Economy

Good morning. Federal agents searched the Florida residence of Donald Trump last night — a significant step by prosecutors regarding the former president’s handling of classified information.Trump disclosed the raid in a statement posted on social media in which he said that a “large group” of FBI agents were at the Mar-a-Lago club, his residence in Florida. He added that it was “currently under siege”.The Department of Justice and FBI declined to comment, but one person familiar with the search said it was related to Trump’s handling of sensitive material from his time in the White House. Earlier this year, 15 boxes of classified documents, including some that were marked “top secret”, were retrieved from his Florida home.The search by the FBI represents a remarkable step by US authorities to scrutinise the actions of a former president. Such a move is likely to have been approved at the highest levels of the justice department, including attorney-general Merrick Garland. Dig Deeper: Edward Luce explains why putting the former president in the dock risks civil strife, but a failure to act is also dangerousFive more stories in the news1. Taipei accuses Beijing of trying to take control of Taiwan Strait Taipei has warned that China could use military drills around the island to establish control over the entire Taiwan Strait. The warning, from foreign minister Joseph Wu, came as the People’s Liberation Army said it was extending joint air and naval exercises around Taiwan for a second day — they were originally scheduled to end on Sunday.2. US pledges further $1bn in military aid for Ukraine The new package, the largest single drawdown since the start of Russia’s invasion, will include ammunition for high mobility artillery rocket systems (Himars) and bring total US security aid to Ukraine since Biden took office to about $9.8bn.3. Masayoshi Son ‘ashamed’ of focus on profits Huge losses at SoftBank’s flagship Vision Funds will force the Japanese investment group to begin “dramatic” cost-cutting after plunging technology valuations and a weak yen drove the conglomerate into a record $23bn quarterly net loss.“If we had been a little more selective and invested properly, it would not have hurt as much” — Masayoshi Son4. ‘Final text’ submitted in effort to revive Iran nuclear deal EU officials mediating talks between the US and Iran aimed at reviving the 2015 nuclear accord have put forward the “final text” of an agreement they hope will convince Tehran to sign. The latest round of negotiations bore the hallmarks of a last-ditch attempt to secure an agreement between the Islamic republic and the Biden administration.5. London’s ‘magic circle’ law firms make renewed bid to crack US For decades, cracking the US has proved to be a step too far for London’s top corporate law firms. But Freshfields Bruckhaus Deringer, Clifford Chance and Allen & Overy are all in the midst of a multipronged and expensive assault on the world’s most lucrative legal market as the “magic circle” firms seek to build on their past strength in Europe and become global heavyweights. The day aheadKenya general election In one of Africa’s most significant elections of the year, Kenyan voters will select the president, deputy, members of parliament and devolved government members. Presidential candidates Raila Odinga and William Ruto are deadlocked in polls.Rudy Giuliani to testify The former New York City mayor turned personal attorney to Donald Trump has been ordered by a judge to testify in front of a Georgia grand jury over attempts by the former president’s supporters to overturn the 2020 presidential vote in the state.Corporate earnings The InterContinental Hotels Group, which owns the Holiday Inn and Crowne Plaza chains, will publish half-year results. In February, IHG said business was “closer to pre-pandemic levels” as rising vaccination rates boosted demand for its hotel rooms. Half-year results are also in for Legal and General and Munich Re, while Ralph Lauren reports first-quarter earnings.Brazil Monthly inflation data will be released today.What else we’re readingHow corporate raiders became teams of rivals The private equity industry was founded by mercenary dealmakers who bludgeoned opponents to win control of large corporations such as RJR Nabisco, Alliance Boots and Philips Semiconductors. Now, firms nurture complex relationships with their competitors. How did they get here?Xi Jinping completes grip on power Xi finally has something that eluded him for almost a decade, explains Tom Mitchell in Singapore in this insightful article: a trusted confidante at the top of China’s police ministry. Wang Xiaohong’s appointment as public security minister in June marked another breakthrough for Xi in his relentless consolidation of power since being appointed head of the Chinese Communist party and its Central Military Commission in 2012. It’s too early to declare the risk of US recession over Some believe the recent jobs report implies the US will avoid a recession. While he hopes this is correct, Mohamed El-Erian writes that it is too early to declare the watch over — something that the government bond market seems attuned to.Small businesses count cost of Apple’s changes Small businesses are cutting back their marketing spend owing to the tech giant’s sweeping privacy changes that have made it harder to target new customers online. This has led to billions of dollars in lost revenues for platforms such as Facebook, while many small companies are also suffering. Find out why.Corporate America fumes over Biden’s tax and climate package Corporate America had been warning the president and congressional Democrats not to raise taxes on big business ever since they were elected. So when lawmakers approved those tax increases as part of a $700bn economic package that passed the Senate on Sunday, companies and their lobbyists reacted with howls of protest, as James Politi in Washington and Andrew Edgecliffe-Johnson in New York, explain. Germans plan soccer spreeBayern Munich, one of the most dominant soccer teams in Germany, is targeting growth in the US as it pushes to close the gap with high-spending rivals in the English Premier League.Oliver Kahn, chief executive of the club, and a former captain of both Bayern and the national team, told the FT the club was seeking to expand its fan base overseas, with a view to boosting the long-term value of global broadcast rights for the Bundesliga football league.

