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Investment and the multiple risks of 2022



Will 2022 go down in financial history as the year the music stopped? After the extraordinary buoyancy in markets in 2021 the risk of a painful downturn is certainly escalating.

In weighing that risk, investors face one overwhelmingly uncomfortable fact — central banks continue to rig the markets through their asset purchasing programmes, with important consequences for private portfolios.

The expansion of central bank balance sheets started as a response to the great financial crisis of 2007-09 and accelerated when the pandemic struck in March 2020.

This monetary activism perpetuates a looking-glass world where supposedly safe assets such as index-linked government bonds yield a negative income.

While they may remain safe in the sense that they offer liquidity, they are nonetheless toxic because they ensure a guaranteed loss if the investment is held to maturity. At the same time, most nominal government bonds currently show a negative real yield after adjusting for inflation.

One implication is that a traditional well-structured, diversified portfolio — split 60/40 between equities and bonds — has long been unhelpful for retail investors because bonds have lost their traditional insurance quality.

Another is that investors have been forced to take on more risk, notably in equities, while risk across many markets is underpriced.

In effect, the central banks have subverted the markets’ capacity to establish realistic prices. And as I pointed out in FT Money a year ago, bond investors face reinvestment risk whereby investments providing a good income today cannot be replaced by equally attractive investments when they reach maturity.

The flood of central bank liquidity has caused valuations to become stretched, most notably in the US where the cyclically-adjusted price/earnings ratio invented by Nobel laureate Robert Shiller reached 38.3 in autumn last year, fast approaching the multiple of 44.2 notched up at the peak of the dotcom boom.

This is the second-highest peak in 150 years, says Chris Watling of Longview Economics, a consultancy. US stock market capitalisation as a multiple of gross national product — a measure favoured by billionaire investor Warren Buffett — hit an all time record of 2.8 in the second quarter of 2021, compared with a dotcom peak of 1.9. 

The symptoms of an equity bubble are rife in the US: witness the Spac phenomenon where blank cheque companies bring private companies to market while circumventing the protections afforded by conventional initial public offerings. Share prices of money-losing businesses are being ramped up, notably in the tech sector. Boston-based fund manager GMO points out that 60 per cent of the growth stocks in the Russell 3000 index make no money. And this was true even before the Covid-induced recession. Meanwhile, small retail purchases of US equity options have grown explosively in volume and speculation in crypto assets is increasingly frenetic.

While some of these bubble characteristics such as Spacs and crypto speculation are now affecting Europe, equity valuations in the eurozone, the UK and Japan are not so conspicuously stretched.

The UK, in particular, is shunned by many international investors because of a perceived paucity of growth companies, worries about Brexit-induced lower economic growth and a disproportionate number of fossil-fuel-intensive companies in the indices. Yet the bond markets in Europe and Japan are subject to the same underpricing of risk as in the US. And the rest of the world’s markets will surely feel the backwash when the US equity bubble bursts.

Economists and actuaries tend to equate risk with volatility. But for mere mortals the most damaging risk is loss of capital. It is worth noting that the 2021 Credit Suisse Global Investment Returns Year Book records that from the peak of the dotcom boom in 2000 to March 2003 US stocks fell 45 per cent, UK equity prices halved and German stocks fell by two-thirds.

What might cause the bond market bubble and the US equity market bubble to burst? A new and devastating variant of the coronavirus is an obvious possibility. But in a market overwhelmingly driven by policy the more predictable catalyst is policy reversal.

Having initially argued that the surge in inflation since the pandemic struck in March last year was transitory, central bankers are now edging towards a less sanguine view. The fiscal policy boost in the US since the Covid shock has been huge in relation to plausible guesses about the size of the output gap, which records the amount of slack in the economy.

This contributes to demand pull inflation. Meanwhile, companies have found that they can pass on cost inflation arising from supply shortages relatively easily to customers. They are also conceding higher wages in a tight labour market. The same factors are at work in the UK and continental Europe, though the fiscal numbers are on a lesser scale than in the US. 

There is a strong likelihood, then, that the big increase in money supply arising from ultra-loose monetary policy will be reflected in higher prices of goods and services in contrast to the period after the 2007-09 financial crisis where monetary expansion simply boosted asset prices.

