Economy

Good morning. Fumio Kishida, Japan’s prime minister, has moved to restore the country’s status as a nuclear-powered nation for the first time since the 2011 Fukushima crisis, accelerating the restart of reactors and signalling the construction of new plants. Kishida’s decision to throw his political weight behind the nuclear power sector is intended to rein in soaring energy costs for households and companies and to support Japan’s nuclear technology manufacturers. “As a result of Russia’s invasion of Ukraine, the global energy situation has drastically changed,” Kishida said on Wednesday. “Whatever happens globally, we need to prepare every possible measure in advance to minimise the impact on people’s lives,” he said, adding that the government would aim to come up with concrete plans for the nuclear sector by the end of the year.Thank you to those of you who took yesterday’s poll. Fifty-four per cent of respondents said they think Elon Musk will win his legal battle with Twitter. And thanks for reading FirstFT Asia. — EmilyFive more stories in the news1. Thai PM suspended after legal challenge Prayuth Chan-ocha has been suspended from office after the country’s constitutional court agreed to hear a petition brought by the opposition which argues that he has exceeded his legally mandated eight-year term. The prime minister will be temporarily relieved of his duties while the petition is considered, the court said yesterday. 2. China probes defeat by Evergrande youth football team Chinese authorities have ordered tighter supervision of local leagues and an investigation into alleged match-fixing following a defeat suffered by an under-15s team from the youth academy of distressed property developer Evergrande. The team was winning 3-1 until the 68th minute but ended up losing 5-3.3. Singapore fines Noble $9.1mn for ‘misleading’ financial statements The announcement by the city state’s accounting authority concludes its probe of a high-profile accounting scandal that brought Noble, a commodities business, to the brink of collapse. It also flagged “stern warnings” given to two unnamed former directors of the group.4. Crisis of confidence in Chinese property Investors are pricing in almost $130bn in losses on Chinese property developers’ dollar debt, with two-thirds of the more than 500 outstanding dollar bonds priced below 70 cents on the dollar as concerns mount that the country’s housing market will face a protracted crisis unless Beijing implements a large-scale bailout.5. Biden to cancel $10,000 of student debt for millions of Americans The plan includes cancelling $10,000 of repayments for anyone earning less than $125,000. Those in receipt of Pell Grants, which are given to those in particular financial need, will qualify for $20,000 worth of forgiveness.The day aheadAnniversary of Myanmar crackdown Today marks five years since the country’s military launched a crackdown that led to the Rohingya refugee crisis. Related listen: In this episode of Rachman Review, Gideon Rachman explains how social media platforms put profits before people. In Myanmar, military leaders used social media as a tool to demonise the Rohingya Muslim minority.Jackson Hole Economic Symposium The gathering of central bankers starting today in Wyoming will be closely watched as the beast of inflation runs rampant around the world. In this useful explainer, Colby Smith and Sam Lerner examine whether the Federal Reserve can tame the highest inflation in about 40 years without causing sharply higher unemployment.European Central Bank minutes We will get the minutes from policymakers last meeting.What else we’re reading and listening toBangladesh is being ‘killed by economic conditions elsewhere’ Power blackouts and high import prices are fuelling fears that the country’s previous economic gains could be reversed by global crisis. Previously one of the world’s poorest countries, Bangladesh has become the third-largest garment exporter, according to World Trade Organization data.A stalemate after six months of war Ukraine and Russia are at a stalemate across much of the 2,400km front line and Russian forces are entrenching themselves for the winter ahead. Both sides are so dug in that “there are no prospects for peace at all — only a ceasefire,” according to a person close to the Kremlin.Afghanistan one year later On the latest episode of our Behind The Money podcast, south Asia correspondent Ben Parkin explains how Afghanistan’s economy has changed in the year since US forces left the country and the Taliban retook control of the government.A UK government under Truss The Conservative party leadership contest has less than two weeks to run, with several polls suggesting that Liz Truss is likely to become the UK’s next prime minister. Should she win, who is likely to feature in her cabinet?What kind of great power will India become? James Crabtree reviews three books that offer insights into New Delhi’s relationship with the US and China. India’s response to the war in Ukraine did not pan out the way many in the west might have hoped, he writes. Technology We’re in an era when the unpredictability of people meets the as-yet not fully capable autonomous car. In this moment, which I’m calling the Human-Autonomy Clash, there’ll be crashes, there’ll be anger, writes Dave Lee. More

