Central banks all over the place

This is an audio transcript of the FT News Briefing podcast episode: ‘Central banks all over the place’

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Marc Filippino
Good morning from the Financial Times. Today is Friday, June 16th, and this is your FT News Briefing.

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Saudi Arabia wants to be a dominant force in global gaming. And a top UK financial firm has unravelled after an FT investigation. But first, central banks have put out all kinds of signals this week.

Katie Martin
What I’m kind of picking up from fund managers is a real sense of uncertainty around what happens next.

Marc Filippino
The FT’s Katie Martin will tell us more. I’m Marc Filippino, and here’s the news you need to start your day.

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Central banks were not on the same page this week. The Federal Reserve decided to take a pause in its long streak of rate hikes. European central bankers went ahead and raised rates to their highest level in 22 years. Oh, and China’s central bank, it cut its key rate. To talk about how investors are responding to all of this is the FT’s markets editor Katie Martin. She’s also co-host of the FT’s new podcast called Unhedged. Hey, Katie.

Katie Martin
Hey, how you doing?

Marc Filippino
I’m doing well. So, Katie, I want to start with the Fed. And one of our newsletters called the Fed’s move from earlier this week “a hawkish pause”, which I kind of love. And they call it that because the Fed suggested it could raise rates again later this year after the pause. The European Central Bank’s move was clearly hawkish, and the PBoC, the People’s Bank of China, has gotten dovish. Let’s look at the west first. What do investors think of the ECB and the Fed’s moves?

Katie Martin
So it’s quite interesting that, you know, you put it as all the kind of big western central banks being on sort of slightly different pages here. They are and they’re not because really what kind of glues all of these decisions together is that, you know, oh, you thought inflation was under control now. You thought central banks were happy with how they’re supposed to do with inflation. Foolish earthling! They are not happy with inflation (chuckles). So that’s why not so long ago we saw the Bank of Canada was forced to restart its series of rate hikes.

Marc Filippino
Right. They were on a pause for a little bit, too.

Katie Martin
Yeah, and that’s the kind of thread running through this is that, you know, this idea that inflation is kind of a big one-off that came out of Covid and that came out of Russia’s full-scale invasion of Ukraine. No! This is something that’s going to ebb and flow. There are going to be peaks and troughs, and central banks, they have one job. Their job is to get this thing down to 2 per cent. So they’re just going to have to keep going. And this just feeds into this sense of nervousness that I pick up from investors that I speak to, that they feel like they’re in a sense, you know, a state of suspended animation where markets are looking quite rosy and the underlying economic fundamentals are not looking so rosy and central banks are still super aggressive. And, whoo . . . you know, is this all getting a bit toppy?

Marc Filippino
Yeah. And I’m curious, based on what you’ve heard from investors, is there any preference to a constant foot on the gas with interest rates or more of the herky-jerky nature of what the Fed is doing with a pause and then, you know, saying that it could see itself raising rates later this year?

Katie Martin
I think that’s got a lot of people saying, huh? Why not just like keep going then? Why are you signalling this to us? But it’s very much because it does take a long time for this to feed through to the real economy. It does take a long time for this to really affect things like jobs that we actually care about. So it’s very much a case of wait-and-see mode. And I think the, you know, despite that kind of difficulty with the communication that the Fed has had around this pause now, go harder later, this is seen as a sensible course of action because we have seen numerous instances over the course of this year so far where stuff breaks. If you really slam on the brakes. Then . . . 

Marc Filippino
Right, the regional bank crisis that we saw earlier this year.

Katie Martin
Yeah, exactly. We are at a very, very delicate juncture. And what I’m kind of picking up from, from managers is a real sense of uncertainty around what happens next.

Marc Filippino
So I want to turn back east to China and the People’s Bank of China. Will the PBoC’s move or pivot toward dovishness that we’ve been seeing over the past year, few months or so, will that instil more confidence into the markets?

Katie Martin
It certainly won’t hurt. The last thing anyone wants to see is a really serious downturn in China and anything that policymakers and authorities can do to prevent that happening I think would be welcome. One interesting thing around this is that Ken Griffin, one of the world’s most famous investors, effectively, he’s set up the Citadel hedge fund. He also founded Citadel Securities. He was speaking to us recently, and he was saying he thinks China is going to be fine. He thinks it’s going to outperform the government targets for economic growth this year and that this is going to help to prop up the rest of the global economy.

Marc Filippino
Based on what, though, I mean, what is he going off there?

Katie Martin
He’s going off his economists, and they know what they’re doing.

Marc Filippino
Yeah, sure. I mean, he’s Ken Griffin, right? He is super-duper rich. Yeah.

