Economy

Investing.com — The Federal Reserve will publish the minutes of its latest policy meeting, while durable goods orders for April are also due. The euro falls as ECB policymakers row back talk of aggressive interest rate hikes. Nelson Peltz may be about to launch a takeover of Wendy’s, while Nvidia will report after the close. Russia edges closer to a manufactured debt default, and U.S. government data will show how well-stocked the nation’s gas stations are ahead of the start of the summer driving season. Here’s what you need to know in financial markets on Wednesday, 25th May.1. Fed minutes due as Burry revives memories of 2008The Federal Reserve will publish the minutes of its last meeting at 2 PM ET (1800 GMT). The release risks, being somewhat backward-looking, inasmuch as the meeting took place at a time when markets were still focused on inflation risks rather than recession risks.The latter have been dominant this week, as profit warnings and weak home sales data have pushed bond yields down and punished consumer and growth-focused stocks. Memories of the last recession were evoked on Tuesday by a somewhat Delphic tweet by Michael Burry, famous for his role in shorting subprime credit in 2007-08.“As I said about 2008, it is like watching a plane crash. It hurts, it is not fun, and I’m not smiling,” Burry said, without specifying what “it” was.Before the Fed, there will also be durable goods data for April, which may show a further slowdown on consumer durable spending, in particular, if Best Buy’s profit warning on Tuesday is anything to go by.2. Euro falls as ECB hawks step into line; RBNZ hikes by 50bpsThe euro fell as European Central Bank hawks and swing voters fell into line behind ECB president Christine Lagarde’s call for only gradual interest rate increases.Dutch central bank governor Klaas Knot and his Finnish counterpart Olli Rehn, a key centrist on the governing council, indicated that they would both be satisfied with only a 25 basis point hike at the bank’s meeting in July. Rehn, in particular, flagged the big downward revisions to this year’s growth forecasts that are likely when the ECB meets next month.European data overnight were mixed, with French unemployment rising a little, but Spain’s producer price inflation still roaring ahead at an annual rate of 45%.Elsewhere overnight, the Reserve Bank of New Zealand hiked its key rate by 50 basis points to 2%.3. Stocks set for flat opening; Wendy’s in focusU.S. stock markets are set for a mixed opening, with technology and growth stocks unable to claw back much of Tuesday’s underperformance.By 6:20 AM ET, Dow futures were down 18 points, or less than 0.1%, while S&P 500 futures, and Nasdaq 100 futures were up by a similar amount.Stocks likely to be in focus later include Nordstrom (NYSE:JWN), whose earnings after the bell on Tuesday took the edge of the recent retail sell-off, and Wendy’s (NASDAQ:WEN), after a filing from Nelson Peltz’s Trian suggested that its biggest shareholder is considering a takeover bid. Lyft (NASDAQ:LYFT) may be heading the other way after a report that it, too, is slowing hiring. Pfizer (NYSE:PFE) pressured pharma stocks by saying it would offer branded drugs to low-income countries at cost price, meanwhile.Chipmaker Nvidia (NASDAQ:NVDA) is the highlight of the day’s earnings roster, albeit only after hours.4. Russia edges closer to defaultRussia’s central bank said it will hold an extraordinary meeting this week, amid intense speculation as to what happens next with the country’s sovereign debt.The U.S. Treasury confirmed on Tuesday that it will not renew a temporary waiver on sanctions for processing the Russian government’s debt repayments, something that is likely to put the country officially in default – even though it is both willing and able to pay.Another speculation suggests that it will further relax its capital controls and cut interest rates in order to bring the ruble’s explosive appreciation under control. The ruble hit a four-year high again on Wednesday, supported by a current account surplus that has widened not only because of record energy export receipts but also because of a collapse in imports.5. Oil rises as U.S. gasoline inventories hit 8-year seasonal lowCrude oil prices were higher again after data from the American Petroleum Institute suggested that U.S. demand, ahead of the Memorial Day weekend, is still strong despite record-high prices for gasoline.Crude stocks actually rose by 600,000 barrels last week, according to the API, but gasoline stocks are at their lowest for this time of year since 2014, at a time when peak gasoline demand starts to kick in. The U.S. government’s weekly inventory data are due at 10:30 AM ET.By 6:35 AM ET, U.S. crude futures were up 1.4% at $111.31 a barrel, while Brent crude was up 1.2% at $112.04 a barrel. More

