TheChek News Flow

- If anything recent events strengthen dollar's status

- Several factors weigh against Yuan as an attractive asset

- Recent commentary warning of a possible decline in the status of the U.S. dollar raises concerns about the effects of sanctions against Russia, U.S. political dysfunction, the rise of digital assets, and China's efforts to bolster usage of the renminbi.

- I do not expect to see the U.S. dollar lose its status as the world's reserve currency anytime soon, nor even see a significant decline in its primacy in trade and finance. Recent developments that some have warned could threaten that status have, if anything, strengthened it, at least so far.

- No need for a central bank digital currency in the US

- We don't want banks holding large amounts of crypto ETFs

- Intelligence community has serious concerns about a broad declassification of this Intel

- US knowledge of such Russia capability goes back a long time

‘Potent’ antibiotic drug boosts fight against superbugs

New molecule proves effective in animals against several drug-resistant bacteria

Scientists have invented a potential drug candidate that successfully combats antibiotic-resistant “superbugs” in non-human tests, according to research.

The new antibiotic, known as cresomycin, is effective in mice against several bacteria that cause serious infections and are increasingly resistant to existing treatments, said a paper published in Science on Thursday.

“What is most important is that it kills antibiotic-resistant strains in animals,” said Yury Polikanov, co-author of the research and an associate professor of biological sciences at the University of Illinois Chicago. “It’s more potent [than its predecessors] — and more potent against deadly bacteria.”

Cresomycin’s synthesis is part of urgent research efforts to defeat anti-microbial resistance (AMR), which occurs when bacteria, viruses, fungi and parasites evolve the ability to resist treatments.

AMR, largely caused by excessive use of antibiotics, is already linked to 5mn deaths a year, according to the World Health Organization. Hospitals are particularly susceptible to the spread of superbugs.

Cresomycin proved effective against a range of dangerous bacteria prominent in the spread of AMR, the paper said. These include: Staphylococcus aureus, which causes infections in the skin and other organs; Escherichia coli (E-coli), responsible for intestinal and urinary tract illnesses; and Pseudomonas aeruginosa, a trigger of blood and lung infections.

A big obstacle to dealing with AMR is that decades of under-investment in research has led to a lack of promising new synthetic antibiotics. Healthcare has long benefited from treatments derived from natural products, such as penicillins and cephalosporins obtained from moulds, but these are becoming increasingly ineffective as pathogens evolve to beat them.

The cresomycin paper’s authors acknowledged that the antibiotic problem was “daunting” but said their findings boosted hopes for “the future discovery of antibacterial agents broadly effective against AMR”.

The researchers took an existing antibiotic as cresomycin’s inspiration but then remodelled it and added extra features to deal with the changes AMR had caused in the target pathogens, Polikanov said.

The cresomycin test results looked “promising”, said Tim Walsh, an Oxford university professor and AMR expert. More data would be needed on the molecule’s effectiveness against the group of so-called Gram-negative bacteria, which are protected by an outer membrane and are a central problem in the spread of AMR, Walsh added.

“Until it is further scrutinised, it is difficult to predict the value of this new antibiotic against serious Gram-negative infections as a singular therapeutic,” said Walsh, who was not involved in the study. “But the elegant synthetic design of cresomycin, based on an intuitive rationale, provides an exciting scaffold for further development.”

Swiss pharmaceutical company Roche is conducting phase 1 clinical trials on an antibiotic that successfully targeted a Gram-negative bacterium known as carbapenem-resistant Acinetobacter baumannii, or Crab. Scientists said the candidate drug’s discovery, unveiled in a paper last month, could be the basis for research on whether it could be reformulated to target other antibiotic-resistant pathogens.  

Crab, which causes life-threatening illnesses in hospital patients, is classed as a priority concern by the WHO and an urgent threat by the US Centers for Disease Control and Prevention.

