Economy

Top executives at two of Wall Street’s biggest banks have struck an optimistic tone about the trajectory of the US economy, arguing on Monday that consumers were in good financial health despite stark market signals that a recession is looming. Speaking as US equities slid into bear market territory, Morgan Stanley chief executive James Gorman said investors were forgetting that consumer and corporate balance sheets remain “very strong” following government stimulus during the coronavirus pandemic and years of cheap borrowing. “I am totally relaxed about it. I don’t think we’re falling into some massive hole over the next few years,” Gorman said at a financial industry conference organised by Morgan Stanley. Gorman added that markets “aren’t in a very good position”, but said he would rather have “markets off-kilter than the fundamentals driving consumer credit particularly off-kilter”.Almost 70 per cent of leading academic economists polled by the Financial Times predicted that the US economy will tip into a recession next year, as the Federal Reserve raises interest rates in an effort to contain the highest inflation in about 40 years.Gorman estimated the chances of an impending recession at about 50 per cent, up from his previous mark of 30 per cent, but he de-emphasised the likelihood that any downturn would be too punishing or long-lasting. “I think eventually the Fed will get hold of inflation. It’s going to be bumpy. People’s 401(k) plans are going to be down this year, but we’re unlikely at this stage to go into a deeper, long recession,” Gorman said.

His optimism was echoed by Alastair Borthwick, chief financial officer of Bank of America. Borthwick said the bank, the second-largest in the US by assets, was “still seeing very healthy balance sheets and healthy spending”, and that consumer spending in June was up 9 per cent year over year. Even with higher spending, Borthwick said retail customers were hoarding cash. As an example, he said customers who had account balances of $1,000-$2,500 before the pandemic now had about seven times that amount. “What we’re seeing right now, credit is in great shape,” he said. “I’d expect it to bump around because we’re at such low levels. And one would think over time, it would trend back towards history, but we don’t see that right now.” More

