Economy

The Future Fund, which was set up in 2006 to cover escalating pension liabilities for public servants, said it made a negative return of 1.2% in the year to end-June, compared to a decline of more than 10% in global equities and bonds.It also noted that it returned 22.2% the year before, amid ultra-low interest rates and rallying investment markets, meaning its 10-year target of returning an average of 6.6% a year was relatively unaffected.”Not unexpectedly we now have significant global and domestic inflation,” said fund Chairman Peter Costello, a former Australian treasurer.”It is likely that further interest rate rises will be needed to achieve … inflation objectives. We expect deglobalisation, geopolitical tensions, trade barriers and high inflation to be a feature of the investment climate going forward,” Costello added in a statement.After reporting in early 2022 that it had surpassed A$200 billion ($137 billion) under management, the Future Fund said it now has A$194 billion. A year ago, it managed A$197 billion.Fund CEO Raphael Arndt said the organisation had benefited from a project to adjust its portfolio for an environment of higher inflation, increased volatility and lower returns.Since a year ago, the fund said it upped its exposure to “alternatives” to 17.8% of total funds under management, from 13.2%, without specifying what it meant by alternatives. It said it cut its equity exposure to developed markets to 15% from 18.2% and cut its equity exposure to emerging markets to 5.4% from 9.1%.In February the fund said it was winding down a small exposure to Russian-listed companies in response to Russia’s invasion of Ukraine.($1 = 1.4586 Australian dollars) More

Lloyds (LON:LLOY) Bank said its monthly business barometer dropped to 16% in August from 25% in July, with companies more worried about rising prices than economic slowdown.”Business confidence declined for a third consecutive month as firms continue to face economic challenges in the period ahead and as inflation concerns intensify,” Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said.Wage and price pressures remained elevated but there were some brighter points as demand for staff held up and firms reported less concern about staffing and the coronavirus pandemic, Ho said.While 38% of firms expected to increase headcount in the year ahead, the proportion thinking of raising pay by at least 3% fell slightly to 26% from 28% in July.The Bank of England is monitoring pay pressures closely as it considers how much further it needs to raise interest rates to snuff out the risk that the recent 40-year high in inflation will fundamentally alter the public’s assessment of the long-term path for prices. More

Food prices leapt by 9.3% after a 7.0% increase in July, driven by increases in products such as milk, margarine and crisps as the war pushed up the costs of animal feed, fertiliser, wheat and vegetable oils, the BRC said.”We can expect this level of food inflation to be with us for at least another six months but hopefully some of the input cost pressures in the supply chain will eventually start to ease,” said Mike Watkins, head of retailer and business insight, NielsenIQ, who co-produces the data.”However, with further falls in disposable incomes coming this autumn as energy costs rocket again, retail spend will come under pressure in the all-important final quarter of the year.”The Bank of England, which has raised interest rates six times since December, is watching how persistent the surge in inflation is likely to be.Britain’s consumer price index, which measures a broader range of prices than the BRC’s data, hit a 40-year high of 10.1% in July. More

Ministers are planning to introduce a rent cap for tenants in the social rented sector as part of efforts to ensure that some of the most vulnerable renters in England are not overwhelmed by the cost of living crisis this winter. Housing secretary Greg Clark on Wednesday launched a consultation looking at how best to support the 4mn households in the social rented sector, as investment bank Goldman Sachs said inflation could exceed 20 per cent by the start of next year. The government is considering capping rent rises for the coming financial year at 3, 5 or 7 per cent for tenants in the social sector to insulate them from the rising cost of living.“We must protect the most vulnerable households in these exceptional circumstances during the year ahead. Putting a cap on rent increases for social tenants offers security and stability to families across England,” Clark said. About 17 per cent of England’s households rent their homes from councils or housing associations, according to official data. Tenants in the social rented sector typically pay less and are afforded more protections from eviction than those in the private sector. The six-week government consultation comes alongside measures such as a £400 discount on energy bills and a £150 council tax rebate. These have been welcomed by campaigners but are dwarfed by the rising costs of energy and food. Energy regulator Ofgem last week said gas and electricity bills for an average British household would increase by 80 per cent to £3,549 from October. Geeta Nanda, chair of the G15 group of housing associations, said government support was welcome but that a rent cap would affect the ability of housing associations to deliver more affordable housing.“To maintain and improve existing residents’ homes, as well as continuing to build much needed new affordable homes, significant investment each year is essential. Rental income is critical to supporting this work,” she said.The consultation does not include measures to protect the 4.4mn households in the private rental sector from rent rises.Government guidance states that landlords in the private rented sector may increase rents provided they are “fair and realistic, which means in line with average local rents”. But according to estate agent Hamptons, average rents on new leases are up 10 per cent over the past 12 months. Renters across the UK have also complained that their landlords have attempted to push through bigger increases, leaving them at risk of homelessness. Dan Wilson Craw, deputy director of Generation Rent, a tenant campaign group, said that “any action to protect the most vulnerable households must also protect private tenants from unaffordable rent increases”.“With energy bills set to rise further, private renters desperately need government intervention to help them to keep their homes warm this winter.” More