GDP fell 0.3% in final quarter of last year, dealing blow to Rishi Sunak’s election campaign

The UK slipped into a technical recession at the end of last year, dealing a serious blow to Rishi Sunak’s pledge to “grow the economy” as households and businesses continued to rein in spending amid the cost of living crisis.

Gross domestic product fell 0.3 per cent in the final three months of 2023, following a 0.1 per cent decline in the third quarter, according to data published by the Office for National Statistics.

The figures look worse if you take into account the increase in the UK’s population. Output per head contracted 0.7 per cent in 2023, falling in every quarter last year and failing to grow since the start of 2022.

James Smith, Resolution Foundation research director, said: “Britain has fallen into recession and a far deeper living standards downturn.”

The figures create a challenging backdrop for chancellor Jeremy Hunt as he considers slashing billions of pounds from public spending plans in next month’s Budget to fund pre-election tax cuts. However, having raised Tory hopes of tax cuts in the past few weeks, Hunt is now trying to suppress them.

Labour claimed the prime minister’s pledges on the economy were “now in tatters”. Shadow chancellor Rachel Reeves said: “The prime minister can no longer credibly claim that his plan is working or that he has turned the corner on more than 14 years of economic decline under the Conservatives that has left Britain worse off.”

But Hunt insisted there were signs the British economy was “turning a corner”.

“Forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low,” he added.

This week Andrew Bailey, BoE governor, warned against putting “too much weight” on the economy slipping into a technical recession as it was expected to be “very shallow”.

Two consecutive quarters of contracting GDP is defined as a technical recession, though many economists believe stagnation is a better description without a more sustained downturn.

Markets are now pricing in around three quarter-point interest rate cuts by the Bank of England this year, with a 65 per cent probability of the first cut being delivered by June.

Interest rate-sensitive 2-year gilt yields were roughly flat at 4.56 per cent, while the FTSE 100 index of blue-chip stocks rose 0.4 per cent. Sterling rose 0.1 per cent to $1.258.

Economists polled by Reuters had forecast the economy would contract by 0.1 per cent in the final quarter as high borrowing costs, inflation and strikes hit activity.

In 2023, the economy largely stagnated as it grew only 0.1 per cent. This was well below the 2.5 per cent expansion registered in the US, and weaker than the 0.5 per cent growth of the eurozone.

The data comes as the Tory party risks losing two seats in by-elections on Thursday in Wellingborough in Northamptonshire and in Kingswood near Bristol.

The ONS said all the main sectors of the economy fell in the final quarter, with manufacturing, construction and wholesale being the biggest drags on growth, partially offset by increases in hotels and rentals of vehicles and machinery.

There was a fall in the volume of net trade, household spending and government consumption in the quarter, only partially offset by an increase in investment.

The ONS said output in December was down 0.1 per cent from the previous month, softer than the 0.2 per cent contraction forecast by analysts.

Sanjay Raja, chief UK economist at Deutsche Bank, said the contraction in the fourth quarter represented a “meaningful miss on GDP” for the BoE’s Monetary Policy Committee.

“There’s clearly more spare capacity in the economy than assumed in their recent projections,” he said, adding that the data would “no doubt become uncomfortable especially with the bank rate at highly restrictive levels”.

The BoE this month upgraded its forecast for 2024 growth, which it now says will be 0.25 per cent — up from its previous prediction of zero growth. It forecasts 0.75 per cent growth for 2025.

The GDP figures follow UK inflation data published on Wednesday that showed price growth at 4 per cent in January, the same rate as December and lower than forecast by the BoE.

However, on Tuesday official data also revealed that pay growth was still strong, raising concerns about the persistence of underlying price pressures.

Estimate of Russian use suggests Moscow is eroding a major Ukrainian battlefield advantage

KYIV—Ukraine’s top military-intelligence officer said Russian invasion forces in his country are using thousands of Starlink satellite internet terminals, and that the network has been active in occupied parts of Ukraine for “quite a long time.”

