Economy

The company will get an initial $52 million of funds as part of a new financing facility. Its cash balance was $52.2 million as of Aug. 9.EV startups that promised to disrupt the auto industry by using a technology-heavy approach to their vehicle designs are now scrambling to secure fresh lines of cash and cut costs due to rising commodity prices.Chief Executive Carsten Breitfeld said Faraday Future’s manufacturing facility in California was nearing completion and was testing the FF 91 electric vehicle.The electric-vehicle maker said it was in talks with investors in the United States and globally for a “significant additional near-term funding” as it looks to start deliveries in the third or fourth quarter.Separately, Faraday Future said its head of global supply chain, Mathias Hofmann, will temporarily oversee manufacturing operations at its Hanford, California factory, replacing Vice President of Manufacturing Matt Tall, who will leave the company.The EV firm had in July signaled the need for more cash to launch FF 91 model in a regulatory filing just a month after CEO Breitfeld told Reuters that it would be able to launch the car without additional funding.Faraday Future is one of the many EV startups that went public through blank-check mergers, a market that has slowed this year due regulatory scrutiny and the poor share performance of companies listed via that route.The company also said some suppliers had more recently requested accelerated payments and other terms and conditions due in part to its financial condition. More

Good morning. China announced a fresh round of military manoeuvres around Taiwan yesterday in reaction to the visit of a US congressional delegation, a move that ratchets up Beijing’s efforts to isolate the island nation.The announcement came after Democratic senator Ed Markey and four members of the US House of Representatives from both sides of the aisle landed in Taiwan on Sunday night and met President Tsai Ing-wen on Monday morning.The Chinese defence ministry said the visit flagrantly violated previous agreements and China’s sovereignty and territorial integrity.“[It] sends a wrong signal to the ‘Taiwan independence’ separatist forces, and fully exposes the true face of the US as a disrupter and destroyer of peace and stability in the Taiwan Strait,” the ministry said.Beijing’s fierce reaction to the latest US delegation is raising concerns in Taiwan and elsewhere that the Chinese leadership is trying to impose a new status quo under which foreign politicians and officials are dissuaded from engaging with the island’s government.The People’s Liberation Army’s new “multiple services joint combat-readiness patrols and exercises” come barely five days after it completed week-long drills that followed US House Speaker Nancy Pelosi’s visit to Taiwan. China said last week those drills had succeeded in “obliterating” the median line in the Taiwan Strait, an unofficial buffer zone, and that the PLA would from now on regularly patrol around the island.Since then, PLA aircraft and warships have been conducting daily manoeuvres around Taiwan in numbers far exceeding those before Pelosi’s visit and in areas close to Taiwan where they were not frequently active before the current crisis.According to the Taiwanese defence ministry, 96 Chinese military aircraft were active around the island between last Thursday and Sunday — after Beijing had said its exercises were over, but that it would keep a “close eye” on Taiwan and the US and conduct frequent patrols in the area.Happy Tuesday, and thanks for reading FirstFT Asia. —EthanFive more stories in the news1. Iran denies links to Salman Rushdie attack Nasser Kanaani, Iran’s foreign ministry spokesman, said on Monday that the Islamic republic “definitely and seriously” had no links to the suspect. In 1989, Iran’s then supreme leader Ayatollah Ruhollah Khomeini issued a fatwa on the author, authorising Muslims to kill Rushdie for his alleged blasphemy.2. Rio Tinto rebuffed in plan to take control of Mongolia copper project Turquoise Hill Resources said Rio’s cash offer did not “fully and fairly reflect” the value of its holding in Oyu Tolgoi. Once an underground expansion project is completed, Oyu Tolgoi will be one of the world’s biggest copper mines, with production in its early years of about 500,000 tonnes per year, just as demand for the metal increases because of the energy transition.3. Hong Kong accounting watchdog launches second probe into Evergrande and PwC The investigation is connected to how the Evergrande subsidiary and PwC classified “restricted bank deposits and other loans”, the guarantees provided on those loans, and the disclosure of related party transactions, Hong Kong’s Financial Reporting Council said.4. Slow wind farm approvals risk green goals, say renewable energy groups The chief executives of Denmark’s Vestas and Ørsted, the world’s largest manufacturer of wind turbines and biggest offshore wind farm developer, respectively, said governments needed to back up their green rhetoric by making it easier to go through an often convoluted planning process.5. Germany must cut gas use by 20% to avoid winter rationing Businesses and households are bracing themselves for Europe’s biggest energy crisis in a generation, with Germany’s top network regulator warning that gas use must be reduced by a fifth to avoid a crippling shortage after Russia’s Gazprom throttled supplies in mid-June.The day aheadEconomic data Minutes will be released from the Reserve Bank of Australia’s August policy meeting. The UK publishes preliminary second-quarter productivity estimates as the country’s productivity slump is scrutinised. The US will release industrial production figures.Perspective: Nervous central bankers are watching Australia closelyApologies for misnaming the Japanese prime minister in yesterday’s day-ahead. He is, of course, Fumio Kishida, not Yoshihide Suga.What else we’re readingAt 75, India is finally ready to join the global party The country is on track to surpass the UK, Germany and Japan to become the third-largest economy by 2032. Its entrepreneurial spirit and an increasingly efficient welfare state may give India the edge in a slowing world, writes Ruchir Sharma.Why the Fed might be at ‘neutral’ already on monetary policy Fed chair Jay Powell has been skewered by his critics for claiming that the federal funds rate was now at “neutral” at his July 27 press conference. But there is a conceivable way that Powell might be right, says Edward Yardeni. Arctic warming four times faster than rest of planet: study Scientists have for a long time known that the Arctic is heating faster than the rest of the planet, but have not agreed on a rate. The warming effect and long-term sea ice decline are considered two main indicators of climate change.

