PS: Tesla’s stock is now down 11% today, extending losses for a second straight day, as investors dumped the high-flying stock in anticipation of a possible stake sale by company chief Elon Musk.

The rout comes after Musk asked his Twitter followers over the weekend if he should sell 10% of his stake in the company as Washington proposes to hike taxes for the super-wealthy. Nearly 58% said they would support such a sale.

Here’s Reuters’ latest:

“People are anticipating that he is going to come into the market and start selling shares, they’re trying to get ahead of that,” said Dennis Dick, a trader at Bright Trading LLC.

Musk could time the proposed sale to coincide with a federal tax bill of nearly $11 billion that would be triggered by exercising a chunk of his Tesla stock options worth $26.6 billion as of Monday close.

While the stock sale could solve a major tax headache, Musk’s tweets raised questions about violation of his settlement with the U.S. securities regulator. He was fined $20 million by the U.S. Securities and Exchange Commission (SEC) for tweets in 2018 and was required to step down as chairman.

Kimbal Musk, Elon Musk’s brother, on Friday filed to sell 88,500 Tesla shares worth $109 million.

Investors will be closely watching SEC filings from Tesla for any details on Musk’s plans. SEC rules give companies four working days to report major events.

And here’s more reaction:

Time to recap

The UK will suffer stuttering growth, rising inflation and widening income inequalities in the coming months, the NIESR economic thinktank has warned. Rising prices, increased taxes, and a likely increase in interest rates will all hurt families, and push more into destitution.

NIESR also warned that UK regional inequality is rising, and that Britain’s economy risks stagnation and sticky inflation over the coming years due to persistent supply-chain bottlenecks and headwinds from Brexit.

Households also face rising prices in the shops, with grocery inflation at its highest in 14 months.

Consumers have started their Christmas shopping earlier than usual amid concern over supply chain shortages and rising prices.

The UK is to consult on launching ‘Britcoin’. Officials will assess whether a central bank digital currency is feasible and desirable - it could be launched in the second half of the decade.

While UK policymakers mull things over, Bitcoin has hit a new record high today, trading over $68,000.

But the Federal Reserve has warned that the stablecoins which underpin crypto are vulnerable, after a surge in interest this year.

The Fed’s latest financial stability report also warned that risky asset prices remain vulnerable to a tumble if growth falters or the pandemic intensifies. A crisis in China’s real estate sector could strain the Chinese financial system, and spill over to the United States, it fears.

US producer price inflation remained high last month, as the surge in gasoline pushed up the price of goods.

In Germany, investors are more optimistic about the economic outlook, but the supply chain crisis is hurting the economy now.

Shares in Tesla have tumbled 10% today, as investors brace for Elon Musk to sell some of his stake.

Michael Hewson of CMC Markets says:

Tesla shares are also lower again for the second day in a row, sliding to their lowest levels this month, as investors weigh how CEO Musk will go about selling his holdings.

Primark has announced plans to open more than 100 new stores, but also warned that supply chain issues are hitting the availability of a small number of lines.

General Electric is splitting itself up after 129 years - into three public companies focused on healthcare, energy and aviation.

British Airways is planning to hire 4,000 staff in the coming months, in a reversal of its cutbacks under the pandemic, Bloomberg says.

And Watches of Switzerland has lifted its sales forecasts, as the boom in demand for expensive timepieces continues.

Seán FitzPatrick, the former chief executive and chairman of Anglo Irish Bank whose collapse in the financial crisis led to a €30bn rescue package and Ireland’s bailout, has died.

Rishi Sunak has outlined plans for a post-Brexit system of financial regulation, which will focus more on growth and international competitiveness.

About 5,000 public phone boxes around the UK will be protected from closure in areas of high accident rates or poor mobile signals, under plans drawn up by Ofcom, the regulator.

Stock markets have dipped in Europe and on Wall Street.

Goodnight. GW

Britain’s post-Brexit system of financial regulation is to have a greater focus on growth and international competitiveness under new plans outlined by the chancellor Rishi Sunak.

In what the Treasury described as a “once in a generation” opportunity to reform the way one of the UK’s biggest industries is supervised and policed, Sunak said the sector would benefit from a customised regime.

