Business

Federal Reserve puts on enormous party hat

Published

5 hours ago

September 20, 2024

This is an audio transcript of the Unhedged podcast episode: ‘Federal Reserve puts on enormous party hat’

Katie Martin
A great moment in history has arrived. Rob Armstrong was right about something. Quite against the run of play — shush, Rob — quite against the run of play, the Federal Reserve has cut interest rates — hurrah — from the highest level in decades, and for the first time since the pandemic. And what’s more, it went large, cutting by half-a-point, precisely as my esteemed colleague had predicted.

What kind of voodoo is this? Does the Fed know something horrible we don’t? Cutting by half-a-point is normally a crisis measure, a cry for help. Should we panic about a recession? And really, Rob was right. End times.

Today on the show, we’re going to explain how come investors are ignoring the usual script and taking this bumper cut as a good thing. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I’m Katie Martin, a markets columnist here at FT Towers in London. And listeners, I must tell you, the saddest of things has happened. I’m joined by Rob Armstrong, lord of the Unhedged newsletter. But the sad thing is he’s dialling in from his sickbed. Rob, I’m sorry, you’re poorly.

Robert Armstrong
I am poorly. It’s terrible. But on a 50-basis-point day, the dead shall rise from their graves. The angels shall sing. And we all . . . we’re all gonna talk about it.

Katie Martin
Yes. Good, strong Barry White vibes I’m getting from this voice you’re busting out today. So, as you say, half a percentage point from the Fed; that’s 50 basis points in market money. Normally central banks love being super boring and they normally move by quarter-point increments. So, I mean, was it the shock of being right about the 50-basis-point thing that pushed you over the edge into sickness?

Robert Armstrong
It could have been. I’m so accustomed to getting this wrong now that it was really paralysing. However, I think, you know, you mentioned earlier, why is the market kind of taking this in stride and seeing this as a good thing? And I think it’s a bit of a communications success by the Fed in that they told the story about this, that they’re not doing this because they have to, because it’s an emergency. They’re doing it because they can.

Katie Martin
So gangster.

Robert Armstrong
And the reason they can is because they’ve kind of beaten inflation. Right?

Katie Martin
So for people who, unlike us, have a life and don’t sit around watching central bank press conferences, the way this works is they do the decision, they say, here you are, here’s your 25 or 50 whatever basis points, or we’re on hold. This time around, it was 50 basis points.

And then just a little while later, there’s a press conference where the chairman, Jay Powell, gets up in front of like all of the kind of most pointy headed Fed journalists in the world and fields whatever questions. There’s a statement, and then he field whatever questions they want to throw at him. And this for him was the point of highest danger, because the risk of giving the impression somehow that . . .

Robert Armstrong
Yes.

Katie Martin
Yeah, we’re really worried. That’s why we’ve done 50. That was a serious risk, right? But instead, what happened?

Robert Armstrong
Well, right from the press release announcing the 50 basis cut, they tweaked the language in the press release so that it was more affirmative and strong on the topic of inflation. We’re really pleased how it’s going on inflation.

Katie Martin
Right, right.

Robert Armstrong
And then in the press release, I mean in the press conference, he just reinforced that point again and again. The line he repeated was the labour market is fine, it’s healthy. It is at a good level. We don’t need it to get any better. We’re not trying to improve it, but we have the freedom to make sure it stays as good as it is.

And that message seems to have gone through. Markets didn’t move yesterday afternoon. And as a very, you know, opening minutes of trading this morning, stocks are up. So that message seems to have gotten through.

Katie Martin
Yeah. That is skills, actually. You know, I will hand it to them. Because, you know, it’s . . . we’ve said this before on this podcast. Like, it’s so easy to like throw stones and peanuts at the Fed or the European Central Bank, the Bank of England or whatever and say they messed this up. But, like, this stuff is hard. Getting the markets to come away with that sort of impression is not to be taken for granted.

Robert Armstrong
It’s not to be taken for granted. I agree. However, I will note any time you’re trying to spin a narrative and you want people to believe it, one thing that really helps is if the narrative is true. And in this case, I think it broadly is.

I think inflation really does look like it’s whipped. It’s really either at or very close to 2 per cent. And look, with an unemployment rate of 4.2 per cent and basically no increase in lay-offs and the economy is still adding jobs, I think the economy is pretty good. So it’s not like he had to spin a magical tale of unicorns and wizards here. He just had to, you know, make a case based on the facts.

Katie Martin
Yeah. And and that kind of goes back to the fact that the Fed is not quite like all the central banks in that it has to look after inflation, but it also has to look after the jobs market. And so, you know, again, the risk is that you come away from a decision like this and think, well, you know, those little cracks that we’ve seen in the jobs market, maybe they’re the start of something really big and hairy and awful, but he seems to have massaged this one away.

Robert Armstrong
Indeed. Impressive performance.

Katie Martin
And so the other thing they do in this press conference is they give the general public and sad nerds like us a little bit of a taster about what’s coming next from the Fed, right. So they’re always, like, central bankers are at pains to say none of this stuff is a promise. This is just our kind of best current understanding of the state of the universe. But so, then you end up with this thing called — drumroll — the dot.

Robert Armstrong
The dot plot.

Katie Martin
The dot plot. Explain for normal people what the dot plot is.

Robert Armstrong
OK. So it’s kind of a grid. And along the bottom are the years 2024 through 2027, and then another column for the infinite future. And then there’s a range of interest rates going up and down on the side. And every member of the monetary policy committee puts a little dot in each year column where they think the rate is gonna be in that year. Cue much speculation about what all this means, how they’ve changed their mind since the last dot plot and, you know, the implications of all of this.

Katie Martin
Whose dot is whose? We’ll never know.