Katie Martin
If he is right that China can weather this and that it can outperform, then, you know, he’s got a very good argument that would help the global economy. But it is really a reminder that if he’s wrong and if this Chinese failure to spring back as quickly as everyone had hoped gets worse, then all of the kind of signs of stress that you have in other economies around the world could also get a lot worse. So there’s a lot hinging on how successful the Chinese central bank and government can be in firing up growth.

Marc Filippino
Katie Martin is the FT’s markets editor. Thank you so much for your time, Katie.

Katie Martin
Pleasure.

Marc Filippino
You can find the FT’s new podcast, Unhedged, that features Katie and her colleague, Ethan Wu, anywhere you get your podcasts. We also have a link to that in the show notes.

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This week we saw the downfall of one of the UK’s most prominent financiers and his company. Crispin Odey founded Odey Asset Management, and the FT recently published an investigation into decades of sexual assault and harassment allegations against Crispin Odey. Now, the firm is unravelling. Odey was ousted. Key banking partners cut ties with the firm, and yesterday, Odey Asset Management informed clients it’s basically being dismantled. It said it’s in discussions to, “rehouse funds and transfer certain funds and staff to rival groups”.

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Saudi Arabia is known for oil. It’s becoming known for global sports ownership. And soon it could be a force in video gaming. In the last year and a half, the kingdom has spent almost $8bn acquiring and building stakes in gaming companies from China to Sweden to the United States. And a state-backed gaming company has a $38bn war chest to buy more. Here’s our Saudi correspondent Samer Al-Atrush.

Samer Al-Atrush
They’re throwing in a lot of money, and they think that given the state’s backing or the sovereign wealth fund backing for the project, they are going to have to spend a lot in order to quickly develop the industry from scratch. There’s no industry to speak of in Saudi Arabia at the moment. There are a lot of people who like gaming, and they’re very big on gaming, including the Crown Prince Mohammed bin Salman, who chairs the sovereign wealth fund. But there’s no industry, so they’re using a lot of money to build it up very, very quickly. And it’s the type of money that companies can’t ignore.

Marc Filippino
So how much of this push into gaming is part of the broader plan to diversify the economy away from oil? And if so, why gaming as opposed to, I don’t know, other industries?

Samer Al-Atrush
It’s similar to their drive in to sports, whether it’s buying Newcastle or practically taking over the PGA. Increasingly, the Saudis, particularly the Crown Prince, are also focused domestically. You know, he’s 37 years old. His support base that he counts on are Saudi youths. He’s taken on a lot of populist tactics. And one of them is to give Saudi youths what they want when it comes to the social stuff. So they’re getting entertainment, and they like gaming.

Marc Filippino
So what do you make of the criticism that this push into sports and gaming is sports washing or entertainment washing? Basically, gaming and sports are a distraction, so people stop focusing on Saudi Arabia’s bad human rights record.

Samer Al-Atrush
That’s, that’s kind of the view that critics of Saudi Arabia take. It’s very, very simplistic. There’s an element of truth to it, but that’s not necessarily the primary reason that they’re doing all this stuff, whether it’s the buying Newcastle or bringing in Ronaldo or certainly not with a video gaming. But more importantly, it’s MBS’s approach to, to kind of securing his domestic base and popularity. But at the same time, you know, they do want to improve their image abroad. They are aware that their image is toxic in some places, particularly in the States and even in the UK in many quarters. So there is an element of that, and they’re certainly not shying away from using that to show that the country is not as bad as people claim it to be. So there’s an element of, of all these things going on in these decisions.

Marc Filippino
Samer Al-Atrush is the FT’s Saudi correspondent. Thanks, Samer.

Samer Al-Atrush
Thank you very much.

Marc Filippino
Before we go, I want to bid farewell to a core member of the briefing team.

Jessica Smith
We may be hearing the hissing sounds of a deflating Spac bubble. Two companies in the plant-based meat industry are duking it out in court . . . dilemma. I’m Jess Smith, in for Marc Filippino, and here’s the news you need to start your day.

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Marc Filippino
You might recognise that voice. Jess Smith has been our editor and periodic fill-in host for nearly three years. And now, she’s moving on. When Jess joined the team, we were in the height of the pandemic, and news was breaking constantly. But no matter what, she always had a way of keeping things light and professional. She always put you guys, our listeners, first. And not only did Jess make the show better, but she made it fun, too. You know those quirky stories usually about food we have at the end of the show about things like cheese lollipops or bacon consumption in the UK or Colin the Caterpillar cakes, Jess was the mastermind behind most of them, loading them up with puns. And it helped make our show special. So Jess, thank you for all your time and dedication to the show. You will be missed.

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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 Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is the irreplaceable Jess Smith, who we just mentioned. We had help this week from Katie McMurran, David da Silva, Michael Lello 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.

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