The proposals would involve the scrapping of EU financial services law retained after Brexit but no longer deemed appropriate. It will be replaced by new rules drawn up by the UK’s two watchdog bodies – the Financial Conduct Authority and the Prudential Regulation Authority.

Ensuring financial stability would still be the prime goal for the FCA and the PRA, but the two bodies are now to be given the additional task of boosting growth, according to the Treasury. More here:

In the City, the FTSE 100 index has closed lower as financial markets lose some of their recent zip.

The Footsie lost 26 points, or 0.36%, to finish at 7274, away from the 20-month highs set last week.

Primark owner Associated British Foods bucked the trend, jumping 8% after it announced international expansion plans and a special dividend this morning, and said it hoped to recover strongly from the pandemic.

Rolls-Royce also had a good day, up 3.6% after securing more than £450m from the government and investors roll out a new breed of mini nuclear reactors.

But cyber-defence firm Darktrace continued its volatile trading, falling 6% today as traders continue to weigh up its prospects.

Utilities, financial stocks, basic materials firms and energy companies also lost ground, with Irish conglomerate DCC down 3.9%, and engineering group Smiths off 2.7%.

Europe’s Stoxx 600 closed a little lower too, down 0.2%, after an eight day run of gains.

The UK is moving a step closer to its own digital currency -- although ‘Britcoin’ wouldn’t be launched until at least the second half of this decade.

The Bank of England and the Treasury have announce they will hold a formal consultation in 2022 on whether to move forward on a possible central bank digital currency (CBDC).

CBDC would be a new form of digital money issued by the Bank of England and for use by households and businesses for their everyday payments needs, they say. It would exist alongside cash and bank deposits, rather than replacing them.

Next year’s consultation will set out the BoE and the Treasury’s assessment of the case for a UK CBDC, including the merits of further work to develop an operational and technology model for a digital pound.

It will consider issues such as the high level design features, possible benefits and implications for users and businesses, and considerations for further work.

Economic Secretary to the Treasury, John Glen, says the consultation will begin an open discussion on the role a UK central bank digital currency could play.

“I’d encourage everyone to contribute to the discussion so we can explore the opportunities this could bring, as well as understanding any risks it may pose.”

No decision has been made on whether to introduce a CBDC in the UK, which would be a major national infrastructure project - and which chancellor Rishi Sunak dubbed ‘Britcoin’ earlier back in April.

Next year’s consultation would help authorities decide whether to move into a ‘development’ phase which will last several years while a technical specification was drawn up and tested

If this ‘development’ phase concludes that the UK should have a CBDC, and that it is operationally and technologically robust, then the earliest launch date would be in the second half of the decade, they say.

Deputy governor for financial stability, Jon Cunliffe, explains:

“The plan to publish a consultation next year on CBDC is a crucial step in our policy development, especially as we further our thinking on the pressing issues at hand.

What it will do is provide a platform for interested parties and relevant groups to engage with the key questions on the merits of CBDC, and whether the public sector should advance to a development phase.”

After a storied 129 years, America’s best known industrial conglomerate is splitting itself in three.

Shares in General Electric have surged 6% after it announced it will divide into three public companies focused on healthcare, energy and aviation.

It marks the final step in the undoing of the sprawling group created by Jack Welch, a symbol of US economic power, which can trace its history back to Thomas Edison’s first incandescent light bulb, and was ranked the world’s biggest company as recently as 2009.

Sky News’s Ian King has a good take:

For decades, it has been a bellwether of US manufacturing, a company co-founded by Thomas Edison, the inventor of the light bulb, that exported high-quality American goods to every corner of the globe.

It was among America’s biggest companies by stock market valuation for most of the post-war period, becoming the biggest for most of the 1990s, before being eclipsed in 1998 by Microsoft.

Now, though, General Electric (GE) is a shadow of its former self and, by market capitalisation, it sits just 76th in the S&P 500 index. Its stock market value has fallen from around $590bn 20 years ago to just $119bn at the close on Monday evening.

Today, the 129-year-old company’s board took the action many investors have demanded for years, announcing it would break itself up into three different publicly quoted companies.

The Wall Street Journal’s Alex Martin also show how influential GE was:

Shares in Tesla have taken an early tumble.

Tesla shares fell by as much as 10% to $1,032, the lowest in almost two weeks.

They then recovered a little, but are still down around 6.7% now.