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Crypto poses serious challenges for regulators Even as the crypto industry craves the legitimacy that regulation offers, it will also try to minimise oversight, says Eswar Prasad. To guard against that, regulators must answer a few basic questions.Business Book of the Year The FT’s annual award has been narrowed down to 15 titles. While subjects range from interest rates to tech, the common theme that emerges is the many challenges facing the global economy. Work & leisureAugust is the traditional month for making yourself scarce at the office. Why are so many still working this August, asks Pilita Clark:At first I thought I was the only one with an unexpectedly active office. But others in the city have the same problem. One friend who had his hopes of a quietly productive August dashed by office busyness blames the rise of hybrid working. More

WELLINGTON (Reuters) – New Zealand’s central bank is expected to deliver its fourth straight half-point rate hike on Wednesday, but most economists see rates peaking below policymakers’ forecast after the most aggressive tightening in two decades to tame soaring inflation.Some analysts are even looking for cuts in the official cash rate as soon as 12 months from now, which is keeping markets cautious as they wait to take the pulse of this week’s Reserve Bank of New Zealand’s policy statement. “The outlook is becoming more mixed, with activity softening but inflation pressures even stronger than expected,” said Michael Gordon, Westpac New Zealand’s acting chief economist.Overall, he said in the past few months there has been a shift from markets being focused on inflation to now paying more attention on weakness in the economy.A front-runner in withdrawing pandemic-era stimulus among its peers, the RBNZ’s hawkish stride to curb the highest inflation in three decades, at 7.3%, has seen rates already up 225 basis points since October.All 23 economists in a Reuters poll forecast a 50 basis point rise at Wednesday’s policy review, taking the cash rate to 3.00% and marking the most aggressive tightening since 1999.While the RBNZ has signalled plans to increase the rate to 4.00% by mid-2023, almost matching the U.S. Federal Reserve, few see it reaching that level. A handful were actually expecting rates to start easing by mid next year.In June, the two-year swap rate topped out at 4.54% but in recent weeks that has dropped to sit at around 3.93% as expectations of when the cash rate will peak have fallen. That shift in market pricing has been driven by signs of a weakening economy amid the tightening in financial conditions. Housing prices, a significant driver of inflation, have started to fall with prices last month recording their first year-on-year drop in more than a decade. (nL1N2ZM2MK)Oil prices and a broad array of commodities have also begun to retreat from their recent record surge, while consumer and business sentiment remain gloomy. (nL1N2Z903B)In the first quarter, New Zealand’s economy unexpectedly contracted due to a surge in COVID-19 cases, and the central bank has said its priority was on preventing inflation from getting out of hand even at the expense of growth. Marcel Thieliant, senior economist at Capital Economics, said that he expects GDP growth in New Zealand will slow to a crawl by the end of the year, which should return inflation to the RBNZ’s 1%-3% target band by the middle of next year.”Accordingly, we’re sticking to our forecast of 75bp of rate cuts from the second half of next year,” he said. More