Hedge funds that use powerful computers to run their portfolios are making huge profits in this year’s market turmoil, marking a resurgence for a sector trying to recover from a long stretch of weak performance.Trend-following hedge funds, which use mathematical models to try to predict market movements, had struggled for years as central bank bond-buying suppressed much of the volatility on which they thrive.But the $337bn industry is now making its biggest gains since the 2008 financial crisis, according to data provider HFR.These quantitative funds have profited in particular from bets against government bonds, which have been shaken by expectations that the Federal Reserve will keep raising interest rates aggressively to fight high inflation. They have also capitalised on a surge in energy and commodity prices, fuelled by supply chain bottlenecks and Russia’s invasion of Ukraine.“Now is one of those 2008 moments where everyone [in trend-following] is doing well again. The trends are clearer,” said Leda Braga, founder of Systematica Investments and former head of systematic trading at BlueCrest.Thanks for reading FirstFT Americas. Here’s the rest of the day’s news — GordonFive more stories in the news1. Nineteen children killed in Texas school shooting US president Joe Biden made an emotional plea for the country to “stand up to the gun lobby” after a gunman killed at least 19 children and two adults in the deadliest school shooting in America for a decade. Law enforcement officers shot dead 18-year-old Salvador Ramos, who was suspected of carrying out the mass shooting at the Robb Elementary School in Uvalde, Texas.

The archbishop of San Antonio comforts families after the shooting at an elementary school in the city of Uvalde, Texas © AP

2. Donald Trump’s 2020 nemeses clinch big wins in Georgia Brian Kemp will seek a second term as Georgia governor after securing a convincing win over his Donald Trump-backed rival David Perdue. Meanwhile, Georgia’s secretary of state Brad Raffensperger, whom the former president blamed for certifying Joe Biden’s 2020 election victory in the state, will remain the Republican candidate after defeating his rival. Go deeper: The more Trump’s candidates lose, the less fear the former president will instil in the Republican party, writes Edward Luce.3. UK government clears £4.25bn Chelsea FC sale The UK government has finally signed off the £4.25bn sale of Chelsea Football Club to American financier Todd Boehly. The deal was held up after Boris Johnson’s administration insisted on guarantees that Russian owner Roman Abramovich would not benefit from the sale.4. North Korea fires suspected ballistic missile North Korea launched a suspected intercontinental ballistic missile and two other projectiles earlier today, according to the South Korean government, a day after Joe Biden concluded his first tour of the region as US president. The show of force by Pyongyang came less than a day after Chinese and Russian nuclear-capable bombers flew over the Sea of Japan in an exercise the government in Tokyo called “unacceptable”. 5. Pfizer warns of ‘constant waves’ of Covid-19 Growing complacency about Covid-19 and politicisation of the pandemic response will cost lives as the world is hit by new waves of the virus in coming months, Pfizer’s chief executive has warned. “What worries me is the complacency,” Albert Bourla told the FT.The day aheadMonetary policy The Federal Open Market Committee releases minutes from its May 3-4 meeting, where it raised the benchmark policy rate by 0.5 percentage points. The minutes should provide insight into the pace at which the Fed plans to raise rates to “neutral” territory in an effort to stem inflation. New Zealand’s central bank became the latest to raise interest rates earlier today. Economic data The US Census Bureau will release data on new orders of long-lasting goods such as refrigerators and aircraft, a category that serves as a proxy for business investment. Economists surveyed by Refinitiv expect a monthly increase of 0.6 per cent for April. The European Central Bank publishes its twice-yearly stability review and the OECD publishes its eurozone economic outlook. Company earnings Retailer Dick’s Sporting Goods is expected to report profits of $2.58 a share on $2.6bn of revenues, according to analysts polled by Refinitiv. Computer chip vendor Nvidia is expected to post profits of $1.29 a share on $8.12bn in revenues when it reports earnings after the market closes. Software group Snowflake also reports earnings.Market outlook US equities are expected to open in positive territory when trading begins after a profit warning from social media group Snap and a dramatic fall in new homes sales spooked investors yesterday. Shares in Europe were higher as investors waited for the release of the Federal Reserve minutes. Annual meetings Executive pay will be uppermost in investors’ minds at Amazon’s annual meeting, the first to be presided over by chief executive Andy Jassy. Oil majors ExxonMobil and Chevron also hold their annual meetings as well as BlackRock, the world’s largest asset manager.World Economic Forum ECB president Christine Lagarde, the Irish, Dutch and Slovakian prime ministers and the president of the European parliament join a Davos forum on EU unity in response to Russia’s invasion of Ukraine.Partying in Downing Street The long-awaited report into the “partygate” scandal that has rocked the UK government for months is released today. The report is expected to be highly critical of Prime Minister Boris Johnson after fresh allegations emerged this week of a culture of routine drinks events at Downing Street during the pandemic. Our Inside Politics newsletter has all the background.Remembering George Floyd Today marks the two-year anniversary of the killing of George Floyd. FT reporter Taylor Nicole Rogers returned to the otherwise unremarkable street corner in Minneapolis where Floyd was murdered to find a city still grappling with the legacy of the events of May 25 2020.