This adds to Monday’s losses, when Tesla fell almost 5% after Elon Musk held a twitter poll in which a majority said he should sell 10% of his holding.

If Musk proceeded with the plan, then a large block of Tesla shares would hit the market.

He owns around 17% of the company’s stock, and said back in September that he needed to exercise a large number of stock options this quarter, which would create a big tax bill.

Selling some of his stock could free up funds to pay the taxes

Tesla’s share price surged by around in October alone, which lifted its value to fresh record highs over $1.2trn.

Musk’s brother Kimbal sold 88,500 Tesla shares last Friday, becoming the latest board member to offload a large number of Tesla stocks which hit record highs, Reuters reports.

British Airways plans to replenish its depleted workforce with as many as 4,000 new employees by next summer as it prepares for a wider rebound in air travel, Chief Executive Officer Sean Doyle has told Bloomberg.

They say:

The IAG SA unit will add pilot, cabin-crew, ground-staff and back-office posts, Doyle said in an interview Monday. BA currently employs about 30,000 people, so that the move would boost headcount almost 15%.

“We’re actively recruiting,” Doyle said on a flight to New York from London.

“It’s exciting to be rebuilding the airline and to be creating opportunities again after two years where we haven’t been able to fly much.”

After slashing about 10,000 jobs during the coronavirus pandemic, BA now faces a tighter labor market as it seeks to rebuild staffing and capture its share of the travel rebound.

The airline has been negotiating with unions to revive short-haul operations from London Gatwick airport on a lower-cast basis, while ramping up flights from its Heathrow hub after the U.S. lifted border curbs.

More here: British Airways to Hire 4,000 in Reversal of Covid Era Cuts

That flight was the first out of London since the US lifted its travel ban, allowing fully vaccinated passengers from the UK, EU, India, Mexico and Canada.

Inflation watch: US goods and services providers continued to raise their prices at a solid rate, as cost pressures continue to mount.

US producer prices rose by 0.6% in October, up from 0.5% in September.

Much of the increase was due to a 1.2% rise in prices for goods -- led by gasoline, which jumped by 6.7%, following the rise in crude oil prices.

The surge in gasoline prices is a growing political headache for president Biden, whose call for Opec+ to boost production has been rebuffed.

The Bureau of Labor Statistics explains:

One-third of the October advance in the index for final demand goods can be traced to prices for gasoline, which rose 6.7%.

The indexes for diesel fuel, fresh and dry vegetables, gas fuels, jet fuel, and plastic resins and materials also moved higher. In contrast, prices for beef and veal decreased 10.3%. The indexes for light motor trucks and for residential electric power also fell.

Services prices rose 0.2%, while construction costs jumped 6.6% in the month.

On an annual basis, PPI jumped by 8.6% in October, matching September’s reading, as transportation bottlenecks, materials shortages and increasing labor costs all drive up costs.

The UK’s cost of living squeeze will hurt growth, says NIESR Interim Deputy Director for Macroeconomics, Paul Mortimer-Lee:

“A squeeze on real incomes for workers and those on Universal Credit will slow economic growth next year, with the adverse effects on consumption offset by lower savings.

Meanwhile, inflation is set to peak around 5%, forcing a reluctant Bank of England to raise interest rates, albeit grudgingly. Unemployment should settle in a narrow range around 4 1/4%. The risks are skewed to the upside on inflation and the downside on growth.”

Last week the Bank of England forecast that labour incomes after inflation and tax would fall in 2022 and 2023 - a two-year squeeze.

This squeeze is undermining Boris Johnson’s claim to be building a “high-wage, high-skill, high-productivity” economy.

NIESR’s deputy director for Public Policy, professor Adrian Pabst, says:

“Britain’s broken economic model shows no signs of turning into a high-wage, high-productivity, high-growth economy anytime soon. England’s regions and the three devolved nations are not catching up with London and the metropolitan South-East.

Instead, regional disparities are widening while the poorest households risk sliding into destitution. The task for policymakers is to raise regional productivity outside of metropolitan areas, connect London’s capital markets with regional and local capital markets, and devolve both power and resources to local government combined with greater accountability.”

The UK will suffer stuttering growth, rising inflation and widening income inequalities in the coming months, the NIESR economic thinktank has warned.

