Investors turn to private economic data

0:02Good morning from the Financial Times. Today is Wednesday, October 15th. And this is your FT News Briefing. The heads of U.S. banks are getting a little queasy. And since the U.S. isn't releasing economic data right now, investors are getting their numbers elsewhere. Plus, are there too many European defense startups? They range from companies that are developing autonomous drones to unmanned submarines, even to biorebotic cockroaches. I'm Mark Filippino, and here's the news you need to start your day.

0:41The CEOs of American banks are sounding the alarm. Goldman Sachs, JPMorgan Chase, and Citigroup reported earnings yesterday, and they all said more or less the same thing, that financial markets run the risk of entering bubble territory. A few of them pointed to the massive gains made by companies focusing on artificial intelligence. City Chief Executive Jane Frazier called the global economy resilient, but also said, quote, there are pockets of valuation frothiness in the market and that she hopes discipline remains. The S &P 500 and the Nasdaq composite have hit several record highs this year, but things have been a mixed bag over the past month.

1:22The Federal Reserve restarted its interest rate cutting cycle, and U.S. President Donald Trump renewed and then softened his tariff threats against China.

1:37We were supposed to get U.S. consumer price index numbers today, but since the government is still shut down, the Bureau of Labor Statistics says the report is delayed. This gap adds to the already growing concerns over the reliability of U.S. government economic data, so investors are turning to private reports to help guide them. Here to tell us more about that is the FT's Claire Jones. Hi, Claire. Hi, Mark. So tell me why investors are increasingly feeling like they can't rely on government economic data. So there's a few things here. One, at the moment, there is a paucity of government economic data just because of the shutdown.

2:20One of the most closely watched pieces of data by investors is the Bureau of Labor Statistics Jobs report. We may well not get that at all should the shutdown drag on. As you said, we were supposed to get CPI today. That release has also been delayed. The second part of it is that there's been some quite persistent concerns about the quality of government data. Now, a mixture of funding cuts, which have taken place over a long period of time, and then the impact of Trump's crackdown on the federal workforce have really exacerbated the pressure the BLS has been under. It's also like a lot of statistical authorities really seen a drop-off, quite a massive drop-off in response rates to some of its surveys since the pandemic.

3:10Now pull all that together and you get the sense that even before Trump fired the BLS commissioner Erica McIntyre offer, there were some concerns about the reliability of the BLS data. So a confluence of factors here, pushing investors to private data to fill that gap. What's out there? What kind of options do these investors have? Well, rather a lot. Yeah. I mean, you can really take your pick. I mean, you have ADP, the payroll software provider, indeed a big job site that pulls together a lot of information. The trouble with that is, is that they don't paint as complete a picture as the BLS's jobs report did.

3:58So in terms of getting a kind of good read on the kind of US macro economy, a very crucial time really when we think the labor market is probably on the turn, is it really helps to have all this private data, but it doesn't paint as complete a picture as you'd like. Right. How is the shift to relying on private data going to impact how investors make decisions? I assume that if you don't have that complete picture and you're taking piecemeal bits, it's a lot harder. I think there is a danger that people just find the data that tells the story they would like to believe about the U.S. economy. Now, I think why a lot of traders look at this information is to get a sense of what the Federal Reserve is going to do to interest rates.

4:48Now, when it comes to that, not having the official data may not be as big a problem as we may like to think. And why is that? Because the Federal Reserve relies on this data too. So Federal Reserve Chair Jay Powell said yesterday that even without the BLS data, he said he thought the evidence available suggested that there was a sense in which the downside risks to the labor market were increasing. Available evidence suggests that both layoffs and hiring remain low and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue their downward trajectories.

5:28Which is about as clear a signal as you're going to get that the Fed is going to cut interest rates by a quarter point again later this month. The other aspect of this is that the Fed has a lot of its own private data. It produces something called the Beige Book, where people from all of the regional federal reserves go out and speak to business contacts and really get a sense of how the real economy is performing. And so it feels as though it's got enough information to act, even though it would ideally like the BLS jobs report. And something you pointed out to me before we started recording is that the CPI report that's due out today will still, in theory, come out before the Fed's next meeting later this month.

