Rising oil prices and a sweeping US tax cut are raising a red flag for the bond market

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Executives from some of America’s biggest banks will this week tell investors how badly their businesses are being hurt by falling interest rates and an inverted yield curve, setting the scene for cuts to profit forecasts. 

Wall Street’s big six — JPMorgan Chase, Bank of America, Goldman Sachs, Wells Fargo, Citigroup and Morgan Stanley — last gave guidance to investors at their second-quarter earnings in July, when most envisaged short-term interest rate cuts, like the one made by the Federal Reserve in July on the back of a slowing economy.

Since then, further deceleration and fears over President Donald Trump’s trade wars have triggered widespread anticipation of more aggressive cuts, forcing down the rate on longer term debt.

Industry leaders including JPMorgan chief executive Jamie Dimon, Wells Fargo finance chief John Shrewsberry, Morgan Stanley finance chief Jon Pruzan and Bank of America president Tom Montag will give updates on their outlooks at the Barclays Global Financial Services Conference, which starts today in New York. 

In the news

US and Taliban clash after peace talks collapse
President Donald Trump abruptly cancelled a secret summit over the weekend at Camp David with the Taliban to end the 18-year conflict in Afghanistan after a terror attack in Kabul left a member of the US military dead. The deal was aimed at paving the way for the reduction of US forces in the country — a long-term foreign policy goal of Mr Trump’s, who had hoped to achieve it in time for his 2020 re-election bid. (FT)

Phantom FDI
Nearly 40 per cent of worldwide FDI — worth a total of $15tn — “passes through empty corporate shells” with “no real business activities”, the study by the IMF and the University of Copenhagen found. Nearly half of the phantom FDI the researchers identified was in Luxembourg and the Netherlands. Other countries in which less than half of FDI is “genuine” included Malta, Ireland, Switzerland and a number of British overseas territories and crown dependencies. (FT)

MIT’s Media Lab chief resigns
The Massachusetts Institute of Technology has promised an investigation after the head of its prestigious Media Lab stepped down over revelations that he concealed funding from Jeffrey Epstein. (FT, New Yorker)

Saudi energy shake-up
Saudi Arabia has appointed King Salman’s son, Prince Abdulaziz bin Salman, to take over as energy minister, replacing one of the most powerful figures in the global oil industry and breaking a longtime convention separating the royal family from the position. Crude oil prices nudged higher on Monday. (FT)

Johnson meets Irish counterpart
Boris Johnson, the British prime minister, told his Irish counterpart in Dublin he wants to “get a deal” before the UK leaves the EU. The meeting followed more high-level resignations over the weekend from the UK government as Amber Rudd, work and pensions secretary, resigned. Follow the latest developments on our live Brexit blog and here’s a guide to Westminster speak on another big day in British politics. (FT)

Putin suffers ballot box setback
Russia’s ruling party has lost more than a third of its seats on Moscow’s city council as angry voters delivered a strong rebuke to president Vladimir Putin after a summer of discontent in the country’s capital. While the results of the normally low-key local elections have little impact on how the city is governed, the ballot was seen as a barometer of dissatisfaction with Mr Putin, ahead of parliamentary elections in 2021. (FT)

BA suffers first strike in its history
British Airways chief executive Alex Cruz admitted that the first pilots’ strike in the airline’s history will “punish the brand”, as its operations ground to a halt on Monday. More than 280,000 of BA’s customers are expected to be affected by the walkout over pay, which began at midnight in the UK and runs throughout Tuesday. (FT)

KPMG partners quit
Two senior financial consultants have quit the Big Four firm after Tim Howarth, their boss, was ousted following an investigation into alleged misconduct that scrutinised his use of WhatsApp messages. (FT)

WeWork faces further valuation cut
WeWork’s parent company is weighing an initial public offering valuation that could fall below $20bn, itself already a sharp reduction from $47bn when the shared office provider last raised capital, as some investors pushed to shelve the offering despite a planned roadshow as early as Monday. (WSJ)

HK protest turns violent 
Protesters in Hong Kong clashed with police for a third consecutive night on Sunday, following a peaceful march from the main financial district to the US consulate. The rally was organised to call on US lawmakers to ratify the “Hong Kong Human Rights and Democracy Act”, which would allow the US government to place sanctions on Chinese officials who “suppress basic freedoms” in Hong Kong. 