In its latest forecasts for the UK, NIESR says households will be hit by rising prices, increased taxes, and a likely increase in interest rates.

This will create a painful cost of living squeeze - with poorer households hit hardest, it warns:

Household incomes will be painfully squeezed by a combination of earnings growth lagging inflation, rising interest rates and tighter fiscal policy.

The effects will be felt unevenly, with Universal Credit recipients the hardest hit and those in receipt of significant non-labour income - not subject to the Health and Social Care Levy - relatively unaffected.

Ending the temporary £20/week uplift to universal credit this autumn will accentuate this squeeze, NIESRR says, meaning more families will fall in destitution:

The squeeze on household incomes from rising prices and withdrawal of the Universal Credit uplift will lead to a doubling of destitution: despite the reduced taper rate, neither the recovery nor the increase in the minimum wage will be enough to make up for this squeeze.

Affected households are concentrated in certain regions and localities of the UK, especially in the North of England (notably the North West) and in Northern Ireland.

NIESR forecasts that the UK economy will grow by 6.9% this year, but slow to 4.7% growth next year.

Rising inflation and increased taxes will hit consumers, while supply disruptions will continue to weigh on the economy, it warns.

NIESR is also concerned that regional differences within the UK economy are growing - with productivity in London continuing to outpace other parts of the country.

NIESR forecast that consumer price index inflation will peak at around 5 % in the second quarter of 2022 (as does the Bank of England), falling thereafter but remaining above target until 2024.

Above-target inflation is being driven by supply shortages, base effects and a global rise in energy prices, it says.

NIESR expects the Bank of England to increase interest rates to 0.25% by the end of the year (it meets again in mid-December), and then raise rates to 0.5% in the second quarter of 2022, before further rises in 2023.

NIESR director, Jagjit Chadha, also warns that the short run supply problems faced by the UK will persist and are likely to be exacerbated by Brexit.

This is because our exit from the European Union has acted to reduce the pool of labour, contributed to lower levels of firm investment than might otherwise have been the case, and led to some contraction in the size of our traded sector.

The Financial Times are reporting that the UK is set to scale back some of its proposed corporate governance and audit reforms.

This follows a “fierce backlash” over the costs of proposed boardroom rules, amid a push to strengthen Britain’s corporate governance rules following several company collapses.

Here’s the details:

Officials are close to finalising a reform package that will mark the largest overhaul of British audit and corporate governance for generations following high profile scandals, including at outsourcer Carillion and retailer BHS.

However, officials are expected to rein in some of the most controversial plans in favour of a more “business friendly” regime. Executives have warned that additional costs would make it less attractive to establish and keep businesses in the UK at a time when ministers are keen to foster a post-Brexit economic recovery.

Officials plan to tighten company internal controls by insisting that directors make an annual statement about their effectiveness. But a proposal to use legislation to require directors to sign off on companies’ internal controls over financial reporting, modelled on the US’s Sarbanes-Oxley Act, is expected to be dropped.

A similar provision is instead expected to be included in the UK corporate governance code, according to people familiar with the revised proposals, which would carry less weight and be more difficult to enforce.

Here’s the full story.

The plans remain subject to change until signed off by business secretary Kwasi Kwarteng, the FT adds.

Back in March, our financial editor Nils Pratley argued firmly that Kwarteng should resist pressure to water down these reforms, explaining:

The deeper corporate grumble has been about the potential for directors to be held to account for mistakes in company accounts. On that score, the consultation paper talks about giving ARGA [the Audit, Reporting and Governance Authority] “effective investigation and civil enforcement powers”, which may provoke more bleating from boardrooms about how risk-taking will be stifled.

Kwarteng needs to hold the line. When companies are tapping public markets for funding, directors should be on the hook if financial controls are inadequate or unaffordable dividends are distributed. Companies such as Carillion and Thomas Cook should not collapse like a pack of cards. The boardroom brigade should count their blessings: the proposed system looks several degrees softer than the Sarbanes-Oxley regime in the US.

Grocery inflation in the UK has hit a 14-month high, intensifying the cost of living squeeze facing households.

Market research group Kantar reports that grocery price inflation rose to 2.1% in the four weeks to October 31st, its highest level since August 2020.

