FirstFT: Lagarde warns ECB is braced for split over inflation

European Central Bank unity on its inflation target could dissolve into division as early as next week when policymakers meet to discuss changing its guidance on raising interest rates, its president Christine Lagarde has warned.

The bank’s rate-setters are due to meet next Thursday for their first discussion since they last week launched a unanimously agreed strategy, which changed the way the bank sets monetary policy for the first time since 2003.

Lagarde heralded the consensus agreement, which included a new 2 per cent inflation target and tolerance for temporary moves above that level.

But, speaking on Sunday, she told the Financial Times:

“I’m not under the illusion that every six weeks [at monetary policy meetings] we will have unanimous consent and universal acceptance because there will be some variations, some slightly different positioning. And that is fine.”

Five more stories in the news

1. Elon Musk defends SolarCity takeover The combative Tesla chief executive ripped into a lawyer for shareholders suing over the 2016 deal on the first day of a trial that could saddle him with a huge compensation bill.

2. Cameron’s more than $1m a year Greensill Capital salary David Cameron was paid more than $1m a year for his part-time advisory role at the supply-chain finance company, whose dramatic collapse exposed the former prime minister’s extensive lobbying efforts.

3. Racist abuse of England players sparks political row Downing Street rejected Labour accusations that Boris Johnson had given cover to racists abuse of England football players after the team’s Euro 2020 final defeat against Italy. The FT View is that the government’s response has left it to Gareth Southgate to give a clear lead on combating racism.

  • More Euro 2020 coverage: While England fell short, they can point to progress under manager Gareth Southgate. Italians celebrated a win that for many fans symbolised the end of the country’s “worst period”.

  • Opinion: Supporting England’s football team is an endless loop of anxiety, humiliation and crushing defeat, periodically enlivened by hope, writes Matthew Garrahan.

England’s Marcus Rashford reacts after missing a penalty kick at the Euro 2020 final
England’s Marcus Rashford reacts after missing a penalty kick at the Euro 2020 final © AP

4. Britain to ban sale of diesel trucks The sale of new diesel trucks will be banned from 2040 under the government’s transport decarbonisation plan due to be unveiled tomorrow. EU emissions rules set to come into force as soon as 2025 are likely to make petrol cars less profitable than electric models, according to a senior Volkswagen executive.

5. South Africa unrest spreads after Zuma jailed South Africa deployed troops to help the embattled police force as violence spread after last week’s jailing of Jacob Zuma, the former president, for contempt of court.

  • Opinion: Zuma’s imprisonment underlines that the survival of democracy depends on an independent judiciary, writes Gideon Rachman.

Coronavirus digest

  • Israel will become the first country to officially offer booster shots of the BioNTech/Pfizer Covid-19 vaccine.

  • Boris Johnson urged people to exercise “extreme caution” when restrictions are lifted on July 19. Government scientists expect hospital admissions in England to rise to 1,000-2,000 a day, and deaths to 100-200 a day, within a few weeks.

  • Johnson & Johnson has been in discussions with US regulators about a rare neurological side effect of its vaccine.

  • The economic fallout from the pandemic and rising food prices have fuelled a sharp increase in the number of people going hungry, according to the UN.

Follow the latest with our coronavirus live blog and sign up for our Coronavirus Business Update newsletter for more Covid-19 news.

The day ahead

UK aid budget clash Tory rebels will try to force Boris Johnson to reverse £4bn of cuts to Britain’s annual aid spending today after the prime minister agreed to allow a Commons vote on the decision.

US banks earnings season Banks will face tough questions about the prospects for their lending operations this week when they report second-quarter earnings flattered by smaller-than-expected credit losses during Covid-19. JPMorgan and Goldman Sachs kick off reporting today.

Economic data Investors are expected to pay close attention to US consumer prices for June, which are expected to show inflation remained hot. Germany also has consumer price index data. EU finance ministers convene in Brussels.

What else we’re reading

Sovereign debt profits vs human rights Divestment campaigns are not new in emerging markets investing. But they have been given impetus by the phenomenon of ESG investing sweeping the industry, as activists demand that asset managers stop supporting regimes that abuse their own citizens.

  • As US investment groups rush into mergers, European rivals face mounting pressure to respond. Will they defy the mantra that big is better?

Bar chart of Bond yields (%) showing Countries with poor human rights records can offer higher yields

The next generation of Palestinian activists The social media and real-life advocacy exemplified by Mohammed and Muna al-Kurd exemplifies an emerging Palestinian movement that is uniting young activists from the occupied territories with Arab Israeli citizens who live inside Israel’s 1948 borders.

The quest for the investment Holy Grail Indexing is a booming business, slicing markets up into geographies or categories such as equities or bonds and then subdividing by size or industry. But combining everything from commodities to venture capital in one gauge — an “ultimate index” tracking the performance of all markets — has proven elusive, writes Robin Wigglesworth.

Lower bond yields are no longer good news for stocks Are investors having too much of a good thing — that is, interest rates that are artificially low for too long? Last week’s broad equity sell-off has raised that question, says Mohamed El-Erian.

The face of a changing Tibet “My wife and I might be among the last of the nomads here,” said a man in Ladakh, on the border of China and India. Many fear the loss of traditional Tibetan culture its people face political suppression, technological advances and climate change. (NYT)

Gardens

Growing psychoactive plants You could say that all gardens are psychoactive, in that they are designed to change how we feel. But some take that idea more literally than others. Michael Pollan takes us on a tour of his opium poppies, cannabis and mescaline-producing cacti.

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