The site of the George Floyd memorial at 38th Street and Chicago Avenue in Minneapolis © Kerem Yuce/FT

Yesterday we incorrectly said was the two-year anniversary of George Floyd’s murder. We apologise for the error.What else we’re readingThe Fed must act now to ward off the threat of stagflation Whether there is going to be a recession in leading economies has arisen at Davos. This is the wrong question, Martin Wolf argues, at least for the US. The right one is whether an era of higher inflation and weak growth, similar to the stagflation of the 1970s, looms.Go deeper: The second part of our series on the US labour market looks at the most severe imbalance between labour demand and supply since the second world war.Is the ‘subscription economy’ going to feel the Netflix effect? The rash of businesses offering subscriptions took off in about 2011, led by TV and music streaming services and quickly followed by beauty products, clothes, organic coffee, craft beer, pet food and more. The “subscription economy” is heading into its first serious downturn, Helen Thomas writes.Sombre mood descends on Davos Russia’s invasion of Ukraine, surging inflation, Chinese lockdowns and growing uncertainty about globalisation have conspired to chill the business mood at the World Economic Forum meeting in Davos. “There are three R words right now: It’s Russia, it’s recession and it’s [interest] rates,” said Citigroup chief Jane Fraser.The rise of the Middle East and hope for sustainability One region where executives are more optimistic is in the Middle East. Luxury companies are reporting a flurry of spending in the region thanks to rising oil prices, strong economic growth and a return to shopping locally, executives told the recent FT Business of Luxury Summit.Asset managers divided by HSBC executive’s climate criticism A provocative speech on climate change by HSBC executive Stuart Kirk has split the asset management industry, with many disagreeing with his tone but others welcoming his willingness to prompt debate and highlight inconsistencies in environmental, social and governance investing.Opinion: Stuart Kirk has done the world of green finance a tremendous service, writes Pilita Clark.CinemaThe Cannes Film Festival celebrates its 75th year with Volodymyr Zelensky, Tom Cruise and Sharon Stone all putting in appearances. The FT brings you the highlights.