Prices are rising fastest in markets such as savoury snacks, canned colas and crisps, Kantar reports - while prices of fresh bacon, vegetables and cat and dog treats are falling.

That will hurt household budgets, at a time when energy prices have also risen, petrol and diesel are at record levels, and overall inflation is seen hitting 5% by next April.

Fraser McKevitt, head of retail and consumer insight at Kantar, says rising prices are leading shoppers to hunt around for the best deals.

“Grocery prices are rising and this month inflation hit its highest rate since August 2020, when retailers were still cutting promotions to maintain stock on the shelves.

As prices increase in certain categories, we can expect shoppers to continue to visit several supermarkets and shop around to find the best deals. Already, households visit an average of 3.3 supermarkets per month in order to find the best value for money.”

Kantar also reports that people are preparing for Christmas early this year, stocking up on mince pies, Christmas puddings and turkeys:

“After a tough 18 months, consumers are gearing up for bigger and better celebrations. An unrestricted Halloween drove sales of pumpkins up 26% in the four weeks to 31 October, and with trick or treating back on the cards seasonal confectionery grew by 27%.

“With Christmas ads out earlier than ever and Christmas stock on the shelves, we’re keen to prepare early this year so we can dive head first into festivities. 4.7 million households bought mince pies this month.

Customers are also getting ahead on shopping for the big day itself. Frozen poultry sales are 27% higher year on year, with people spending an additional £6.1 million in the latest four weeks. 1.6 million households bought their Christmas pudding this month as well, 400,000 more than last year.”

In recent months, consumers had been warned that some traditional Christmas foods, such as turkey and pigs in blankets, could be hit by shortages of workers.

Kantar also reports that:

• Grocery sales fell by 1.9% year on year in the 12 weeks to 31 October 2021, but are still higher than before the pandemic, up 7.3% compared with 2019.
  
  
• Consumers’ shopping behaviour is beginning to stabilise and some habits from the pandemic look set to stay. Shoppers are still making 40 million fewer trips to supermarkets per month than in 2019, while a fifth of households order their groceries online each month.

Last week, Marks & Spencer reported that its online Christmas food ordering service has already sold out of some items - including the biggest turkeys and Christmas puddings.

ITV’s Joel Hills has more details about Primark’s Christmas plans, following its financial results and expansion this morning.

In today’s annual results, Primark warns that it has seen “further supply chain disruption” in recent weeks, including temporary closures at dispatch ports, limited sea container availability and congestion at destination ports.

That means a small number of product lines could be in short supply.

These disruptions have delayed both the handover of inventory from suppliers and the shipping and delivery of inventory to store. We are closely managing this with the support of our logistics providers, taking advantage of our scale and efficient warehouses, and we are prioritising the product most in demand.

Although, at this point, the disruption is causing limited availability on a small number of lines, our warehouse inventories give us stock cover on the majority of lines for the important Christmas trading period.

In the City, shares in Primark’s parent company have surged over 6% after it announced expansion plans, and a special dividend.

But, Associated British Foods is also experiencing supply chain problems, which could push up prices at its food divisions.

Discount clothing chain Primark plans to expand its store estate over the next five years to 530 stores, from 398, and accelerate its expansion into the US, France, Italy and Iberia.

That includes growing its US store estate to around 60 stores, from just 13 at present.

Paul Marchant, CEO Primark, says there is ‘sizeable growth potential’ in the US:

“Six years after we opened our first store in Boston, it’s clear that US customers – from Florida right up to Chicago – are loving the unique Primark offer.

With our current portfolio of 13 stores trading really well, it feels like we’ve established a strong foundation from which to accelerate our expansion in the US market.

Primark has announced three new store locations in the New York region today -- City Point in Brooklyn; Roosevelt Field in Garden City, Long Island; and Crossgates Mall in Albany.

In its annual results, ABF also reported that Primark’s like-for-likes sales fell 12% compared to pre-pandemic levels in the last 12 months (to mid-September).

Store closures due to pandemic lockdowns wiped out around £2bn of sales last year.

And it hopes to bounce back strongly this year and at least recover all those lost sales (unless significant restrictions are reimposed), having seen customers returning to its stores in large numbers since Covid-19 vaccines were rolled out.

George Weston, Chief Executive of Associated British Foods, said:

Although the possibility of further trading restrictions cannot be ruled out, we expect Primark to deliver a much improved margin and profit next year.

