Key week for Russia-Ukraine peace talks

0:03Good morning from the Financial Times. Today is Monday, December 1st and this is your FT News briefing. Artificial intelligence is threatening salaries for young professionals. Plus, it could be another pivotal week for ongoing efforts to end the war in Ukraine. And picking up an actual phone and talking on it might seem outdated, but... There are pockets of the market where voice trading is not just active, but actually growing. I'm Victoria Craig, and here's the news you need to start your day.

0:42Artificial intelligence is reshaping the consultancy industry. For the third straight year, top firms have frozen their starting salaries. That's as they look to implement more productivity improvements from AI. McKinsey and Boston Consulting Group are among those offering pay packages for graduates at the same level as last year. That's according to Management Consulted, a company that coaches students through the interview process. Starting salaries for consultants at the Big Four, meanwhile, have shown no increase since 2022. Though some firms are looking for more mid-career, specialized staff, some industry executives say the rolled-back hiring approach is in anticipation of more productivity gains from AI, not necessarily because those gains have been realized yet.

1:33This week could be a pivotal one for diplomacy aimed at finalizing a peace deal between Russia and Ukraine. In a weekend address, Ukrainian President Vladimir Zelensky struck an optimistic tone, telling his country, quote, in the coming days, it's feasible to flesh out the steps to determine how to bring the war to a dignified end. Senior Ukrainian officials met with U.S. President Donald Trump's team in Florida over the weekend as both Russian and Ukrainian forces continued attacks on each other. Ben Hall is the FT's Europe editor. He joins me now to talk about ongoing negotiations in the week ahead.

2:08Hi, Ben. Hi. So where do these kind of global negotiations stand at the moment? This is the key problem with this peace process is that we don't really know where the red lines of both the Russians and the Ukrainians could meet. Putin is insisting on taking the rest of the Donbass, in particular of Donetsk province in the east. And as we've seen from the leaked conversation between Steve Wyckoff and a Kremlin aide last week, Wyckoff is quite favourable to that view. But on the other hand, the Ukrainians are dead against the idea of surrendering territory they already hold for military reasons, for political reasons.

2:49And I think that is the issue that will make or break this process. And then there's the second issue, of course, is the security guarantees that Ukraine would get in return for making that kind of concession. Exclusion from NATO seems sort of inevitable, but could the Europeans with the Americans offer something else that would essentially mean them coming to Ukraine's assistance if Russia were to attack again. It seems like the two sides are still really far apart on both of these very critical issues. So how likely is it that compromise really is in the cards in the near term? I think that's exactly the question.

3:27And that's why so many people are ultimately skeptical that this process will lead to a deal, because Putin is showing no signs of backtracking from his objective of seizing the whole of the Donbass, something which, of course, he's been unable to do in the four years since the full-scale invasion. And in fact, I suppose you could say that the Russians started this process in 2014 and he's failed on the battlefield and now he's trying to do it through diplomatic means. So President Zelensky has several meetings with European leaders this week, but it seems that the one meeting that really matters is actually between the U.S.

4:06and Russia. The key question will be the extent to which the Americans go to Moscow and say, look, this is what the Ukrainians are prepared to settle for. We think this is reasonable. What do you say? Because up till now, Steve Witkoff, Trump's special envoy, has very much sided with Russia's key demands, essentially, in this negotiation. I think we'll be looking out for whether the American peace proposal after these talks in Moscow becomes once again much more favorable to Russia. And geopolitical negotiations aside, President Zelensky is dealing with a widening corruption probe at home. It engulfed his chief of staff, whom Zelensky dismissed on Friday.

4:47What does that mean for the president, especially at what could be, as you've said, a pivotal inflection point in this war and bringing about peace? President Zelensky has certainly been considerably weakened by this corruption scandal. On Friday, he finally had to get rid of Andrei Yermak, his right-hand man. Zelensky now needs to reconstitute his team of closest advisers, whilst at the same time conducting this negotiation with the Americans and eventually with the Russians. I think, though, that Yermak's departure will take a lot of the heat domestically out of this corruption scandal for Zelensky.

5:28Yermak was a lightning rod for Ukrainian public criticism. and his departure, I think, will help diffuse a lot of that public anger and will make it easier for Zelensky to focus on the job at hand, which is obviously the conduct of the war and with this peace process going on at the same time. Ben Hall is the FT's Europe editor. Thanks so much for giving a preview of the week ahead, Ben. Thank you.