With no major regional economic reports on tap Tuesday, Asian markets will continue to digest the implications from China’s dismal data deluge on Monday that instantly deepened the gloom surrounding the world’s second largest economy.The central bank’s meagre 10 basis point reduction to some lending rates in response is unlikely to have any discernible impact. China’s economy is in trouble, bond yields are tumbling, and the yuan is feeling the squeeze. The dollar jumped 1% against China’s currency on Monday, one of its biggest rises in years, to push the yuan to its lowest since May. China’s 10-year bond yield is less than 20 basis points from a fresh 20-year trough. The slowdown is alarming, and as Societe Generale (OTC:SCGLY) economists note, Beijing seems less willing than before to halt the slide, never mind reverse it.”Our GDP forecast of 2.7% is right now at the bottom of Street estimates, and yet may still prove too optimistic. The July trajectory points to a below-2% GDP growth rate for 2022, if policymakers remain slow to step up,” they wrote.For the global economy and markets, however, China’s darkening economic cloud may have a silver lining: lower energy prices. Brent crude oil fell around 4% on Monday and is down 23% over the last two months. Its year-over-year rise – crucial for annual inflation prints – is down to around 35% from 100% in March.Asia will look to take heart from Wall Street’s upswing on Monday, which showed investors shrugging off China’s news and an equally surprising and dismal New York Fed manufacturing report. For now, lower oil prices are trumping weak economic data. GRAPHIC: GRAPHIC-Oil prices – current & y/y change (https://fingfx.thomsonreuters.com/gfx/mkt/gdvzyobrkpw/BrentOIL.png) Key developments that should provide more direction to markets on Tuesday: RBA minutes from August policy meetingIndia’s wholesale price inflation (July) More

The IBC-Br economic activity index, a leading indicator of gross domestic product, rose a seasonally adjusted 0.69% in June from May, much higher than the 0.25% growth expected by economists, according to a Reuters poll.In the second quarter, activity increased 0.57% over the previous quarter. The IBC-Br index was up 3.09% on a non-seasonally adjusted basis from June 2021, while in the 12 months through June it grew 2.18%, the central bank said.Official GDP figures will be released by the statistics agency IBGE on Sept. 1.Economy Minister Paulo Guedes recently estimated that the economy will grow above 2% this year, driven by the strength of the labor market and the normalization of economic activities that have suffered during the pandemic, with an emphasis on the services sector.Meanwhile, private economists who started the year projecting a 0.3% rise in GDP in 2022 are now expecting 2% growth, according to a weekly central bank survey.After the IBC-Br figures, Bank of America (NYSE:BAC) revised its GDP growth forecast to 2.5% from 1.5% previously, saying activity data was surprising on the upside as the service sector remained strong.”Increase in social transfers and tax cuts should cushion the slowdown in the second half,” wrote David Beker, head of Brazil Economics at BofA.For the second half, analysts had expected a slowdown amid aggressive monetary tightening led by the central bank to tame inflation, which has already pushed interest rates to 13.75% from a record low of 2% in March 2021. More