We are now intent on expanding our new store pipeline and investing in technology and digital capabilities to continue improving the performance of the business.

But ABF, which also has sugar, grocery, ingredients and agriculture operations, warned that it is “not immune” to supply chain problems, rising raw material costs and higher wages.

And that could force the company to hike its prices:

We are seeing significant cost increases in energy, logistics and commodities in addition to the impact of widely reported port congestion and road freight limitations.

Our businesses are working to offset the impact of these through cost savings. Where necessary, our food businesses will also implement price increases.

ABF also warns that there’s a risk of increased pressure on its supply chains resulting from labour shortages as economies reopen, exacerbated by employee health and safety concerns.

ABF shares have hit a two-month high this morning, up 6.7% to £19.93, the top FTSE 100 riser.

Victoria Scholar, head of investment at interactive investor, says ABF’s upbeat outlook has boosted shares:

Wilfred Daye, the head of the trading platform Securitize Capital, says crypto assets are also benefitting from inflation worries:

“Inflation is a major consideration for investors today, and the younger generation of investors often favours cryptocurrency as a hedge over gold.

In fact, while gold has slid throughout the year, bitcoin and ethereum have more than doubled. Retail investors have played a major role in fuelling this shift and institutional investors are increasingly following suit.”

Another reason behind the surge in ethereum is its recent system upgrade, he said.

Here’s the full story:

Naeem Aslam of Avatrade argues that increased institutional take-up of cryptocurrencies is driving bitcoin and ether higher.

The twitter poll that Elon Musk should sell 10% of his Tesla shares may also be pushing the markets higher, Aslam suggests, [Musk may put some of the proceeds into crypto rather than fiat currencies, as he already owns bitcoin, ether and dogecoin]

Within just a few days of Bitcoin’s last burst to historical highs, on Monday the notorious digital coin was again able to shatter through its ceiling and is currently trading around $67,700. Similarly, Ethereum breaking through the $4.800 barrier is a first for the alt coin.

The recent cryptocurrency rally has been aided by the launch of a Bitcoin-linked ETF in the United States as well as Elon Musk’s weekend Twitter poll.

Solana and Binance Coin have gained nearly 20% in the last week, bringing the total market capitalization of cryptocurrencies to $3 trillion. As evidenced by Bitcoin’s price action, which is now four times what it was at the end of 2020, as investors are becoming more comfortable with the practical use of Bitcoin and companies are working hard to find innovative ways to use blockchain technology, as evidenced by the launch of new coins such as Solana.

But Jeffrey Halley, senior market analyst at OANDA, isn’t as impressed:

The crypto-space looks to be the only “asset class” moving today. Both digital Dutch tulips, Bitcoin and Ether, have hit record highs this morning as the street continues to buy on a positive technical picture, a lower dollar, and Elon Musk’s Twitter account.

I am girding myself for more “institutional experts” appearing on the news wires droning on about becoming “mainstream assets.” Whoever bought the Squid Games tokens probably isn’t feeling the same way.

Consumers starting their Christmas shopping earlier than usual amid concern over supply chain shortages and rising prices helped to drive a recovery in UK retail sales last month, industry figures show.

The British Retail Consortium said total sales were up 1.3% in October from the same month a year ago, and up 6.3% from the same month in 2019, before Covid-19 tipped the UK into the worst recession for 300 years.

According to the BRC, clothing and footwear sales performed well, as Halloween helped to boost sales of children’s costumes and chocolates. However, global supply chain disruption continued to hold back sales of furniture and electrical items.

Food shops also reported weak growth, with spending dented by the gradual return of consumers to pubs and restaurants after the reopening of the hospitality sector.

Separate figures from Barclaycard showed that overall spending on credit cards grew by 14.2% in October from a year earlier, with particularly strong growth in spending on travel, digital entertainment and subscription services.

More here:

The Fed also fears that stresses in China’s real estate sector could strain the Chinese financial system, with possible spillovers to the United States.

In its financial stability report, it cites the heavily indebted Evergrande as an example of the risks.

In China, business and local government debt remain large; the financial sector’s leverage is high, especially at small and medium-sized banks; and real estate valuations are stretched. In this environment, the ongoing regulatory focus on leveraged institutions has the potential to stress some highly indebted corporations, especially in the real estate sector, as exemplified by the recent concerns around China Evergrande Group.