6:05Europe's largest fintech company, Revolut, has prompted concern among UK watchdogs after a change in its CEO's residency was listed in a corporate filing before the company alerted regulators. The FT first reported in October that a company's house filing for Revolut CEO Nick Steronsky's family office listed a change in his residency from England to the UAE. Revolut's own filings continued to show him as a resident in England. A person close to the company said this is because Tronsky managed Revolut from the UK and his family office from Dubai. People familiar with the matter say the change to the family office filing has pushed UK regulators to seek assurances that the chief executive's geographical split will not affect the day-to-day operations of London-headquartered Revolut, where the company is waiting for a full banking license.

6:55According to one person familiar with Revolut's position, it asserts it was under no obligation to flag changes to the CEO's family office. The company said the change has no bearing on its management, and Stronsky has, for years, split his time between various countries.

7:15Old-school Wall Street looked a lot like power suits, suspenders, and plenty of very loud voice trading. One of those things is making a comeback, and let's just say it's not the fashion.

7:32In the$30 trillion U.S. Treasury market, increasingly humans are replacing computers. In fact, the share of electronic trading has fallen to the lowest level in eight years. Joshua Franklin is the FT's U.S. banking editor, and he's here to lend his voice on the trend. Hi, Josh. Hi there. So what kind of old school communication are we talking about here? So this is a little bit of old school and slightly newer school. So it is a lot of people now calling up to phone through their orders to Wall Street trading desks. And then also it's things like, you know, messaging on chats to help set up orders.

8:06But I think what the key thing is here, it's humans interacting with other humans rather than what had been the trend for decades, really, which was machines communicating with other machines to make trades. And how much of this is being done by human communication now in the treasuries market? So if you take the total value of treasuries traded each year, about 54 % is done electronically. So still more than half, but this is down from more than 60 % a few years ago. And it's actually the lowest in eight years, according to Greenwich Coalition, which is a company that tracks this stuff. It's counterintuitive in terms of how people feel like the direction of market is moving in, in terms of the unstoppable march towards the electronification of all trading.

8:49Again, that march is still continuing, but there are pockets of the market where voice trading is not just active, but actually growing. And I think what it points to is just the fact that larger trades, and in particular more complex trades, are being done person-to-person voice trading rather than just strictly electronically. Okay, so the big reason for this is really just to help facilitate those more complex trades. But Josh, I want to get just a little bit wonky here. Can you just walk us through what kinds of trades voice trading lends itself well to? So typically, the main culprit here is so-called package trades, like the popular basis trades that FT readers might be aware of.

9:35And in these trades, big asset managers and hedge funds, they exploit the difference in price between a cash treasury bond and its equivalent futures contract. And the differences tend to be small, but hedge funds borrow heavily in short-term lending markets to fund these bets, which turn these small differences into large profits. So is it the hedge funds that are the ones who are benefiting from this rise in voice versus electronic trading? So benefit is an interesting one. I think certainly the basis trade as a whole has been a big source of trading activity on Wall Street for a few years now, and it has been lucrative for the hedge funds that have been able to pull it off successfully.

10:12But I think, you know, voice trading, it's typically a more expensive way to trade because you're requiring a human to do work rather than a machine. So for that reason, Wall Street firms that facilitate this sort of trading, they quite like it. You know, if you're the hedge fund, you think, well, you know, I'm paying a little bit more to execute a trade. But the trade is more complex, use of derivatives, something that people are happy about. If you're making money on the trade by doing it, and then also for the Wall Street trading firm that makes a little bit more money because it's more complicated to execute.

10:43So, Josh, I've had these visions of these open outcry pits in my head where traders are making wild hand signals and yelling to each other. If it's happening more in the treasury market, can we also see a return to this kind of voice trading in other parts of the market? I think probably not. I mean, voice trading is still a thing in other parts of fixed income markets and other parts of equities, typically, again, in more complex, large trades. But voice trading is certainly swimming against the current at the moment. The direction of travel very much is towards more electronification. And even things like the basis trade, there are people out there working on ways to electronify it and make it easier to do without using voice trading, without doing it person to person.

11:28So certainly that is the direction of travel. And the important thing to mention here as well is both voice trading and electronic trading are rising. It's just given the large size of these package trades, the amount that's being traded by voice is actually rising faster than electronically. All right. Well, at least that nostalgia can live on in at least one part of the market. Josh Franklin, the FT's U.S. banking editor, thanks so much for your time. Thanks very much.

11:58Before we go, who killed Europe's single market dream? That is the question at the heart of a new FT series that looks at why a decades-long effort to tear down trade barriers across Europe has stalled, what went wrong, and why it could be difficult to revive the single market as the EU's growth engine. You can read the first installment on the Whodunit for Modern Brussels and all of the stories in today's show 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.