The ECB goes from dove to hawk

This is an audio transcript of the FT News Briefing podcast episode: The ECB goes from dove to hawk

Marc Filippino
Good morning from the Financial Times. Today is Thursday, September 8th, and this is your FT News Briefing.

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Marc Filippino
Chinese companies are getting pretty popular with European investors these days, and farmers are getting worried about food shortages this winter. Plus, the European Central Bank will likely raise interest rates today to fight inflation, but by how much? We’ll talk about the ECB’s hawkish pivot. I’m Marc Filippino, and here’s the news you need to start your day.

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Marc Filippino
Chinese companies have earned way more on European stock exchanges than they have on Wall Street this year. That’s the first time that’s happened ever. Chinese dealmaking in the US has been soured by a dispute over US regulators’ access to audit files. That dispute could lead to the US banning trading in all Chinese companies in 2024. So Chinese companies have pivoted to other markets while Beijing and Washington are negotiating. Officials from the American Public Company Accounting Oversight Board are headed to Hong Kong this month. They’ll examine audit work of several Chinese companies listed in New York, including Jack Ma’s Alibaba.

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Marc Filippino
The European Central Bank is meeting today. And top of the agenda? You guessed it: tackling inflation. The ECB has been taking an increasingly hawkish tone since the start of the year, but it surprised people with just how far it’s willing to go when it raised interest rates by half a percentage point in July. Now, the FT’s Martin Arnold says it might be even higher this time around.

Martin Arnold
The driver for this is, of course, inflation, but, and inflation hit a record high for the eurozone of 9.1 per cent last month. But also what’s driven it is that the economy has proved surprisingly resilient over the last few months. So whilst everyone expects the eurozone to fall into a painful recession this winter because of the energy crisis caused by Russia squeezing the supply of gas, that hasn’t happened yet. And actually growth and all the hard data that we’ve seen on the economy continues to surprise to the upside. So that’s giving the hawks ammunition to argue that, you know, there is gonna be more inflationary pressure than they expect, and so they need to be more aggressive in clamping down on inflation early on.

Marc Filippino
Russia earlier this week, getting back to your point about energy, it said it was gonna close off oil and gas to Europe through the Nord Stream pipeline until western sanctions were lifted. And this would dampen the economy. We’re talking about a hot economy. This would dampen the economy. So what scenario does the ECB prepare for? Because you can’t prepare for both, can you?

Martin Arnold
Well, you can, actually, because it’s quite possible, given the fact that if there is an energy crisis that pushes the economy into recession, inflation may not fall, or at least it may take a while to fall because energy prices will remain very high. In that scenario, it’s a stagflation scenario. So you have stagnant or negative growth but still very high levels of inflation. And that’s the nightmare scenario especially as the inflation is being driven not by overheating domestic demand, but it’s being driven by external supply shocks, particularly the energy shock. And therefore, the ECB is in a very difficult position, but its main mandate is to fight inflation. And when it sees signs that the economy is holding up better than expected — and it’s also seen signs that consumers and businesses are starting to expect these very high levels of inflation to continue for longer — then the ECB thinks it really needs to act more aggressively. And that’s pushing the arguments in favour of a 0.75 percentage point increase in interest rates, which would be the first time the ECB has done that since the launch of the euro back in 1999.

Marc Filippino
Martin Arnold is the FT’s Frankfurt bureau chief.

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Marc Filippino
Energy prices may also play a role in the food Europeans are able to buy this winter. Food producers in Europe are warning that the continent could experience shortages as temperatures drop. The EU farmers’ union and two major food producer associations said their members are already reducing their outputs. I’m joined now by the FT’s Andy Bounds, who’s covering this. Hey, Andy.

Andy Bounds
Hey.

Marc Filippino
So Andy, why are producers saying that Europe should expect less food and higher prices this winter?

Andy Bounds
Well, what’s happening is this energy crunch is hitting all sectors of the economy and the farming industry is the latest one to feel the pinch. Prices have gone up for electricity and gas because of the war in Ukraine and Russia turning off the gas taps to Europe. Therefore, producers are just finding it very, very hard to fund their growing plans. And many of them use greenhouses because obviously over the winter they don’t have the heat to grow things like tomatoes, cucumbers in the EU, especially in the northern states. And lots of those people are deciding it’s just too expensive to heat those greenhouses, light these greenhouses, and therefore they’re not gonna be planting.

Marc Filippino
So is the idea that the limited supply will make prices at the grocery store go up?

Andy Bounds
Yeah, that’s exactly it. So, you know, there will still be some products out there, but there will be fewer of them and therefore they’ll be on higher prices and they’ll cost more to produce. And then, you know, we’re also seeing seasons being shorter. So, for example, if you’re growing apples, you can’t afford to refrigerate those apples. So they might last for a couple of months, but not sort of, you know, three, four or five months as we’re used to. And, you know, we’re not talking about empty shelves of everything, but, you know, seasonal fluctuations that might be, you know, some weeks when you won’t be able to get many tomatoes or cucumbers or red peppers, those kind of things. And indeed they will cost more. One UK producer was telling us that the price of cucumbers, say, might double over the winter.

Marc Filippino
What are farmers’ plans to try and mitigate this? Are they asking the government for help?

Andy Bounds
Yeah, indeed. The statement I got hold of is addressed to the EU’s leaders, and the energy ministers of the EU are meeting tomorrow, on Friday in Brussels to try and come up with ways of reducing energy prices through a massive intervention, effectively windfall taxes on producers of energy that aren’t using gas. So renewable producers, coal producers. So the agriculture sector wants to make sure that it benefits from those reductions if they do come, and it doesn’t just go to households. And they are also worried about plans to possibly ration energy over the winter. So again, you know, some industries are being told they may have to switch off, and the agriculture and food producers are saying, we’re a vital industry here, you know, we need to make sure we can still get some energy to produce so that people can eat.

Marc Filippino
Andy Bounds is the FT’s EU correspondent. Thanks, Andy.

Andy Bounds
Thank you.

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Marc Filippino
Before we go, guess who’s keeping up with private equity? Kim Kardashian is launching her own PE firm. The new firm is called SKKY Partners. That’s SKKY with two Ks. Two Ks, get it? For Kim Kardashian. Anyway, she’s collaborating with Jay Sammons, a former Carlyle Group executive. He’s got a knack for investing in celebrity-backed ventures. Kardashian’s firm hasn’t raised any funds yet. Her mom, Kris Jenner, will also be a partner.

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Marc Filippino
Oh, one last thing. If you want to find out more about how former US president Donald Trump is influencing the Republican Party and the US midterm elections, I’m hosting an Instagram Live today. I’ll be chatting with the FT’s Washington correspondent, Kiran Stacey. The conversation starts at 11am New York, 4pm London. We have a link to the FT’s Instagram account in the show notes. You can tune in from there.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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