MOSCOW (Reuters) – Consumer prices in Russia declined for the seventh week running, as the rouble’s appreciation in the past few months and a drop in consumer demand slow the pace of price growth, although households’ expectations of future inflation increased. The consumer prices index (CPI) dipped 0.15% in the week to Aug. 22 after easing 0.13% a week earlier, the federal statistics service Rosstat said on Wednesday.Russians focus closely on inflation among economic trends as rising prices eat into living standards. Annual inflation reached 15.1% in July, far above the central bank’s 4% target. As of Aug. 22, annual inflation slowed to 14.60% from 14.87% a week earlier, the economy ministry said on Wednesday.Although the economy has avoided the meltdown many predicted after Moscow sent its forces into Ukraine six months ago, with higher prices for its oil exports cushioning the impact of Western sanctions, hardships are emerging for some Russians.In annual terms, inflation remains high but is slowing after prices of nearly everything, from vegetables and sugar to clothes and smartphones, jumped sharply after Russia began what it calls a “special military operation” in Ukraine on Feb. 24. GRAPHIC – Inflation in Russia surged to 20-year high in 2022 The CPI has extended its decline even after the central bank slashed its key rate by 150 basis points to 8% last month and indicated it was ready to consider further monetary easing to limit the depth of an economic recession.A sound harvest could pave the road for a decline in the CPI in August and September, which in turn could cement expectations for further rate cuts and steer yields of OFZ government bonds lower, said Dmitry Polevoy, head of investment at Locko Invest.But perceived inflation remains higher than the headline CPI figure as people tend to focus on prices for particular goods and services.In the first seven months of 2022, prices for sanitary pads and soap rose more than 40%, while prices for flight tickets rose nearly 32%, Rosstat figures show. GRAPHIC – Consumer prices in Russia rose sharply in 2022https://graphics.reuters.com/RUSSIA-INFLATION/klvykwylxvg/chart.png Russian households said their observed inflation on average declined to 20.5% in August from 22.2% in July but inflation expectations for the year ahead rose to 12.0% from 10.8%, the central bank said in a report on Wednesday.”The official consumer price index is considered to be half as low as ‘people’s’ inflation but in some cases this gap can be larger,” said Pavel Sigal, first vice-president at Opora Rossii, a non-governmental organisation that represents the interests of small- and medium-sized businesses. (This story refiles to fix typo in chart, no changes to the text) More

European and US government debt sold off on Wednesday as investors cranked up their expectations of how high central banks will raise interest rates to curb inflation.The moves, which were particularly pronounced in UK and European markets, came on the eve of a multi-day economic symposium for policymakers in Jackson Hole, Wyoming. The event, hosted by the Kansas City arm of the US Federal Reserve, is closely watched by investors for signals from central bankers on the future direction and pace of monetary policy. The yield on the UK’s two-year gilt, which is particularly sensitive to changes in interest rate expectations, jumped 0.22 percentage points to 2.90 per cent, reflecting a significant drop in its price. The benchmark 10-year gilt yield added 0.12 percentage points to 2.69 per cent.Those sharp moves came as pricing in money markets indicated investors were expecting the Bank of England to lift borrowing costs to almost 3 per cent by November, up from projections just a week ago of 2.6 per cent and a current base rate of 1.75 per cent. Data released last week showed that UK inflation rose to a more than 40-year high in July.Antoine Bouvet, senior rates strategist at ING, said the UK Debt Management Office’s announcement on Tuesday that it will sell £1.5bn in short-term gilts on Thursday has added to the unease. The sale comes during a time when liquidity, or the ease of buying and selling bonds, has been worsening across European fixed-income markets due to summer holidays and heightened economic uncertainty. “It’s nothing massive by any stretch of the imagination but it shows that when you add supply to an illiquid, very nervous market, the impact can be quite sizeable,” Bouvet said.The more volatile moves in gilts become, the worse liquidity will get, he added. “It’s a bit of a chicken and egg scenario.” Short-dated eurozone bond prices also dropped, with