Inflation prompts investors to ditch Treasuries

This is an audio transcript of the FT News Briefing podcast episode: Inflation prompts investors to ditch Treasuries

Marc Filippino
Good morning from the Financial Times. Today is Friday, February 11th, and this is your FT News Briefing.

[MUSIC PLAYING]

US inflation is still running hot, and SoftBank’s plan to list its chip designer Arm is in jeopardy because of business troubles in China, and European scientists took one step towards the dream of generating power from nuclear fusion and developing an incredible new source of energy.

Tom Wilson
So the idea is that one small cup of deuterium and tritium could power a house for hundreds of years.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

[MUSIC PLAYING]

We have a new development in SoftBank’s plans for its chip designer Arm. As we reported this week, SoftBank’s plans to sell the business failed. Then, SoftBank said it planned to take Arm public, but it may have trouble with that because of problems in China. The head of Arm’s valuable joint venture there, Allen Wu, has been trying to grab control of the business. And a court filing seen by the FT shows that Wu has now launched a third legal case. Wu has been a thorn in SoftBank’s side for a while now. He was voted out two years ago but refused to leave. And at one point, he even hired a security team to block Arm representatives from the company’s Shanghai offices. Arm executives admit that the management turmoil in China needs to get resolved before SoftBank can set an IPO in motion.

[MUSIC PLAYING]

The latest US inflation numbers came out yesterday, and consumer prices rose a blazing seven and a half per cent in January compared to last year. And it was the fastest annual pace in 40 years. Stocks dropped, Treasury yields popped. To talk more about this, the Federal Reserve and everything in between, I’m joined by our markets editor, Katie Martin. Hi Katie.

Katie Martin
Hey, how are you doing?

Marc Filippino
I’m doing well. And I’m doing so well that we’re going to start by having you play a little game called, “Name That Tune.”

Katie Martin
I was not informed about this, listeners. [laughs]

Marc Filippino
No, I know. OK, so we’re going to play it, and let’s see if you can hear what this music represents.

Katie Martin
OK. OK.

[MUSIC PLAYS]

I think I know this one. This is that clever plinky, plunky thing that our data people did that plays the tune of US bond yields or US inflation rates.

Marc Filippino
That is correct. That is inflation rates represented through sound, through music. So that was 2018 inflation rates all the way up to yesterday’s inflation report. And obviously, the higher the notes, that represents higher inflation. And it was so high yesterday that really high chirping noise, it really kind of shows how bad things got.

Katie Martin
Yeah, it goes all Mariah Carey at the end,

Marc Filippino
It really does. [laughs] All right. So enough of the fun. Let’s get to the bond market. Investors ditched government bonds in reaction to the inflation report that pushed the yield on the benchmark 10 year Treasury up two per cent. And one of the regional Fed presidents. And after the report came out, this is James Bullard of the St. Louis Fed, he called for a full 1 per cent, 100 basis points rate rise by July. So amid all this hawkishness, Katie, and you know, this may not be the time to talk about given yesterday’s report, but is there an idea of when inflation will eventually level off?

Katie Martin
No, we’re not there yet, and levels of confidence around what inflation is going to do next are pretty low. But yeah, it is definitely possible that the Fed and other central banks for that matter, could start really jacking up rates just as inflation actually starts to pull back. And then we’ve potentially got a problem where central banks are making things worse.

Marc Filippino
OK, so meanwhile, in Europe, Katie, central bankers are taking their time with rates. It’s a slightly different picture over there. We’ve talked about this before. Where do you see things headed?

Katie Martin
So we had the European Commission saying that yes, inflation is kicking higher. But then the commission was saying we think it will come back down to 2 per cent in 2023. And look, maybe they’re right, but that definitely gives ammunition to those who say, look, the ECB, the European Central Bank should really tread carefully here. It shouldn’t be in a big hurry to raise rates. In the background to all that, we’ve had some quite lively scenes in eurozone government bond markets over the past few days. You know, Italian bonds, Greek bonds, you know, parts of the bond market that were absolutely hammered a decade ago have been starting to wobble, starting to weaken. And that’s the difficult equation for the ECB is how does it get itself out of massive bond-buying programmes and out of a super low rate environment without tripping up the weaker economies and its members?

Marc Filippino
Katie Martin is our markets editor. Thanks, Katie.

Katie Martin
Pleasure.

[MUSIC PLAYING]

Marc Filippino
Scientists at a nuclear fusion facility in Oxford, England, say they’ve produced the most energy from a sustained nuclear fusion reaction than anyone else in history. They produced 59 mega joules sustained for five seconds. That is enough power to boil 60 kettles. As the FT’s acting senior energy correspondent Tom Wilson explains, nuclear fusion is essentially the reaction that powers the Sun.

Tom Wilson
Scientists have been trying to harness the power that comes from nuclear fusion for more than 50 years. And it’s an incredibly difficult and complex process. So there have been incremental achievements over that period.

Marc Filippino
But it still took more energy to achieve this than the small amount that was produced. So the question is how nuclear fusion can be scaled up and used commercially.

Tom Wilson
The scientists are incredibly excited about this breakthrough. It’s certainly true, this point about net energy, and this is something that fusion scientists have been aiming for. Basically, the tokamak design, which is the design of the machine used to for this fusion reaction was pioneered by the Soviets in the 1950s, and it’s incredibly energy intensive to create a huge amount of power to heat the atomic nuclei of these two hydrogen isotopes to a high enough level just to force it to fuse. But the idea in a fusion reaction is that once you achieve net energy, so once you produce even just slightly more energy it is required to input, then the reaction will become self-sustaining and it will power itself. And then at that point, the energy output will become exponential. So that’s what they’ve been aiming towards.

Marc Filippino
And Tom says scientists are increasingly optimistic that within the next decade, one of these experiments will show that it’s possible to deliver fusion energy at commercial scale.

Tom Wilson
If it succeeds, there’s a number of things which make it incredibly attractive. Number one, it emits no greenhouse gases at all. And number two, the chemical inputs are basically inexhaustible. And then, most importantly, it could be incredibly energy efficient. However, it remains a big if because ultimately, despite this breakthrough this week, we still don’t actually know if it’s possible. In terms of its comparison to other clean technologies, there are a large school of fusion sceptics who don’t believe that will ever be actually achieved, and therefore that money and time and scientific effort is better directed towards other clean energy solutions. That being said, my personal opinion is that the progress being made is significant and that it is worth a big bet because if we pull this off, its impact could really be transformative.

Marc Filippino
Tom Wilson is the FT’s acting senior energy correspondent.

[MUSIC PLAYING]

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 next week for the latest business news. The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Peter Barber, David da Silva and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.