Robert Armstrong
They don’t reveal whose dot is whose. That’s an important point. And by the way, Katie, according to everything we hear out of the Fed, having invented this device, which was supposed to increase clarity and make everyone’s life easier, everyone in the Fed now hates it and wishes it would go away . . .

Katie Martin
Damn you, dot plot!

Robert Armstrong
Because it just causes endless, idiotic little niggling questions from people like me and you. But once you’ve invented something like this, if you take it away, people get upset.

Katie Martin
So you look at the dots and you look at what Jay Powell was saying at the press conference and what does it all add up to? Does it mean that, like, OK, they’ve started with 50 basis points, so like 50 is the new 25? Get used to it, boys and girls?

Robert Armstrong
If you look at the dot plot and their kind of aggregate expectations of where rates are gonna go, it is not that 50 is the new 25. The implication is that the rate of cuts is going to be very measured — or might I say stately, from here until they reach their target.

Katie Martin
Right, right.

Robert Armstrong
And, you know, another point to mention here is where they think they need to go is very important. That’s the kind of last part of the dot plot is, like, where should interest rates be when everything is normal again?

Katie Martin
Because that will happen one day. And . . .

Robert Armstrong
Yeah, that will happen. They think it’s gonna happen sometime around 2026, 27. We’ll get to where it’s about normal and they’re looking for about 3 per cent rates in the long run and that . . . so that’s where we’re going to. Just to set the context, we cut from 5.5 per cent to 5 per cent yesterday. And the map of the dot plot shows us moving towards a little under 3 per cent over time. And it’s a matter of how quickly are we going to get there, and along the way, are we going to change our mind and decide we have to go somewhere else?

Katie Martin
Yeah. So is there a kind of joyful hope that maybe the Fed could be, like, boring again and it can just sort of do 25 basis points here and there and just take this kind of glide path lowering rates that doesn’t get people excited any more?

Robert Armstrong
Well, this is the problem about the future is that it is hard to predict and particularly hard to predict with interest rates. The issue is that the economy, the structure of the economy has changed a lot in the last couple of years because of the pandemic and for other reasons. So that final destination point I talked about, which economists call the neutral rate, which is the just normal, everything is boring and steady rate of interest in the economy where everyone has a job, there’s no inflation, everything’s cool, the neutral rate. We don’t know what that number is.

And Jay Powell has this line about it. We know it by its works. And what that means, stated less calmly, is we know it when we screw it up. In other words, we hit it, we go past it. We push interest rates above the neutral rate and stocks have a big puke and the economy starts to slow down and people get fired or we travel too far below it and inflation starts again. So like the Fed over the next couple of years is like walking down this passage in the complete dark and it knows it can’t touch the wall on its left or the wall on its right. Right? But it doesn’t know the shape of the passageway, what direction it’s supposed to go. So it’s just like, well, I sure hope we’re going this way. Dee-dee-dee. And hope it doesn’t hit too low or too high along the way.

Katie Martin
Hope it doesn’t just walk into a wall.

Robert Armstrong
The history of interest rates is history of feeling your way along in the dark.

Katie Martin
Rob, that’s the most lyrical thing I’ve ever heard you say.

Robert Armstrong
Isn’t it? It’s poetry. It’s because I’m so ill. These could be the final words of a dying man.

Katie Martin
What meds are you on for this cold you’ve got?

Robert Armstrong
This could be my legacy, Katie. (Laughter)

Katie Martin
I feel like we should kind of wrap up quite soon before you just like expire during the recording.

Robert Armstrong
I do. As much as I like you, I’d like to have a few words with my wife before I shove off.

Katie Martin
But I will ask you, are we ever going back to like zero interest rates, do you think? Or are we gonna look back on that…

Robert Armstrong
I feel like I’ve been asking a lot of questions. This is a great question, Katie, but let me push it back on you. We had this wild period in the last decade where there was like a gajillion dollars of sovereign bonds issued at a negative interest rate.

Katie Martin
I think that was something like $18tn or something.

Robert Armstrong
Money was free. It was bonkers. And it was like the Fed funds rate was up against zero. Money was free. We were all in Silicon Valley inventing start-ups whatever, doing our thing. Do you think we’re going back to that? Like once this incident, the pandemic and everything after is over, are we going back?

Katie Martin
I mean, I can’t see it. I buy the narratives that are kicking around about inflation now being structurally higher, right? There’s a climate emergency. There’s a global defence emergency. There is all sorts of things that governments need to spend lots of money on, borrow lots of money for, all things being equal. And then there’s the whole supply chain thing after COVID and with geopolitics yada-yada.

Robert Armstrong
And the world is getting older, right? And so when old people create demand for savings, that drives interest rates up, right?

Katie Martin
Ah, old people. Yeah.

Robert Armstrong
Old people.

Katie Martin
But I think also before we wrap up, we should note that although you were right, about 50 basis points, I was right about the timing. I said on this here very podcast back in, I think it was June 2023, the . . . Not 24. 23. That the Fed is not gonna cut rates till the third quarter this year. So what I’m saying is I’m the genius here. You’re just like a (overlapping speech) took a coin flip.

Robert Armstrong
You’re basically Cassandra. Doomed to see the future and not be believed.

Katie Martin
I’m going to . . .

Robert Armstrong
Do I have the right mythological figure there? I think that was Cassandra.

Katie Martin
Absolutely no idea. But I’m going to set up a hedge fund called like hunch capital where I can invest your money for two and 20. (Laughter) Based on nothing but pure hunches. Do you want in? Because like my hunch on that, your hunch on the other. I think we’re going to make good money.

Robert Armstrong
We could. We could be rich people, Katie. But I will answer your question seriously. I think interest rates are higher now. We’re not going back to zero. I will end on that serious point.