The accord could ease the path for thousands of workers to unionize at the game company, which Microsoft is acquiring, and addresses an antitrust objection.Microsoft and the Communications Workers of America union announced an agreement on Monday that would make it easier for employees to unionize at the video game maker Activision Blizzard, which Microsoft is acquiring for $70 billion.Under the deal, which appears to be the first of its kind in the technology industry, Microsoft agreed to remain neutral if any of Activision’s eligible U.S. employees want to unionize, and employees would no longer have to petition the National Labor Relations Board for an election. The company has almost 7,000 employees in the United States, most of whom will be eligible to unionize under the arrangement.A group of nearly 30 employees at one of Activision’s studios voted to unionize through an N.L.R.B. election in May despite Activision’s opposition to holding the election. But completing such a process can be time consuming, with unions and employers sometimes spending months or even years litigating the results.Through the agreement, workers will have access to an expedited process for unionizing, overseen by a neutral third party, in which they will indicate their support for a union either by signing cards or confidentially through an electronic platform.“This process does gives us and Microsoft a way to do this quote unquote election without spending the time, the effort and the controversy that goes along with an N.L.R.B. election,” Chris Shelton, the president of the Communications Workers union, said in an interview.The union said that the neutrality agreement resolved the antitrust concerns it had with the acquisition, and that it now supported the deal, which Microsoft has said will close by the end of next June.Mr. Shelton and Brad Smith, Microsoft’s president, suggested that the deal could pave the way to wider unionization across the company and the industry. “This is a great opportunity for us to work with Chris and the C.W.A. and to learn and innovate,” Mr. Smith said in an interview. Microsoft said it was prepared to “build on” the deal in the future, but did not specifically comment on whether it planned to extend the terms to other gaming workers at the company.Microsoft indicated that under the agreement, it would refrain from an aggressive anti-union campaign if other Activision employees sought to unionize. “In practical terms, it means that we’re not going to try to jump in and put a thumb on the scale,” Mr. Smith said in the interview. “We will respect the fact that our employees are capable of making decisions for themselves and they have a right to do that.”Brad Smith of Microsoft said he was committed to engaging with unions “when employees wish to exercise their rights and Microsoft is presented with a specific unionization proposal.”Markus Schreiber/Associated PressFacing their own union campaigns, companies like Amazon and Starbucks have held frequent mandatory meetings with employees to argue that a union could leave them worse off.The labor board has issued complaints against Amazon that include accusations of threatening workers with a loss of benefits if they unionize, and against Starbucks over accusations that it fired workers who sought to form a union and effectively promised benefits to workers if they chose not to unionize. Both companies have denied the accusations. In a recent case brought by the N.L.R.B. in Arizona, a federal judge denied a request for an injunction to reinstate pro-union workers whom the labor board said Starbucks had forced out illegally.The agreement between Microsoft and the union would also protect workers’ right to communicate among themselves and with union officials about a union campaign — something many employers seek to discourage — and stipulates that disagreements between the company and the union will be resolved through an “expedited arbitration process.” N.L.R.B. complaints can take months or years to resolve.When Microsoft and Activision announced their blockbuster deal in January, the game maker was under stress as it faced accusations that senior executives had ignored sexual harassment and discrimination. Those concerns spurred organizing among Activision employees, including workers at its Raven Software studio in Wisconsin, which has developed games in popular franchises like Call of Duty.After a group of roughly 30 quality assurance, or Q.A., workers announced that they were seeking to unionize, Activision sought to convince the federal labor board that their election should not go forward. The game workers accused Activision of union-busting tactics, like increasing the pay of non-Raven Q.A. workers and splitting Q.A. workers up by embedding them across the Raven studio.Activision maintained that while some changes in this vein had come after the union campaign went public, the broader shift in approach had already been underway — for example, its move to change the status of hundreds of temporary and contingent workers to permanent full-time employees in the fall.The company argued that the entire Raven studio, comprising hundreds of workers, should have been allowed to vote on forming a union, rather than just a few dozen Q.A. workers. Q.A. employees, often on temporary contracts, are commonly considered the most overworked and underpaid members of game studios.In early March, the union signed a letter asking federal regulators to scrutinize the acquisition. “The potential takeover by Microsoft threatens to further undermine workers’ rights and suppress wages,” the letter said.Microsoft has since tried to strike a conciliatory tone. It said it would not stop Activision from voluntarily recognizing the union before a formal election, which Activision did not do. After the Raven Q.A. workers voted in late May to form the first union at a major North American game publisher, Phil Spencer, the head of gaming at Microsoft, told employees that he would recognize the Raven union once the deal between the two companies closed, the gaming news site Kotaku reported, citing a video of an employee town hall.Activision said on Friday that it was starting contract negotiations with the newly unionized Raven workers. “We decided to take this important step forward with our 27 represented employees and C.W.A. to explore their ideas and insights for how we might better serve our employees, players and other stakeholders,” Bobby Kotick, the company’s chief executive, said in a statement.In a blog post this month that appeared to foreshadow the deal, Mr. Smith announced a set of principles to guide Microsoft’s response to labor organizing, an indication that it was taking a more open approach across the company’s businesses.He wrote that he had observed Microsoft’s successful “collaborative experiences with works councils and unions” while working in Europe and said that in the United States the company would pursue “collaborative approaches that will make it simpler, rather than more difficult, for our employees to make informed decisions and to exercise their legal right to choose whether to form or join a union.”In the interview, Mr. Smith called the neutrality agreement “our first opportunity to put those principles into practice.”The Communications Workers of America, which represents employees at companies like AT&T Mobility, Verizon and The New York Times, has sought to organize tech industry workers in recent years. It has begun organizing retail workers at Apple Stores and helped workers at Google form a so-called minority union, which allows them to act together on workplace issues without having to win a union election.About a dozen retail employees at Google Fiber stores in Kansas City, Mo., who are formally employed by a Google contractor, recently voted to join the union.Kellen Browning More