Available job positions in July totaled 11.24 million for the month, well in excess of the 10.3 million FactSet estimate.
That total also was nearly double the total pool of available workers, which stood at 5.67 million for the month.

A “Now Hiring” sign is posted at a Home Depot store on August 05, 2022 in San Rafael, California.
Justin Sullivan | Getty Images

There were nearly 1 million more job openings than expected in July, an inflationary sign that the U.S. labor market is still extremely tight, the Bureau of Labor Statistics reported Tuesday.
Available positions totaled 11.24 million for the month, well in excess of the 10.3 million FactSet estimate, according to the Job Openings and Labor Turnover Survey. The total was about 200,000 higher than the 11.04 million in June, a number revised up from the initially reported 10.7 million.

Federal Reserve officials watch the JOLTS numbers closely for signs of slack in hiring.
The July numbers reinforced that there is still a considerable shortage of workers for available positions, with openings outnumbering available workers by just shy of a 2-to-1 margin. That, in turn, is inflationary as employers are forced to offer higher compensation to attract workers at a time when prices are rising near their fastest pace in more than 40 years.
Hiring declined during the month, falling to 6.38 million. Quits, a closely watched metric for worker confidence, also dropped, down to 4.18 million as those leaving their jobs as a percentage of the workforce declined one-tenth of a percentage point to 2.7%, still relatively high by historical standards.

Changing jobs has proven lucrative during the Covid era, with switchers seeing an average 6.7% annual wage growth rate, well ahead of the 4.9% rate of those who have stayed in their positions, according to the Atlanta Fed.
Total separations declined slightly in July to 5.93 million, as the rate edged lower to 3.9%. Layoffs and discharges were little changed at just under 1.4 million.

The JOLTS report comes three days ahead of the closely watched August nonfarm payrolls release Friday from the BLS. The Dow Jones estimate is for growth of 318,000, but the job openings numbers add potential upside to that count as companies continue to look to hire.
Fed Chairman Jerome Powell at last month’s meeting noted an “extremely tight labor market” in his remarks about the central bank’s efforts to bring down inflation.
Powell warned that ongoing hikes likely would result in “below-trend economic growth and some softening in labor market conditions.”
“But such outcomes are likely necessary to restore price stability and to set the stage for achieving maximum employment and stable prices over the longer run,” he added.
However, signs that hiring demand remains robust indicate that the rate increases may not be slowing growth as much as the Fed has hoped.
Traders upped their bets that the Fed will enact a third consecutive three-quarter point interest rate hike at its September meeting. The probability for that move over a half-point increase was 76.5% on Tuesday morning, according to CME Group data.