Bayern Munich’s German midfielder Jamal Musiala scores against Eintracht Frankfurt last week © AFP via Getty Images More

Democrats who wrote and were the sole supporters of the bill, led by President Joe Biden, have touted the impact it could have on costs for many Americans, who have been hit this year with the highest inflation in decades. Here’s how and when key policies in the bill will have an impact on everyday people. HEALTHCARE+ Affordable Care Act premiums: At the end of this year, 13 million Americans would have seen their Affordable Care Act premiums increase, after subsidies expanded in COVID-19 spending bills expired. The bill extends those subsidies until 2024, and Democrats say they will save each individual $800. + Cap on drug costs for senior citizens: Starting in 2025, the bill caps the amount that millions of senior citizens who receive Medicare will pay in annual drug costs at $2,000. + Lower drug prices: These won’t be felt in American wallets until 2026. The U.S. government will start negotiating the price charged for the top 10 most-used drugs with pharmaceutical companies in 2025. ENERGY+ Electric vehicle credits: Some car buyers may be able to redeem rebates for buying electric vehicles at auto dealerships as soon as this year, including $7,500 for new and $4,000 for used vehicles, depending on income. The U.S. Treasury needs to write regulations on that income verification and the administration needs to specify exactly which vehicles qualify under battery sourcing and critical minerals rules. + Homeowner credits: The bill provides $4.28 billion in home rebate programs that will be administered in each state, which have to establish guidelines, such as income limits. The program includes up to $1,750 rebates for heat pump water heaters, up to $8,000 for heat pump systems for heating, ventilation and air conditioning (HVAC), and additional rebates for upgrading electrical panels and improving insulation. The program runs through Sept. 30, 2031.+ Solar panels and solar battery systems: Homeowners who install residential solar panels or solar battery systems will qualify for a 30% tax credit for installations until Dec. 31, 2034. The credits will be made available after respective states design the rules of the program. More

Wine production is expected to rise by 13-21% to between 42.6 million and 45.6 million hectolitres, the ministry projected in its first outlook for 2022.A hectolitre is the equivalent of 100 litres, or 133 standard wine bottles.The forecast range is even with to 7% above the five-year average, it said.Most areas experienced more favourable weather than last year for the flowering of vines, except for parts of the southwest which were affected by frost and hail, the ministry said.”In these conditions, production is trending towards an increase compared with last year in all wine regions, with the exception of Charentes,” it said in a report.”However, soil drought combined with heatwaves could limit this increase if they persist until harvesting.”The French agricultural sector, the European Union’s largest, fears mounting losses from the country’s worst drought on record which has been fuelled by successive heatwaves.Dry, warm weather this year had reduced disease pressure on vines and was also set to lead to an early start to the grape harvest, the ministry said.Drought was nonetheless affecting grapes in regions such as Alsace in the east and Languedoc-Roussillon in the far southwest, while starting to curb harvest potential in Burgundy, it said.Production in Bordeaux was set to fall below the five-year average after frost and hail damaged around 10,000 hectares to a varying extent, the ministry added.The Champagne region was set for a good harvest with output seen above the five-year average, helped by rainfall in June and limited vine disease, it said. More

A strike ballot for nurses working in Britain’s state-run National Health Service (NHS) will open on Sept. 15 and close on Oct. 13, the Royal College of Nursing (RCN), the biggest union for nurses, said in a statement.RCN’s Wales director Helen Whyley told Times Radio more than 250,000 nurses would be balloted. If they vote to strike, it would be the first time in the RCN’s 106-year history that nurses in England and Wales have staged a walk out.The union has said a 1,400-pound ($1,691) pay rise announced by the government last month is inadequate to cushion the impact of rising consumer prices, with the RCN’s General Secretary Pat Cullen previously calling it a “national disgrace”.”The government’s failure to listen has left us with no choice but to advocate for strike action,” Cullen said.The vote comes as the NHS faces a serious staffing crisis with more than 100,000 vacancies, while millions of patients are on waiting lists for hospital treatment due to backlogs caused by the coronavirus pandemic.”This year’s pay award does not help you with the rising cost of living,” Carol Popplestone, Chair of RCN Council, said in a message to union members.”It will do nothing to help to recruit or retain more nursing staff where you work and will not keep patients safe.”The nurses’ pay dispute is the latest in a wave of labour unrest across a range of industries in Britain, where inflation reached 9.4% in June and is forecast to top 13% in October.($1 = 0.8281 pounds) More

