and gas industry that misled the public about climate change.Read more on how Russia’s weaponisation of gas has spurred the push for cleaner energy in our new special report: Energy Transition.Latest newsNato’s Stoltenberg accuses Putin of ‘dangerous and reckless nuclear rhetoric’Steep mortgage rates fuel August decline in US existing home salesNew York attorney-general files fraud suit against Donald Trump and familyFor up-to-the-minute news updates, visit our live blogNeed to know: the economyThe US Federal Reserve announces its decision on interest rates today at 2pm ET (7pm London). Economists expect an increase of 0.75 points for the third time in a row. Check back on FT.com for details and reaction. It’s a big week everywhere for central banks. The Bank of England is under pressure to announce a hefty rise in rates tomorrow, while European Central Bank president Christine Lagarde has also stressed the need for swift increases. Sweden’s Riksbank raised rates by 1 percentage point yesterday, its biggest increase in three decades.Latest for the UK and EuropeThe challenges facing Kwasi Kwarteng, the UK’s new chancellor, ahead of his “mini Budget” (check out this Friday’s Disrupted Times for the details) were underscored by new data showing government borrowing rose to twice the level expected in August.Meanwhile, UK prime minister Liz Truss said she was ready to take on “vested interests” to lift economic growth. But her first meeting with US president Joe Biden today could be a little awkward after his assertion that “trickle-down economics” — as some have branded her ideology — “has never worked”. A UK-US trade deal remains as far off as ever.Industrial tycoon Carlo De Benedetti told the FT he was concerned about Italy’s relationship with Brussels if, as polls suggest, a hard-right coalition comes to power in Sunday’s general election.Global latestThe dollar hit a new 20-year high against its peer currencies today after Russian president Vladimir Putin called up more troops for his war in Ukraine. The greenback is widely perceived as a haven currency during times of geopolitical tension and economic stress.The Asian Development Bank cut its 2022 growth forecast for the region’s developing nations from 5.2 per cent to 4.3 per cent in the face of China’s lockdowns, the war in Ukraine and rising inflation. For China itself, the ADB cut its forecast from 5 per cent to 3.3 per cent.One country in the region bucking the trend is Indonesia, which is currently benefiting from both a booming economy and a period of political stability, as our Big Read explains.China is increasingly competing with the IMF in offering emergency loans to stricken countries. Ecuador’s $1.4bn debt restructuring deal is the latest. China is, however, losing its attractiveness as an investment location for European companies, according to the local EU Chamber of Commerce.One of the most serious consequences of the pandemic has been its effect on children’s education, especially in poorer countries where families now face fresh pressures over rising prices and food insecurity.The pandemic period has also been one of growing inequality in global wealth. The ranks of the super-rich — those worth more than $100mn — increased by 21 per cent in 2021, according to new Credit Suisse data.Need to know: businessVaccine makers have lost billions in market value after Biden declared “the pandemic is over” on Sunday night.JPMorgan chief executive Jamie Dimon warned that new US capital requirements posed “significant economic risks” for large banks, making it harder to meet customer needs just as “storm clouds” were gathering over the economy.Watch this: The new film Skandal! Bringing Down Wirecard, the story of how FT reporters exposed massive fraud at the German payments firm, is now available to watch on Netflix. Catch up on reactions on Twitter to the premieres in London, Hong Kong and New York.The World of WorkUS investment and industries editor Brooke Masters wonders whether Citigroup’s new hub for junior investment bankers in Málaga, a Spanish city known better for beaches than finance, ostensibly to provide better work-life balance, might be just another “mommy track”.Workers in the Philippines’ $30bn call centre industry have won their battle to make remote work permanent after an agreement was reached with tax authorities.Middle managers who came under intense pressure looking after staff during the pandemic still face immense problems, as they juggle demands from company leaders with workers striving for better pay and the continuation of flexible working patterns.QTWTAIN: Are the British really the worst idlers in the world? There is a problem with poor levels of productivity, writes columnist Sarah O’Connor, but this is mainly down to lack of investment in new technology that helps workers do their jobs more efficiently.Or they could just take psychedelics. Some Silicon Valley executives believe microdosing using drugs such as LSD can increase concentration and productivity. Host Isabel Berwick investigates the claims in the latest episode of the Working It podcast.Get the latest worldwide picture with our vaccine trackerSome good newsIn case you missed it, the World Health Organization has turned optimistic on the trajectory of coronavirus after a fall in global cases. “We have never been in a better position to end the pandemic,” the WHO said. “We are not there yet, but the end is in sight.” More