the yield on the two-year German Bund adding 0.08 percentage points to 0.90 per cent and Italy’s equivalent debt instrument rising 0.05 percentage points to 1.87 per cent.Investors were on Wednesday expecting the European Central Bank to implement 1 percentage point of interest rate rises by October, from a current deposit rate of zero. The ECB raised interest rates by half a percentage point in July, its first increase in more than a decade.The big rise in bond yields and rate expectations highlights how a surge in natural gas prices in Europe and the UK is increasing concerns about already highly elevated levels of inflation. The European gas benchmark rose 15 per cent on Wednesday to a new closing high of €300 per megawatt hour while the UK price advanced by 13 per cent to £5.58 per therm. That compares with €200 and £3.49 respectively at the start of August. In the US, the yield on the benchmark 10-year Treasury note hit its highest level in almost two months, rising 0.06 percentage points to 3.11 per cent ahead of the Jackson Hole central bankers’ conference that starts on Thursday. The two-year yield rose 0.07 percentage points to 3.40 per cent.The event is often used by policymakers to provide guidance on its future policy stance, and investors will be watching for insight on how aggressively the central bank will raise interest rates through the rest of the year.“Caution is the name of the game on equity markets with expectations that aggressive policies to tame roaring inflation will continue despite fresh signs that the US economy is slowing,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.Minneapolis Fed president Neel Kashkari, previously perceived as a more dovish US central bank policymaker, said on Tuesday night that the combination of “maximum employment” and “very high inflation” made the Fed’s approach “very clear: we need to tighten monetary policy to bring things into balance”.US stock markets were more muted. Wall Street’s benchmark S&P 500 stock index erased some of its early gains to close 0.3 per cent higher amid thin volumes. The technology-heavy Nasdaq Composite rose 0.4 per cent.Europe’s regional Stoxx 600 ticked up 0.2 per cent. In Asian markets, Hong Kong’s Hang Seng closed down 1.2 per cent and China’s mainland CSI 300 gauge shed 1.9 per cent, as concerns grow about the indebtedness of the country’s mammoth housing market. More

LONDON (Reuters) -AstraZeneca’s Chief Executive Pascal Soriot warned on Tuesday new U.S. legislation capping drug prices would reduce the ability of companies to recoup their investment on developing new drugs and hurt innovation.In a Reuters Newsmaker interview, he said the British drugmaker’s top-selling cancer therapy Tagrisso as well as its potential blockbuster Enhertu would likely be negatively affected by the new law in the coming years.Last week, a landmark law that included provisions to tackle the rising cost of medicines was passed in the United States, in a rare legislative defeat for the powerful pharmaceutical industry that set a precedent for curbing drug prices in the world’s most lucrative market for medicines.The act will for the first time allow the federal Medicare health plan for the elderly and disabled to negotiate prices on up to 20 drugs a year. It also sets limits on drug price increases for Medicare and caps out-of-pocket costs for those enrolled in the programme.The price negotiation portion of the legislation, which will kick off from 2026, poses a significant challenge, Soriot said. He said it was unclear how such negotiations would play out, and that it appeared to be structured as less of a negotiation and more of an “imposition of price.”With the current system of patent protection, pharmaceutical companies are able to recoup their investment in developing a drug drugs over nine to 11 years, Soriot said. In many cases, such as AstraZeneca (NASDAQ:AZN)’s cancer drug Enhertu, companies secure regulatory approval to treat patients who have received other therapies first, otherwise known as a later-line indication. Then, they often seek approval as a first-line indication, which is a much larger pool of patients who haven’t been treated with any therapies before.The problem is the clock on patent protection that allows drugmakers to charge premium prices starts with the first approval.With this new legislation, companies will be disincentivised to go after later-line indications so that they maximise the number of patients they can treat for as long as possible to recoup their investment. “That’s unfortunate because patients will suffer,” Soriot said, adding companies will have no choice because they have to protect their ability to invest in future drugs. More

