0:03

Good morning from the Financial Times. Today

0:05

is Thursday, May 2nd. And this

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is your FT News Briefing. The

0:11

Federal Reserve is signaling that interest rates

0:13

will have to stay higher for longer.

0:16

And a cruise ship operator floated

0:18

on public markets yesterday. It did,

0:20

in fact, make a splash. Plus

0:23

HSBC's next CEO will have a

0:25

big problem to tackle China.

0:28

I'm Mark Filipino, here's the news you need to start your

0:30

day. US

0:46

inflation has been uncomfortably stubborn. The Federal

0:48

Reserve has been trying to bring it

0:51

down with high interest rates. And yet,

0:53

the Consumer Price Index has actually been

0:55

ticking up. So

0:57

yesterday, Fed Chair Jay Powell said that the

1:00

central bank will keep interest rates high. And

1:02

now it's pretty much anyone's guess when a

1:04

cut might come. I'm joined

1:07

now by the FT's Claire Jones. She writes about

1:09

monetary policy and covered yesterday's Fed meeting. Hey, Claire.

1:12

Hello, Mark. So

1:14

at one point over the course of

1:16

this whole inflation saga, markets thought that

1:18

the Fed might cut interest rates around

1:21

this time this year. We are, of

1:23

course, in a very different situation now.

1:26

What did Powell have to say about

1:28

the state of inflation? I

1:31

think what we saw yesterday was quite

1:33

a clear shift in attitude from what we

1:36

saw from the Fed around the turn of

1:38

the year. Then it seemed pretty

1:40

confident that they were going to achieve a soft

1:42

London for the US economy. That

1:44

inflation was going to continue falling. And that

1:47

was going to leave them in the position

1:49

to cut interest rates several times over the

1:51

course of 2024. After

1:54

the recent disappointment on inflation,

1:57

what it now seems we have is

1:59

a non-stop. Committal Fed that's really

2:01

in wait-and-see mode and that gives

2:03

us a sense that interest rates

2:05

are going to remain high for

2:07

you know at least a couple

2:09

of months most probably until after

2:11

the US election. Markets

2:15

were surprisingly upbeat at

2:17

least for a little bit. Why

2:20

might investors feel optimistic despite where things

2:22

are with interest rates and inflation? Because

2:26

the news on inflation has been

2:28

disappointing. That has led some to

2:30

raise the prospect that the next

2:32

move from the Federal Reserve could

2:35

be rising interest rates rather than

2:37

falling borrowing costs. I

2:39

think what Powell did was really stamp

2:41

out the idea that they're going to

2:44

raise interest rates soon. Okay they're not

2:46

going to cut them but the next

2:48

move is still more likely to be

2:51

down than it is a rise in

2:53

borrowing costs and I think Powell being

2:56

relatively clear about that soothes

2:58

some concerns that the markets might be

3:00

having. Obviously the interest

3:03

rate conversation was the big thing that

3:05

happened during Wednesday's meeting but

3:08

there was also some stuff about bonds that

3:10

happened yesterday. What happened there? Yes

3:12

so as part of the Fed's response to the

3:15

pandemic and also to the 2008

3:17

crisis they bought an awful lot

3:19

of financial assets mostly treasuries but

3:21

also mortgage-backed securities. That has led

3:24

to a massive increase in the

3:26

size of the central bank's balance

3:28

sheet. Over the past year or

3:30

so they've been engaged in a

3:32

program called quantitative tightening. The idea

3:34

of that is that they allow

3:36

the treasuries and the

3:38

mortgage-backed securities on the balance sheet to kind

3:41

of run off and they don't repurchase

3:43

them. What the Fed said

3:45

yesterday was that it was really going to slow

3:47

the pace at which it's

3:49

shrinking its balance sheet. The idea

3:52

behind that really is that we

3:55

might see some dislocation in

3:57

money markets. This is a

3:59

way of preventing and that from happening. Part

4:01

of the reason I asked that Claire is that for

4:04

a while there was this big question about whether

4:06

or not the Fed would be able to accomplish

4:09

a soft landing. Basically

4:11

bring down inflation without causing the

4:14

US economy to run into the

4:16

ground and go into a recession.

4:19

And I'm wondering, is Powell and

4:21

the Fed going to be able to walk

4:23

that tightrope? Yeah, I

4:25

think that's the big question going forward

4:27

really. I mean, Powell did address this

4:29

yesterday. He said that it was his

4:31

hope that a lot of the

4:33

factors that had led to the fall in

4:35

inflation over 2023, such

4:38

as a lot more workers entering the

4:40

US labor market could

4:43

result in similarly favorable

4:45

conditions eventually in 2024. But

4:49

he acknowledged that it wasn't

4:51

necessarily something that the Fed

4:53

could guarantee. Claire

4:56

Jones covers monetary policy in the Federal

4:58

Reserve for the FT. Thanks,

5:00

Claire. Cheers. Thanks a lot, Mark.

