Economy

“While the Fed cannot do much to ameliorate the supply issues that are increasing inflation, we can begin to affect demand,” Harker said in remarks prepared for delivery at Rider University in Lawrence Township, New Jersey. The speech reiterated Harker’s recent views on the outlook and the effect of tighter monetary policy, which he said will help reduce economic growth this year to around 3.5% and to 2% to 2.5% in the next couple years. Inflation too “should begin to taper” this year, he said, ending 2022 at around 4% and over the next couple years falling to the Fed’s 2% target. Fed policymakers began raising rates last month with a quarter-of-a-percentage point increase, and are expected to accelerate their pace of policy tightening when they next meet in May. Interest rate futures traders currently expect the Fed to deliver half-point interest rate hikes at its next three meetings before returning to quarter-point hikes for the last three meetings of the year. That would bring the Fed’s policy rate, now in the range of 0.25% to 0.5%, to a range of 2.5% to 2.75% by the end of the year. More

Happy Friday. How well did you keep up with the news this week? Take our quiz. Singapore’s finance minister Lawrence Wong has been made prime ministerial heir apparent, as the ruling People’s Action Party seeks to recover public support and bolster the city-state’s status as an international financial hub. Lee Hsien Loong, prime minister since 2004, announced on social media late on Thursday that ministers had backed Wong to be leader of the ruling People’s Action Party’s so-called “fourth generation team” with “overwhelming support”. The fourth generation team is a group of younger ministers lined up to take the reins of the governing party, putting its leader on course to be the next prime minister. “This decision on succession is a crucial one for Singapore,” Lee said. “It will ensure the continuity and stability of leadership that are the hallmarks of our system.” Wong, 49, would be only the fourth leader of the quasi-authoritarian state in its 56-year history. The announcement comes as the PAP, which has governed since independence and transformed Singapore into an international business centre, faces pressure to control immigration and navigate an increasingly divided geopolitical environment.Do think Lawrence Wong is the right choice to be Singapore’s prime minister? Tell me what you think at [email protected]. Thanks for reading FirstFT Asia — EmilyThe latest from the war in Ukraine:Breaking news: Russia’s flagship naval vessel in the Black Sea, the Moskva, has sunk, the country’s defence ministry confirmed.Inflation: Policymakers at central banks in Singapore and South Korea have become the latest to tighten monetary policy as the war in Ukraine stokes global inflation.Sanctions: The UK is to freeze an estimated £10bn of assets held by two longstanding business associates of Roman Abramovich. Catch up with our explainer on why the US has only hit some Russian oligarchs with sanctions.Wall Street: US banks this week detailed billions of dollars in potential losses from the Russia’s invasion of Ukraine, while warning that they saw no end in sight for the market turbulence.Opinion: Western voters face a choice: peace in Ukraine or keeping on the air con as the war pushes energy prices up, writes Gillian Tett.Five more stories in the news1. Elon Musk offers to buy Twitter at $43bn valuation The Tesla boss has made a hostile bid for Twitter with an offer that values the company at $43.4bn, although he acknowledged his gambit to take the social media platform private may fail.2. China escalates zero-Covid propaganda China’s official Xinhua news agency published an article today warning that the country’s medical system risked “breaking down” in the event of a mass Covid outbreak. It follows comments from President Xi Jinping who yesterday called on citizens to “overcome complacency” in “response to the virus’s mutation”.More on China’s Covid outbreak: Volkswagen’s sales in China slowed significantly in the first quarter of 2022 amid renewed Covid shutdowns, while the owner of Uniqlo warned of a big profit drop owing to China’s Covid-19 curbs.