LONDON (Reuters) – The Bank of England would press on with plans to gradually sell its vast stock of British government bonds even if an economic slowdown eventually forces it to cut interest rates, Deputy Governor Dave Ramsden said.The BoE is primed to become the first major central bank to sell some of the bonds it purchased during more than a decade of quantitative easing (QE), with a 40 billion-pound ($49 billion) sales programme likely to start next month.Ramsden, in charge of the BoE’s roughly 1 trillion pound balance sheet, told Reuters it was “more likely than not” that borrowing costs would need to rise again after the BoE raised Bank Rate by 50 basis points to 1.75% last week.But, in an interview, he also acknowledged financial market expectations that the recession forecast by the Bank could force it to reverse course on rates next year – a scenario Ramsden said was not his forecast but he was “certainly not ruling out”.Even in this situation, the process of selling gilts – or quantitative tightening (QT) – could continue, Ramsden said.”I think that’s consistent with the way we communicated things, that we’ll carry on with the pace of QT in the background,” Ramsden said, speaking in his office at the BoE.Last week the BoE said it would have a “high bar” for halting its QT bond sales in the event of economic or financial market turmoil.The BoE does not expect the gilt sales to play a big role in tightening monetary conditions – unlike moves in interest rates or the initial purchases of the bonds – but it wants to ensure it can undertake asset purchases again in future if needed.”I think by embarking on QT, that does at the margin impart some further monetary tightening, but it’s in the background compared to Bank Rate,” Ramsden said.QT, like its mirror policy QE, was likely to be state contingent, Ramsden said – meaning that its effects would vary depending on the condition of financial markets and the economy.HSBC economists said last week the sales should not have much impact on gilt yields “if well communicated” but they also warned there was a risk of volatility due to a lack of short-dated gilts in Britain’s repo market.Ramsden said the Bank was aware of this through its market contacts. Although it had tried to be as clear as possible about its QT plans, the BoE will be watching how the market responds to its gilt sales, he said.”There may be an effect when we actually come to sell and you may see prices move somewhat. But when we’re doing this, remember we’re talking about 10 billion pounds a quarter… That’s consistent with being gradual and predictable,” Ramsden said.RUNNING DOWN RESERVES The BoE’s stock of reserve liabilities stood at 947 billion pounds as of last Wednesday.Asked how far the BoE’s balance sheet could shrink through QT, he said current demand for central bank reserves was probably slightly less than half the BoE’s stock right now, based on feedback from financial sector firms.”So if you like, that’s the demand that we will approach in terms of reducing our stock of gilts, but over a number of years,” Ramsden said.Alongside its QT plans, the BoE last week announced a new short-term repo (STR) facility to ensure banks can access reserves they need as they are drained away gradually by the QT process.While the prospect of a shortage of reserves was some years away, the STR would be ready the moment gilt sales start, Ramsden said.”We want it to be used and we’ll do everything we can to make sure that there’s not any kind of stigma around it,” he said.($1 = 0.8244 pounds) More