5:09

The cruise line Viking sailed through its

5:11

first day of public trading yesterday. Its

5:13

stock rose nearly 9%, putting

5:16

the company's market capitalization at 11

5:18

and a half billion dollars. That

5:21

made it the second largest initial public offering

5:23

in the US this year. Viking

5:25

actually increased the size of its

5:27

IPO twice before its listing because

5:29

of strong investor demand. Private

5:32

equity groups have been worried about the

5:34

slow reopening of the IPO market this

5:36

year after a drought, but Vikings win

5:38

yesterday should give hope to PE firms that

5:40

have been trying to unload investments they've had

5:43

for a while. HSBC

5:51

is on the hunt for a new

5:53

chief executive after Noel Quinn announced Tuesday

5:55

he was stepping down. Whoever

5:57

takes his place will have a big challenge on

5:59

their hands. And that challenge, of course,

6:01

is China. Here to

6:03

talk about how HSBC and other European

6:05

banks are handling China is Owen Walker.

6:08

He's the FT's European banking correspondent. Hey,

6:10

Owen. Hey, how's it going? I'm doing

6:12

well. Thanks for coming on. So,

6:14

can you just give us a sense

6:17

of HSBC's relationship to the Chinese market?

6:20

Well, the Chinese market is really

6:22

HSBC's spiritual home. HSBC stands for

6:24

Hong Kong and Shanghai Banking Corporation.

6:26

Its roots go back to Hong

6:29

Kong in 1865. It's

6:32

only listed and headquartered in the

6:34

UK because HSBC bought Midlands Bank

6:36

in the UK in 1992. And

6:40

its role historically was all about

6:43

facilitating global trade, about money flows

6:46

in and out of China. And

6:48

Noel Quinn, that's been a very

6:50

big theme of his tenure as

6:53

CEO. Three years ago, he announced

6:55

this kind of strategy to pivot more to

6:57

Asia, to China. But this is

6:59

also coming at a time where the bank has

7:01

sort of come under increasing pressure from some of

7:04

its shareholder base to really take

7:06

more drastic measures and really separate out the

7:09

Hong Kong Chinese Asian business from a

7:11

lot of the Western parts

7:13

of the bank. So

7:16

an aggressive pivot to China for sure. How has

7:18

that been going for HSBC? Well,

7:21

it's kind of had mixed results. It's

7:23

only a few years in. It's

7:25

coming at a time of increased

7:27

geopolitical tensions outside China. But also

7:29

China has had its own problems.

7:31

It's had a sort of collapsed

7:33

real estate sector in certain parts

7:35

of the country that has affected

7:38

HSBC's business. So what you've

7:40

kind of seen is the pivot

7:42

to China, to Hong Kong came at a similar

7:44

time when a lot of people were kind of

7:46

readjusting their view on Hong Kong. And it was

7:48

kind of losing its edge, if you like, compared

7:51

to other regional financial hubs

7:53

like, for example, Singapore. So

7:55

it's kind of in a delicate battle really for Quinn

7:58

to play out as he looks at that So

8:01

then, Owen, what should we be looking out

8:03

for when it comes to HSBC's successor and

8:05

how they approach China? I

8:08

don't think anyone should be expecting HSBC

8:10

to change their strategy for

8:12

China. And I don't think

8:14

any incoming CEO will have

8:16

a vastly different approach to

8:18

the bank's global operations than

8:21

Quinn did. It

8:23

has aspirations of being a

8:25

global bank which facilitates

8:27

trade globally, east, west, across

8:30

Europe, across the US, and

8:32

growing in various markets. An

8:35

incoming CEO will have to sign up to that

8:37

strategy because that is what HSBC

8:39

is. That will involve

8:41

being able to work in

8:43

perhaps a potentially more tense geopolitical

8:45

environment. So it'd be very interesting

8:47

to see who gets that job

8:50

in the end. Owen

8:52

Walker is the FT's European banking correspondent.

8:54

Thank you. Great. Thanks very much.

9:03

You can read more on all of these stories at ft.com

9:06

for free when you click the links on our show notes.

9:08

This has been your daily FT News Briefing. Make sure you

9:10

check back tomorrow for the latest business news.

9:21

Thank you.