Economy

MEXICO CITY (Reuters) -The Bank of Mexico on Wednesday said it is not wed to hiking interest rates in line with the U.S. Federal Reserve and will evaluate all available data to bring down inflation.There has been much market speculation on whether Banxico, as the Mexican central bank is known, will follow in lockstep with the Fed as it embarks on what has become the sharpest round of U.S. rate hikes since the 1980s.Banxico raised the benchmark interest rate by 75 basis points at its latest monetary policy meeting in August, mirroring the Fed, as inflation in Latin America’s second largest economy surged to an over two-decade high.”We do not have a specific objective regarding the relative position with the Fed, and the trajectory of the rate will be the one that leads us to the convergence of our inflation target,” Banxico Governor Victoria Rodriguez said as she presented the bank’s latest quarterly report.Rodriguez underscored the Fed’s actions were an important variable the bank took into consideration, but said it was far from the only one being carefully considered and that the bank’s five-member board would evaluate all available data.In an effort to tame spiraling inflation, Banxico has hiked rates by a total of 450 basis points over its last 10 monetary policy meetings, bringing the key rate to a record high of 8.5%.The bank forecast annual headline inflation to reach 8.1% by year-end, from 8.62% in mid-August, with core inflation reaching 7.6% by the end of 2022 and both falling to 3.2% by the end of 2023.”In our assessment, the central bank headline/core forecasts for end-2022 are now significantly more realistic, but for end-2023 are still optimistic given our expectation of significant inertial inflation forces and accelerating wage growth,” said Goldman Sachs (NYSE:GS) economist Alberto Ramos. Banxico’s quarterly report forecast 2022 gross domestic product (GDP) growth of between 1.7% and 2.7%, maintaining a previous central estimate for economic growth of 2.2%. The bank cut its forecast for 2023 economic growth, projecting an expansion of between 0.8% and 2.4%, from a prior view of 1.4% to 3.4%.Asked about Fed chief Jerome Powell’s stark warning that the United States is headed for a painful period of slow economic growth and possibly rising joblessness as it raises interest rates to fight high inflation, Rodriguez said she did not foresee a U.S. or a Mexican recession.”The context that we are living at a global level, of the pandemic and the war and the high inflation that is leading central banks to tighten their monetary stances, will have an impact on growth,” said Rodriguez. “However, not enough to bring it to recession levels.” More

(Reuters) -LATAM Airlines on Wednesday turned back two challenges to its bankruptcy reorganization plan, putting the carrier a step closer to emerging from Chapter 11 after seeking protection from creditors in the early months of the pandemic. LATAM said in a statement it was pleased by a U.S. bankruptcy court’s decision confirming its reorganization plan in which two groups of creditors lost their appeals.LATAM, which filed for bankruptcy in 2020, won court approval to exit Chapter 11 in June. Its reorganization plan would inject about $8 billion into the airline through a combination of capital increase, issue of convertible bonds and new debt.The appeal against the approved plan came from the TLA Claimholder Group, which has shares in subsidary LATAM Airlines (OTC:LTMAQ) Brasil, and a group of unsecured claimants comprising Avenue Capital Management II, Corre Partners Management, CQS (US), HSBC Bank Plc, Invictus Global Management, Livello Capital Management LP and Pentwater Capital Management LP.The groups’ appeals were opposed by other shareholder entities and the airline itself.The appeals had challenged LATAM’s so-called backstop agreement with a creditor group that had agreed to guarantee certain financing if no one else steps up to provide it. Under the deal, the 15 backstop creditors would receive $734 million in fees to ensure that $5.4 billion in stock and debt offerings are fully financed.U.S. District Judge Denise Cote overruled the objections to the backstop agreement, saying that it did not provide unfair treatment to one group of creditors over another. Instead, the fees and equity purchase rights were reasonable compensation for the risk involved in guaranteeing LATAM’s exit financing, she ruled.Earlier this week, LATAM Airlines said in a statement it planned to exit bankruptcy in the final quarter of this year, offering a slightly amended reorganization plan to reach $11.5 billion in revenue by 2024. More