Lt. Gen. Kyrylo Budanov’s comments in an interview suggest that Russia is starting to acquire Starlink terminals, made by Elon Musk’s SpaceX, at a scale that could cut into a major Ukrainian battlefield advantage. Ukraine’s government said last year that around 42,000 terminals are used by the military, hospitals, businesses and aid organizations.

Starlink, which is more secure than cell or radio signals, is considered so vital to Ukrainian operations that the Pentagon struck a deal with SpaceX last year to help fund access for Kyiv’s forces. Up to now, Russian forces have had no similarly secure communications system.

Russian private firms buy the terminals off intermediaries who pass off purchases as for personal use and deliver the equipment to Russia via neighboring countries, including former Soviet republics, Budanov said. Russian army units down to company level were seeking to acquire Starlink terminals, often by collecting money for the purchases, he said.

“It’s an open market,” said Budanov, who heads Ukraine’s military-intelligence agency, known as HUR. “It’s not a military item.”

A search for Starlink terminals on Russian search engine Yandex.ru yields numerous dealers in Moscow and outside the Russian capital who promise to install the systems across the country and the Russian-occupied territories of Ukraine.

One website, strlnk.ru, promised “tested performance” in the occupied areas of Crimea, Luhansk, Donetsk and Kherson with monthly fees starting at $100 a month. The website provided contacts for a dealer, including a Russian cellphone number and a Yandex email. A representative of the firm declined to speak to a Wall Street Journal reporter.

Another website that uses the name of a German appliance company sells Starlink terminals for nearly 300,000 rubles, or just over $3,000.

Like other space communications systems, Starlink relies on satellites in orbit, infrastructure called ground stations and terminals to allow people to tap in to its high-speed internet connections. Customers use a flat antenna array that needs an unobstructed view of the sky to connect with satellites.

SpaceX, which doesn’t want to provide connections to users in countries where regulators haven’t permitted its use, wields significant control over where it offers service and where it doesn’t.

Budanov said Starlink service has worked on occupied territory for “quite a long time,” without elaborating. Asked whether he knew from personal experience, he replied: “Of course.” HUR units often work behind enemy lines.

A spokesman for SpaceX didn’t immediately respond to a request for comment. Musk previously said SpaceX wasn’t selling to Russia. “To the best of our knowledge, no Starlinks have been sold directly or indirectly to Russia,” he wrote in a post on his social-media platform X on Sunday.

Neither Musk nor Starlink has responded directly to questions about whether the devices could be obtained in other countries and used in Russian-occupied parts of Ukraine. Starlink has said SpaceX takes steps to deactivate Starlink terminals if the company determines sanctioned or unauthorized parties are using them.

The Russian Defense Ministry didn’t respond to a request for comment. Kremlin spokesman Dmitry Peskov said earlier this week that officially Starlink was neither delivered to Russia nor used in the country.

The Kremlin has steadily tightened its grip on Russia’s communications infrastructure over the last decade. Current regulations force any foreign satellite operator in Russia to pass traffic through one of several ground stations inside the country. It was unclear whether any Starlink traffic abided by those rules. Exceptions can be made only with permission of the country’s Federal Security Service, or FSB.

Access to Starlink has been a politically charged issue since early in the war, when Musk made the service available in Ukraine.

Sen. Ron Wyden (D., Ore.) said in a statement that reports of Russian military use of Starlink terminals were extremely concerning. “SpaceX needs to do everything in its power to ensure the Russian military isn’t using its technology as part of its invasion of Ukraine,” he said.

Last year, when SpaceX said it could no longer fund access for Kyiv, the Pentagon agreed to pay to help keep the service running. Private donors, governments and other organizations also pay for terminals.

Musk said in September that earlier in the war, he had declined a request to activate Starlink service around Sevastopol in Crimea to avoid directly involving his space company with what he described as a plan to sink Russian ships there.