Oil is under $90 a barrel, and consumers are benefiting. Geopolitics, the economy and unforeseen events will determine whether the relief will last.When Russia invaded Ukraine last spring, energy experts were predicting that oil prices could reach $200 a barrel, a price that would send the costs of shipping and transportation into the stratosphere and bring the global economy to its knees.Now oil prices are lower than they were when the war began, having dropped more than 30 percent in barely two months. On Monday, news of a slowing Chinese economy and a cut in Chinese interest rates sent prices down further, to less than $90 a barrel for the American benchmark.Gasoline prices have fallen every day over the last nine weeks, to an average of less than $4 nationwide, and prices of jet fuel and diesel are easing as well. That should translate eventually to lower prices for things as diverse as food and airline tickets.But it would be premature to celebrate. Energy prices can spike as easily as they can plummet, unexpectedly and suddenly.China, where Covid-19 lockdowns remain widespread, will eventually reopen its cities to more commerce and traffic, increasing demand. Withdrawals of oil from the U.S. Strategic Petroleum Reserve will end in November, and it will need to be refilled. And a single unexpected event — say, a hurricane flooding the Houston Ship Channel and taking several Gulf of Mexico refineries out of commission for weeks or even months — could send fuel prices soaring.That sort of catastrophe could send tidal waves though the American and even global economy since energy prices are fundamental to the prices of everything that is shipped and produced, whether it be grain or building supplies.Down from recent peaks, oil prices remain highPrice of West Texas Intermediate crude oil

Source: FactSetBy The New York Times“Oil prices always have the capacity to surprise,” said Daniel Yergin, the energy historian and author of “The New Map: Energy, Climate and the Clash of Nations.” Prices could ease further if Iran agrees to a new draft nuclear agreement after it backed off from its demand that the Islamic Revolutionary Guards be removed from the U.S. terrorism list, opening a potential spigot of at least one million more barrels a day of Iranian petroleum exports.In addition, the prospect of a continuing increase in interest rates has many investors and economists predicting a recession — and a reduction in demand — even though unemployment is low and profits remain resilient.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More

WASHINGTON (Reuters) -The U.S. Federal Reserve said on Monday it had finalized guidelines for how it will review requests by banks, fintechs and other firms to access the central bank’s master accounts and payment systems.The final product, which is substantially similar to proposals the Fed floated in May 2021 and March 2022, creates a tiered review system that reserves the closest scrutiny for companies that lack federal deposit insurance and are not traditionally overseen by bank regulators.The new guidelines are aimed at creating a transparent, consistent and risk-based process for reviewing applications for “master accounts,” the Fed said in a statement.The guidelines come as a number of new nontraditional financial institutions, broadly known as fintechs, have emerged and begun seeking access to payment and account services that the Fed typically provided to banks as a way to quickly route and store money. Some firms had complained that the process for obtaining such an account was opaque and subjective.The process came under heightened scrutiny earlier this year, as Republicans accused Sarah Bloom Raskin, a nominee to serve as the Fed’s top bank regulator, of helping a fintech on whose board she served to obtain such an account. Raskin, who previously had served on the Fed’s board of governors, maintained she followed all ethics requirements, but withdrew after failing to garner sufficient Senate support for her confirmation.The new guidelines from the Fed direct regional Fed banks, which process master account applications, to conduct a streamlined review of traditional banks that provide deposit insurance and are already monitored by regulators. Firms that engage in “novel activities” that fall outside the traditional banking system and oversight, including many fintechs, would face more rigorous review of any applications. More

The Fed’s path to bringing down inflation while keeping the economy from a downturn is still open but getting narrower, according to Goldman Sachs.
The biggest problem remains stubbornly high inflation, against which the Fed has “shown little convincing progress so far,” the firm said.
Former New York Fed President Bill Dudley said he thinks the central bank will have to raise interest rates more than the market thinks.