Katie Martin
Yeah, yeah.

Robert Armstrong
Governments are spending too much. They have to spend too much. There’s loads of old people. There’s the green stuff has to be funded. Productivity might be rising possibly because of AI. We are going into a higher interest rate world. And by the way, the Fed thinks that. If you look at the history of the Fed’s view of what the long term normal interest rate is, that has been steadily ticking higher over the last year and a half or so.

Katie Martin
So rates have come down already pretty hard, but don’t get yourself carried away with thinking that we’re going back to zero, because ain’t . . . I mean.

Robert Armstrong
No. Ain’t gonna happen. Nope.

Katie Martin
Ain’t gonna happen.

[MUSIC PLAYING]

On that bombshell, we’re going to be back in a sec with Long/Short.

[MUSIC PLAYING]

OK, now it’s time for Long/Short, that part of the show where we go long a thing we love, short a thing we hate. Rob, I feel like you should go first before you completely lose your voice. (Laughter)

Robert Armstrong
Well, I’m going to go short wellbeing. And I say this not because my wellbeing is poor right now, but because of an article our colleague Joshua Franklin, wrote in the Financial Times yesterday that says, I’m quoting here, JPMorgan Chase has tasked one of its bankers with overseeing the company’s junior banker program, a response to renewed concerns about working conditions for young employees. And it goes on that this poor person is gonna have to make sure all these young investment bankers are happy and have work-life balance. I think investment bankers owe it to the rest of us to be miserable.

Katie Martin
Right.

Robert Armstrong
They make a lot of money. They are the lords of the universe. They should not be happy. Their wellbeing should be awful. And that’s what you’re getting paid for. So I think JPMorgan Chase is doing the wrong thing here. And they need to appoint a banker to oversee the what’s the opposite of wellbeing. Unwell being of their junior bankers.

Katie Martin
You’re a very, very mean person and you just want everyone to be sad like you.

Robert Armstrong
No, if you want to be happy, become a journalist and make no money. If you want to be rich, become a banker and like get divorced and have your kids hate you. It’s just the normal way of life. (Laughter)

Katie Martin
Well, I am long European banking merger drama. So if you’ve missed it, the German government is, like, quite scratchy and unhappy about a potential takeover of Commerzbank by Italy’s UniCredit. It’s the talk of the town. Everyone is kind of, you know, huddled around in bars in the city asking like, how the hell did UniCredit manage to amass like a nine per cent stake in this thing? Like that doesn’t seem like a good strategic move. There’s a lot of excitement over the motives. My interest here is that this is just like the good old days of European banking mergers with like very important European bankers wearing gilets under their jackets going around in like big fast cars and, you know, chatting away on their mobile phones and being masters of the universe.

Robert Armstrong
I just wish they would get along with it. As far as I know, in continental Europe, there’s actually more banks than people.

Katie Martin
Yeah, it’s like sheep in New Zealand. You’ve just got . . . (Laughter)

Robert Armstrong
They just need. I mean, as long as I’ve been in finance, people have been rattling on about how banking in Europe was going to consolidate. The industry was finally going to make some. They just need . . . I mean, as long as I’ve been in finance, people have been rattling on about how banking in Europe was going to consolidate. The industry was finally going to make some money and it was going be able to compete with the US. And then it’s like, you know, some Germans get mad at some Italians, it never happens and the cycle turns again.

Katie Martin
Yeah, it’s like we want consolidation, but no, no, no, no, no. Not like that.

Robert Armstrong
Not like that.

Katie Martin
Anything but that.

[MUSIC PLAYING]

And I am here for the drama is all I’m saying.

Robert Armstrong
Right on. I love it.

Katie Martin
OK, listeners, we are going to be back in your feed on Tuesday if Rob makes it that long, but listen up anyway, wherever you get your podcasts.

Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler. FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to FT.com/unhedgedoffer. I’m Katie Martin. Thanks for listening.

[MUSIC PLAYING]

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Business

Taiwan says device parts not made on island

Published

8 mins ago

September 20, 2024

NewsAdmin

Taiwan says device parts not made on island

The Taiwanese government has said components in thousands of pagers used by the armed group Hezbollah that exploded in Lebanon earlier this week were not made on the island.

The comments come after Taiwanese company Gold Apollo said it did not make the devices used in the attack.

The Lebanese government says 12 people, including two children, were killed and nearly 3,000 injured in the explosions on Tuesday.

The incident, along with another attack involving exploding walkie-talkies, was blamed on Israel and set off a geopolitical storm in the Middle East.

“The components for Hezbollah’s pagers were not produced by us,” Taiwan’s economy minister Kuo Jyh-huei told reporters on Friday.

He added that a judicial investigation is already underway.

“I want to unearth the truth, because Taiwan has never exported this particular pager model,” Taiwan foreign minister, Lin Chia-lung said.

Earlier this week, Gold Apollo boss Hsu Ching-Kuang denied his business had anything to do with the attacks.

He said he licensed his trade mark to a company in Hungary called BAC Consulting to use the Gold Apollo name on their own pagers.

The BBC’s attempts to contact BAC have so far been unsuccessful. Its CEO Cristiana Bársony-Arcidiacono told the US news outlet NBC that she knew nothing and denied her company made the pagers.

The Hungarian government has said BAC had “no manufacturing or operational site” in the country.

But a New York Times report said that BAC was a shell company that acted as a front for Israel, citing Israeli intelligence officers.

In another round of blasts on Wednesday, exploding walkie-talkies killed 20 people and injured at least 450, Lebanon’s health ministry said.

Japanese handheld radio manufacturer Icom has distanced itself from the walkie-talkies that bear its logo, saying it discontinued production of the devices a decade ago.