Good morning. US regulators will attempt to inspect the Chinese audit files of Alibaba and Yum China next month as part of a landmark deal between Beijing and Washington, according to people familiar with the matter. The deal, agreed on Friday, allows the US Public Company Accounting Oversight Board, America’s accounting watchdog, to vet the work of audit firms in mainland China and Hong Kong for the first time. The agreement has laid the foundation to resolve a long simmering dispute between the two superpowers that could result in the US banning the trading on its exchanges of around 200 Chinese companies in 2024, threatening the value of around $1.4tn in the companies’ shares. Jack Ma’s ecommerce group Alibaba is China’s most valuable overseas-listed company, with a market capitalisation of $249bn on the New York stock exchange. Yum China, which owns the KFC and Pizza Hut brands in China, is worth $21bn on US markets. Alibaba is audited by PwC in Hong Kong and Yum China is audited by KPMG Huazhen in mainland China. The Big Four accounting firms, which also include Deloitte and EY, have spent three decades building large operations in China. Together, they audit around 130 Chinese companies that are listed in the US, according to the US Securities and Exchange Commission.More in Chinese tech news: Chinese internet titan Tencent is pivoting from years of aggressive stakebuilding to a focus on divestments as it comes under pressure from investors and Beijing’s recent antipathy towards Big Tech.Do you think the inspections will go through as planned in order to keep Chinese companies listed on US exchanges? Tell me what you think at [email protected]. Thank you for reading FirstFT Asia — Emily Five more stories in the news1. Russia shuts down Nord Stream gas pipeline to Europe Russia has halted the flow of gas through the Nord Stream 1 pipeline to Europe for three days, the latest disruption to an energy link that has been central to Moscow’s efforts to squeeze supplies. The shutdown, which Russia claims is needed for essential maintenance, will add to anxiety in European countries as they seek to secure vital supplies ahead of the winter months. Related read: German manufacturers are halting production in response to the surge in energy prices caused by Russia’s squeeze on gas supplies, a trend the government has described as “alarming”.2. Japan plans big defence spending boost Japan will upgrade its cruise missiles and research hypersonic weapons as it seeks to significantly increase military spending to counter what Tokyo sees as the rising threat from China. The defence ministry today made a record ¥5.6tn ($40bn) budget request for the year to March 2024, compared with ¥5.4tn in planned spending for the current fiscal year.3. Trump accused of obstructing DoJ probe The US Department of Justice accused Donald Trump’s team of obstructing its investigation into the alleged mishandling of classified documents from his days at the White House, casting doubt on the former president’s claims that he had co-operated with federal investigators.4. Toyota to invest up to $5.3bn in battery production The world’s largest carmaker will spend up to ¥730bn ($5.3bn) in the US and Japan to accelerate its production of batteries, the latest in a series of investments by Asian carmakers in electric vehicles. The announcement came just two days after rival Honda and South Korean battery maker LG Energy Solution said they would spend $4.4bn to build a battery plant in the US.5. EU rips up Russia visa deal The EU has agreed to suspend a visa deal with Moscow and backed demands by eastern member states to curb the number of Russians crossing into their countries, as it bows to pressure to punish travellers over Vladimir Putin’s invasion of Ukraine.The day aheadShanghai schools reopen Students will return to classrooms after months of Covid-19 closures. (Al Jazeera) The European Medicines Agency meeting The agency is set to review new vaccine boosters by Moderna and BioNTech/Pfizer, which have been adapted to target the Omicron variant. The US approved Omicron-specific vaccines yesterday.European Premiere League transfer window closes Chelsea has a net spend of more than £200mn on six confirmed signings, even before the transfer window officially closed today. Premium subscribers can click here to sign up for our Scoreboard newsletter on the business of sport.