Construction workers outside the Marriner S. Eccles Federal Reserve Building, photographed on Wednesday, July 27, 2022 in Washington, DC.
Kent Nishimura | Los Angeles Times | Getty Images

The Federal Reserve’s path to bringing down runaway inflation while keeping the economy from slipping into a major downturn is still open but is getting narrower, according to Goldman Sachs.
As the central bank looks to keep raising interest rates, the economy is teeming with mixed signals: rapidly rising payroll figures against sharply declining housing numbers, falling gasoline prices vs. surging shelter and food costs, and low consumer sentiment against steady spending numbers.

Amid it all, the Fed is trying to strike a balance between slowing things down, but not by too much.
On that score, Goldman economists think there have been clear wins, some losses and a landscape ahead that poses substantial challenges.
“Our broad conclusion is that there is a feasible but difficult path to a soft landing, though several factors beyond the Fed’s control can ease or complicate that path and raise or lower the odds of success,” Goldman economist David Mericle said in a client note Sunday.

Slow growth, high inflation

One of the biggest inflation drivers has been outsized growth that has created imbalances between supply and demand. The Fed is using interest rate increases to try to damp down demand so supply can catch up, and supply chain pressures, as measured by a New York Fed index, are at their lowest since January 2021.
So on that score, Mericle said the Fed’s efforts have “gone well.” He said the rate increases — totaling 2.25 percentage points since March — have “achieved a much-need deceleration” regarding growth and specifically demand.

In fact, Goldman expects GDP to grow at just a 1% pace over the next four quarters, and that’s coming off consecutive declines of 1.6% and 0.9%. Though most economists expect that the National Bureau of Economic Research will not declare the U.S. in recession for the first half of the year, the slow-growth path makes the Fed’s balancing act more difficult.
On a similar count, Mericle said the Fed’s moves have helped narrow the supply-demand gap in the labor market, where there are still nearly two job openings for every available worker. That effort “has a long way to go,” he wrote.
However, the biggest problem remains stubbornly high inflation.
The consumer price index was flat in July but still rose 8.5% from a year ago. Wages are surging at a strong clip, with average hourly earnings up 5.2% from a year ago. Consequently, the Fed’s efforts to halt a spiral in which higher prices feed higher wages and perpetuate inflation have “shown little convincing progress so far,” Mericle said.
“The bad news is that high inflation is broad-based, measures of the underlying trend are elevated, and business inflation expectations and pricing intentions remain high,” he added.

Doubts about the Fed’s policy path

Fighting inflation might require higher rate hikes than the market currently anticipates.
Goldman’s projection is that the Fed raises benchmark rates by another percentage point before the end of the year, but Mericle acknowledged that there is “upside risk” due to “the recent easing in financial conditions, the robust pace of hiring, and signs of stickiness in wage growth and inflation.”
Indeed, former New York Fed President William Dudley said Monday he thinks the market is underestimating the future path of rate hikes and, consequently, the risks of a hard landing or recession.

“The market is misunderstanding what the Fed is up to,” he told CNBC’s “Squawk Box” in a live interview. “I think the Fed is going to be higher for longer than what market participants understand at this point.”
In Dudley’s view, the Fed will keep hiking until it is sure inflation is heading back to the central bank’s 2% target. Even by the most generous inflation measure, the core personal consumption expenditures price index that the Fed follows, inflation is still running at 4.8%.
“The labor market is much tighter than the Fed wants. The wage inflation rate is too high, not consistent with 2% inflation,” he added.
Dudley expects the rates to keep going up until the employment dynamic has shifted enough to get the unemployment rate “well above 4%,” compared to its current level of 3.5%.
“Whenever the unemployment rate has risen by a half percentage point or more, the result has been full-blown recession,” he said.
One measure of the relationship between unemployment and a recession is called the Sahm Rule, which states that recessions do follow when the three-month average of unemployment rises half a percentage point above its lowest over the previous 12 months.
So that would only require a rate of 4% under the Sahm Rule. In their most recent economic projections, members of the rate-setting Federal Open Market Committee don’t see the jobless level breaking that rate until 2024.

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