In today’s more inflationary environment, the US Federal Reserve and other central banks are reining back, or “tapering”, their asset purchases, which have been an important prop to bond and equity markets. For its part, the Bank of England’s monetary policy committee raised its policy rate by 0.15 percentage points to 0.25 per cent in December. Central bankers have long been anxious to return to a level of interest rates closer to historical norms, which would give them greater ammunition to restimulate the economy in the event of a new financial crisis or recession.

Markets appear to be anticipating that normalisation will not cause much pain. While the debate over inflation and policy tightening has raged there has been no “taper tantrum” of the kind that caused markets to fall out of bed in 2013. One explanation could be that investors think the economic recovery since Covid will remain sufficiently robust to absorb any tightening.

Another offered by Jeremy Grantham, co-founder of GMO and noted for his prescience in spotting bubbles, is that more than in any other previous bubble investors are relying on accommodative monetary conditions and zero real rates going on indefinitely. This has a similar effect to assuming peak economic performance for ever; it can be used to justify much lower yields on all assets and therefore correspondingly higher asset prices.

Column chart of Debt, by sector ($tn) showing The rise in global debt

When will the bubble burst?

The problem for those who detect a bubble is that predicting the timing of the burst is notoriously difficult. In addition, moving into cash carries a heavy penalty at today’s rates of inflation. The difficulty for central bankers is that tightening policy may prove more financially destabilising than markets now expect because of an extraordinary accumulation of debt since the financial crisis. This is a direct consequence of the low interest rates which create a huge incentive to borrow.

The Institute of International Finance, a trade body, estimates that global debt at the end of 2021 amounted to $295tn, $36tn above pre-pandemic levels. This amounts to just under 350 per cent of global gross domestic product, compared with 282 per cent at the start of the financial crisis.

That tells us the extent to which global growth has been debt dependent while also pointing to a vulnerability. Rising interest rates will raise government borrowing costs and hit the large number of so-called zombie companies that are unable to cover debt-servicing costs from long-run profits but have been kept afloat by ultra-loose monetary policy. And if rate rises cause markets to plunge they could expose vulnerabilities in the banking system and among lightly-regulated shadow banks.

The problem is compounded because monetary tightening will coincide with a reduction in fiscal support. John Llewellyn and Saul Eslake of Llewellyn Consulting, a UK economic advisory company, point out that whereas in 2020 the general government fiscal balance of the G20 economies supported aggregate demand to the tune of 8.8 per cent of gross domestic product (GDP), the IMF estimates that support in 2021is likely to have fallen back to 7.9 per cent and on present budgetary plans to fall further in 2022 to 5.9 per cent. They worry that with the economic recovery not yet fully assured, this joint fiscal and monetary tightening looks premature and risky.

One all too plausible outcome is that financial instability arising from a sudden repricing of risk across the markets will cause central bankers to reverse course for fear of precipitating a harsh recession. That would entrench investors’ belief in a perpetual safety net under the markets and set off a further round of debt accumulation, implying a lesser check on inflation and a bigger crisis down the road.

Chart: Stagflation kills real returns

Equally plausible is a prolonged bout of stagflation, which is bad for investors. Looking at bond and equity returns in 17 OECD countries back to the late 19th century TS Lombard’s Dario Perkins has identified episodes of stagflation, defined as years in which per capita GDP grew by less than 1 per cent and the headline CPI inflation rate was above 4 per cent. These episodes threw up significant real losses for investors. On average across the sample stagflation was associated with a 3 per cent real loss for equity holders and a 7.5 per cent real loss for bondholders.

Note, too, that in the last serious period of stagflation in the 1970s bonds and equities became positively correlated, so that bonds lost their insurance quality and became an additional source of risk.

Of the other risks faced by investors China demands attention. An overheated housing market and overborrowed property sector highlight the unstable nature of the credit fuelled growth model of the world’s second-largest economy. The People’s Bank of China, the central bank, moved before Christmas to ease financial conditions and the authorities still have enough fiscal capacity to stabilise a financial crisis. But flagging economic growth in the lower single figures seems likely in the light of these upsets, which will amount to a headwind for the world economy. That said, a slowdown would lead to lower commodity prices and a weaker currency, which would help the developed world cope with inflation.

For foreign investors in China the picture is complicated by Beijing’s punitive recent assault on big tech and private education companies, its arbitrary interventions in markets and its clamp down on offshore financial vehicles through which companies such as Didi Chuxing, Alibaba and Pinduodo listed in the US.