3. Pakistan army dismisses Imran Khan’s US conspiracy claim In rare public comments on Thursday, Major General Babar Iftikhar, the army’s spokesperson, denied Imran Khan’s assertions that Pakistan’s national security committee had concluded last month that there was a conspiracy to end the former cricket star’s premiership. 4. Isis ‘Beatles’ member convicted A US jury found Isis fighter El Shafee Elsheikh, a former British citizen, guilty of all counts in the case, including hostage-taking resulting in death and conspiracy to murder US citizens outside the country. He faces a maximum sentence of life in prison.5. German spies rejected offer to meet Wirecard’s Marsalek in Moscow Germany’s foreign intelligence service last year shunned an offer to meet former Wirecard executive Jan Marsalek in Moscow, fearing that the invitation to talk to the fugitive was a trap set up by Russia’s FSB spy agency, people familiar with the matter told the Financial Times.The days aheadSongkran The Thai new year, marked in Thailand, Laos, Cambodia and other parts of south and south-eastern Asia, will be celebrated through the weekend. Some markets in the region will be closed today.North Korea’s Day of the Sun The reclusive state will celebrate the birthday of its first leader Kim Il Sung.Easter and Passover Markets across the world from Singapore to the UK and US will be closed in honour of Good Friday. Passover also begins at sundown the same day. In Vatican City on Sunday, Pope Francis will lead Easter Mass in St Peter’s Square.The Invictus Games The competition for wounded, sick and injured service personnel begins in The Hague on Saturday. Join us for the FT’s Crypto and Digital Assets summit on April 26-27. Register today to be part of a critical conversation with the world’s global financial and corporate elite, as they carve out the path ahead for bridging traditional finance and the crypto leaders of tomorrow. What else we’re readingThe succession crisis threatening Japan’s economy The world’s third-largest economy was built on craftsmanship and family enterprise, but Japan’s rapidly shrinking and ageing population means a shortage of heirs now jeopardises that legacy.FT interview: Panasonic boss The Japanese electronics conglomerate expects the rollout of its next-generation electric vehicle battery to help the company diversify its business from Tesla, as it refocuses after a period of aggressive restructuring, Yuki Kusumi, told the FT’s Eri Sugiura and Antoni Slodkowski.The corner of France that explains the country’s political divide To understand the forces reshaping French politics, one only needs to visit the booming city of Bordeaux in south-west France — and the rural areas and small towns in the “crescent of poverty” around it.The tortuous route of Toshiba’s path to auction A charitable take on things would be that Toshiba has reached the auction process via the scenic route. Another view, given that the sights along the way have included accounting fraud, a brush with bankruptcy, multiple chief executive resignations and war with investors, is that this company is lost, writes Leo Lewis.The new online learning entrepreneurs The pandemic sparked growth in online MBAs and normalised digital corporate training and remote school learning. Now, solo entrepreneurs are seeking niches where they can earn money from students who want to gain à la carte career skills that are not covered in traditional classrooms.BooksThe great renaissance in pandemic times of page-turning pleasure highlights the remarkable resilience of the classic reading format. Three new works about books shed light on why the technology of bound pages remains so remarkably resilient.

The spectacular interior of the Zhongshuge bookstore in Dujiangyan, China © Zhang Lang/China News Service/Getty Images More

The government recently announced a $3.7 billion economic recovery plan to support sectors still affected by the impact of the COVID-19 pandemic and while the report states the plan is “reasonable and targeted so far … there will be pressure to spend more.”The report says that higher food prices and a weakening economy clash with the population’s high expectations of reform from the new government and the drafting of a new constitution, putting pressure on more spending.On Tuesday, the government presented a limited pension withdrawal plan in an attempt to block a larger withdrawal promoted by legislators.The bank said that while the government’s limited proposal would have less impact on inflation as it represents a fifth of the money from the larger withdrawal, it still presents risks for the economy and prices.”This is naturally less damaging than a full pension withdrawal, but it increases disposable income and may have some impact on demand and inflation,” the bank said.The report also said that Chile’s central bank has taken a “dovish rhetoric” on raising interest rates given fears of a recession, but this will be “tested by recent inflation surprises.”In March, Chile reported a monthly inflation rate of 1.9%, the highest level since 1993.A separate report from Capital Economics predicts Chile’s central bank will deliver at least 200 basis points of additional rate hikes in the current cycle, to 9%. “That’s more tightening than the path implied by the central bank’s rate corridor as well as the latest analyst consensus,” the Capital Economics report stated. More