LONDON (Reuters) – The Bank of England will probably have to raise interest rates further from their current 14 year-high to tackle inflation pressures that are gaining a foothold in Britain’s economy, BoE Deputy Governor Dave Ramsden said.Inflation’s spread was now showing up in rising British pay and companies’ pricing plans, having originally been triggered by the reopening of the world economy from COVID-19 lockdowns and then by Russia’s invasion of Ukraine, Ramsden told Reuters.Inflation is expected to return to the BoE’s 2% target – down from above 9% now and a projected peak of 13% in October – as the economy goes into a recession and borrowing costs rise.But there was also a risk of an inflation mentality developing, Ramsden said.”For me personally, I do think it’s more likely than not that we will have to raise Bank Rate further. But I haven’t reached a firm decision on that,” Ramsden said in an interview.”I’m going to look at the indicators, look at the evidence as we approach each upcoming meeting.”The BoE last week raised borrowing costs by the most since 1995 as it took Bank Rate to 1.75% from 1.25%, its sixth increase since December, compounding the biggest two-year disposable income hit for households since at least the 1960s. “We know that what we’re doing is adding to an already very challenging environment,” Ramsden said. “But our assessment is we needed to act forcefully to ensure that inflation doesn’t become embedded.” Ramsden, a former senior official at Britain’s finance ministry who joined the BoE in 2017, said a fall in inflation expectations in financial markets was encouraging, as were signs that households and companies thought central bankers would get to grips with the problem.Asked if Bank Rate was close to hitting a peak, Ramsden said that over the past year the BoE had to deal with the end of COVID-19 restrictions that hammered Britain’s economy and the Russia-Ukraine war that pushed inflation to its 40 year-high.”We’re in extraordinary period where a lot is changing. So I wouldn’t want to make any predictions about where Bank Rate is going to end up,” Ramsden said. “I guess one thing I would say is I think inflation expectations remain anchored and that’s really important.”BOND SALESAs well as raising interest rates, the BoE plans to move Britain’s economy off its massive stimulus programmes by starting to sell government bonds – a process known as quantitative tightening (QT) – as soon as next month.Asked whether the BoE would continue to sell bonds if it needed to go in the opposite direction and cut interest rates to support the economy – something investors expect to happen next year – Ramsden said that was a possible scenario.”I’m certainly not ruling out a situation where when we look at the risk to the economy, having been raising Bank Rate, at some point we then have to start lowering it quite quickly,” he said. “I can imagine situations, yes, where we’ll carry on… with a pace of QT in the background.”The tightening effect of selling down the BoE’s bond stockpile was likely “at the margin,” said Ramsden who as the BoE’s deputy governor for markets is in charge of its balance sheet. Ramsden also pushed back at criticism of the BoE’s inflation-fighting record by Liz Truss, the front-runner to become Britain’s next prime minister, and her supporters some of whom have suggested the BoE should have less independence.Ramsden said British inflation had averaged 2% – the BoE’s target – over the 25 years after the central bank was granted operational independence in 1997.While there was a case for learning from the experience of other central banks around the world – something Truss has proposed – there would be risks in any attempt to give politicians more of a say over how to set interest rates.”I think it’s perfectly reasonable to look at international experience … and see how its how it’s operating,” Ramsden said. “That’s quite distinct … from going back and revisiting independence itself.” More

“(The government) clearly states that there are no relevant plans,” a spokesman for the Financial Secretary’s Office said in a statement.Shares of Hong Kong property developers fell back from highs after government’s clarification. New World Development Co was still up 3.3%, but had risen by as much at 6.1% in the morning. Sun Hung Kai Properties was up 2.6%, while CK Asset Holdings and Henderson Land (OTC:HLDCY) Development both gained over 1%.Regina Ip, convenor of the government’s advisory Executive Council told Bloomberg TV on Tuesday morning Hong Kong may consider waiving extra stamp duty on homes for mainland Chinese buyers as a way to shore up the economy and reverse a brain drain.She later clarified to Commercial Radio Hong Kong it was a suggestion from her New People’s Party, which would be raised to the government during the consultation period for the Policy Address. Whereas permanent residents pay stamp duty of up to 4.25% on buying their first home, foreign buyers, including those from mainland China, have to pay a total of 30%.Hong Kong earlier this year was ranked by survey company Demographia as the world’s most unaffordable housing market for the 12th consecutive year.Hong Kong private home prices fell at a faster pace in June and dropped to the lowest since December 2020, as homebuyers stayed on the sidelines due to an uncertain outlook and rising interest rates. More