Good eveningNews this morning that the economy had shrunk for the second month in a row is the latest piece of evidence that the UK is suffering from the worst combination of surging prices and lack of growth since the 1970s.GDP fell in April by 0.3 per cent, far more than forecasts had suggested, sending the pound down to a two-year low against the dollar. The decline was across all sectors but was led by a 5.6 per cent drop in health services as the NHS test and trace programme wound down. The services sector overall fell by 0.3 per cent, while production was down 0.6 per cent as businesses were hit by price rises and supply chain problems. Construction slipped 0.4 per cent.Today’s data follow forecasts last week from the OECD which said the UK would have the weakest growth in the G20 outside Russia. Zero growth was predicted for next year as the economy stagnated. Separate FT analysis said the UK would experience the highest inflation in the G7 from now until 2024. One of the factors contributing to the country’s cost of living crisis is soaring petrol prices, something acknowledged today by the UK’s competition watchdog as it launched an investigation into the retail fuel market. Business secretary Kwasi Kwarteng had queried whether the government’s cut in fuel duty was being passed on to drivers.The surge in inflation means the Bank of England is still likely to raise interest rates after its policy meeting on Thursday, despite the poor growth figures. Most economists expect a rise of 0.25 per cent.Separate data from this morning show the UK is also suffering its second-largest trade deficit since records began in 1997 after importing £24.3mn more than it exported in the three months to April.Trade is at the heart of today’s other big UK story: the move by the government to rip up its own Brexit deal by expunging key elements of the Northern Ireland protocol, which governs relationships between the province, mainland Britain and the EU. Under the proposals, goods from Great Britain destined to stay in Northern Ireland would go through a “green lane” with no checks, while those heading across the open border into the Republic of Ireland and the EU single market would face “red lane” checks. The measure would end the role of the European Court of Justice in policing the protocol as well as giving Westminster sweeping new powers, but faces strong opposition from many MPs, the House of Lords, the Irish government and the business community in Northern Ireland, which currently benefits from being part of the European Single Market as well as the UK internal market. Today the EU said it would launch legal action as Brussels and London moved closer to a possible trade war. Here’s our explainer on the bill and why it’s so contentious. Prime minister Boris Johnson argues that the protocol has created political tensions as well as business disruptions between Northern Ireland and the rest of the UK.Latest newsEnvironment Secretary George Eustice says UK will bring forward another 10,000 visas for seasonal workers and expand scheme to cover poultry (Press Association)EU agency sees risk of Covid deaths rising as Omicron subvariants spread (Reuters)Berlin working on multibillion euro rescue for Gazprom GermaniaFor up-to-the-minute news updates, visit our live blogNeed to know: the economyIt’s an important week for central banks and interest rates. The Bank of England’s decision is preceded on Wednesday by the US Federal Reserve, which is expected to announce the first back-to-back half-point interest rate rises since 1994. Announcements also come from Brazil (Wednesday), Switzerland (Thursday) and Japan (Friday).China’s major cities returned to lockdowns and mass testing over the weekend as Covid cases continued to spread. Global China editor James Kynge says the human and economic cost of Beijing’s “techno-authoritarian” zero-Covid strategy is mounting.Latest for the UK and EuropeThe UK looks set to extend the life of a coal-fired power station slated for closure as it seeks to beef up energy security. Continuing the West Burton plant would cost tens of millions of pounds and likely spark a fierce backlash from environmental groups. Electricity generator SSE told the FT that the UK’s windfall tax would harm investor confidence just as companies planned to plough billions into new projectsEU commissioners meet today to discuss Ukraine’s bid to join the bloc ahead of a summit next week. Our Europe Express newsletter assesses its chances.Global latestSome 70 per cent of top economists polled by the FT think the US will enter recession next year. Many are also sceptical about the Fed’s plans to moderate inflation. “This is not landing a plane on a regular landing strip. This is landing a plane on a tightrope, and the winds are blowing,” said one.

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The Summit of the Americas, a gathering that takes place every three or four years, was marred by the US exclusion of Cuba, Venezuela and Nicaragua. The highlight was a (non-binding) migration pact that would allow farmers in the US and Canada to employ more seasonal labourers. It also urges countries to set up “legal pathways” for people from Latin American and the Caribbean to reach the wealthier north. New forecasts from Citgroup suggest global consumers of commodities could pay $5.2tn more this year then they did before the pandemic as prices surge and supplies are squeezed. “The ongoing commodity shock is on track to be a similar order of magnitude as the first oil shock almost 50 years ago, when taken as a share of global GDP,” it said.Our Big Read looks at the role of the World Trade Organization in an era of fracturing alliances and trends towards deglobalisation. As this week’s ministerial meeting in Geneva got under way, WTO director-general Ngozi Okonjo-Iweala urged governments to end export restrictions on food which she said were exacerbating problems caused by Russia’s invasion of Ukraine. Food versus fuel: Our new explainer looks at how the war has sharpened the debate on the use of crops for energy. The total amount used each year for biofuels is equal to the calorie consumption of 1.9bn people, highlighting the volume of agricultural commodities that could be diverted if the food crisis worsened. UN forecasts say the combination of conflict and climate could put a record 49mn people in 46 countries at risk of famine.