An interest rate decision in South Korea grabs the spotlight in Asia on Thursday, as wider market sentiment continues to be clouded by rising U.S. bond yields, a buoyant dollar and deepening concern over China’s economy. South Korean won vs US dollar: https://tmsnrt.rs/3CsAhKm With inflation near its highest in 24 years, the Bank of Korea is expected to raise its base rate a quarter percentage point to 2.50%. A bolder move to 2.75% would put a rocket under the won and lift it from this week’s 13-year lows against the dollar.China is going the other way. Not only is Beijing cutting interest rates, Reuters exclusively reported on Wednesday that China’s foreign exchange regulator is warning banks against aggressively selling the Chinese currency.This would be a new sign of official discomfort with recent weakness of the yuan, which is languishing at a two-year low against the dollar. Due to the greenback’s broad strength – including against most Asian currencies, – the steady grind higher in U.S. bond yields and renewed weakness in equities, financial conditions in emerging markets are beginning to tighten again.The 10-year Treasury yield hit a two-month high of 3.12% on Wednesday, and the S&P 500’s rise of around 0.5% was pretty weak considering it had fallen 3.5% over the past three sessions.On the corporate front, Asia-focused insurance group AIA releases half yearly earnings, while attention could turn to shares in India’s NDTV Ltd after their jump to a 14-year high on Wednesday, after billionaire Gautam Adani’s conglomerate moved to take a near 30% stake in the media group.HSBC is also under the spotlight, after China’s Ping An Insurance Group said it supported calls to restructure the global banking giant. Ping An is HSBC largest shareholder with an 8.3% stake worth around $10.3 billion.Key developments that should provide more direction to markets on Thursday: Japan producer price inflation (July)BOJ board member Nakamura speech, press conferenceSouth Korea rate decision More

For the first time since records began, Britain had a month in which it imported no fuel from Russia, as trade between the two countries plummeted following Russia’s invasion of Ukraine, according to British government statistics released on Wednesday.In addition to a sharp decline in imports of Russian fuel in June, imports of other Russian goods also fell that month to the lowest level since Britain’s Office for National Statistics began recording the data in 1997. Imports decreased to 33 million pounds ($39 million), or 97 percent less than the average monthly imports in the year to February, the month when Russia invaded Ukraine.The figures show the extent to which the British government’s economic sanctions against Russia, which came into force in March, are having an effect. Self-sanctioning, where companies voluntarily seek alternatives to Russian goods, was also likely a factor in the steep decline in trade, according to the Office for National Statistics.Exports of most commodities to Russia from Britain also dropped significantly, led by a decline in exports of machinery and transport equipment. The exception was medicine and pharmaceutical products, which increased by 62 percent from the prewar average. These products are exempt from sanctions.Under sanctions, British companies have until the end of the year to end imports of Russian oil and coal and have been encouraged to find alternative sources until then. To make up for the decreased volumes of refined oil from Russia, British companies in recent months have increased imports from Saudi Arabia, the Netherlands, Belgium and Kuwait.Before Russia’s invasion of Ukraine, Britain imported nearly a quarter of its refined oil from Russia, 6 percent of its crude oil imports and 5 percent of its gas imports. (Britain gets about half of its total crude oil imports from Norway.)The European Union has also reduced its purchases of Russian gas ahead of a ban on the vast majority of the bloc’s imports of Russian oil, which will come into force at the end of the year. The European Union also agreed to curb natural gas consumption from Russia. In the final week of June, total E.U. gas imports from Russia were down 65 percent from a year earlier, according to a report by the European Central Bank.Russia is feeling the effect of sanctions. Its economy contracted sharply in the second quarter, declining 4 percent from a year earlier. Sanctions on Russia have led many American and European companies to exit the country and have cut off Russia from about half of its $600 billion reserves of foreign currency and gold.One boost for Russia’s economy has been higher oil prices, which have helped it make up for revenue that would have come from buyers in Europe. India, China and Turkey have stepped up their purchases of Russian crude, providing temporary relief, but once the European Union oil ban comes into full effect, Russia will need to find buyers for roughly 2.3 million barrels of crude and oil products a day, about 20 percent of its average output in 2022, according to the International Energy Agency. More