As for direct investment in Chinese equities and bonds, they are at a potentially-attractive discount to developed world counterparts. The question for investors is whether the discount is sufficient relative to the risks, which include growing political pressure in the US to decouple from the Chinese economy. Another issue concerns how they feel about human rights abuses in China.

Line chart of Cyclically-adjusted price-earnings ratio on US stocks showing Market valuations in the US have become stretched

Climate risk is rising up the agenda. It poses a threat both through physical disasters such as extreme weather and potential corporate losses from decarbonisation as fossil-fuel-intensive assets have to be scrapped.

Companies’ disclosure around plans for the transition to low carbon is exceptionally patchy and there is a widespread perception that climate transition risks are not efficiently priced in the markets.

This means that there are opportunities as well as risks for investors. But beware regulatory risk. There could be big losses for companies and investors if governments adopt more widespread carbon pricing.

Finally there is geopolitical risk, notably in the renewed assertiveness of Russia and China. History suggests that markets are not good at anticipating adverse geopolitical outcomes — witness the buoyancy of the London stock market before the assassination of Austrian Archduke Franz Ferdinand in June 1914.

What should the private investor do?

How should investors cope with a more inflationary environment where monetary policy is clearly changing gear and so many assets look overvalued? After years of dreadful underperformance, value stocks should do much better relative to growth stocks in the coming decade.

The big US tech stocks now confront rising regulatory risk from competition authorities around the world. It is worth recalling how in the 1960s so-called nifty fifty growth stocks eventually came unstuck. Among the supposedly nifty were the likes of Kodak, Xerox and Polaroid — tech leaders of the day that were brutally disrupted by innovative newcomers.

Emerging market equity valuations look very low by historic standards against the US and could offer interesting opportunities. The very depressed ratings of UK equities also look like a potential value opportunity.

With bonds losing their insurance quality, finding assets that offer diversification for equities is important. That points to commodities, gold and for some, crypto assets. These offer no income. That said, the first two have defensive qualities against inflation. Whether that is true of crypto is historically untested. It seems questionable whether these super-intangible, ultra-volatile assets should be regarded as diversifiers as opposed to an outright punt.

Line chart of Price-earnings ratios on MSCI indices showing UK stocks may still offer some value

Finally, real assets such as property and infrastructure make sense in an unstable inflationary environment. Since the start of the Covid pandemic, alternative property like warehouses, care homes and student accommodation looks less risky than offices and retail. For retail investors the problem is to find the right fund through which to gain exposure to these asset classes.

The biggest challenge for investors is the one identified by GMO’s Grantham, who remarked last year: “The one reality you can never change is that a higher-priced asset will produce a lower return than a lower priced asset.

“You can’t have your cake and eat it. You can enjoy it now, or you can enjoy it steadily in the distant future, but not both — and the price we pay for having this market go higher and higher is a lower 10-year return from the peak.” 

Prepare for the proverbial bumpy ride.

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Waiting for Pivot | Financial Times



Ajay Rajadhyaksha is global chair of research at Barclays.

Financial markets trade on narratives. And for the past several weeks, the dominant story in both bond and equity markets has been that the Fed will pivot, and soon. Investors expect a rapidly weakening economy to force the US central bank to do an about-turn, and cut rates barely months after hikes finish.

This belief built up a head of steam across July, with many investors suggesting that the Fed could signal a shift at its Jackson Hole retreat in late August. Every weak housing data point fed into this narrative; every contraction in PMI was grist for this mill. A sharp pullback in commodities prices, a collapse in business and consumer confidence, a decline in market expectations for inflation over the next decade – all these pointed in that same direction. And then there was history: the Fed did a volte-face in both of the last two hiking cycles. Hikes in the summer of 2007 gave way to cuts in 2008. And memorably, the Fed hiked in December 2018 only to change course by January 2019. Small wonder that markets have been waiting for the US central bank to signal a shift again.

Easier said than done.

The data that matter most – inflation and wages – are still too strong for the US central bank to breathe easy. Way too strong. And the numbers are accelerating, even before July’s strong jobs report. Consider the last inflation print. Core CPI (which excludes food and energy prices) over 6 months is running at an annualised pace of almost 7 per cent. But the 3-month rate is almost 8 per cent. And the 1-month number annualised is nearly 9 per cent. That means core CPI is speeding up, not slowing down, and is in a very different zip code than the Fed’s 2-per-cent target.