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China’s drive to decarbonise has been set back by the increasing use of coal power as it seeks to boost flagging economic growth, but industry in Japan sees opportunities in its government’s net zero push. Read more in our special report: Asia-Pacific Climate Leaders.Need to know: businessBinance halted withdrawals of bitcoin hours after crypto lender Celsius blocked customers from pulling funds from its platform, fuelling a sell-off across the digital asset market. Bitcoin and other tokens dropped sharply following a turbulent weekend as the market infrastructure that underpins digital assets came under stress.China has told banks to rein in executive pay as part of President Xi Jinping’s “common prosperity” drive, a move that will benefit local banks, says the Lex column. A regulatory crackdown has cut some $2bn off the market value of tech groups over the past 12 months: our Big Read examines Xi’s plans for capital markets after his criticism of “disorderly expansion”. US companies have lost $40bn in earnings because of the dollar’s rise to its highest level since 2002. As earnings growth slows, the currency effect could mean the difference between expanding and shrinking, our capital markets team explains.A small red burger and a couple of fries have replaced McDonald’s Golden Arches logo in Russia. The chain of 850 restaurants has been rebranded as Vkusno & Tochka (‘Tasty — Full Stop’) by its new owners, who bought the operation last month.A Vkusno & Tochka employee delivers a food order © Kirill Kudryavtsev/AFP/Getty ImagesPassenger demand is surging but airports are still crippled by staff shortages. Our Big Read looks at whether the aviation industry can get its act together in time for summer. Wealthier travellers meanwhile have been driving a boom in private charters after getting used to being unshackled from commercial flight schedules (and avoiding fellow humans) during the pandemic.FT Future of Finance will be live streamed on June 16 and 17 from the heart of Europe’s leading tech festival, The Next Web (TNW). We’ll be exploring how new technologies continue to uproot existing banking operations and how fintechs are further exacerbating this rate of transformation. Register for free today.The World of WorkCompany finance chiefs have been faced with extraordinary challenges during the pandemic but what can they learn from past crises? Read more in our special report Business education: Financial Training, including our ranking of the best Masters in Finance courses.Get the latest worldwide picture with our vaccine trackerAnd finally…“I was like the Kofi Annan of Blur vs Oasis.” Britpop, a guitar-playing Tony Blair and the business of being human are on the menu during musician, broadcaster and author Jarvis Cocker’s Lunch with the FT.© James Ferguson More