Iran-backed Hezbollah has blamed Israel for what it called “this criminal aggression” and vowed that it would get “just retribution”.

The Israeli military has declined to comment.

The two sides have been engaged in cross-border warfare since the Gaza conflict erupted last October.

The difficulty in identifying the makers of the devices has highlighted how complicated the global electronics supply chain has become.

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Business

Europe is failing to protect Ukraine’s energy grid, says IEA head

Published

39 mins ago

September 20, 2024

NewsAdmin

This article is an on-site version of our Europe Express newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday and Saturday morning. Standard subscribers can upgrade to Premium here, or explore all FT newsletters.

Good morning. A scoop to start: The EU could bar imports of coffee from a number of countries within weeks unless Brussels delays a ban on products from deforested areas, commodity companies and governments have warned.

Today, the head of the International Energy Agency tells our energy correspondent that Europe isn’t doing enough to protect Ukraine’s power infrastructure, and our competition correspondent reveals a demand from 20 EU capitals for the European Commission to cut more red tape than it has already promised.

Have a great weekend.

Cold comfort

The head of the IEA has accused Europe of being too reticent in its support for Ukraine, calling for more generators and repair equipment for the war-torn country ahead of a difficult winter, writes Alice Hancock.

Context: Ukraine has suffered heavy attacks on its energy infrastructure by Russia, particularly in late August in retaliation for its incursion into Russia’s Kursk region. Half of all Ukraine’s energy infrastructure has been destroyed, roughly equivalent to the capacity of Latvia, Lithuania and Estonia.

In a report published yesterday, the IEA said Ukraine’s electricity deficit this winter could reach as much as 6GW, around a third of anticipated peak demand. The power shortfall this summer was 2.5GW when Kyiv was already enduring long blackouts.

“It’s time for everybody to understand that this winter could be consequential in Ukraine,” Fatih Birol, director-general of the IEA, told the FT. “It is the most pressing energy security issue today in the world.”

A lack of energy supplies meant a knock-on impact on the operation of hospitals, schools, water supplies and other “major implications”, Birol added.

European Commission president Ursula von der Leyen will meet Ukrainian President Volodymyr Zelenskyy in Kyiv today to discuss the situation. They will also talk about where to direct €100mn the EU has given Ukraine for repairs and renewable energy, which came from the profits from immobilised Russian assets in the EU.

The EU will also provide €60mn in humanitarian aid for shelters and heaters. Average winter temperatures in Ukraine vary between -4.8C and 2C, according to World Bank figures.

Birol said there were “major shortages” of many crucial parts, including transformers, grid equipment and diesel generators. He said Europe had been too “conservative” in sending electricity to Ukraine and could step up exports without jeopardising European supply.

European consumers could help by cutting their own electricity demand, allowing more power to go to their eastern neighbour. This would be a “very decent way of showing solidarity”, Birol said.

Ukraine should have enough gas to see it through early winter, but the IEA said that once current contracts expire at the end of the year, there could be a need to increase west-to-east gas flows to Ukraine from central and eastern European neighbours.

Chart du jour: Rising tide

The Alternative for Germany looks set to win another state election in Brandenburg on Sunday, just weeks after the far-right party won its first regional poll in Germany’s postwar history. But the Social Democrats are closing in.

Cut it

If Europe wants to be globally competitive, it needs to go further than what Brussels plans to boost the single market, says a paper co-authored by 20 member states, including the Netherlands and Germany, writes Javier Espinoza.

Context: Two recent landmark reports — by former Italian leaders Mario Draghi and Enrico Letta — spelt out the stark risks of failing to reform the single market. They highlighted the need to reduce regulatory pressure on companies and to make it easier for businesses to access funding in order for the bloc to compete with the US and China.

Ursula von der Leyen’s second term at the head of the European Commission had to “continue to cut red tape . . . going beyond the announced 25 per cent reduction of reporting requirements”, the joint document states, referring to an existing promise.

She should also back “specific digital tools” that would allow companies to focus less on regulatory reporting.

The signatories, which also include Luxembourg and the Czech Republic, called on the commission to provide “an enabling and transparent regulatory environment” — technical language for forcing capitals to align their rules.

Lex Delles, Luxembourg’s economy minister, pointed to persistent barriers within the single market where “retailers cannot pick their suppliers in the country of their choice because of territorial supply constraints imposed by wholesalers”.

He added: “By prohibiting such practices, we would show businesses and consumers that the EU can deliver concrete results for them.”

What to watch today

European Commission president Ursula von der Leyen travels to Kyiv.

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Money

Britain’s ultra-wealthy exit ahead of proposed non-dom tax changes

Published

43 mins ago

September 20, 2024

NewsAdmin

Britain's ultra-wealthy exit ahead of proposed non-dom tax changes

Street scene in Old Bond Street, Mayfair, London, United Kingdom.

Pawel Libera | The Image Bank | Getty Images

LONDON — Monaco, Italy, Switzerland, Dubai. They’re just a few of the destinations trying to lure away the U.K.’s uber wealthy ahead of proposed changes to the country’s divisive non-dom tax regime.

Almost two-thirds (63%) of wealthy investors said they plan to leave the U.K. within two years or “shortly” if the Labour government moves ahead with plans to ax the colonial-era tax concession, while 67% said they would not have emigrated to Britain in the first place, according to a new study from Oxford Economics, which assesses the implications of the plans.

The U.K.’s non-dom regime is a 200-year-old tax rule, which permits people living in the U.K. but who are domiciled elsewhere to avoid paying tax on income and capital gains earnings overseas for up to 15 years. As of 2023, an estimated 74,000 people enjoyed the status, up from 68,900 the previous year.