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Pakistan’s foreign minister says he hopes the country can renegotiate a deal with the IMF in response to the surge in global food and fuel prices, as mounting political unrest piles pressure on Shehbaz Sharif’s new government.Officials are in talks with the IMF to resume lending under a $6bn loan programme agreed in 2019 but in limbo since a dispute with the previous government over energy subsidies. Pakistan is struggling with a shortage of foreign reserves that has prompted some analysts to warn that the country is at risk of defaulting on its foreign debts.Bilawal Bhutto Zardari, who took over as foreign minister under Sharif last month, said the government would “abide” by the terms of the frozen IMF deal for the time being. But he hoped it could ultimately be renegotiated in light of the hardship caused by rising inflation in the wake of the Ukraine conflict.“This is a pre-Afghanistan situation deal, this is a pre-Ukraine deal, this is a pre-pandemic deal and pre-current global economic trends,” he told the Financial Times at Davos. “In light of that it would be important for the government of Pakistan at some point to renegotiate with the IMF”.Zardari said that the situation in Pakistan, which depends on imports of energy and staples such as wheat, has deteriorated to the point where people are going hungry. “This is already happening,” he said. “This is a daily concern.”His comments came as the economic situation stokes domestic political turmoil in Pakistan. Sharif’s government is facing a growing challenge from ousted prime minister Imran Khan, who was removed from office in a no-confidence vote last month and is now pressing for early elections.Pakistani authorities this week launched a crackdown on the former prime minister’s supporters, arresting hundreds of people and banning a march on Islamabad by Khan’s Pakistan Tehreek-e-Insaf party that was due to take place on Wednesday. IMF assistance has in effect been suspended since Khan, while still in office earlier this year, reintroduced controversial fuel subsidies that the fund had sought to remove. But Sharif has so far declined to scrap them as Pakistanis struggle with the cost of living.Zardari said he hoped the government would review and scale back the subsidy which might be a precondition for the resumption of IMF assistance. “Our economic situation in Pakistan is precarious,” Zardari said, calling inflation his “number one priority”.Pakistan’s liquid foreign currency reserves with the central bank have fallen to about $10bn, enough to meet the cost of only two months of imports. Growing speculation that Pakistan will eventually be forced to follow Sri Lanka in defaulting has prompted a sell-off in the rupee, which has lost about 9 per cent of its value since early April.Analysts warn that the economic pressures are exacerbating an increasingly ugly stand-off between Sharif and Khan, whose popularity has surged since his removal from office. The former celebrity cricketer claims, without evidence, that his ousting was the result of a “conspiracy” hatched by Sharif and the US.Maleeha Lodhi, a former Pakistani ambassador to the US and the UN, said that Pakistan was in danger of falling into “an unprecedented and uncontrollable crisis”. “This could not have come at a worse time given Pakistan’s fragile economy,” she said.Zardari dismissed concerns about the arrests of Khan supporters. “There have been some cases where activists have had some tiffs with the police,” he said. “But unlike in Mr Khan’s time, they’ve got access to the courts, more often than not got bail, and managed to go through the judicial process.” More

TOKYO (Reuters) -Urgent steps will be taken to ease pain caused by the surging cost of living in Japan, and to help the economy recover from the ill-effects of COVID, Finance Minister Shunichi Suzuki said as he presented a supplementary budget to parliament.Lawmakers began debating on Wednesday the proposed extra budget – worth 2.7 trillion yen ($21 billion) – to help households and small firms cope with high energy and food prices.The government plans to spend 1.17 trillion yen of it on mitigating the effect of rising global oil prices. This will include subsidising gasoline wholesalers. “Uncertainty about the outlook is rising, mainly because Russia’s invasion of Ukraine has destabilised crude oil and commodity prices,” Suzuki told the lower house of parliament.”That could hamper the pace of economic recovery from the coronavirus.”The supplementary budget also includes 1.52 trillion yen for budget reserves that the government will be able to spend later as necessary.Suzuki said he would encourage firms to smoothly pass on rising costs and raise wages to generate a virtuous cycle of growth that will help to ensure Japan’s economy recovers from the impact of the pandemic.The extra budget will be funded by bond sales, which could further strain a public debt that is already more than twice as large as annual economic output.To prevent the huge debt from becoming unmanageable, Suzuki’s fiscal advisory panel urged the government to stick to its aim of achieving a primary budget surplus, which excludes new bond sales and debt servicing, by the end of fiscal year in March 2026.”As a trade deficit may take hold from now on, market confidence in the yen and the fiscal situation will be called into question more than ever,” the panel said in its fiscal reform recommendations. “If the primary balance target takes a step backward, the risk is large for Japan to lose market trust.”The finance ministry wants the government to include the balanced budget target in its mid-year policy roadmap, but there are divisions over the plan within the ruling Liberal Democratic Party (LDP).($1 = 127.0200 yen) More