Good eveningSix months to the day after Russia invaded Ukraine, the grinding conflict is still casting a shadow over the global economy, keeping energy prices at elevated levels and jeopardising the global food system. Russia itself may be staggering under the effect of western sanctions, but as the FT editorial board points out, it is still on its feet. Half the country’s $640bn foreign exchange reserves are frozen, several of its top banks have been cut off from the international payments system and about 1,000 western companies — accounting for about 40 per cent of Russia’s GDP by one estimate — have quit the country.In response, Moscow has imposed capital controls and sharply raised interest rates to steady the rouble. It has also still been able to profit from rising oil prices and increased sales to China, India and Turkey. Oil production is only slightly below prewar levels.Oil aside, Russia’s overseas trade has been severely damaged. UK imports of Russian goods are at their lowest level ever recorded, according to new data today, with energy imports falling to zero for the first time. UK exports to Russia have also shrunk, or in the case of cars, ceased completely. Chemicals and pharmaceuticals remain unaffected by sanctions.Although the collapse of trade with Russia is one of the ways in which the war has affected the rest of the world, far bigger has been the impact on energy and food markets.The latest twist came this morning from Japan, where the government is considering new nuclear power plants as energy prices rocket, a remarkable turnround given the Fukushima disaster of 2011. Germany too is considering a U-turn on plans to exit nuclear power by the end of the year, as fears grow of shortages should Russia further restrict gas supplies. Fossil fuel companies, meanwhile, have earned a reprieve, if only until more sustainable sources are fully developed.While the energy crisis is a priority for policymakers in richer nations, their peers in poorer countries also have to contend with a serious food crisis. In Africa, soaring prices of nitrogen-based fertilisers, which have risen in line with natural gas prices, have forced farmers to cut output, while the consequences of the conflict have halted progress in developing economies such as Bangladesh. And hopes that the recent resumption of grain exports from Ukraine could form the basis for a broader rapprochement with Russia appear to have been dashed.High-profile Russians meanwhile continue to be targeted. The first superyacht seized from an oligarch under sanctions was sold yesterday at an auction in Gibraltar. Dmitry Pumpyansky, the owner of Axioma, a 236ft vessel worth €55mn-€60mn, is said to be one of the businessmen closest to Russian president Vladimir Putin, with an estimated net worth of £1.84bn.Not all western states back the idea of sanctions, pointing to the surge in energy prices. Some politicians, such as France’s far-right leader Marine Le Pen, argue sanctions hurt the French and other countries more than they hurt Moscow. The real pain, of course, is being felt by Ukraine and its people. According to new UN data today, there have been at least 13,560 civilian casualties since Russia invaded, while the cost of reconstruction is likely to top $750bn.Latest newsUS business spending holds up over summer monthsUkraine calls for permanent mission at Zaporizhzhia nuclear plantVisa and Mastercard blame fraud for post-Brexit fee increasesFor up-to-the-minute news updates, visit our live blogNeed to know: the economyS&P Global’s PMI reading for the eurozone fell 0.7 points to 49.2, the lowest since February 2021 and the second month of contraction in a row. German businesses reported their biggest reversal of activity for more than two years.Latest for the UK and EuropeThe PMI result for the UK showed economic activity growing at its slowest rate in 18 months as falling demand and supply and labour problems hit manufacturing. Revised official data show the UK economy shrank more than thought in 2020. Prime ministerial frontrunner Liz Truss has attracted flak for planning an emergency Budget on taking office without the input of the Office for Budget Responsibility. Whitehall editor Sebastian Payne explains what a Truss government would look like. One of the UK’s top energy bosses told the FT that a rescue plan to protect households from soaring bills would cost more than £100bn over two years. A sense of crisis is also building in UK business ahead of the traditional October 1 renewal date for fixed-price contracts.Almost half of the EU is now suffering from drought, with the weather likely to remain hotter and drier until November, compounding fears about crop shortages and energy supplies as hydroelectric reservoirs dry up.Although Poland is one of the last big EU coal producers, most of its coal is low quality and used mainly in power stations, leaving it struggling to find alternatives to its usual Russian sources. Turkey is banking on tourism to help stabilise its fragile economy. The country has been clobbered by the soaring cost of energy imports but the fall in its currency