Good morning. It’s Katie here again, taking my turn to fill in for Rob while he’s sipping piña coladas in his favourite Birkenstocks.Last week I said readers could say hi at [email protected]. I didn’t honestly expect you to do it. It made a really nice change from the crypto headbangers firing off all-caps emails instructing me to have fun staying poor. You have been generous with your thoughts on ways to wind up Rob in his absence, with several of you urging me to extol the manifold benefits of ESG. Please do keep in touch with me and/or with Ethan at [email protected]. Rob’s email is still open if you’d like to send him any ESG press releases.RIP Fed hopiumIt’s understandable that a market highly conditioned to central bank support might find it hard to move on. But seriously, it is time to put the “Fed pivot” idea to bed. It’s over. Finished. Jay Powell is not here to save your portfolio from disaster, even if you live and breathe strong tech stocks and a weak dollar. (Hi, SoftBank.)To recap, some investors thought they spotted a Federal Reserve wobble in the middle of last month — half a hint that maybe the central bank might dial down the inflation-fighting interest rate rises. Fed speakers were quick to respond, emerging one after the other to tell markets they had got this wrong, and that hopes/expectations for rate cuts as soon as the start of next year were premature.But the final, devastating blow came on Friday, with a monster non-farm payrolls report. “Hands up how many of you had 528K down as your US payrolls guess?” asked Michael Every, a strategist at Rabobank in a note this week. The answer: “Nobody, because the Bloomberg survey low was 50K and the high 325K.” Yes, yes, Covid distortions. Also yes, revisions. But still, “in short, the illusion of a Fed dovish pivot is dispelled”. He suggests adding the Fed pivot, alongside the long-lost promise of “transitory” inflation, to the dustbin of recent market history.Cue a ramp-up in bets for yet another 75 basis point increase in September and some pretty extraordinary moves in the debt markets. Stocks were pretty calm, but a 21bp rise in the two-year yield is a big deal.Is there anything that could turn this supertanker around? Goldman Sachs’ Jan Hatzius thinks Fed rate increases could shrink from 75bp per meeting to a relatively modest half-point-a-pop, if we get a pullback in inflation. From his latest note:The most immediate reason to expect disinflation is the nearly 20 per cent decline in retail gasoline prices since mid-June, which still has further to run. By itself, this decline should take at least 1pp off the headline CPI level in the next 2-3 months. Perhaps more importantly, the improvement in supplier delivery times and other supply chain measures is increasingly feeding into slower PPI inflation and should soon show up in the core goods CPI as well. However, we remain concerned about shelter and other service prices . . . All told, we expect a large slowdown from the outsized prints of the past two months, but it will probably take until early next year before sequential inflation slows sufficiently to persuade the Fed to stop hiking.All of this draws me neatly on to a new paper from Ricardo Reis at the London School of Economics titled “The Burst of High Inflation in 2021-22: How and Why Did We Get Here?” Give it a read. The short answer to what went wrong is that policymakers had “some bad luck and some mistakes”. The very slightly longer answer is fourfold:Misdiagnosis. “The succession of supply shocks was all interpreted as temporary mark-up shocks as opposed to persistent changes in potential output. As a result, purposely allowing inflation to overshoot its target was seen as optimal and desirable.” Dodgy assumptions. “The second cause was a steadfast belief that inflation expectations would stay anchored, as they had been for two decades. This belief led to relying on surveys . . . to support this strong prior. Missing the drift of its anchor, central banks underestimated the persistence that the deviations of inflation from target would have.”Self belief. “Either by bad luck or by leaning too hard on past credibility, some of it was lost, producing an upward spiral of inflation when output rose above potential.”Fighting the last battle. “The influence of estimates of a falling and low [neutral rate of interest] in the revision of the frameworks for monetary policy. These led to a determination to fight low inflation, and an increased tolerance for inflation above target, as well as a focus on stimulating the economy through aggregate demand. When inflation started rising, this contributed to not fighting it as vigorously as otherwise might have been the case.”It is early to be writing the history books on this episode and drawing conclusions from it on how policy should evolve, as the paper acknowledges. But Reis also suggests that policymakers should get back to basics, shouting more loudly about inflation risks and acting “vigorously” when they appear, even if that means activity slows.James Guppy, an investment analyst at the UK’s Pension Protection Fund got in touch to say a hiking-till-it-hurts approach “is a bit like using dynamite to get a fish supper. It will work but the collateral damage will be very real.” Tweaks to mandates may be needed, he suggested, maybe by breaking down inflation into the bits that monetary policy can and cannot affect. Is there really anything central bankers can do about energy prices?But who gets to make those mandate tweaks, and towards what goal? The UK, with the Conservative party leadership “race” now torturously creeping towards its incredibly predictable conclusion, could be the test case here, as leading candidate Liz Truss has spoken in loose terms of a need to change the Bank of England’s role.“I want to change the Bank of England’s mandate to make sure in the future it matches some of the most effective central banks in the world at controlling inflation,” she said. Cryptic stuff. Any suggestions? What would a serious discussion of a new BoE mandate do to sterling and other UK asset prices? Send us your guesses.Catching Katie’s eyeMy stupid Vomiting Camel joke-that-has-gone-too-far about the absurdities of technical analysis has made it as far as the latest SoftBank presentation. OK, fine, Masayoshi Son didn’t say the camel was vomiting as such. Still, I’m claiming this as a win. My work here is done.Just. So. Much. Ridiculous. Crypto. Derp.Don’t mess with nerds, Games Workshop annual report edition. Occupation: Gangster.What is the point of hedge funds? (Apart from the macro ones.)We need a *lot* of lithium, nickel and cobalt mines. For some weird reason, Ewan Kirk (a quant’s quant) is cycling from Cambridge to Warsaw. You can plot his progress here. One good readA very curious story from Bloomberg: They quit Goldman’s star trading team, then the bank raised alarms More