Global stocks struggled for direction on Wednesday as investors balanced recession risks with hopes the US central bank may soften its plans for aggressive interest rate hikes.Europe’s regional Stoxx 600 share index added 0.2 per cent in morning trades, following a bruising session across equity markets on Tuesday after social media group Snap warned on macroeconomic conditions and investors took fright over disappointing US housing data and business surveys. London’s FTSE 100 added 0.3 per cent, while futures trading implied Wall Street’s S&P 500 would edge 0.2 per cent lower at the New York open. The Federal Reserve, which influences monetary policy worldwide and releases minutes of its early May rate-setting meeting later on Wednesday, has sent strong signals that it will raise borrowing costs until it has tamed inflation, which is running at four-decade highs. However, some analysts are questioning how far the US central bank is prepared to lift rates. “Markets are telling us that the risks of a recession are rising,” said Mary Nicola, multi-asset portfolio manager at PineBridge Investments. But if the Fed’s account of its latest rate-setting meeting included “language that suggests a pause, or that they are concerned about growth, that could obviously really change how markets are priced”, she added. Salman Baig, portfolio manager at Unigestion, said: “I wouldn’t be surprised if we started seeing more language about looking at the data, and a little bit of a pivot towards hiking [rates] in June and July and then starting to maybe reassess. “It’s unlikely to be a really meaningful shift at this point, as they are going to want some pretty clear indications that inflation has turned and we are not there yet.” US new home sales fell almost 17 per cent in April, month on month, a report on Tuesday showed. Purchasing managers’ surveys also indicated that growth in business activity in the US and UK decelerated during May. Stocks sold off heavily on Tuesday in response to the flurry of disappointing data, with Wall Street’s tech-heavy Nasdaq Composite closing 2.3 per cent lower. Treasury bonds, which tend to react positively to expectations of lower interest rates on cash deposits, also rallied. The S&P 500 last week dipped into bear market territory, defined as a 20 per cent drop from a recent peak, while the Nasdaq is about 30 per cent below its November 2021 high. The yield on the 10-year Treasury note, which underpins borrowing costs worldwide and falls as the price of the debt instrument rises, dipped 0.03 percentage points to 2.73 per cent in European morning trade on Wednesday, around a one-month low.The two-year Treasury yield, which closely tracks interest rate expectations, traded at 2.51 per cent, having risen above 2.8 per cent in early May. Elsewhere in markets, a broad FTSE index of Asia Pacific shares added 0.2 per cent as bourses in Hong Kong, mainland China, South Korea and Australia all closed higher. The euro lost 0.6 per cent against the dollar to just under $1.07, as a bounce fuelled by European Central Bank president Christine Lagarde signalling the end of negative interest rates in the eurozone faded out. Brent crude, the oil benchmark, rose 1 per cent to $114.7 a barrel. More

Speaking at a regular press briefing, ministry spokesman Wang Wenbin said the Indo Pacific Economic Framework for Prosperity (IPEF) serves U.S. interests and seeks to exclude other countries. U.S. President Joe Biden launched this plan on Monday. Initial founding countries include Australia, Brunei, Indonesia, Japan, New Zealand, Singapore, South Korea, Thailand, Vietnam and the United States, but not China. More