Stresses could, in turn, propagate to the Chinese financial system through spillovers to financial firms, a sudden correction of real estate prices, or a reduction in investor risk appetite. Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States.

Evergrande, which owes over $300bn, avoided default last month with a last-minute payment to lenders. It has been hit by a government measures to cool the housing market, with tighter regulations on developers designed to curb debt, preserve cash, and limit overbuilding.

But the problems go wider. A report last month found that one third of China’s property developers will struggle to repay their debts in the next 12 months

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The surge in risky asset prices this year has made them increasingly susceptible to a tumble if economic growth takes a turn for the worse, the pandemic escalates, or investors lose confidence.

That’s the message from the US Federal Reserve, which is also concerned about the rise of stablecoins which underpin the cryptocurrency market.

In its latest financial stability report, the Fed flagged that prices of risky assets have generally risen further since its previous report six months ago.

Despite concerns about the spread of the Delta variant of the virus that causes COVID-19, asset prices have been supported by increased earnings expectations and low Treasury yields, it says.

In a warning to the markets, they say:

Prices of risky assets generally increased since the previous report, and, in some markets, prices are high compared with expected cash flows. House prices have increased rapidly since May, continuing to outstrip increases in rent. Nevertheless, despite rising housing valuations, little evidence exists of deteriorating credit standards or highly leveraged investment activity in the housing market.

Asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.

But are investors heeding the message?

Last night, the US stock market closed at a fresh record high, extending its pandemic rally, as investors continue to shrug off concerns about rising inflation, supply chain problems, and the ongoing pandemic.

And bitcoin has struck a new record high this morning -- hitting $68,550 for the first time, as crypto assets continue to surge.

Critics would point out that the Fed’s own policies have helped drive the rally in risky assets.

Since early in the pandemic it has kept interest rates at record lows and pumped $120bn per month into the system through its bond-buying stimulus programme, which it is just starting to wind down.

The Fed’s financial stability report shows concerns over the rise of stablecoins - cryptocurrencies [such as tether] that try to peg their market value to some external reference, such as the US dollar.

The Fed points out that the sector has grown fast, and warns that ‘some stablecoins are vulnerable’

Policymakers are concerned about the consequences if a stablecoin can’t hold its value.

The value of stablecoins outstanding has grown about fivefold over the past 12 months and stood at around $130 billion as of October 2021

Certain stablecoins, including the largest ones, promise to be redeemable at any time at a stable value in U.S. dollars but are, in part, backed by assets that may lose value or become illiquid. If the assets backing a stablecoin fall in value, the issuer may not be able to meet redemptions at the promised stable value.

Also coming up today:

Rolls-Royce is moving ahead with a multibillion pound plan to roll out a new breed of mini nuclear reactors after securing more than £450m from the government and investors.

The engineering firm will set up a venture focused on developing small modular nuclear reactors, or SMRs, in partnership with investors BNF Resources and the US generator Exelon Generation with a joint investment of £195m to fund the plans over the next three years.

On the data front, the latest survey of US producer prices will show whether inflationary pressures are still building in America’s economy.

The ZEW survey of economic confidence will show if German investor confidence has improved, after falling for the last four months.

Central bankers will be busy; the Bank of Canada, Bank of England, Board of Governors of the Federal Reserve System, and European Central Bank are holding a conference on Diversity and Inclusion in Economics, Finance, and Central Banking.

The agenda

• 7am GMT: German trade data for September
• 10am GMT: ZEW index of German economic sentiment
• 1pm GMT: ECB president Christine Lagarde speaks at the 4th ECB Forum on Banking Supervision Forum: “Tomorrow’s banking: navigating change”
• 1.30pm GMT: US PPI index of producer prices released
• 2pm GMT: Fed chair Jerome H. Powell gives opening remarks at the Conference on Diversity and Inclusion in Economics, Finance and Central Banking
• 3.30pm: Bank of England deputy governor Ben Broadbent gives evidence to the EFRA Committee: Labour shortages in the food and farming sector
• 4pm GMT: Bank of England governor Andrew Bailey on a panel on “Central Banks and Inequality”, at the conference on Diversity and Inclusion in Economics, Finance and Central Banking