Even more important is the move in wages. For the past few months, it looked like wage growth was slowing down. Average hourly earnings, reported in the monthly jobs report, seemed to have settled into a 3.5- to 4-per-cent annual rate. Then three things happened all at once. First, the Atlanta Fed wage growth tracker showed that wages accelerated strongly in June (6.7 per cent annually):

Three-month moving average of median wage growth, hourly data © Atlanta Fed’s calculations, Current Population Survey and US Bureau of Labour Statistics

Second, the average hourly earnings data were revised upwards. Lo and behold, wages are no longer slowing in that series.

But most significant was the latest release of the Employment Cost Index (ECI), the Fed’s preferred indicator. Private sector wages accelerated sharply to a 6.5-per-cent annualised pace in June. The cherry on the cake, of course, was the unemployment rate reaching a post-Covid low last week. The US labour market is not just not slowing down. It is speeding up.

It is true that labour markets are famously backward looking. In September 2008, around the financial crisis, the jobless rate was still 6.1 per cent. When it peaked at 9.9 per cent a year and a half later, the US was well on its way to recovery. Even so, Fed officials care deeply about wages. If high wage expectations get embedded in an economy, high inflation can remain ‘sticky’ for far longer. A 2-per-cent inflation target is hard to achieve if per-capita wages rise 6 per cent in 2023. Central bankers don’t like admitting it, but a primary goal of rate hikes is to cause enough job losses to ensure that wage growth slows down. And if that isn’t happening despite several rate increases, it adds pressure on the central bank to raise rates further, and keep them high for longer.

Admittedly, monetary policy does work with a long and variable lag. That is why central bank decisions are usually based on forecasts; today’s data is not supposed to be the dominant driver of today’s policy. But these are not normal times. The inflation spike of the last 12-15 months has been massive, persistent, and made a mockery of forecasts. And one by one, central banks have had to adjust policy to incoming inflation data. The Fed broke its own forward guidance and hiked 75bp in June because of a strong May CPI report. And the ECB followed in July, hiking 50bp despite promising 25bp.

Strong jobs reports are usually greeted with enthusiasm in the Marriner S Eccles building. But the starting point on inflation, including core inflation, is simply too high. Markets have gotten ahead of themselves in expecting the Fed to start taking a more dovish approach. As things currently stand, any Fed surprises over the next few months are more likely to be hawkish. Investors waiting for an imminent pivot will have to keep waiting.

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Demography is not destiny | Financial Times



The writer is professor of globalisation and development at Oxford university and the author of ‘Rescue: From Global Crisis to a Better World’. He tweets @ian_goldin

For the first time in history there are more people over 65 than under 5. Pensioners outnumber children in a growing number of countries, including the UK, much of Europe and Japan. By 2030 there will be over 1bn people over 65 and more than 200mn over 80, with the number of elderly doubling over 20 years.

Improvements in public health and medicine account for increased longevity, a long-term trend of about two years per postwar decade (notwithstanding the recent reversals which are primarily due to the pandemic and inequalities in healthcare). More surprising is how quickly fertility is falling. More than half the countries in the world are now below the level of fertility required to keep the population the same from generation to generation.

In a single generation, societies as different as Iran and Ireland have seen their birth rates plummet in a way that cannot be explained by cultural and religious beliefs. Nor do income levels explain the difference. The United States and countries as diverse as Italy, South Korea, Japan, Hungary, Poland, Russia, China and Brazil are all recording record lows in fertility, and even India is now below replacement level. In fact, over half of projected population growth in the coming 30 years will be in just eight countries.

The collapse in fertility coupled with increased longevity leads to a rapid ageing of societies. The working age population of the 38 member countries of the OECD is projected to decline by around a quarter over the coming 30 years without higher levels of migration.

As a rapidly growing elderly population rely on the taxes, pension contributions and services provided by fewer and fewer workers, economies will come under increasing strain. With average life expectancy after retirement approaching 20 years in the developed world and real adjusted returns barely positive, much higher levels of savings are required to fund pensions. More saving means less consumption, dampening demand for everything other than services for the elderly.

A key challenge is to direct a growing share of the savings into long-term investment, as the collapse in corporate and public investment means that as societies have aged, so too have their stock of infrastructure, health, education and other systems, with this contributing to the slowdown in productivity.