What else we’re reading Singapore becomes a haven for Chinese elite In the Hollywood production Crazy Rich Asians, Singapore was portrayed as a cocktail party that never ended, and where luxury was always within reach. Now this already crazily rich city is receiving a big new dose of money — thanks to a fresh influx of tycoons from across the South China Sea.Self-driving cars have nothing on Japan’s self-captaining ships Worldwide, the race to perfect fully autonomous operations for large commercial vessels is intense, and arguably of far greater practical importance, than that for self-driving cars, writes the FT’s Leo Lewis. China drought highlights economic pain from global warming The heatwave in south-west China, which caused temperatures in Chongqing to rise 7C higher than the average level over the past decade, has been severe. Widespread power shortages in the south-west paralysed industry in a crisis that scientists said was probably caused by climate change.

Rishi Sunak warns of risk that markets lose faith in UK economy Conservative party leadership contender Rishi Sunak warned that it would be “complacent and irresponsible” to ignore the risk of markets losing confidence in the British economy, in a Financial Times interview. The former chancellor said he “struggled to see” how the promises of his opponent Liz Truss “add up”.Don’t ban private jets — make them a green testing ground Public anger is growing against the carbon-belching elite, with rising calls to ban private jets. Should regulators instead turn such wasteful means of getting from A to B into a testing ground for new technologies and fuels, asks Pilita Clark.Thank you to readers who took our poll yesterday. Of those who responded, 23 per cent said they have suffered from new, long-term health issues since contracting Covid-19. Obituary World leaders paid tribute to Mikhail Gorbachev after the former Soviet leader died at the age of 91. But reaction in Russia was more muted. Although he ruled in Moscow for less than seven years, the consequences of Gorbachev’s tenure rewrote the global order at the end of the 20th century.

Mikhail Gorbachev was lauded in the west as a hero but condemned by many in Russia for wrecking its economy © Boris Yurchenko/AP More

Rail passengers in Britain face a new wave of disruption after two unions announced plans for 24-hour stoppages in September in a long-running dispute over pay and conditions. Train drivers’ union Aslef on Wednesday said its members would stage the third one-day walkout at 12 train operating companies on September 15 in a move that is expected to close down large parts of the network. The announcement is part of a series of stoppages by train drivers who voted for their first national strike since 1995 earlier in the summer.Separately, the smaller Transport Salaried Staffs’ Association announced its own 24-hour strike from midday on September 26 in a dispute with nine train operating companies and infrastructure owner Network Rail. The previous strikes by train drivers have all but brought the network to a standstill but rail industry executives are confident that a TSSA strike would have a far smaller impact unless it was timed to coincide with a walkout by another union. The RMT, which has 40,000 members including key signalling staff, has threatened to call more strikes this autumn but has yet to announce any dates. The latest strikes called by Aslef and the TSSA follow a summer of disruption on the railways as workers push for pay rises to match soaring inflation. Unions have said the action is also in part to protect their members’ jobs and working practices. But train companies and Network Rail have countered that the only way to afford significant pay rises within their budgets is through higher staff productivity. The government controls the industry’s finances and is pushing for cost cuts to help plug a £2bn annual funding gap following a fall in ticket revenue after the pandemic. Since the dispute began earlier in the summer, only one pay deal has been agreed when a small number of TSSA members accepted a 4 per cent rise from Network Rail. Separately, Aslef has reached pay deals with nine train companies without resorting to strike action.Mick Whelan, Aslef’s general secretary, said there was still no pay offer on the table from train operating companies, leaving his members facing a real-terms pay cut. “We want the companies . . . to make a proper pay offer to help our members keep up with the increase in the cost of living,” he said.

Manuel Cortes, TSSA’s general secretary, blamed the government for the impasse. He called on the industry to propose a new pay offer after an “insulting” 2 per cent pay rise was rejected earlier in the summer. The government called on unions to restart talks with the rail industry, and said strike action would be “self-defeating”.“These reforms deliver the modernisations our rail network urgently needs, are essential to the future of rail, and will happen. Strikes will not change this,” the government said.Transport secretary Grant Shapps has repeatedly called on unions to accept sweeping modernisation, such as more flexible shift patterns and making Sunday a regular part of the working week, in exchange for pay rises.He has also previously called on the RMT to put a rejected pay offer from Network Rail, equivalent to a pay rise of 8 per cent over 2 years, to a member vote. With Network Rail insisting that its offer is all it can afford, talks are deadlocked, with both industry executives and unions expecting more strikes in the autumn. Services affected by the Aslef walkout include those operated by Avanti West Coast, Great Western Railway, LNER, Northern Trains and Transpennine Express. More

