FirstFT: Investors bet ECB will raise rates to all-time high

Investors are betting the European Central Bank will raise interest rates to all-time highs, spurred on by the eurozone economy’s resilience and signs that inflation could prove tougher to rein in than expected.

Swap markets are pricing in a jump in the ECB’s deposit rate to 3.75 per cent by September, up from the current 2.5 per cent. That would match the benchmark’s 2001 peak, when the ECB was still trying to shore up the value of the newly launched euro.

Markets have revised forecasts of interest rates upwards after recent eurozone data on buoyant service-sector activity and wage demands.

ECB president Christine Lagarde said yesterday that the bank was “looking at wages and negotiated wages very, very closely” — an indication of concern a sharp rise in salaries this year will maintain pressure on prices as companies pass costs on to consumers.

The yield of German two-year bonds, which are highly sensitive to changes in interest rate expectations, hit a 14-year high of 2.95 per cent yesterday after the S&P Global purchasing managers’ index outstripped forecasts.

Five more stories in the news

1. Sunak weighs 5% public-sector pay offer UK prime minister Rishi Sunak is exploring a 5 per cent pay rise for public-sector workers to end an escalating wave of strikes after an unexpected £30bn windfall in public finances. In a private memo seen by the Financial Times, the Treasury said a 5 per cent award for 2023-24 would have only a “low risk” of setting a benchmark for protracted high private-sector pay growth.

2. Biden and Putin wage war of words Speaking in Poland yesterday, US president Joe Biden heaped blame on Vladimir Putin for waging a war of “choice” in Ukraine that Russia would “never” win. Just hours before, his Russian counterpart blamed the US for forcing him to invade Ukraine and suspended Russia’s participation in the New Start nuclear weapons treaty.

The FT will hold an exclusive webinar tomorrow for subscribers to discuss the future of Russia’s brutal war on Ukraine with FT correspondents and special guests. Register here for free.

3. McKinsey to cut up to 2,000 jobs McKinsey could cull as many as 2,000 back-office staff as the global consulting firm embarks on one of the largest rounds of cuts in its history. The restructuring would hit departments such as human resources, technology and communications but not its legal and compliance teams, said a person familiar with the matter.

4. Missing Chinese banker planned Singapore family office Missing Chinese dealmaker and billionaire Bao Fan, who founded investment bank China Renaissance, was preparing to move some of his fortune from China and Hong Kong to a family office in Singapore in the months leading up to his disappearance, according to sources. Many Chinese executives view Singapore as a safe haven to park their money after crackdowns at home.

5. Bentley phases out 12-cylinder engine Bentley is to end production of its flagship 12-cylinder engine in its shift to electrification, becoming the first luxury car brand to call time on technology considered the pinnacle of engineering in the combustion era. The last batch of the engine will roll off the production line in April 2024.

The day ahead

Economic data Germany and Italy release their January consumer price index. Ifo publishes its February business climate index for Germany.

Fed minutes Investors will watch the release today of the US Federal Reserve’s minutes for insight into how much dissent there was over the latest decision to slow the pace of interest rate increases.

ECB meeting The European Central Bank holds a non-monetary policy meeting in Finland.

Results Lloyds, Nvidia, Stellantis, Danone, Ebay, Garmin, Etsy and Rio Tinto report.

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What else we’re reading

Newcomer disrupts Nigerian presidential race A few months ago, most Nigerians assumed the contest would come down to two wealthy and seasoned septuagenarian politicians. But Peter Obi, a businessman and former governor with a carefully crafted reputation for shunning the accoutrements of power, has electrified young voters and made the outcome of the election much harder to predict.

Opinion: How the £100mn pay club went wrong Supermodel Linda Evangelista said in 1990 that elite catwalkers didn’t “wake up for less than $10,000 a day”. A small club of company bosses couldn’t rouse themselves without the chance of a future payout of £100mn. But the evidence suggests that the biggest CEO incentive packages don’t always lead to the best performance, writes Helen Thomas.

Iran’s supreme leader takes centre stage Ayatollah Ali Khamenei has embraced a more active role in public life as he seeks to shore up the authority of the Iranian regime after the most intense demonstrations since the Islamic revolution. The supreme leader and the republic’s ultimate decision maker has appeared more frequently on television, but there are no signs he will change the country’s theocratic regime.

Opinion: The big bet on hydrogen vehicles While a record number of new cars powered by electric batteries are due to be released in the coming months, two of the biggest carmakers, Toyota and Hyundai, are still driven by the belief that hydrogen will become a key source of clean energy for the future, writes June Yoon. In order to make them a viable and sustainable alternative, the focus must shift to finding greener ways to produce hydrogen fuel.

How likely is a human bird flu pandemic? Although bird flu has infected relatively few humans, its fatality rate is about 50 per cent, according to the European Centre for Disease Prevention and Control. Now, scientists are urging more vigorous action to reduce circulation of highly contagious H5N1 strain.

Take a break from the news

Hong Kong might not be at the forefront of environmental friendliness, but some of its leading chefs are seeking to redress that — to delicious effect. Check out five of the city’s best sustainable restaurants.