Labour last month set out plans to abolish the status, expanding on a pledge set out in its election manifesto and stepping up earlier proposals by the previous Conservative government to phase out the regime over time. It comes as Prime Minister Keir Starmer had pledged to improve fairness and shore up the public finances, with further announcements expected in the Oct. 30 Autumn budget statement.

Finance Minister Rachel Reeves has said that scrapping the program could generate £2.6 billion ($3.45 billion) over the course of the next government. However, Oxford Economics’ research, which was produced earlier this month in collaboration with lobby group Foreign Investors for Britain, estimates the changes will instead cost taxpayers £1 billion by 2029/30.

“We are ringing out the alarm bell that this is a perilous time,” Macleod-Miller, CEO of Foreign Investors for Britain, told CNBC over the phone. “If the government doesn’t listen they’ll put at risk revenues for generations.”

Other countries are smelling the fear and actively promoting their jurisdictions.

Leslie Macleod-Miller
CEO at Foreign Investors for Britain

Under the proposals, the concept of “domicile” will be eliminated and replaced with a resident-based system, while the number of years in which money earned abroad goes untaxed in the U.K. will be cut from 15 to four.

Individuals will also have to pay inheritance tax after 10 years of U.K. residency and would remain liable for 10 years after leaving the country. They will also be prevented from avoiding inheritance tax on assets held in trust.

However, Macleod-Miller, a private wealth practitioner who launched the lobby group in response to the proposals, said the changes would stymy wealth generation and is instead calling for a tiered tax regime.

According to the Oxford Economics research, which surveyed 72 non-doms and 42 tax advisors representing a further 952 non-dom clients, virtually all (98%) said they would emigrate from the U.K. sooner than previously planned if the reforms were implemented. The 72 non-doms surveyed were said to have invested £118 million each into the U.K. economy.

The majority (83%) cited inheritance tax on their worldwide assets as their key motivator for leaving, while 65% also referenced changes to income and capital gains tax.

Where the wealthy are moving

It comes as other countries are shaking up their tax regimes to incentivize wealthy investors.

Switzerland, Monaco, Italy, Greece, Malta, Dubai and the Caribbean island of the Bahamas are among the various destinations proving most attractive to wealthy investors, according to industry experts and agents CNBC spoke to.

“Wealthy investors have a lot of choices now and a lot of domiciles are fighting for them,” Helena Moyas de Forton, managing director and head of EMEA and APAC at Christie’s International Real Estate, told CNBC.

Moyas de Forton, whose team advises clients on international relocation, said Labour’s plans were the latest in a string of political developments which have shaken the U.K.’s reputation as a safe haven over recent years.

Monte Carlo skyline surrounded by sea and mountains, Monaco.

Alexander Spatari | Moment | Getty Images

“It’s just another hit,” she said. “I’m not sure if they’re all leaving but definitely they’re questioning and taking their time to see what’s changing.”

A record number of millionaires are expected to leave the U.K. this year, according to a June report from migration consultancy Henley & Partners, which cited the July general election as adding to a period of post-Brexit political flux. It is estimated that Britain will record a net loss of 9,500 high-net-worth individuals in 2024, more than double last year’s 4,200.

“It is definitely a danger. The markets are so fungible nowadays. It’s easy for people to move home. It’s easy for people to move their businesses,” Marcus Meijer, CEO of real estate investor Mark, told CNBC’s “Squawk Box Europe” of the non-dom changes last week from Monaco.

A lot of people are worried. They would rather get out now before it’s too late

James Myers
director at Oliver James

Among the alternative offerings available to the ultra wealthy are indefinite inheritance tax exemptions in Monaco, Malta and Gibraltar, and an absence of income, capital gains and inheritance tax in Dubai. In Italy and Greece, flat tax regimes allow the wealthy to avoid paying tax on their worldwide assets for an annual fee of 100,000 euros for up to 15 years.

Italy last month doubled its fee for new arrivals to 200,000 euros ($223,283) in a move its economy minister said was designed to avoid “fiscal favors” for the wealthy. However, Macleod-Miller said the regime would likely remain appealing to the top 1% even at a slightly higher rate.

“Other countries are smelling the fear and actively promoting their jurisdictions and attracting their investment and their families,” Macleod-Miller said.

“Italy is one of those countries which is courting the wealthy and seems to think if you treat them well they will contribute,” he added.

UK prime real estate faces a hit

That is also impacting the U.K.’s prime real estate market. James Myers, director at London-based luxury real estate agency Oliver James, saw an uptick in sales activity in anticipation of Labour’s election in July. But now, around 30% to 40% of clients are lowering asking prices to generate a quicker sale.

“A lot of people are worried. They would rather get out now before it’s too late,” Myers told CNBC over the phone. Many of Myers’ multimillionaire and multibillionaire clients have already started to put down roots in Monaco and Dubai, with Italy “becoming a thing” more recently, too, he said.

Transactions in London’s super-prime residential market, which covers homes valued at £10 million and above, fell 22% in the year to July compared to the previous 12 months, according to whole market data published Wednesday by property agency Knight Frank.

Elegant townhouses in South Kensington, London, England, UK.

Benedek | Istock | Getty Images

The decline was most pronounced in properties valued above £30 million, with just 10 sales generated compared to 38 the previous year, which the report attributed to higher buyer discretion.

Stuart Bailey, Knight Frank’s head of super-prime sales for London, noted that Autumn Statement uncertainty had now replaced election uncertainty, with non-doms not the only group being spooked by Labour’s anticipated tax changes.

Ultra-wealthy U.K. citizens, who are typically highly active in the super-prime market, are also in “wait and see” mode ahead of possible changes to capital gains and inheritance tax. It follows previously announced VAT (tax levy) charges for private schools.

“Non doms are a sector of that super-prime market, but they’re not the be all and end all,” Bailey said over the phone.