The days ahead

Apple’s new iPhones look set to underwhelm
Apple is expected to introduce upgrades for its current high-end iPhones, the XS and XS Max on Tuesday but analysts say the smartphone looks set to underwhelm. While rivals such as Samsung push ahead with foldable phones and ultrafast 5G connectivity, it is widely expected that Apple’s new iPhones will feature the same screen sizes as current models and a triple-lens camera that Huawei has had for nearly two years. Meanwhile, Apple admitted to excessive use of temporary staff at one of its suppliers’ iPhone making factories in China. (FT)

EVs take centre stage at Frankfurt Motor Show
More than 1m electric or plug-in hybrid vehicles are expected to be sold across Europe next year and carmakers, including Volkswagen, Daimler and Honda, will be unveiling new electric vehicles at this year’s Frankfurt Motor Show, which starts tomorrow. New EU emissions rules are due to be introduced next year and this is the last opportunity for the industry to show-off their latest EVs ahead of the rule changes. (FT)

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What else we’re reading

Universities and the growth of academic fraud
Over the past two decades, many universities have adopted a more commercial business model, putting more pressure on academics to publish their work. Institutions have also cut back on tenured positions and the jobs available for younger academics tend to have much weaker employment protections. This has led to a growth in the academic exploitation of postgraduate research students by their superiors, with hundreds of examples coming to light in the past year. Antonia Cundy investigates. (FT)

Corporate America is over-caffeinated
Starbucks isn’t just the world’s largest coffee chain; it’s a bellwether stock, one that tells us a disproportionate amount about the American economy and where it may be headed. Last week, Starbucks told us something important and disturbing, writes Rana Foroohar. She also argues, in this column, that we need to prepare for an entirely new era in investing. (FT)

Eurofi: the ‘think-tank’ at the heart of the EU
To supporters it is a prized opportunity to shape the future of Europe’s financial sector. To detractors it has become a “lobbying circus”. This week, close to 1,000 people converge in Helsinki at one of the world’s largest financial services conferences: Eurofi. (FT)

Ratings haunt the gig economy
Over-eager Airbnb hosts, useless utilities, hit-and-run couriers, family-run hotels, airlines, restaurants and even public toilets now offer opportunities to rate your experience. But any review system is prone to bias and discrimination, Andrew Hill warns. (FT)

Draghi under pressure
Mario Draghi is expected to propose fresh stimulus measures at the European Central Bank’s board meeting on Thursday, but the outgoing ECB president faces growing opposition from other eurozone policymakers. Mr Draghi is preparing to leave behind a battery of monetary weapons that are now misfiring, Gavyn Davies writes. (FT)

The man holding Netanyahu’s fate
Avichai Mandelblit, Israel’s attorney-general and a longtime Likud party member, was handpicked by rightwing prime minister Benjamin Netanyahu. Early next month, he will decide whether to indict Mr Netanyahu on corruption charges. (FT)

Five things to know before Japan’s cabinet reshuffle
Japan’s Prime Minister Shinzo Abe will reshuffle his cabinet on Wednesday. After convincingly winning the upper-house election in late July, Abe is seeking to strengthen the Liberal Democratic Party’s foundations. The revamp could indicate who is in the running to be Abe’s successor. Here are five things to know about the cabinet reshuffle. (Nikkei Asian Review)

A Nobel economist goes to Burning Man
Paul Romer, the former chief economist of the World Bank, investigates whether the annual desert bacchanal is actually a model of urban planning. Meanwhile, the FT’s Hannah Murphy finds strain between the festival’s aspirations to an egalitarian utopia and its reality. (NYT, FT)

500 years of watchmaking
Billed as “one of the most important and comprehensive collections of timepieces ever assembled”, more than 800 clocks and watches spanning centuries of horological history are on target to fetch more than £30m at auction. Read more in our Special Report: Watches & Jewellery September 2019.

A ‘mini’ brain science revolution
Madeline Lancaster pioneered growing the world’s first ‘mini-brains’, which she says could help us understand human cognition, and offer the pharmaceutical industry a better way to test the effects of new drugs. (FT)

Video of the day

Corbyn insiders speak
FT chief political correspondent Jim Pickard talks to Labour insiders including economist Ann Pettifor, Cat Hobbs from WeOwnIt, Laura Parker from Momentum and Bob Kerslake, former civil service head. (FT)

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