German manufacturers are halting production in response to the surge in energy prices caused by Russia’s squeeze on gas supplies, a trend the government has described as “alarming”.Economy minister Robert Habeck said industry had worked hard to reduce its gas consumption in recent months, partly by switching to alternative fuels such as oil, making its processes more efficient and reducing output. But he said some companies had also “stopped production altogether”, a development he said was “alarming”.“It’s not good news, because it can mean that the industries in question aren’t just being restructured but are experiencing a rupture — a structural rupture, one that is happening under enormous pressure,” he said.He was speaking as Russia halted the flow of gas through the Nord Stream 1 pipeline for three days of planned maintenance. The outage comes with European countries already labouring under drastic cuts in Russian gas supplies that have driven up gas prices to record levels. German business leaders say the pain from costlier energy inputs is being exacerbated by recent interest rate rises in the US and slowing growth in China, one of Germany’s largest export markets.Habeck’s comments echoed Siegfried Russwurm, head of the main German business lobby, the BDI, who said this week that gas consumption by industry had declined 21 per cent in July compared to a year ago.“But that’s often not to do with efficiency gains, but with a dramatic decline in output,” he said. “It is not a success, but the expression of a massive problem.”Russwurm said the price of electricity for 2023 had risen to more than €700 per megawatt hour, “more than 15 times the level of past years”.“The situation for many companies is, or soon will be, toxic, not only because of the shortage of gas but mainly because of the ludicrous price increases,” Russwurm said.Habeck said rising gas prices were affecting everyone from big industrial groups to small trading companies and the medium-sized enterprises that make up the German “Mittelstand”. “Wherever energy is an important part of the business model, companies are experiencing sheer angst,” he said. He said the business model of large parts of German manufacturing was based on the abundance of gas from Russia that was cheaper than gas from other regions. That competitive advantage “won’t come back any time soon, if it ever comes back at all”, Habeck said.The pessimism was underscored by a recent survey by one of Germany’s leading economic think-tanks, the Ifo Institute, which showed that German business confidence had fallen for a third consecutive month. The index, based on a monthly survey of 9,000 companies, slipped to a more than two-year low of 88.5, down from 88.7 last month.According to a poll published on Wednesday by the DMB, a lobby group representing the Mittelstand, 73 per cent of companies were experiencing “severe strain” from higher energy prices. Asked about the business outlook for the next six months, 10 per cent said their “existence is under threat”.“Trust in the economic crisis competence of the government is disappearing and small- and medium-sized enterprises in particular feel they have been left alone by the authorities,” said Marc Tenbieg, the DMB’s head. Business is particularly disappointed at the government’s slowness in stitching together a third package of relief measures to cushion the blow of higher energy prices.The cabinet, led by chancellor Olaf Scholz, held a retreat this week at Schloss Meseberg, a government guesthouse outside Berlin, and there had been widespread expectations that it would unveil at its conclusion a number of new measures. But Scholz said at the final press conference that it was not yet ready.

Finance minister Christian Lindner insisted, however, that the next package of measures would be “massive”, amounting to the “single-digit billions” for this year and “double-digit billions” for 2023. The two previous relief packages introduced in the aftermath of Russia’s invasion of Ukraine had together been worth €30bn. Lindner demanded reforms of the electricity market, where high gas prices were causing an automatic increase in electricity prices, which was delivering windfall profits to some energy providers. Echoing Lindner, Habeck said it was a question of “eliminating the cause” of higher energy prices, not just softening their effects. More