IMF chief warns global economy faces ‘biggest test since second world war’ More

Russia’s invasion of Ukraine, surging inflation, Chinese lockdowns and growing uncertainty about globalisation have conspired to chill the business mood in Davos despite the springtime timing. “There are three R words right now: It’s Russia, it’s recession and it’s [interest] rates,” said Citigroup CEO Jane Fraser. A lunch for the World Economic Forum’s International Business Council was “sombre”, reported one US CEO who attended, adding that while he didn’t see the world’s biggest economy falling into recession “there’s a danger we talk ourselves into it.” Veteran investor George Soros labelled China’s decision to reinforce on its zero Covid policy the “worst mistake” of Xi Jinping’s presidency. “Coming on top of the real estate crisis, the damage will be so great that it will affect the global economy,” Soros said. “With the disruption of supply chains, global inflation is liable to turn into global depression.” Other delegates worried an event emblematic of globalisation might also be at risk of talking itself into the idea of retrenchment. C Vijayakumar, chief executive of HCL Technologies, cautioned of the “imminent danger of accelerating deglobalisation”. Foreign affairs were top of most executives’ minds. Two sessions titled “Russia — what next?” and “Cold War 2.0” filled up completely, while screens in the Congress Centre advertised scores of empty seats at other events focused on Covid-19 or economic issues. Although he could only appear by video link, Volodymyr Zelensky was a bigger draw than any business leader. Ukraine’s president earned an ovation even after telling businesses, many of which have not entirely quit Russia, to stop “all trade with the aggressor . . . so that your brands will not be associated with war crimes.” Sir Martin Sorrell, executive chair of the advertising group S4Capital, saw the question of what happens if the war drags on as one of “two big worries” dominating discussion. The increasingly fraught US relationship with China, which sent few delegates because of its zero Covid policy, was the other. The annual meeting’s usual preoccupation with climate change, meanwhile, had “taken a back seat,” he said.Where climate concerns showed up, they were largely in the debate about whether the new focus on energy security triggered by the war would derail a transition to cleaner energy.

Delegates including Ukraine’s former world heavyweight boxing champion Wladimir Klitschko applaud Ukraine president Volodymyr Zelensky after his address by video to the World Economic Forum in Davos on Tuesday © Fabrice Coffrini/AFP/Getty Images

Daniel Yergin, vice-chair of rating agency S&P Global and an energy markets expert, said he had never seen such a focus on geopolitics in 25 years of coming to the annual meetings. Business leaders were realising, he added, that transitioning to green energy would be “more complicated” than thought prior to Russia’s invasion. The impending food crisis was high on the agenda. “Many people in the world have urgent needs for food, stability and shelter that weren’t really part of the conversation in the past,” said Karen Harris, managing director of consultants Bain & Co’s macro trends group.The mood, described by Harris as “sober [and] uncertain”, extended to bankers, who spoke of low trading volumes, a dried-up deals market and the prospect of lay-offs among staff who had been hired in better times. “Everyone is entirely focused on and worried about when the deal market will reopen. Everything hinges on this for the rest of the year. I would not say I am optimistic at this point. The war isn’t going away,” said one senior US banker.David Rubenstein of private equity group Carlyle told a panel he was reluctant to speak of recession but “the signs are not as favourable as I would like”. Technology executives provided a break in the gloom, maintaining a characteristic optimism about their sector’s potential to work through the current crises. At a session on the outlook for the digital economy, senior executives from IBM, Nokia, Accenture, Hewlett Packard Enterprise and Google agreed that the outlook for long-term transformational innovation remained positive.“Technology’s a secular, not a cyclical trend. We will see cycles and there are worrying signs in the air,” said Pekka Lundmark, chief executive of Finnish telecoms group Nokia. “We just need to be careful.” Ruth Porat, Google’s chief financial officer, suggested the current crisis would, like previous episodes of turmoil, prove “a blip”. There would be volatility short term, she added, but “it’s our job as leaders to look through it and keep investing”.One senior European banker was similarly cheery. Europe was “just horrible”, he said, but the underlying US economy was still strong. “In fact, I have told my broker already to buy on the dip, at the bottom, which I don’t think is far away.”Several US delegates also voiced cautious hopes that the country’s economy may yet defy the pessimists. For Anthony Scaramucci, the one-time communications director for Donald Trump who is now a hedge fund manager, the bearishness of others was his cue to turn bullish. “Everything they think is going to happen doesn’t happen,” he said, recalling the gloom most in Davos projected before the market started surging in 2009 and his difficulty convincing them in January 2020 that his former boss would not be reelected. “Everybody’s so negative, I’m overwhelmingly positive,” he said. “One more rate rise and then we’ll be off to the races.” More