The declining size of the workforce will mean that the revenue of governments through payroll taxes will shrink. The growing share of a declining workforce that need to be devoted to elderly care acts as a further drag on productivity and growth, since care work is necessarily not open to many gains in efficiency.

The widening gap between the improvements in life expectancy and the much slower progress in addressing dementia and other degenerative brain diseases is compounding the pressures on families, care systems and private and public finances.

Ageing also exacerbates income and wealth inequalities. With these disparities being widened by the pandemic, the gap in life expectancy exceeds 10 years between the poorest and richest communities in the US and UK. And there is a staggering 32-year gap in average life expectancy between rich countries like Japan and some of the poorest countries, such as Sierra Leone.

Across Africa, the median age is below 20, half that of Europe and much of East Asia. Asia’s growth benefited from labour-intensive manufacturing, back-office processing and call centres. The automation of these processes is removing the middle rungs of the development ladder, with potentially dire consequences for the 100mn young Africans who will be entering the labour market over the next 10 years.

Demography is not destiny, but it does need to inform public policy and individual decisions. It means greater attention must be paid to improving health, extending working lives, accepting more migrants, increasing productivity and growing savings. The shift from consumption to savings can increase the potential for a circular economy and reducing carbon emissions. It also reduces interest rates and inflation, allowing for higher levels of investment in clean infrastructure, health, housing and education, which are the bedrock of sustained growth.

If we stop kicking the demographic time bomb down the road, it will be possible to achieve stable and sustainable societies that provide a better life for future generations as well as our own.

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Quad and the WTO focus on fishing



Kia ora again from the South Pacific where this Trade Secrets writer is having a brief and chilly hiatus from the height of summer elsewhere. Today’s main piece looks at some rare pieces of good news: moves by the Quad partners and the WTO to tackle the ecological and human rights disaster created by the global fishing industry. We give a reality check on the scale of the problems and offer some new solutions. Charted waters is looking at the movement of people and the international competition for talent.

Email me at Trade Secrets will be back in two weeks, with my colleague Andy Bounds taking the chair for a guest appearance.

This article is an on-site version of our Trade Secrets newsletter. Sign up here to get the newsletter sent straight to your inbox every Monday

Some good news at last, but not enough

Over recent years the Financial Times has documented horrific claims of environmental pillage and modern-day slavery across the global fishing fleet.

We’ve written about Taiwanese vessels where Indonesian crews worked 22 hours only to return to sleeping and eating quarters rife with insect infestations. We’ve also exposed the Korean ships that hunted down walruses, seals and dolphins for their livers and genitals. And we’ve reported on China’s distant water fleet — by far the world’s biggest — which stands accused of rapacious illegal overfishing, decimation of endangered species and abuse of south-east Asian fishing crews.

Despite the stark risk overfishing poses to the livelihoods of millions of people, a constant complaint from NGOs has been that governments are doing far too little in response. Policing an industry which operates on the high seas — out of sight out of mind — has not been a high priority for many developed nation capitals. Yet in recent months two key wins have been notched in favour of the oceans and marginalised workers.

The Quad security grouping of the US, Japan, Australia and India in May launched a new satellite-based initiative across the Asia-Pacific region, a plan mostly targeted at illegal Chinese fishing. The Indo-Pacific Partnership for Maritime Domain Awareness will see the Quad partners fund a commercial satellite-based tracking service that will pass on maritime intelligence to countries in near real-time. US officials told the FT’s US-China correspondent Demetri Sevastopulo that the new system would monitor radio frequencies and radar signals that would allow countries in the region to pick up vessels that have turned off automatic identification systems (AIS) transponders to avoid detection — a key problem in illegal fishing.

Then in June, the WTO’s 12th ministerial conference finally — after 20 years of negotiations — reached an agreement to end harmful fisheries subsidies. As Alice Tipping of the International Institute for Sustainable Development neatly surmised: while the exceptions for developing countries are still to be worked out, the rules will at the least force governments to consider the legality and sustainability of the fishing activity they subsidise, something that very few do at present.

In a world that has over the past three years lurched from a pandemic to war in Europe, and where big economies teeter on the edge of economic recession, it seems important to note these positive steps when they do occur. That being said, neither the WTO’s breaking of a decades-long bureaucratic impasse nor the Quad partners promising to police the Pacific portend to be a panacea. The scale of the problem, Trade Secrets believes, requires far bolder action.