Good eveningAnother day, another “worse than expected” piece of data.Today’s instalment was news that eurozone inflation had risen from 8.9 per cent to a new record of 9.1 per cent in August, heaping pressure on the European Central Bank to announce a more aggressive tightening of monetary policy next week.The data fuelled a further sell-off in European bond markets as investors braced for bigger interest rate rises. Economists now predict inflation will top 10 per cent this year and remain higher for longer than originally forecast.The spiralling cost of energy was the main driver of today’s increase, but the core reading, which strips out this and other volatile items such as food, still rose a higher than expected 4.3 per cent, up from 4 per cent in July. On the plus side, wholesale energy prices have come down from record highs after news of an EU plan to moderate electricity prices by separating them from the spiralling cost of gas.Inflation in Germany, the eurozone’s most important economy, hit a 40-year high of 8.8 per cent, despite government measures such as lowering duty on fuel and energy bills and subsidising train fares. Bundesbank chief Joachim Nagel recently suggested double-digit levels were likely this year, for the first time since 1951. Meanwhile in the UK, inflation could hit 13 per cent next month after a ruling from the Office for National Statistics that a £400 rebate on household energy bills would not affect its calculation. Goldman Sachs yesterday trumped Citigroup’s forecast of 18.6 per cent inflation in January, when energy prices are likely to ratchet up again, with a prediction of more than 20 per cent. Chief economics commentator Martin Wolf lays out the challenge facing central bankers, unable to address the core problem of the energy shock: how to ward off the “calamity” of 1970s-style high and unstable inflation without causing an unnecessarily deep slowdown.Today’s data follow hawkish rhetoric on fighting inflation from central bankers gathered at Jackson Hole in Wyoming last week. Hanging over the meeting, reports US economics editor Colby Smith, was the feeling that the world and the economic relationships that underpin it had fundamentally changed. Some believe that the forces that previously kept prices in check, such as globalisation and a plentiful supply of labour, have reversed.Or as ECB board member Isabel Schnabel puts it, we are at risk of transitioning from the past two decades of the “Great Moderation” to a new era: the Great Volatility.Compare international trends with our global inflation tracker.Latest newsUS regulators clear updated Covid boosters targeting newest variantsUK set to confirm government 20% stake in new Sizewell C nuclear plantCanada’s economy grows slower than expected in the second quarterFor up-to-the-minute news updates, visit our live blogNeed to know: the economyEuropean fears over gas supplies intensified as Russia halted flows through the Nord Stream 1 pipeline for three days of maintenance, while in Germany some companies have halted production as prices soar. Shell said Europe may have to get used to several years of rationing, but some relief is on the way from China, which is reselling its surplus liquefied natural gas.Latest for the UK and EuropeOnly five more sleeps till the UK gets its new prime minister! Candidate Rishi Sunak continued his attacks on rival (and favourite) Liz Truss’s economic plans, while Truss faced a backlash over her plans to cut VAT. But looking at this nightmarish in-tray it’s a wonder why anyone would want the job . . . Signs of the economic squeeze are coming thick and fast. UK credit card borrowing rose at the fastest rate in 17 years last month as consumers battened down the hatches, while other data showed shoppers were increasingly trading down to own-label groceries.Finding solace at your local boozer could also be problematic: leading pub chains say many face closure unless the government helps them with crippling energy bills. Corner shops face the same problem. Most depressing news of all: English councils are preparing “warmth banks” for those who can’t afford to heat their home.Global latestChinese manufacturing activity shrank for the second straight month in August after drought caused power shortages.The IMF approved a $1.1bn payment to Pakistan as part of a $7bn bailout package to help stave off default. The country, already suffering severe economic difficulties, has had to contend with devastating floods that have killed more than 1,000 people and wrecked 1mn homes.A bank customer’s staged “robbery” to get access to his savings has highlighted the agonies facing those in Lebanon, where a financial collapse is now in its third year. Three quarters of the population have been thrown into poverty, while the country’s currency has lost more than 90 per cent of its value.Need to know: businessThe problems facing the buy now, pay later sector were highlighted by a quadrupling of losses at Sweden’s Klarna.Another pandemic darling has fallen back to earth. Social media group Snap announced a 20 per cent cut in staff as advertising demand wanes. The head of CRH, the world’s biggest building materials company, told the FT the industry faced a “second wave” of inflation as cost increases spread beyond energy to wages and raw materials.The darkening economic outlook is likely to wreck the appetite for travel this winter, leaving airlines facing a grim winter on top of the disruption of recent months. Italy is in talks to sell a controlling stake in ITA Airways, the successor company to bankrupt Alitalia, to Delta Air Lines, Air France-KLM and a US private equity firm.Cruise ship demand is edging towards pre-pandemic levels, as our Big Read explains, but the industry faces resistance from environmental campaigners and some port cities which say travellers do little on disembarking other than take pictures. The World of WorkCome into the office regularly and make sure people see you, do your job well for the agreed hours (rather than slacking off constantly), and, most important of all, do it discreetly. Columnist John Gapper has some tips for those considering “quiet quitting”.Hybrid workers, meanwhile, face greater scrutiny from UK tax authorities, including whether those working abroad become liable to income tax and social security outside the country.The resurgence of trade union activity is recasting the relationship between bosses and workers, explains US labour and equality correspondent Taylor Nicole Rodgers who guests on the latest Working It podcast. Get the latest worldwide picture with our vaccine trackerSome good newsThe once-extinct large blue butterfly, reintroduced to the UK in 1983, flew in its greatest numbers ever recorded this summer, following a successful long-term conservation project led by the Royal Entomological Society.A large blue butterfly in one of two new colonies reintroduced to a National Trust site in the Cotswolds region of England © David Simcox More