has turned it into a much cheaper holiday destination.Global latestCan the US Federal Reserve tame inflation without causing a massive jump in unemployment? Browse our latest piece of visual journalism.Experts warned that the slow response to the spreading monkeypox outbreak shows countries have not learned lessons from the coronavirus pandemic, in particular the failure to quickly roll out vaccines. Angola heads to the polls today to elect a new president amid discontent among the young over a lack of reform and mismanagement of the economy in Africa’s second-biggest oil producer. Australia is in a “mini constitutional crisis” after revelations that former PM Scott Morrison secretly appointed himself to jointly run five ministries — without telling most of the ministers involved.Need to know: businessIntel has struck a deal with Brookfield Infrastructure Partners for a £30bn semiconductor plant in Arizona following the passage of new US legislation supporting the domestic industry.Ford is cutting 3,000 workers as it tilts its labour force towards electric vehicles. The company in March split operations into separate businesses, with one focusing on internal combustion engines and another on EVs. A snag has emerged with the new US tax credit for electric cars: it renders some vehicles ineligible.BA signalled that airport and airline disruption would continue into next year as it axed 10,000 flights from its winter schedule. Gatwick airport was more optimistic, raising its forecast for passenger numbers.US retailers are gearing up for a very different holiday season as cash-strapped consumers struggle to make ends meet. Macy’s department store cut its full-year profit forecast, warning of a deterioration in consumer discretionary spending, even as it reported better than expected second-quarter results. Rival chain Nordstrom also cut its outlook. Apple is testing production of Apple Watches and Macbooks for the first time in Vietnam, as it seeks to boost its manufacturing hubs outside China. The country already makes iPads and AirPods earphones. Amazon is launching a new push into healthcare at what could be an opportune time for a disrupter with deep pockets, writes US investment and industries editor Brooke Masters.Our five-part podcast series A Sceptic’s Guide to Crypto asks whether crypto and its supporting technology — the blockchain — have a future following the recent market crash.The World of WorkApple’s move to get staff back in the office is being closely watched by other tech sector workers who fear their companies could follow suit. How can managers get the best out of introverts now teams are working together in real life rather than over a screen? Listen to the latest episode of our Working It podcast.Columnist Sarah O’Connor was among those who thought pandemic-related changes in work patterns might make cities like London cheaper for young renters. “I couldn’t have been more wrong,” she admits — rents have soared and homelessness is on the rise. Get the latest worldwide picture with our vaccine trackerSome good news.Rwanda could beat Australia to become the first country in the world to wipe out cervical cancer after a successful programme of testing, raising awareness and vaccination against human papillomavirus (HPV). More

The conclusion from a New York Federal Reserve paper on how much of the current inflation spurt is driven by supply bottlenecks is worth reading for a not very subtle diss. Hat-tip to Mike Green for the spot. The current debate on whether the Federal Reserve can engineer a soft landing needs to disentangle the drivers of US inflation. Our work shows that inflation in the US would have been 6 percent instead of 9 percent at the end of 2021 without supply bottlenecks. Our quantitative results clarify why some pundits were wrong to predict a transitory surge in inflation, while others were right in predicting high inflation, but for the wrong reasons. Put differently, fiscal stimulus and other aggregate demand factors would not have driven inflation this high without the pandemic-related supply constraints. In the absence of any new energy or other shock, it is therefore possible that the ongoing easing of supply bottlenecks will cause a substantial drop in inflation in the near term.That’s our emphasis in bold, but the NY Fed’s hyperlinks. The first one takes you to a Paul Krugman mea-culpa, and the second one — on pundits that were right on high inflation but for the wrong reasons — takes you here:

Ouch. For econ nerds, here is a link to the full research paper by Julian di Giovanni of the NY Fed, Sebnem Kalemli-Ozcan and Alvaro Silva of the University of Maryland and Muhammed Yildirim of Harvard, rather than just the NY Fed blog summary. Obviously whether we truly have passed peak inflation is a big topic at the moment.Update: As the generic disclaimer on the Fed’s Liberty Street Economics blog says, “the views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s)”. More