Liz Truss, Britain’s foreign secretary, on Monday published “reasonable and practical” legislation to rip up parts of Boris Johnson’s 2020 Brexit deal with the EU, relating to trading arrangements in Northern Ireland.The Northern Ireland protocol was agreed by Johnson to address the unique situation of the region after Brexit, Northern Ireland remaining in the EU’s single market for goods and retaining an open border on the island of Ireland. Truss insisted the unilateral rewriting of the protocol would “support political stability” in the region. But it has generated a wave of criticism from Brussels, Dublin, Washington and Tory MPs.What does the protocol bill do?The bill, if enacted, will allow ministers to “fix” problems identified in the protocol by giving them powers in domestic law to unilaterally override the Brexit treaty with the EU.It focuses on four areas, including how to remove friction at Irish Sea ports. Under the protocol, checks are currently carried out on goods travelling into Northern Ireland from Great Britain — creating a contentious internal UK trade border.A check-free “green lane” would be set up for goods destined for Northern Ireland, while trucks taking goods through the region across the open border into the Republic of Ireland — and thus the EU single market — would face “red channel” checks.The bill ends the role of the European Court of Justice in enforcing the protocol — an affront to Tory Eurosceptics — although ministers could allow UK courts to refer matters of EU law to the ECJ. The bill would also remove EU control over state aid and value added tax in the region.A fourth provision creates a dual regulatory regime, giving businesses a choice on whether to place goods on the market in Northern Ireland under either British or EU rules.What is the point of the bill?Johnson argues that the deal he agreed with Brussels has antagonised pro-UK unionist politicians in Northern Ireland, who hate the internal trade barrier within their own country.Theresa May, his predecessor as prime minister, said no British leader could ever agree to a border in the Irish Sea. Johnson claims the overzealous operation by the EU of checks under the protocol is to blame for destabilising the 1998 Good Friday Agreement that ended three decades of sectarian violence in the region.Brussels rejects this and the majority of the members of the regional assembly elected last month support keeping the protocol.Johnson hopes that by legislating to rewrite the protocol, he can reduce trade disruption and persuade the biggest pro-British party — the Democratic Unionists — to rejoin the region’s power-sharing executive at Stormont alongside the Sinn Féin nationalists.The problem is the DUP does not trust Johnson — the prime minister double-crossed unionists when he signed up to the original protocol. It is waiting to see if Johnson actually delivers the legislation.Downing Street said changing the law would provide a more “stable” solution than simply activating Article 16 of the protocol, which allows either side to make temporary changes to the rules to avoid economic or political upheaval. Tory Eurosceptic MPs also demanded a new law.Why is it so contentious?Tory MPs critical of the bill say it will break international law and undermine Britain’s standing in the world, since it would mean ripping up a treaty only two years after the ink dried. The EU is furious.The legislation also includes a controversial Clause 15, which gives ministers sweeping powers to rip up other parts of the protocol if they believe societal or economic damage is being caused.Only three areas — human rights, free travel and north-south co-operation — are exempt. Government officials insist this is an “insurance policy” in case there needs to be any “tidying up”.Downing Street insisted the power would not be used to scrap a planned “consent vote” in 2024, in which Britain and the EU agreed that Northern Ireland would be asked if it wanted to retain the protocol.The protocol is popular with many in Northern Ireland, since it leaves the region uniquely with one foot in both the EU and UK markets. However, government insiders said any consent vote would apply to the protocol as rewritten by the bill — not the original.Will it ever take effect?Downing Street is confident the bill will survive a legal challenge, insisting it complies with the “doctrine of necessity” in international law, which allows states to act in the event of a grave risk to their essential interests.Ministers claim that “primacy” goes to safeguarding the Good Friday Agreement, rather than upholding the protocol. Some Tory MPs accuse Johnson of going legal “opinion shopping” to find lawyers to agree with him.Downing Street says it is “urgent” to sort out the protocol, but the House of Lords is expected to block a measure that many peers feel trashes Britain’s international reputation.In the event of such a move, Johnson could deploy the little-used Parliament Act to bypass the Lords. It was last used by Tony Blair’s Labour government in 2004.Johnson would then have to reintroduce the Northern Ireland bill in the following parliamentary session. But by that point, he would be getting close to a general election, due in 2024.And even if the bill is enacted, the changes would not come into effect automatically — the legislation would only give ministers the powers to come up with an alternative regime.A new regime is still some distance away, giving Britain and the EU months to try to come to a negotiated settlement — Johnson insists this is his preferred outcome. But trust and goodwill are now almost non-existent. More

The writer is a former member of the US Congress and was chair of the House permanent select committee on intelligence, 2011-15In 1944 allied nations came together at Bretton Woods and established economic rules for the postwar era. These would provide much needed stability and structure. But as economies grew and financial interconnectedness increased, governments eventually needed greater freedom of action. The decision taken by the Nixon administration in 1971 to remove the dollar from the gold standard was a key driver of the demise of the so-called Bretton Woods system.Today, we find ourselves in the midst of a global ideological conflict between liberal democracy and authoritarianism. Friendly democracies need, once again, to come together to establish a new economic agreement — one based on the liberal values of free trade, competition and freedom. Think of this as a digital Bretton Woods to ensure continued growth and progress. Failure to reach such an agreement risks ceding the future of global economic governance to China and its model of authoritarian capitalism. China’s pursuit of a digital currency — a digital renminbi, or e-CNY — is just one example of Beijing’s aims. The e-CNY’s development is cloaked in the language of innovation, but hides potentially undesirable outcomes. Domestically, it will allow Beijing unparalleled oversight and control of financial transactions. Western companies in China will undoubtedly be subject to intrusive oversight and risk potential disruption should Beijing find their (or their country’s) behaviour unacceptable. Internationally, the e-CNY will undermine the dollar’s role as a reserve currency. This is the Chinese Communist party’s aim. As a director of a state-owned bank told the Financial Times last year: “A bigger goal of ours is to challenge the dominance of the US dollar in international trade settlement.” There are many worldwide who would say this is an attractive development — undermining reliance on the dollar would reduce America’s global influence and its ability to impose sanctions. Yet doing so would introduce instability into the global economy at a time when confidence is needed more than ever. While China has sought to bide its time and hide its capabilities, it is now embarking on an effort to remake global institutions in a manner that favours its values and approach. The e-CNY is representative of Beijing’s overall push to redefine the global economy and its financial rules. China’s efforts in a range of international forums follow a pattern in which Beijing participates in the process, advancing policies that are in its own long-term interest and not necessarily those of the global economy. While engaging with both the process and institutions, China undermines international norms by provoking diplomatically inspired trade disputes, such as the confrontation with Australia over duties on barley imports, and dumping goods on to the market. When the IMF allowed the renminbi to become a reserve currency in 2016, the drive to unseat the dollar began in earnest. Beijing’s devaluation of the renminbi the previous year gave Chinese companies an unfair market advantage, reducing the cost of their exports to America and accelerating existing trade deficits with the US and EU.The need for a new Bretton Woods led by the world’s liberal democracies is not wholly about China, however. The emergence of fintech, cryptocurrencies and other novel financial instruments is adding fresh complexity to an already highly fluid global economy — one for which existing policy structures were not designed. The swiftness with which novel financial instruments emerge will continue to outpace our ability to regulate them in real time. This necessitates a fresh set of rules to guide international co-operation and help competition in these new economic spaces. The goal of a digital Bretton Woods would not be to constrain financial innovation or limit individual governments’ ability to act. Nation states must retain the ability to manage their own economic and fiscal policy. Rather, it is about creating a set of norms informed by, and based on, liberal democratic values that will facilitate the next evolution of the global economy, while at the same time protecting the principles that gave birth to the modern world. A future global economic order, and the rules governing it, must be based on liberal democratic values such as privacy and competition, not those of an authoritarian regime with hegemonic ambitions. It should not take a global conflict for us to understand what is at stake. More