For the uninitiated: the UN estimates that up to 26mn tonnes of fish are caught illegally each year (with a value of about $23bn). Globally, around 20 per cent of all fish caught come from illegal, unreported and unregulated fishing activities. And half of global fish stocks are fished at biologically unsustainable levels (a change from 10 per cent in the 1970s).

Yet the fishing industry still enjoys massive subsidies. And it’s not just China. Researchers in academic journal Marine Policy found that China, the EU, the US, Korea and Japan — the top five — account for close to 60 per cent of total global subsidies, at a massive $20bn. They also noted that over the previous decade “the bulk harmful ‘capacity-enhancing’ subsidies, particularly those for fossil fuels have actually increased as a proportion of total subsidies”.

What’s more, subsidies classified as harmful still stand at about $22bn, annually.

Earlier this year, one of the most extensive investigations into China’s distant water fleet found that 95 per cent of the crew on board reported witnessing illegal fishing. The problems are among their most acute in West Africa, where Chinese trawlers catch an estimated 2.35mn tonnes of fish annually.

From a common sense point of view, the Quad’s focus on the Pacific will miss huge swaths of the most problematic areas, especially off the coast of western Africa, but also South America. The focus only on China is also problematic given vessels from the Quad-friendly countries of Taiwan and South Korea have for years faced accusations of widespread environmental plunder and shocking treatment of south-east Asian crews.

And while the US has also promised to increasingly utilise its coastguard to help police Chinese fishing — a move started by the Trump administration and continued under President Joe Biden — sending a few cutters into the vast Pacific, an area of 165mn square kilometres, is not expected to significantly move the dial.

Similarly, when it comes to the WTO breakthrough on subsidies, in a speech in late July WTO director-general Ngozi Okonjo-Iweala herself said: “Reaching the agreement was a vitally important step — but implementing it is what will matter.”

Implementation is one issue. Enforcement is another. To make serious improvements via the WTO its members will probably have to bring complaints against China, a move that will undoubtedly risk backlash from Beijing.

So, what is really needed? Trade Secrets posed this question to Steve Trent, the founder of the Environmental Justice Foundation who has decades of experience advocating for sweeping changes in the fisheries industry.

Trent believes a focus on China in the short-term remains “valuable” and he supports the Quad’s initiative given that abuses are “systemic across the Chinese fleet, without independent and consistent monitoring, the likelihood is these abuses will continue, at least in the near term”.

But longer term, Trent is clear: “Ultimately, you need transparency across the architecture of global fisheries governance. It is quite simple. Every vessel, we should be able to see who is fishing what, where, when and how”.

One of the key first steps, he believes, is for the major market states of Japan, the US and the EU to align their regulation and requirements for market access and exclude from their markets those products where they cannot prove the provenance, when they do not have the transparency that allows surety that it “has not been produced by a slave, caught by a slave, or caught legally or unsustainably”.

Alan Beattie writes a Trade Secrets column for every Wednesday. Click here to read the latest, and visit to see all Alan’s columns and previous newsletters too.

Charted waters

For today’s Charted waters, I want to focus on the international market for human capital rather than goods and services. My colleague John Burn-Murdoch has (once again) produced some excellent data analysis on the subject.

Chart showing that the UK has gone from the second oldest population in Europe to the fourth youngest in the last 40 years, with immigration playing a pivotal role

What we can see from the above chart is that the UK has become a younger country, now the fourth-youngest in Europe, but only because of migration.

Chart showing that the UK has become a less desirable destination for potential migrants in recent years

Now for the bad news. The UK’s luck in attracting young foreign workers is on the turn. As the above chart shows, it is not just Brexit. The global competition for talented labour has been increasing for the past decade. The question is what the UK is going to do about this. The concern is that it is going to do nothing. (Jonathan Moules)

Argentina’s new economy minister has pledged to bring fiscal order to the country and regain market confidence by establishing a “super ministry” to tackle double-digit inflation.

The British pound and government bond yields slipped last week after the Bank of England raised interest rates by the most in 27 years to battle surging inflation and warned of a protracted recession.

Opec and its allies agreed one of the smallest oil production increases in the group’s history as Saudi Arabia attempted to appease western allies without using up all its unused capacity.

Favouring political allies when constructing supply chains is expensive, tricky and possibly self-defeating, according to Alan Beattie.

Trade Secrets is edited by Jonathan Moules

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