Russian Finance Minister Anton Siluanov wrote to Economy Minister Paulo Guedes asking for Brazil’s “support to prevent political accusations and discrimination attempts in international financial institutions and multilateral fora.””Behind the scenes work is underway in the IMF and World Bank to limit or even expel Russia from the decision-making process,” Siluanov wrote. He did not elaborate on obstacles to Russian participation in those institutions, and his allegations could not be independently verified.The letter, which made no mention of the war in Ukraine, was dated March 30 and relayed to the Brazilian minister by Russia’s ambassador in Brasilia on Wednesday.”As you know, Russia is going through a challenging period of economic and financial turbulence caused by sanctions imposed by the United States and its allies,” the Russian minister said.Asked about the letter, Erivaldo Gomes, the Brazilian Economy Ministry’s secretary of international economic affairs, indicated that Brasilia would like Russia to remain part of discussions at multilateral organizations.”From Brazil’s point of view … keeping open dialogue is essential,” he said. “Our bridges are the international bodies and our assessment is that these bridges have to be preserved.”U.S. Treasury Secretary Janet Yellen said last week that the United States would not participate in any G20 meetings if Russia was present, citing the invasion.Almost half of Russia’s international reserves have been frozen and foreign trade transactions are being blocked, including those with its emerging market economy partners, Siluanov said.”The United States and its satellites are pursuing a policy of isolating Russia from the international community,” he added.Siluanov said the sanctions violate the principles of the Bretton Woods agreements that set up the IMF and the World Bank.”We consider that the current crisis caused by unprecedented economic sanctions driven by the G7 countries might have long-lasting consequences unless we take joint action to resolve it,” he wrote to Guedes.Brazil’s far-right President Jair Bolsonaro, who visited Moscow just days before the invasion, has kept Brazil neutral in the Ukraine crisis and has not condemned the invasion, drawing criticism from the Biden administration.Bolsonaro expressed “solidarity” when he visited Russian President Vladimir Putin in the Kremlin on Feb. 16 about a week before the invasion began.Brazilian Foreign Minister Carlos Franca has said Brazil opposes the expulsion of Russia from the G20 as sought by the United States. “The most important thing at this time is to have all international forums, the G20, WTO, FAO, functioning fully, and for that all countries need to be present, including Russia,” Franca told a Senate hearing on March 25. More

The euro fell sharply on Thursday after the European Central Bank’s latest policy stance did not match market expectations on the pace of stimulus withdrawal.The ECB opted to leave interest rates unchanged as expected after its latest policy meeting but president Christine Lagarde noted that “downside risks to the growth outlook have increased substantially as a result of the war in Ukraine”. Inflation will remain high over the coming months, mainly because of rising energy costs, she added.The euro dropped as much as 1.2 per cent against the dollar after Lagarde’s comments, to a two-year low of slightly less than $1.08. It later retraced some of the losses to trade 0.5 per cent lower for the day. Carsten Brzeski, head of macro for ING Research, attributed the drop in the currency to investors getting “ahead of themselves” in recent weeks, expecting eight interest rate rises by the end of 2023. “Lagarde’s comments today, however, confirmed the rather gradual process of normalisation,” he said. The central bank said economic data released since its last meeting “reinforce its expectation” that its asset purchase programme (APP) should end in the third quarter of the year. Despite that, Frederik Ducrozet, strategist at Pictet Wealth Management, said the currency’s decline was down to the lack of a “strong hint or firm commitment” from Lagarde that the APP would end in June. “It’s a reaction to the positioning of markets ahead of the conference,” he said.Inflation in the euro area has sailed higher over the past year, with price growth hitting 7.5 per cent last month. Both the US Federal Reserve and the Bank of England have already begun raising interest rates in an attempt to damp intense price rises, but the ECB has indicated that it must first cease its bond-buying before increasing borrowing costs. ECB policymakers also need to balance the impact of the war in Ukraine, which is expected to take an outsized toll on Europe’s economy. “The supply shock implied by the war implies a difficult trade-off for the governing council, given weaker growth and higher inflation,” Goldman Sachs analysts noted. The investment bank expects the ECB to raise rates in September but said a July increase would not be out of the question if inflation pressures picked up. Eurozone government bonds weakened following the ECB decision. The yield on the 10-year German Bund rose 0.08 percentage points to 0.84 per cent, while the Italian equivalent also added 0.11 percentage points to 2.48 per cent. Yields rise when prices fall.The regional Stoxx Europe 600 index rose 0.7 per cent, with Germany’s Dax up 0.6 per cent and France’s Cac up 0.7 per cent. The FTSE 100 in London added 0.5 per cent. In the US, a recent rally in Treasuries went into reverse, with the yield on the government’s benchmark 10-year debt jumping 0.13 percentage points to 2.83 per cent. Unexpectedly weak core inflation figures earlier this week had led investors to temper their expectations about how aggressively the Federal Reserve would raise interest rates, prompting a rally in bond prices. However, in an interview on Thursday John Williams, president of the New York branch of the Federal Reserve, stressed the need to move interest rates “back to more neutral levels”.Wall Street’s benchmark S&P 500 stock index fell 1.2 per cent, after adding 1.1 per cent in the previous session. The tech-heavy Nasdaq Composite lost 2.1 per cent.Oil prices rose on Thursday, with international benchmark Brent crude up 2.7 per cent to $111.70 a barrel. In Asia, Hong Kong’s Hang Seng index added 0.7 per cent and China’s CSI 300 was up 1.3 per cent. Japan’s Topix rose 1 per cent and South Korea’s Kospi traded flat. More