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Good morning. Taiwan has begun targeting Chinese drones flying over its outlying islands for the first time, highlighting the risk that Beijing’s military pressure on Taipei could lead to actual conflict.Soldiers on Kinmen, a Taiwanese-controlled island just off the Chinese city of Xiamen, shot at a Chinese drone for the first time on Tuesday afternoon, the Army Kinmen Defence Command said. It said the uncrewed vehicle then flew away in the direction of Xiamen. “According to procedure, we warn, report, try to expel with measures such as flares, and if that fails, we fire shots,” said Major General Chang Jung-shun, spokesman for the command. The more assertive approach comes as Taipei seeks to balance the risk of sparking outright conflict against its desire to block China from demonstrating effective control over nearby waters and airspace or even Taiwanese territory.Interview: Malaysia’s former prime minister Mahathir Mohamad has blamed “US provocation” for the increased tensions over Taiwan and urged south-east Asian countries to move closer to China.Do you think Beijing’s military pressure on Taipei will lead to conflict? Tell me what you think at [email protected]. Thank you for reading FirstFT Asia — Emily Five more stories in the news1. China Communist party sets congress for October The Chinese Communist party will convene what is seen as its most important gathering of the decade starting on October 16, setting the scene for Xi Jinping to secure leadership positions that will give him an unprecedented third term in power.2. Musk seizes on whistleblower report Elon Musk is using a whistleblower report by Twitter’s former security chief to bolster his legal fight to terminate his $44bn deal to buy the social media company. Musk’s legal team has claimed that if true, Peiter Zatko’s allegations breach several aspects of the merger agreement struck in April but which the billionaire has been seeking to abandon since July.3. Gorbachev dies aged 91 Mikhail Gorbachev, the last leader of the Soviet Union, has died aged 91, following a “serious and long-term illness,” Russian state media reported, citing a Moscow hospital. A former rural communist apparatchik, Gorbachev ended the Cold War and began democratising the USSR in the 1980s during the perestroika era.4. Kerry seeks restart to US emissions talks with China The US climate envoy John Kerry praised China’s efforts at tackling global warming and urged Beijing to resume suspended talks on the issue, even as tensions flare with Washington over the status of Taiwan. The former secretary of state urged Xi Jinping to restart climate talks with the US, saying he was “hopeful” the countries could “get back together”.5. IMF approves bailout package for Pakistan The IMF has approved the disbursement of more than $1.1bn to Pakistan, reviving a stalled $7bn assistance package expected to help stave off default despite a severe economic crunch and devastating floods.Related read: Sri Lankan president Ranil Wickremesinghe has said the government will raise taxes and strengthen social safety schemes in a budget designed to help secure an IMF support deal and steer the bankrupt country out of a severe economic crisis.The day aheadIndia GDP The country’s economy is expected to have expanded by 15.2 per cent in the last quarter, according to a Reuters poll of economists. (Reuters) Evergrande court hearing The embattled Chinese property developer faces a court hearing today in Hong Kong after an investor in its online real estate and automobile marketplace, Fangchebao, filed a winding-up petition against the company.Nord Stream 1 maintenance Russia will halt gas supplies through its largest pipeline to Germany for three days of maintenance work starting today. Fears that the flow of gas will not resume afterwards, which alarmed German officials the first time this happened, have resurfaced.What else we’re reading Rise in Chinese espionage alarms Europe China is already well known for advanced cyber attacks. Now, its human intelligence, or “humint”, skills have acquired a level of sophistication usually associated with Russian espionage, according to eight current and former western intelligence officials, adding to the sense of alarm in the west.Tough economic times lie ahead If the planned tightening of monetary policy is likely to generate a recession in the US, what might happen in Europe? The answer is that the recessions there are likely to be deep, given that the energy price shock is so large, writes Martin Wolf. Has Covid-19 made us all sicker? There is already evidence to back up geriatrician Dr David Strain’s concerns that coronavirus has left people susceptible to other conditions ranging from strokes to heart failure. “This is something that we’re going to be facing in a really big way in the near future,” he said.If you have had Covid-19, have you since suffered from new health conditions? Tell us in our latest poll below.

Hopes for US-China audit deal A deal last week for US regulators to inspect Chinese companies’ audits could prevent about 200 groups from being kicked off American exchanges. US officials — as well as hundreds of Chinese companies and global investors that own about $1.4tn of their shares — are hoping that Beijing’s rare concession is for real. Actors worry that AI is taking centre stage A range of AI start-ups are developing tools for use in film and audio, from making actors look and sound younger to creating AI voices that can be used for marketing campaigns, consumer assistants or even audiobook narration.Leadership“A lot of leaders are not necessarily nice people,” says Jeffrey Pfeffer, professor of organisational behaviour at Stanford University. He tells Stefan Stern the stark truth about management and power, including his seven crucial rules for getting to the top.(Sign up for our Working It newsletter, and stay up to date on the post-pandemic trends shaking up workplaces worldwide.) More

(Reuters) – Chile’s central bank modified the norms that regulate the access and functioning of the formal foreign exchange market, it said in a statement Tuesday.The move comes after a public consultation and is “part of the modernization process” of the central bank’s exchange regulation, it said. More

The effort would raise the budget – originally proposed by the previous government of ex-President Ivan Duque – to 401.4 trillion pesos ($91.5 billion), the highest in Colombia’s history.”We could increase the budget by some 10 trillion pesos, with a basis in bigger tax income and some efforts in management of public assets and multilateral financing,” Ocampo said in a presentation to congressional economic committees.Ocampo said the increase does not take into account resources which would be raised by a tax reform put forward by the government of President Gustavo Petro. The tax reform is aimed at raising some 50 trillion additional pesos per year in tax revenue by 2026.”The possibility of increasing some spending in the budget will depend on the tax reform. That will be the focus of a bill to add to the budget which we will present next year,” he said.Ocampo revised economic growth projections for next year down to 2.2%, from a previous estimate of 3.2%, and well below the 6.5% expansion expected this year.($1 = 4,386.13 Colombian pesos) More