That is, however, creating opportunities for other investors, Bailey noted. U.S. citizens, who are already subject to U.S. tax on their worldwide assets, and so-called 90 dayers, whose annual stay in the U.K. falls below the tax threshold, could ultimately benefit from reduced competition.

“U.S. buyers, especially those sitting on a lot of cash, would be crazy not to think it’s a good time to buy right now,” he said.

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Europe’s battery darling runs out of juice

Published

1 hour ago

September 20, 2024

NewsAdmin

This is an audio transcript of the FT News Briefing podcast episode: ‘Europe’s battery darling runs out of juice’

Sonja Hutson
Good morning from the Financial Times. Today is Friday, September 20th and this is your FT News Briefing. The markets are saying let’s party like it’s 2019. Meanwhile, Swedish battery maker Northvolt is entering its austerity era. Plus, people can get obsessed with their frequent flyer status. So when some airlines announced stricter rules, the gloves really came off.

Brooke Masters
And now US regulators are asking, is this a bait and switch and is it illegal?

[MUSIC PLAYING]

Sonja Hutson
I’m Sonja Hutson and here’s the news you need to start your day.

[MUSIC PLAYING]

Looks like Wall Street is going to be putting some champagne on ice. The S&P 500 closed at an all-time high yesterday. Investors bet that the Federal Reserve’s mega half-point rate cut is going to steer the economy into a soft landing. In other words, dodge a recession. Big Tech stocks at the top of the index led the rally, and the tech-dominated Nasdaq Composite was up 2.5 per cent yesterday. It’s a sector that really loves low rates because when money’s cheaper, debt feels lighter and riskier, assets start to look a little less scary. And it wasn’t just a party in the USA. European and Japanese indices were also up by a percentage point or two.

[MUSIC PLAYING]

A Swedish battery company has been a symbol of Europe’s fight against US and Chinese dominance in electric vehicles. But Northvolt is now struggling to scale up its operations and stay afloat. I’m joined now by the FT’s Richard Milne to discuss what this could mean for Europe’s auto industry. Hi, Richard.

Richard Milne
Yeah, hi there.

Sonja Hutson
So first off, why was Northvolt this kind of beacon of hope for Europe’s green energy ambitions?

Richard Milne
Yeah. So it was founded in 2017 by two former Tesla executives and then very quickly got the likes of Volkswagen, Goldman Sachs, BMW, Siemens, Ikea, all sorts of people on board to shareholders you know created a lot of optimism. And they went pretty quickly. They opened their gigafactory just below the Arctic Circle in northern Sweden at the end of 2021, producing the first battery. And it raised more money than any other privately held start-up in Europe. It’s raised more than $15bn, but since then, not a lot has gone right.

Sonja Hutson
Yeah. And what kind of problems is Northvolt facing?

Richard Milne
At its most basic, it just isn’t producing enough batteries. Battery making is just incredibly complex. One expert said it was like getting a million ballet dancers and everything has to go right. And it just has struggled to make its production lines work at the right speed, the right quality at the right cost levels. So it’s just massively behind schedule. It’s burning through a lot of cash. And at the same time, it’s up against these Asian competitors, particularly CATL and BYD of China, that are able to produce batteries extremely cheaply.

Sonja Hutson
And what’s the company doing to try to overcome those challenges?

Richard Milne
So the first thing it’s doing really is scaling back its ambitions. At one stage it was going to try and build so four gigafactories at the same time. It stopped or paused a lot of that and it really focusing just on this gigafactory in northern Sweden first. It realises that that is what it’s got to get right. But basically, if investors don’t give it more capital fairly soon, then it’s going to be in trouble. And the backdrop here is that in Europe, the demand for electric vehicles has been less than expected. This, in some ways may help given that it’s not making very much of them, but it also is giving investors sort of pause for thought. You know, is this green industry sector as hot as we thought it was?

Sonja Hutson
Hmmm. Now if Northvolt can’t get its act together, what would that mean for Europe?

Richard Milne
So this is really the big question. I mean, the car industry’s hugely important in Europe, and we’re in this transition to electric vehicles that are going to be dependent on batteries. If Northvolt doesn’t succeed and other European start-ups also don’t succeed, then basically you’re giving that part of your supply chain to Asian players. And that leaves a lot in the car industry worried because you want to have a close relationship with your battery maker. You probably want to tailor the batteries to your cars rather than to your rivals. So this is sounding big alarms in Europe.

Sonja Hutson
Richard Milne is the FT’s Nordic and Baltic correspondent. Thanks, Richard.

Richard Milne
Thanks so much.

[MUSIC PLAYING]

Sonja Hutson
Another day, another central bank meeting. The Bank of England said yesterday that it’s holding interest rates at 5 per cent for now, which isn’t a surprise. A majority of analysts predicted that it would keep things steady. That’s because inflation did not change in August and the BOE already cut borrowing costs by a quarter point last month. But future rate cuts are still on the table. The bank said it would take a gradual approach to loosening policy so long as there is no major changes in the economy. So most people assume that means the next rate cut is likely to come in November.

[MUSIC PLAYING]

There is no better feeling than booking a vacation. Well, except for maybe when you get that free business class upgrade because you have status. Frequent flyers love collecting points from their loyalty programs. But over the past couple of years, airlines have started making it even harder to maintain that status. And customers are not letting this fly. Here to explain more is the FT’s Brooke Masters. Hi, Brooke.

Brooke Masters
Hi.

Sonja Hutson
So for the uninitiated, how exactly do these airline loyalty programs work?

Brooke Masters
The basic way is you get a certain number of points for flying a certain number of miles, and then you can use those points to buy upgrades or buy seats. And as you hit certain levels of points, you get a status. For example, I am this year a gold status member on Delta.