WASHINGTON (Reuters) -Some big U.S. banks have again started stockpiling cash to cushion potential loan losses due to growing worries over the war in Ukraine and the impact of inflation on the U.S. economy, although trading continues to be bright spot for Wall Street.JPMorgan Chase & Co (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS) and Citigroup Inc (NYSE:C) combined put aside a $3.36 billion in credit loss reserves in the first quarter, the banks said. That’s a reversal from the past 12 months when lenders released reserves after COVID-19-related losses failed to materialize, signaling lenders believe the economic rebound from that crisis may be short-lived as inflation soars and the Ukraine conflict roils markets and dampens global growth. “The prospect for higher rates and slowing economic growth likely mean increased credit losses,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. “The banks do not see much in the way of current economic problems, just the likelihood that weaker economic conditions are likely to develop.”Citigroup, the most global U.S. bank, bore the brunt, adding $1.9 billion to its reserves related to its Russia exposure and the war’s broader macroeconomic impact. The bank’s executives said it could lose $ 2.5 to $3 billion on its Russia exposure. JPMorgan, the country’s largest lender, on Wednesday added $902 million to its reserves, driven by “the probability of downside risks due to high inflation and the war in Ukraine,” as well as accounting for Russia-associated exposure. It has said it could lose $1 billion on its Russia exposure over time. Goldman likewise cited “macroeconomic and geopolitical concerns” among other reasons for its $561 million provision and said it will take a $300 million first quarter hit on Russia. Soaring inflation could dent consumer spending while aggressive Federal Reserve interest rates rises aimed at reining-in prices will likely crimp loan growth, analysts said.The war in Ukraine and Western sanctions could knock more than 1% off global growth this year and add two and a half percentage points to inflation, the OECD has said.Still, some banks like Morgan StanleyN > and Wells Fargo (NYSE:WFC) & Co have little direct Russia exposure. Wells Fargo, a domestic focused bank with a small capital markets business, actually released $1.1 billion of pandemic reserves.Wells chief executive Charles Scharf nevertheless warned on the economic outlook in a change of tone from previous quarters, noting rate hikes will “certainly” reduce growth. “The war in Ukraine adds additional risk to the downside,” he added.Wells Fargo’s shares were down 6% and Citi’s were up nearly 2%. TRADING, M&ABanks’ trading businesses, however, performed better than analysts had anticipated as clients rejigged portfolios in response to expected rate hikes and the war.Analysts had forecast trading revenue declines of 10% to 15% across the board compared with 2021 when central bank moves to stimulate the economy amid the pandemic saw equity indexes hit record highs and drove a trading bonanza across Wall Street. Goldman Sachs said global markets first quarter revenues rose 4%, driven by a 21% rise in fixed income revenues. Morgan Stanley (NYSE:MS)’s overall trading revenue fell just 6%. The banks’ share prices rose 1.3% and 2.7% respectively. L3N2WC2E1][L3N2WC2EO]”Equity and fixed income again delivered exceptional results, particularly in Asia and Europe as we supported our global clients amid a turbulent backdrop,” Chief Executive James Gorman told analysts on a conference call.JPMorgan also reported a better-than-expected trading performance on Tuesday, with overall markets revenues down just 3% compared to last year.Equity underwriting fees slumped though as stock market listings dried up due to volatility. Goldman Sachs and Morgan Stanley both reported an 83% decline in equity underwriting revenues.The picture for the M&A advisory business was mixed. Executives said pipelines remain healthy but some companies are pausing transactions until markets stabilize. Some deals initiated before the war were completed in the first quarter. Morgan Stanley said advisory revenues nearly doubled from a year ago driven by completed M&A transactions. Goldman Sachs said revenues at its advisory businesses were “essentially unchanged.” More

