Markets have been wobbly this week as they faced the prospect of more interest rate rises.
On Tuesday,
US stocks posted their worst day in two months with the S&P 500 index ending the day down 2 per cent, and the Nasdaq Composite down 2.5 per cent. Treasury bond yields reached three-month highs, though they dropped slightly yesterday.
US stocks fell again yesterday too. Markets were reacting to the minutes from the Fed’s last policy meeting in February. They showed that while most policymakers backed the quarter of a percentage point rise, some wanted a half-point increase.
European investors are also expecting the ECB to turn more hawkish. Yesterday, swap markets priced in rates hitting 3.75 per cent by September, up from 2.5 per cent now. And after two days of declines,
European stocks enjoyed a small lift this morning after the US chipmaker Nvidia posted strong earnings.
ECB president Christine Lagarde said wages were being looked at “very, very closely”, which suggests policymakers want to avoid baking in price rises.
Forecasts for UK inflation have improved, however, as Citigroup forecast CPI will likely drop to 2.3 per cent in November. This is below the BoE’s prediction of about 4 per cent for the fourth quarter – and well below the double-digit figures posted last month. The lower projections are mainly driven by a fall in gas prices.
Carbon, methane and disclosure
While the EU is chasing the US to dangle a carrot for green investment, its stick proved very effective this week. After spending much of the last decade in the doldrums, the
EU’s carbon price hit an all-time high of €101 per tonne on Tuesday.
This was an important ceiling: it was seen as the price point that would make companies start to invest in technologies like carbon capture and storage.
Big polluters warned it might affect their business, investments and the EU’s manufacturing competitiveness. But our Lex writers were more optimistic. Carbon has reached a price where it might actually change behaviour, and its investment case has weakened, they noted.
“For once, a market may have efficiently done its job.”
But it wasn’t all good news for the climate emergency. The International Energy Agency called out oil and gas companies, who enjoyed bumper profits last year, for
failing to curb their methane emissions, which hit near record highs in 2022.
“Tackling methane is one of the most important, if not the most important things, that can be done in tackling near-term global warming,” said Fatih Birol, IEA executive director. Investing 3 per cent of the energy companies’ 2022 “windfall income”' into areas like detecting and repairing leaks, could cut the sector’s methane emissions by 75 per cent, he noted.
In further ESG news, Tim Buckley, chief executive of Vanguard, went on the record about the decision to pull out of the Net Zero Asset Managers alliance.
Whether investors focus on disclosure or action when it comes to ESG is an interesting area for directors. Buckley was clear that the
asset manager’s approach to climate risk remains mainly focused on disclosure standards.
“We don’t believe that we should dictate company strategy,” he said. “... We just want to make sure that risks are being appropriately disclosed and that every company is playing by the rules.”
In search of growth in Britain
All eyes in the UK are turning to Chancellor Jeremy Hunt’s Budget on March 15.
The Resolution Foundation think-tank published a report this week to give ministers some ideas on turning around post-pandemic economic inactivity. Recommendations included
rethinking “highly regressive” tax breaks that encourage the wealthy to withdraw their pensions early.
Government should raise the age at which people can draw their private pensions and cap tax exemptions, it suggested.
The British Business Bank is also going for growth. It invests in VC funds that back companies in sectors like tech and life sciences, as well as overseeing financing for start-up funds and regional investment.
Its new chief executive, Louis Taylor, wants to go further. “It has to be seen as the sovereign growth fund with long-dated infrastructure. If we can’t reinvest the proceeds of what we have, the real value is down,” he said.
And
after six months of decline there has been some good news in British business output. The S&P Global/Cips flash composite purchasing managers’ index showed an uptick in manufacturing and services activity.
“The upside surprise in UK manufacturing and services PMI data is a welcome bellwether for the UK economy, particularly after public sector net borrowing showed an improvement in government finances,” said Sam Cooper, director of market risk solutions at Silicon Valley Bank UK.
Chief executives, performance and remuneration
Most Wall Street bank bosses took a pay cut – or it remained stable – this year as profits were squeezed. But not Jane Fraser. The chief executive of
Citigroup enjoyed a 8.9 per cent pay increase for 2022, totalling $24.5mn.
The bump was partly justified using some non-financial measures such as recruiting bankers and bolstering risk controls. In doing this, our Lex writers say,
Citi has tried to link Fraser’s remuneration to longer-term performance. “That should take some of the sting out of this pay bump for Citi shareholders,” they write.
Business columnist Helen Thomas has been taking on
private-equity style, high-risk, high-reward pay structures in some public companies such as Ryanair and Boohoo.
The problem is, if these chief executives miss targets, they are unlikely to walk away with nothing, she argues. “If the boss is untouchable or valuable enough to command this treatment, he doesn’t accept the payout disappearing out of reach,” she writes.
Nor is it just the lucrative pay deals that might attract executives to private-equity backed companies. Some
chiefs prefer answering to one owner, with one vision and an engaged board – even if the downside is that they can be ruthless, writes Wall Street editor Sujeet Indap.
“As for talented executives, successful stints in a public company can lead to a unique kind of fame… But the headache of being scrutinised by ornery investors, politicians and activists makes the job much more taxing these days,” he writes.
And finally, Credit Suisse’s woes continue. The Swiss financial regulator
Finma is looking at comments made by the bank’s chair Axel Lehmann.
Last December Lehmann claimed outflows had “completely flattened out and . . . partially reversed” following customer withdrawals in October 2022. Its full-year results showed that they continued into December and January this year, though some areas had net inflows.
The lender’s share price hit a record low on Tuesday following the news.