Consumer expectations for inflation and spending both hit record levels in May, the New York Fed reported Monday.
Expectations for the stock market also hit a new record low, and job insecurity levels rose despite otherwise robust hiring.

People shop in a supermarket as inflation affected consumer prices in Manhattan, New York City, U.S., June 10, 2022.
Andrew Kelly | Reuters

Consumer expectations for inflation and spending in the year ahead both hit record levels in May, the same month prices rose at their fastest pace since late 1981, the New York Federal Reserve reported Monday.
The outlook for price gains in the coming year increased to 6.6% for the month, up 0.3 percentage points from April and tied with March for the highest rate on record for a survey that goes back to June 2013. That came even though three-year inflation expectations remained essentially unchanged at 3.9%.

At the same time, median household expectations for spending increases over the next 12 months soared to 9%, up a full percentage point from the previous month. That’s up sharply from the 5.5% rate to start the year and nearly double the 5% expectation from a year ago.
Both increases came the same month that the consumer price index rose 1% from April and 8.6% from May 2021, the biggest gain since December 1981. Major increases in food, energy and shelter costs drove the gain and put added pressure on the Fed to raise interest rates.
Sentiment also dimmed about the stock market, which has been getting thrashed amid worries about rising inflation and a potential recession on the horizon.
Just 36.2% of respondents expect the market to be higher a year from now, a dip from the 37.9% reading in April and also a new series low.
In addition to the rising prices, consumers said it was harder to get credit.

The level of consumers saying it was more difficult to obtain financing jumped to 11.4%, up from about 9% the previous month, to the highest level since October 2020.
Job insecurity also grew, despite an increase of 390,000 in nonfarm payrolls for the month and about a 2 to 1 ratio of employment openings to available workers.
Those saying they feared losing their job rose to 11.1%, still well below the long-term average but the highest level since January. Expectations for the unemployment rate to be higher in a year increased to 38.6%, the highest level since February 2021.