NEW YORK (Reuters) -U.S. stock investors are increasingly turning to the options market for protection against more downside on Wall Street as they worry the Federal Reserve will be less sensitive to equity market volatility as it hikes interest rates to fight inflation.Demand for puts, typically bought for downside protection, is in line with a trend that has seen investors ramp up hedging in recent months, as the Fed’s hawkish tilt roils markets after years of double digit gains. The one-month moving average of open puts for each open call on the SPDR S&P 500 ETF Trust (ASX:SPY), stands at 2.25, the most defensive it has been in at least the last four years, data from Trade Alert showed.Stocks pared losses last month, but the rebound stumbled in April, leaving the S&P 500 down 7% year-to-date. The Cboe Volatility Index, Wall Street’s “fear gauge,” recently stood at 21 and has spent most of 2022 well above its historic median of 17.6.”It all goes back to the Fed put… where the Fed does not have the equity market’s back right now,” said Chris Murphy, co-head of derivative strategy at Susquehanna.The term “Fed put” how investors describe the market’s belief that the central bank will stop tightening or even loosen monetary policy if stocks fall too steeply. One recent example investors often cite is 2019, when the Fed halted its rate hiking cycle after the stock market tumbled.Some investors believe policymakers are likely to be less reactive to market weakness this time around, however, as the central bank signals it is ready to fight the worst inflation in four decades with jumbo rate hikes and a rapid unwind of its balance sheet.”High and persistent inflation is turning the Fed from a suppressor of vol and source of returns to a source of vol and suppressor of returns,” analysts at BofA Global Research said in a note on Tuesday.Fund managers in the bank’s most recent survey said they believed the S&P 500 would have to fall to 3637 before the Fed stepped in to support markets – about 13% below this year’s lows. In another sign of nervousness, cash allocations among fund managers stood near their highest since April 2020. Stock investors could also be nervous about the potential for bond market turbulence to spill over into equity markets, said Anand Omprakash, head of derivatives quantitative strategy at Elevation Securities.The ICE (NYSE:ICE) BofA MOVE Index, a measure of expected volatility in U.S. Treasuries remains close to the two-year high hit in early March.More investors also have been taking advantage of any strength in stocks to snap up options hedges. This is a departure from the entrenched trend of “buying the dip,” where investors put cash to work by buying more shares whenever the market pulls back. “Volatility levels are bid because when we do see stocks rebound, when we do see volatility come in, investors are quick to pounce on it,” Susquehanna’s Murphy said. The Russell 2000 small-cap index and the S&P 500 retailing exchange-traded fund have drawn defensive options positioning in recent weeks as well, analysts said.Steven Sears, president of investment adviser Options Solutions, which specializes in options strategies for high net worth individuals, said a murkier outlook for markets combined with sizeable unrealized gains that investors logged last year driving more clients to put on protective trades.”They are looking to lock those gains without selling,” Sears said. More

NEW YORK (Reuters) – Wells Fargo (NYSE:WFC) & Co and JPMorgan Chase & Co (NYSE:JPM) reported a rise in net interest income in the first quarter, as the U.S. Federal Reserve’s rate hikes help their bread-and-butter business –taking deposits and lending.The Fed raised rates by a quarter point in March to a 0.25%-0.5% range, and has flagged another half-point move on May 4. These moves, aimed at tackling soaring inflation of 8.5%, are expected to bring an end to the low interest-rate environment that banks have faced for most of the past decade, particularly through the COVID-19 pandemic. That should be good news for net interest income, a closely watched measure of how much money banks make from lending. It declined during the pandemic due to interest rate cuts and a drop in borrowing, but is now ticking up.Wells Fargo & Co led the pack, with net interest income for the first quarter rising 5% from a year ago. The bank also lifted its expectations for 2022, saying net interest income (NII) percentage growth could hit the mid-teens.”In January, we thought NII would be up about 8%. We’re almost doubling that to kind of the mid-teens … due to the loan growth we’ve seen, as well as the substantial move in rates,” chief financial officer Mike Santomassimo on a call with analysts. Overall loan growth was 3%. The NII from JPMorgan Chase & Co’s core banking businesses, excluding the markets business, increased 9% from a year earlier, the bank said on Wednesday. Total NII is expected to be more than $53 billion for 2022, the bank said, roughly in line with its February guidance.”NII is going to get much better. Things are going to normalize,” chief executive Jamie Dimon told analysts. The bank is still running the numbers and expects to give updated guidance on NII revenue at the bank’s investor day on May 23, chief financial officer Jeremy Barnum said. Analysts expect the bank to revise its guidance upwards. Still, some banks said the outlook for rising interest rates is not all rosy. Higher rates could weaken economic growth, crimp lending overall and discourage some companies from transactions that generate fees. Citigroup (NYSE:C)’s NII grew 3% over the first quarter of last year, but its Chief Financial officer Mark Mason, when pressed by analysts, said it was too soon say what higher rates will mean for Citigroup’s revenue this year. He left its revenue guidance at up by a “low single-digit” percentage. More