Sonja Hutson
Gold? You?

Brooke Masters
My husband is a diamond, which is much better. My husband’s diamond status means basically if he flies business class and there’s a free seat in first class, they automatically upgrade him and you used to get into lounges. Now it’s a lot harder to get in lounges.

Sonja Hutson
Well, I hope you achieve diamond status one day. And just how profitable are these programs for the airlines?

Brooke Masters
These days they are absolute cash cows. That’s because they’ve figured out a new trick instead of just giving you points when you fly. They now cut deals with credit card companies where the credit card companies buy the points from the airlines and offer them to their customers for charging on the credit card. The airlines and the credit card companies also offer co-branded credit cards, which give fees to the airlines, as well as to the credit card companies. As a result, IAG, which is the parent of British Airways and Iberia, actually makes more money from its credit card program than it does from flying any of its airlines.

Sonja Hutson
So why are some customers annoyed with these programs right now?

Brooke Masters
There’s been a problem since Covid with too many people with too many points, because if you imagine people built up their points during Covid, they now want to fly. And so there was just too many people trying to use too few benefits, and it became very unpleasant. So the airlines have basically changed the rules, saying, we know we told you a credit card would get you lounge access. Actually, not so much. You know, it’s better for all of us. We’re trying to build loyalty. And now US regulators are asking, is this a bait and switch and is it illegal?

Sonja Hutson
And so if customers get so annoyed that they start to ditch these programs, where does that leave the airlines, especially because these programs are so, so profitable?

Brooke Masters
It will be tough for their bottom lines, I mean, because this is absolutely an important part of their growth plans and their profit programs. American Airlines got itself into big trouble a couple of months ago when it tried to say that if you booked your corporate flights, unless you booked them directly with American or through a couple of preferred travel partners, you wouldn’t get points at all. And people stopped flying. I mean, it showed up in their bottom line. They had to reverse the policy. The airlines do run the risk that they may choose not to fly them if the frequent flyer program is too bad.

Sonja Hutson
OK. So people are obviously heavily invested in these programs. But why is that? Like, what is it about them that gets everyone so riled up?

Brooke Masters
When Delta changed its rules the travel boards lit up and one of the best comments was somebody who referred to the alterations as a stinking, odorous sack of shites. There is this emotional feeling that when the program works, you love them. But, you know, every time I walk by the lounge and realise I can’t get in, it makes me really angry. And that’s what it’s about. It’s a game. People are absolutely emotionally attached to their programs. One of the consultants I talked to said you should always keep in mind people will pay anything to get something for free.

Sonja Hutson
Brooke Masters is the FT’s US financial editor. Thanks, Brooke.

Brooke Masters
Always a pleasure.

[MUSIC PLAYING]

Sonja Hutson
You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back next week for the latest business news. The FT News Briefing is produced by Niamh Rowe, Fiona Symon, Marc Filippino, Kasia Broussalian and me, Sonja Hutson. Our engineer is Monica Lopez. We had help this week from Michela Tindera, Mischa Frankl-Duval, Sam Giovinco, David Da Silva, Michael Lello, Peter Barber, Gavin Kallmann and Persis Love. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio and our theme song is by Metaphor Music.

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Young women are starting to leave men behind

Published

2 hours ago

September 20, 2024

NewsAdmin

Unlock the Editor’s Digest for free

Across the developed world, girls and young women have been pulling ahead of boys and young men in education for several decades, with much larger proportions going on to attend university than their male counterparts.

This trend has generally been treated more as something to remark upon than to act on. The myriad domains in which women remain at a disadvantage to men have understandably led to efforts at achieving gender equality becoming synonymous with advancing women’s opportunities and outcomes. Men have always gone on to have better labour market outcomes anyway, and if women outperform men in education, this helps narrow the overall male advantage — or so the thinking has gone.

Chart showing that slightly more men than women used to go to university; now far more women go than men

The problem with this framing is that in an increasing number of countries, we have moved beyond a narrowing gap in socio-economic outcomes, and there is now a new and growing gap in the opposite direction.

Much less appreciated than the widening tertiary education gap is the fact that in several rich countries young women are now more likely to be in work than young men. The UK joined this group in 2020, and the female employment rate lead among 20-24s has since widened to three percentage points. The crossover is yet to happen in the US, but young women’s employment rate deficit has shrunk from almost 10 percentage points in 2006 to a single point last year.

Chart showing that young women’s employment rate is overtaking men’s in a number of developed countries including the UK

Put another way, the UK is part of a growing list of countries where the answers to “who is doing most of the legwork raising children?”, “who is focused on getting a good education?” and “OK, but who is out working to bring home a good income?” are all: “Women.”

If this were simply a case of women making strides, it would be something to celebrate — and that side of the story certainly is — but a substantial minority of young men are actively moving backwards, with growing numbers increasingly disengaged from society.

Across the developed world, the portion of young men who are neither in education, in work nor looking for a job has been climbing steadily for decades. In countries including the UK, France, Spain and Canada there are now more young men than women in effect outside the economy for the first time in history. Unlike young women, these men are generally not occupied by caring for other family members either. They are adrift and likely to be the ones in need of care themselves. More than 80 per cent of this group in the UK report long-term health problems.

Chart showing that the share of young men who are neither in education, in work or looking for a job is climbing

Perhaps most striking of all, 2022 was the first time the average young woman in the UK had a higher income than her male counterpart. This is due in large part to women becoming so much more likely to have a degree and the graduate salary that comes with it, but also to the deteriorating fortunes of non-graduate men, who have gone from earning 57 per cent more than non-graduate women in 1991, to 10 per cent less in 2022.

Chart showing that young women’s incomes have overtaken men’s in the UK

It is a similar story in the US, where young non-college women and college-educated people of both sexes have all seen incomes either hold up or increase, but non-college men have plummeted down the income distribution.