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As one contagion ends, another begins. The symptoms of a stagflationary slowdown are pronounced. About two-thirds of economists polled by the Financial Times expect a US recession. UK gross domestic product fell unexpectedly in April. Cryptocurrencies, a prime indicator of speculative exuberance, are slumping.As equities and bonds lurch downward, investors are rushing for safety. The MSCI All-Country index (ACWI) has already lost 18 per cent in dollar terms this year. Lex is holding to its expectation of a long, grinding market correction amid extempore monetary policymaking. Here are some defensive strategies for the months ahead.Bonds deserve attention, especially those denominated in the strong US dollar. Any bet on fixed income is dependent on where you think inflation will peak. In corporate credit, favour businesses with strong balance sheets and cash flows. A zero weighting to high-yield bonds makes sense.As for stocks, defensive choices depend on how protected companies are from inflation, higher rates and slower growth, as Rob Buckland of Citi points out.In the 1970s, energy and mining shares outpaced inflation. The same bet has worked this year. Two of the top three sectors within the MSCI ACWI include those groups. Currently, the value of all commodity consumption as a proportion of global GDP — nearly 11 per cent — approaches that of the second Opec oil shock in 1979.Rising rates require the typical investor to tilt away from expensive growth. These are companies whose valuations depend on low, long-term discount rates, in sectors such as tech and renewables. Instead, buy defensive stocks with less “earnings beta” or sensitivity to broader profits volatility. Aim for telecoms and other utilities, consumer staples and healthcare shares. Momentum-following algos tend to perform well in extended market corrections. Shares in Man Group, whose AHL product group meets that description, are up 11 per cent over six months.Pundits do not unanimously predict a recession. Full employment and high bank capital ratios make RBC Wealth strategists optimistic about financials this year. But even they accept risks are mounting. They tip the UK stock market for its relative cheapness.At 17.25 times, the forward earnings multiple for the S&P 500 index is just above its 10-year average. Shiller’s cyclically adjusted price/earnings ratio, which aims to smooth out economic peaks and troughs, remains relatively high. There is plenty of room for markets to fall further, so be prepared.The Lex team is interested in hearing more from readers. Is a recession a certainty or is a contrarian tactic worthwhile? Please tell us what you think in the comments section below. More

The UK competition watchdog will open an investigation into competition in the retail fuel market amid soaring petrol prices.The move by the Competition and Markets Authority comes after business secretary Kwasi Kwarteng called on the regulator to conduct an urgent review into whether a cut in fuel duty was being passed on to drivers and to examine variations in the cost of fuel across the country.A pledge on Monday by the CMA to carry out a “short and focused review” of the market comes as consumers face a surge in petrol prices. Last week the average cost of filling a 55-litre family car with a tank of petrol or diesel hit £100 for the first time, up from £71 a year ago, according to breakdown assistance group RAC.A financial squeeze for drivers at the forecourt is deepening a cost of living crisis that has already left consumers facing higher energy bills and is slowing the economy. Inflation hit a 40-year high of 9 per cent in April.In a letter to the CMA, Kwarteng said there remained “widespread concern about the pace of the increase in prices at the forecourt”, and urged the regulator to see if there were steps that would increase the transparency for consumers over why prices were rising. Chancellor Rishi Sunak cut fuel duty by 5p a litre in March, but that move made little dent as oil prices have continued to rise.Forecourt operators set their own prices after buying petrol or diesel from suppliers, with smaller rural locations typically charging higher prices. Supermarkets tend to be cheaper as they use fuel as a means to entice consumers into their stores.The sector is dominated by brands like BP and Shell, many operated by independent franchisees, as well as by large supermarkets such as Tesco and Asda. Motoring campaign groups have long argued for more transparency in the way pump prices are set. About 45 per cent of petrol and diesel prices are a form of tax, whether fuel duty or VAT. Petrol forecourt owners are not obliged to pass on fuel duty cuts to consumers. “We need more fuel price transparency, people don’t understand what the price should be,” said Edmund King, president of the AA.However, the Petrol Retailers Association said forecourt owners “had been unfairly scapegoated”, adding that they expected the CMA probe to find that “competition between forecourts remains vigorous and that our members are operating on razor-thin margins” and that the fuel duty cut had been passed on.Gordon Balmer, the head of the PRA, said he is meeting Grant Shapps, Transport Secretary, on Tuesday to discuss the issue of fuel prices. Forecourt owners have faced significant cost increases, including higher staff wages and energy bills, which have fed into higher prices at the pump for drivers, he added.The toll that higher inflation is having on the wider UK economy was underlined on Monday when official figures showed that gross domestic product fell between March and April.King said Northern Ireland publishes local fuel prices, allowing consumers to shop around and has cheaper fuel than the rest of the UK. The price rise over the past year means the government at present collects about 9p per litre of VAT more than a year ago, he added.In a letter to Kwarteng on Monday, CMA chief executive Andrea Coscelli said it would “provide advice to government on steps that might be taken to improve outcomes for consumers across the UK”.Government ministers have previously asked the watchdog to intervene in markets including PCR travel tests during the coronavirus crisis. More