Food prices are soaring. In Britain they are rising at the highest rate since 2008, the British Retail Consortium says. Yet there is some good news from an unpromising source. A bumper Russian harvest has made wheat cheaper. The price of Chicago wheat futures is back where it was in January, at $8.03 a bushel, having fallen by two-fifths from its March peak.High yields from the Russian breadbasket — along with a partial resumption of Ukrainian exports — have relieved what threatened to be a devastating squeeze. Russia and Ukraine typically account for a fifth and a tenth of global exports, respectively. The disruption threatened countries such as Egypt, which depends on the combatants for the vast majority of its imports. It has been able to build up seven months of wheat reserves, albeit at higher prices — exacerbated by the strength of the dollar — than budgeted for. War is not the only factor playing havoc with prices. Drought is reducing the yields of many crops. France, the EU’s top grain producer, is heading for its worst maize harvest this century, according to consultancy Agritel. Hot, dry conditions are also afflicting the US Midwest. High gas costs are curbing fertiliser production. That is exacerbating food shortages in Africa. Wheat normally accounts for just a tenth of the price of a loaf of bread. Other spiralling costs are bigger factors behind food price rises. In April, Associated British Foods said it had recovered “huge” input price inflation with a 25p rise in the shelf price of its Kingsmill bread to £1.10. The baker warned that further post-invasion increases were on the cards. Food price inflation normally lags behind global agricultural commodity prices by about nine months, says Capital Economics. A portion of the blame for the rise in CPI food inflation from below zero in 2021 to 12.6 per cent in July can be pinned on last year’s commodity price surge. The consultancy forecasts a further rise in food price inflation to more than 13 per cent. That would be the highest rate since at least 1989. Global food prices will begin to drop in 2023, in the view of Morgan Stanley. The impact of the Ukraine war on energy and fertiliser prices will persist. Even so, the world should be thankful to hard-working farmers in warring Russia and Ukraine for a rare piece of good news.The Lex team is interested in hearing more from readers. What is your take on world food supply? The situation is less dire now than some forecasters predicted. Please tell us what you think in the comments section below. More

“Given today’s stronger-than-expected inflation data -together with hawkish commentary and upside risks to near-term growth – we now expect the Governing Council to hike by 75bp at the September meeting,” the U.S. bank said in a note on Wednesday.The bank’s economists also raised where they expect rates to peak, to 1.75% in February 2023, from 1.50% previously. Markets have ramped up bets on such a move since last Friday, when some sources told Reuters policymakers could discuss a 75 basis-point move, and hawkish policymaker commentary at the Jackson Hole symposium.Other banks including Nordea and Danske Bank have also said they expect a 75 basis-point hike. More