While shifting composition plays a role here — today’s non-college graduates are a very different group to non-graduates 30 years ago — it cannot explain the starkly different trajectories of non-college men and women, which owe more to the continuing transition from an economy where jobs requiring hands, hearts and heads were all plentiful and relatively remunerative, to one where the latter dominate.

Chart showing that young men continue to out-earn women in the US, though non-college men’s economic status has fallen steeply

But while discourse and policy remain focused on other things, the repercussions of these tectonic shifts are quietly playing out everywhere you look.

With socio-economic trajectories heading in different directions, a growing minority of young men and women do not see eye to eye. Young male support for populist rightwing parties is on the rise, particularly among those without jobs and degrees. Violent unrest is more likely with a growing pool of young men with little stake in society or their future.

And relationship formation itself is being affected, as growing numbers of female graduates discover a shortage of male socio-economic counterparts, and simultaneously have less need than ever to pair up with a man for financial support.

Reversing the slide among non-graduate men will not be easy, nor must it become a zero-sum game with young women, but it is an essential challenge for the decades ahead and will have positive spillovers well beyond those directly affected.

john.burn-murdoch@ft.com, @jburnmurdoch

Income comparison methodology

In order to capture the impact of both changes in young men and women’s earnings and changes in the numbers of young men and women in work, median incomes were calculated using the full population of young adults as opposed to only those in employment. Income includes wages, benefits / social security and any other sources of personal revenue.

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Record Indian gold imports help drive bullion’s rally

Published

2 hours ago

September 20, 2024

NewsAdmin

A surge in demand among Indian consumers for gold jewellery and bars after a recent cut to tariffs is helping to drive global bullion prices to a series of fresh highs.

India’s gold imports hit their highest level on record by dollar value in August at $10.06bn, according to government data released Tuesday. That implies roughly 131 tonnes of bullion imports, the sixth-highest total on record by volume, according to a preliminary estimate from consultancy Metals Focus.

The high gold price — which is up by one-quarter since the start of the year — has traditionally deterred price-sensitive Asian buyers, with Indians reducing demand for gold jewellery in response.

But the Indian government cut import duties on gold by 9 percentage points at the end of July, triggering a renewed surge in demand in the world’s second-largest buyer of gold.

“The impact of the duty cut was unprecedented, it was incredible,” said Philip Newman, managing director of Metals Focus in London. “It really brought consumers in.”

The tariff cut has been a boon for Indian jewellery stores such as MK Jewels in the upmarket Mumbai suburb of Bandra West, where director Ram Raimalani said “demand has been fantastic”.

Customers were packed into the store browsing for necklaces and bangles on a recent afternoon, and Raimalani is expecting an annual sales boost of as much as 40 per cent during the multi-month festival and wedding season that runs from September to February.

Raimalani praised India’s government and “Modi ji”, an honorific for Prime Minister Narendra Modi, for reducing gold duties.

Column chart of tariff cut triggers import leap last month showing Indian gold imports

Expectations of rapid interest rate cuts by the US Federal Reserve have been the main driver of gold’s huge rally this year, according to analysts. Lower borrowing costs increase the attraction of assets with no yield, such as bullion, and are also likely to weigh on the dollar, in which gold is denominated.

The Fed cut rates by half a per cent on Wednesday, pushing gold to yet another record high, just below $2,600.

But strong demand for gold jewellery and bars, as well as buying by central banks, have also helped buoy prices.

India accounted for about a third of gold jewellery demand last year, and has become the world’s second-largest bar and coin market, according to data from the World Gold Council, an industry body.

However, that demand has meant that domestic gold prices in India are quickly catching up to the level they were at before the tariff duty cut, according to Harshal Barot, senior research consultant at Metals Focus.

“That entire benefit [of the tariff cut] has kind of vanished,” said Barot. “Now that prices are going up again, we will have to see if consumers still buy as usual.”

Jewellery buying had been flagging before the cut in import duty, with demand in India in the first half of 2024 at its lowest level since 2020, according to the World Gold Council.

India’s central bank has also been on a gold buying spree, adding 42 tonnes of gold to its reserves during the first seven months of the year — more than double its purchases for the whole of 2023.

A person familiar with the Reserve Bank of India’s thinking called the gold purchases a “routine” part of its foreign exchange reserve and currency stability management.

Line chart of showing Rate cut expectations send gold to record high

In China, the world’s biggest physical buyer of gold, high prices have meant fewer jewellery sales, but more sales of gold bars and coins, which surged 62 per cent in the second quarter compared with a year earlier.

“We observed strong positive correlation between gold investment demand and the gold price,” wrote the World Gold Council, referring to China.

All of this has helped support the physical market and mitigate the impact that high prices can have in eroding demand.

“It acts as a stable foundation for demand,” said Paul Wong, a market strategist at Sprott Asset Management. “In parts of Asia, gold is readily convertible into currency,” making it popular for savings, he said.

Western investor demand has also been a big factor in bullion’s rally, with a net $7.6bn flowing into gold-backed exchange traded funds over the past four months.

After hitting a fresh high on Wednesday, analysts warn there could be a correction in the gold price.

“When you have this scale of anticipation [of rate cuts], for this long, there is room for disappointment,” said Adrian Ash, London-based director of research at BullionVault, an online gold marketplace. “I think there is scope for a pullback in precious alongside other assets.”

Whether or not gold pulls back from its record highs, Indian jewellery demand looks set to remain strong through the coming wedding season, according to MK Jewels’ Raimalani.

Soaring prices of bullion have been no deterrent to his customers, he added. “Indians are the happiest when prices go high because they already own so much gold. It’s like an investment.”

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