6:09Yes. So we'll get the CPI report on October the 24th, which is a few days before the Fed's due to make its decision on interest rates. Claire Jones is the FT's U.S. economics editor. Thanks, Claire. Thanks, Mark.

6:28gold's big rally is the talk of the town, but silver is having a moment too. The shiny stuff hit a record high on Tuesday at$53 per ounce. Inventories in London are approaching historic lows, and the price of silver has shot up 85 % this year. That's an even bigger surge than gold has seen. So what's driving the silver rally? Two main things. First, investors see it as a proxy for gold, which by the way also hit a record high on Tuesday. But the second reason is that silver is used in electronics and solar panels. There's a third reason here, and this one is kind of fun. Indian buyers preparing for the wedding season have also poured into the market.

7:16The surge of European defense tech startups may be reaching its peak. More than 230 of these types of companies have been founded in Europe since Russia's full-scale invasion of Ukraine. Venture capital investment in European defense is way up too. But some in the space worry that the boom times may not last. Sylvia Pfeiffer is here to explain why she covers defense industries for the FT. Hi, Sylvia. Hi there. Okay, so first of all, just tell me a little bit about some of these companies that have popped up over the past few years. Yes, so there are hundreds of these companies. And I, just to say, I get a lot of pictures every day from another defense tech company.

7:55So even as a reporter, it's sometimes very difficult to figure out which ones are going to last the course. So I guess just to start off with some of the positive figures, I think Europe now boasts three defense startups with a unicorn valuation of more than a billion euros. They're drone makers. They're called Helsing, Quantum Systems, and Takeva. And then below those three companies, there are a whole host of others. And they range from companies that are developing autonomous drones to unmanned submarines, even to biorobotic cockroaches. Well, I didn't think I was going to wake up this morning and hear the words biorobotic cockroaches.

8:31So thank you for that, Sylvia. Are these companies battlefield ready? I would say it's a mix. I've talked to a lot of venture capital investors and also founders, and they do say that a lot of investment has flooded into the sector that might not be there for the long term. I think the one benchmark that everybody talks about in terms of being, you know, are you battle ready, is your technology already being used on the battlefield in Ukraine? And I think for a lot of these technology startups, That's one of the key tests is, you know, have you been able to field your technology in Ukraine and has it worked?

9:08And not everybody can say that. As I mentioned before, there have been just so many startups getting attention. You said you're getting pitched constantly about these businesses. Is it possible that the market might be oversaturated? I think in some areas it is. I mean, the one area that everybody's talking about at the moment is the area of drones, where some estimates have put the number of startups at more than 500. and having talked to quite a few founders and venture capitalists, they're sort of saying the concern is that everybody has heard of drones. As a result of that, you know, not enough investment is flooding into other areas, for example, counter-drone technology.

9:46I think there will be a shakeout. I think there will be M &A. I mean, we're starting to see some of that. You'll have some of the bigger defense startups buying up some of the sort of smaller rivals, potentially because they've got some interesting technology. The one message I guess to say is, yes, maybe there are some very frothy valuations out there. But if you talk to some of the experienced investors, they do sort of see a structural demand for this. I guess the big hope is that maybe in 5, 10 years, you'll see a handful of true European defense tech champions emerge that are listed on the European stock exchange.

10:21So, Sylvia, I have to go back to one part of our conversation that has been bugging me, pardon the pun. What is a biorobotic cockroach? Yes, funny you should ask. So this is a company called Swarm Biotactics. It's a very early stage startup headquartered in Germany. And they are developing what they call biorebotic swarms of cockroaches. And these are cockroaches equipped with a custom-built backpack for control and also for secure communication. And they say that these cockroaches can covertly conduct surveillance in inaccessible places. I have to say, Sylvia, I don't really associate cockroaches with being cute, but little tiny backpacks sound pretty adorable.

11:03Let's wait and see. Well, they look like real cockroaches. Not sure that they look so adorable, but hopefully useful. Sylvia Pfeiffer is the FT's Aerospace and Defense Industries correspondent. Thanks, Sylvia. Thank you very much. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

11:29Thank you.