Musk said that if he had agreed to it, SpaceX would have been “complicit in a major act of war and conflict escalation.” He didn’t address how this was different from Ukraine’s use of Starlink in many other operations.

Reports on Russian use of Starlink come as Musk has spoken out against further aid to Ukraine, saying on Monday that it would prolong the war and cause more deaths as “there is no way in hell” that Russian President Vladimir Putin could lose the war.

During the discussion in a forum on X, Musk acknowledged that he has been accused of being an apologist for Putin, but called that absurd, pointing in part to the support Starlink has provided to Ukraine.

Asked about Musk’s views on the war, Ukraine’s military-intelligence chief Budanov said: “That’s his personal matter.”

City authorities should support the repurposing of offices and retail space

Signs of stress in the commercial real estate sector are now coming thick and fast. This month investors have been spooked by exposures on CRE loan books at lenders including America’s New York Community Bank, Japan’s Aozora and Germany’s Deutsche Pfandbriefbank. The US Treasury secretary Janet Yellen also last week raised concerns over the impact of falling property valuations on the banking system.

Although interest rates are expected to come down this year, the sector remains in a tight spot. An estimated $1.2tn of US CRE debt is maturing in the next two years, according to the Mortgage Bankers Association. Commercial property values have already fallen steeply, and since rates are unlikely to return to previous lows any time soon, developers will still face higher refinancing costs. Meanwhile, increased remote working has hit demand. Office vacancy rates remain well above pre-pandemic levels in cities across the US, Europe and Asia. Loan delinquencies and distressed sales are set to climb.

Regulators are right to monitor the ongoing risk of fire sales and hidden exposures among private lenders. But a widespread contagion through the global banking system seems unlikely. Capital buffers, oversight and loan transparency, while far from perfect, have all improved since the 2008 financial crisis. Some forbearance in contract negotiations and opportunistic investors looking for discounts will also provide a cushion. Instead of a short, sharp shock, a long period of painful adjustment is in store.

As homeworking patterns persist, retail and office buildings in big urban centres will be hit particularly hard. Projections by McKinsey suggest demand for office space will remain below pre-pandemic levels for decades, with at least a 26 per cent drop in the value of office space by 2030 across major global cities. Businesses are already downsizing into higher-quality spaces, and are also redesigning offices. Vacant buildings may lay idle for long periods, and others could be abandoned entirely. Economic activity in some city centres, such as San Francisco — which has a concentration of tech workers — risks being hollowed out.

Urban authorities are not powerless. They can help extract more value from buildings by supporting their repurposing. Office-to-residential conversions are one option, which can also help offset national housing shortages. Mixed-use spaces are another. One Wall Street, in Lower Manhattan’s financial district, for instance, has been redeveloped into condos.

Flexing building use can help revamp cities, cushion price falls and reduce the risk of stranded assets. By avoiding the destruction of entire structures, it is environmentally friendly too. But even with falling prices, it remains costly. Real estate businesses also often cite complicated planning systems, strict zoning laws and building regulations as other factors hindering redevelopment across cities. This is where city authorities can play a facilitating role.

Planning rules and processes should be made more flexible to encourage and speed up repurposing efforts, without compromising building standards. Municipalities can also help by convening with developers, architects and planners to ascertain what is possible, and what additional infrastructure may be needed. The City of London told the Financial Times this week that it would be “flexible” in supporting developers to meet requirements. Imagination is important too: a corporate auditorium could become a cinema by night, while urban labs can support new research districts.

Many buildings will remain unconverted. There are architectural obstacles, and demand depends on neighbourhood quality. But opportunities to eke out affordable living spaces and other commercial activities should form part of urban regeneration plans.

If authorities want to sustain the dynamism of their cities, they must become more agile. The CRE market is resetting. By enabling more buildings to be repurposed, that transition can be made less painful for lenders and investors — as well as urban areas themselves.