Investors welcome more signs of inflation easing in US and eurozone

Today’s top stories

• The UK economy bounced back from the pandemic much faster than previously estimated, according to revised official statistics that show Britain is no longer the worst G7 performer. GDP in the three months to June was 1.8 per cent above the pre-pandemic level in the final quarter of 2019, compared with the 0.2 per cent below that level initially estimated.

• The world’s financial stability watchdog is launching a probe of the build-up of debt outside traditional banks, as it seeks to limit hedge funds’ borrowing and boost transparency.

• HSBC’s head of public affairs is stepping down, weeks after making a public apology for saying the UK government had been “weak” by curtailing its dealings with China because of pressure from the US.

For up-to-the-minute news updates, visit our live blog

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Good evening.

Global bond markets bounced back today after a quarter of heavy losses thanks to signs of inflation easing in the US and the eurozone.

In the US, the “core” personal consumption expenditure index — a measure closely watched by the Federal Reserve — fell from 4.3 per cent in July to 3.9 per cent in August, the lowest level since September 2021.

The data indicated consumer spending was weakening under the impact of high interest rates, one of several headwinds faced by the US economy including the possibility of a federal government shutdown (see below), surging oil prices, strikes in the Midwest and the expiry of pandemic-era fiscal support.

Before today’s data, US stocks and government bonds had been set for their worst month of the year as investors digested Fed signals that interest rates were set to stay higher for longer than previously thought. 

Eurozone inflation, meanwhile, fell from 5.2 per cent to 4.3 per cent in September. The core figure, excluding volatile energy and food prices, a metric closely watched by the European Central Bank as a measure of underlying price pressures, also dropped more than expected from 5.3 per cent to 4.5 per cent, fuelling expectations that the ECB might end its programme of interest rate rises when its governing council next meets on October 26.

Data for Germany, the bloc’s biggest economy, also showed inflation at a two-year low, dropping from 6.4 per cent in August to 4.3 per cent as the removal of last year’s cheap German public transport tickets and fuel prices from the annual comparison pushed inflation down.

In France, which is considering a windfall levy to “take back control” of energy prices, inflation was also lower than expected at 5.6 per cent.

Before today’s data, eurozone bond markets had been badly dented by Italy’s plans for higher borrowing, with yields reaching the highest levels in a decade. 

One nagging worry for the ECB is consumers’ expectations of where prices are heading — a monthly survey yesterday showed them rising for the second month in a row.

And although investors now expect an end to rate rises sooner rather than later, some policymakers remain hawkish: Bundesbank chief Joachim Nagel warned just last week that the eurozone must avoid “entrenched” inflation “at all costs”.

Compare country-by-country with our global inflation tracker.

Need to know: UK and Europe economy

Two more UK data points highlighted the impact of higher interest rates on lending. Money supply contracted for the first time since at least 2010 and mortgage approvals fell to their lowest level in six months.

Spanish opposition leader Alberto Núñez Feijóo failed in his second and final attempt to form a government following an inconclusive general election. Acting prime minister Pedro Sánchez will now get a chance to secure another term but will need the support of hardline Catalan separatists.

Businesses are bracing for the EU carbon border tax, which will impose new costs on those importing into the bloc from October 1. EU commissioner for the economy Paolo Gentiloni wrote in the FT that the tax was not about trade protection, but protecting the EU’s climate ambitions.

The European Central Bank is experimenting with generative artificial intelligence to speed up activities ranging from drafting briefings and summarising banking data to writing software code and translating documents.

Novo Nordisk’s Wegovy anti-obesity drug has single-handedly stopped Denmark from falling into recession but authorities are worried that the country’s fortunes have become too closely tied to a single company, fearing a repeat of Finland’s fateful over-reliance on Nokia.

Need to know: Global economy

Goldman Sachs reckons there’s a 90 per cent chance a US government shutdown might start on Sunday. Here’s our guide to the radical Republicans driving Washington to the edge and here’s FT Alphaville’s take on what it all means.

The Biden administration announced plans to hold a record low number of offshore drilling leases over the next five years, in a blow to the oil and gas industry. Energy secretary Jennifer Granholm warned that transitioning from fossil fuels would make energy security “infinitely more complex” because of China’s stranglehold on the processing of critical minerals. Energy transition is the “new industrial revolution”, says US climate envoy John Kerry in the latest instalment of our Climate Exchange series.

Lan Fo’an, a former provincial governor, is expected to be appointed as China’s new finance minister as a reshuffle of top officials continues. The People’s Bank of China and the National Development and Reform Commission have also had recent changes of leadership.

Economists warned Argentina risked hyperinflation following its October election, after populist economy minister Sergio Massa launched a spending spree and frontrunner Javier Milei pledged to dollarise the economy.

Lebanon may be struggling with the aftermath of a banking and economic crisis but the wealthy continue to party. Some took their money out of the banks early or used their connections to transfer funds abroad, while others never used the country’s banking system to begin with.

Need to know: business

Companies editor Anne-Sylvaine Chassany says western companies still operating in Russia face increasing difficulties in repatriating profits and a growing risk of state seizure. “Any western company still nurturing the hope of recouping its investment in the country is mistaken,” she says.

The European travel sector remains upbeat after a summer boom but demand is starting to weaken in the US. An FT Big Read examines the chances of London’s Heathrow airport finally getting its third runway.

Former Apple designer Sir Jony Ive is in talks with ChatGPT creator OpenAI to build the “iPhone of artificial intelligence”, backed by more than $1bn in funding from Japan’s SoftBank.

Global dealmaking is at a 10-year low as high interest rates deter private equity activity and strengthening antitrust laws stop companies from pursuing rivals.

A new FT film documents how the US is trying to regain its leading role in advanced chip manufacturing and fight back against China’s rise as a technological superpower.

Science round-up

A Nasa spacecraft returned to Earth with rock and dust samples from the 4.7bn-year-old asteroid Bennu. The samples, the largest haul ever to be brought back to earth from an asteroid, will provide clues to the birth of the solar system.

Molnupiravir, a Covid antiviral blockbuster drug, was found to have produced permanent mutations of the coronavirus that can be passed from patient to patient, a finding that will increase scrutiny about its usefulness and the billions spent by governments on its procurement.

Science commentator Anjana Ahuja explains how “inverse vaccines” could revolutionise the treatment of autoimmune diseases such as multiple sclerosis and type 1 diabetes.

Investment in businesses spun out from UK universities fell during 2022 and the first half of 2023 after a decade of consistent growth. The country’s biggest investor in businesses commercialising academic research called for action to encourage funding.

As discussions take place at the World Health Organization about a new global pandemic agreement, it is clear that the issue of intellectual property is a serious stumbling block, writes Ellen ‘t Hoen, director of research group Medicines Law & Policy.

The State of Nature report on UK biodiversity painted a depressing picture of the continued deterioration of wildlife. Some 16 per cent of the 10,000 species of plants and animals surveyed are threatened with extinction in what is already one of the world’s most nature-depleted countries.

Some good news

As an antidote to depressing environmental news — and a possible warning of what we stand to lose — have a look at some beautiful images from the Nature TTL photography competition.

Something for the weekend

Try your hand at the range of FT Weekend and daily cryptic crosswords.