FirstFT: Changing of the guard

The Republicans will take back control of the House of Representatives by a narrow margin, ushering in a new era of divided government in Washington after Democrats retained a majority in the Senate following the unexpectedly close US midterm elections.

The Republicans secured the required 218 seats to win back control of the the lower house of Congress after the Associated Press declared Mike Garcia the winner in California’s 27th District last night.

But the size of the Republican majority remained unclear as seven races were still too close to call. The smaller than expected Republican majority in the House exposes sharp divisions in the party’s ranks and casts doubt on whether Kevin McCarthy will become Speaker.

Earlier this week McCarthy won a secret ballot to become his party’s nominee for Speaker, by a margin of 188 to 31 votes. But defections from rightwing members of Congress loyal to former president Donald Trump indicated McCarthy would face a rocky road heading into January, when he will need support from at least 218 lawmakers for the top job.

Senate Republicans held their own leadership elections on Capitol Hill yesterday morning, in which Mitch McConnell, the longtime Republican leader in the upper chamber, was challenged by Rick Scott, who led the GOP campaign effort heading into the midterms.

McConnell was easily re-elected, receiving 37 votes, compared to 10 for Scott, who was backed by Trump and some rightwing senators.

Trump, who launched his third run at the White House this week, is putting off high-profile Republican donors, who are refusing to finance his re-election bid. Blackstone chief executive Stephen Schwarzman became the latest financial backer to defect yesterday.

Joe Biden congratulated the Republican party for securing control of the lower house and said he was prepared to work with them “to deliver results for working families.”

While the Democrats secured the control of the Senate, the changing of the guard in the House will handicap the next two years of Biden’s presidency.

GOP leaders have suggested they will use the debt ceiling as leverage to push through their own policy priorities, namely cuts to federal spending.

• Opinion: It would be a blunder for the Democrats to think the American Kraken has just been slain. The mythical sea monster that came to stand for America’s id has not vanished, argues Edward Luce.

Five more stories in the news

1. Scaramucci’s SkyBridge bought $10mn of FTX token in return for investment FTX founder Sam Bankman-Fried told fund manager Anthony Scaramucci to buy digital tokens created by his cryptocurrency exchange as a condition for him taking a 30 per cent stake in SkyBridge Capital, according to three people with knowledge of the agreement. The bankruptcy of FTX has rocked the cryptocurrency industry in the past week. Genesis Trading yesterday became the latest crypto broker to halt customer withdrawals.

• Listen in: On this episode of our Behind the Money podcast, asset management correspondent Josh Oliver explains what caused FTX’s collapse, and markets editor Katie Martin tells us what it says about the future of crypto.

2. EY split threatens to weaken both sides of firm, say retired partners More than 150 retired EY partners have written to the accounting firm’s leadership objecting to the radical plan to split its consulting and audit businesses. In a three-page memo seen by the Financial Times, the retired US partners said the plan as envisaged threatens to weaken both halves of the firm.

3. Elon Musk discussed potential successor as Tesla CEO, says James Murdoch Elon Musk had identified a potential successor as Tesla chief executive in the past few months, company director James Murdoch told a Delaware court during testimony in a case brought by investors who claim Musk was unjustly awarded an unprecedented multibillion-dollar pay packet.

4. Yale and Harvard law schools shun influential rankings Two of the most prestigious US law schools have withdrawn from US News & World Report’s influential rankings system, in a blow to the credibility of a tool widely used by prospective students, alumni and recruiters. Yale and Harvard said the assessment — by focusing on test scores and failing to reflect financial aid — undermines their efforts to admit students from low-income backgrounds.

5. France and Germany to fire up stalled fighter jet project The two partners are ready to move to the next phase of their flagship fighter jet project, rekindling Europe’s largest weapons programme and removing a critical irritant in their bilateral relationship. A deal could be reached in the coming days, said two people familiar with the discussions.

The day ahead

Retail earnings Apparel retailer Gap and department store Macy’s are set to come under scrutiny today as investors seek further insights into changing consumer spending patterns in the lead up to the holiday season. Shares in the companies fell 6 per cent and 8 per cent respectively yesterday after Target reported a “dramatic” slowing in sales, driven by its discretionary items including clothing, as customers curb spending to contend with high inflation and rising interest rates.

Housing New residential construction is forecast to have fallen to 1.41mn units in October from 1.44mn in September as slowing demand for home purchases ripples through the housing industry. Mortgage rates in the 7 per cent range have priced many would-be home buyers out of the market. Building permits are expected to have fallen to 1.51mn in October from 1.56mn the previous month.

Jobless claims New state unemployment claims are expected to have held steady at 225,000 for the week of November 12 from the week before. The labour market has remained relatively resilient despite the Federal Reserve’s efforts to cool the economy — demand for workers rebounded in September after a precipitous drop in August, signalling a tight labour landscape.

Monetary policy Fed governor Michelle Bowman will give a speech on financial literacy and inclusion before the virtual Financial Literacy and Education Commission Public Meeting (you can watch it here). Separately, governor Philip Jefferson will discuss opportunity and inclusive growth on a panel moderated by Minneapolis Fed president Neel Kashkari at the branch’s Opportunity and Inclusive Growth Institute’s 2022 research conference. Elsewhere, Atlanta Fed president Raphael Bostic will give remarks before the Metro Atlanta Chamber. Cleveland Fed president Loretta Mester will speak at her branch’s 2022 Financial Stability Conference, which will explore policy challenges in the “new normal”.

UK financial statement In the UK Jeremy Hunt will present his delayed but crucial financial statement, aimed at restoring Britain’s tarnished economic reputation following his predecessor’s disastrous “mini” Budget on September 23. For coverage of this crucial fiscal event go to our live blog.

What else we’re reading

Australia’s defence dilemma: projecting force or provoking China? The freshly built shipyard in Osborne, a suburb 20km north of Adelaide in the St Vincent’s Gulf of South Australia, has the air of a Hollywood set. But it is the symbolic heart of Australia’s burgeoning military industry at a time when competition between China and the US in the Indo-Pacific is driving the biggest military build-up anywhere in the world over the past 70 years.

Political dysfunction catches up with Peru’s once stellar economy As legal woes mount for Peruvian president Pedro Castillo, his third finance minister of the year has admitted that roiling political dysfunction is damaging the business climate in the Andean nation. “If there is no trust or it has been undermined, then obviously the investment rate is not going to make progress,” Kurt Burneo told the Financial Times.

Trade should play its part in saving the planet For decades now, environmentalists and free-traders have been circling each other in mutual suspicion. But this dysfunctional relationship misses a big opportunity: increasing positive environmental measures in trade, writes Alan Beattie. Subscribe to his Trade Secrets newsletter here, delivered every Monday.

Iraq reels from $2.5bn tax ‘heist of the century’ For almost a year, armoured vehicles carrying hundreds of thousands of Iraqi dinar bills have wound their way through Baghdad’s busy streets on a weekly basis. The trucks, laden with tax funds siphoned off from state-owned bank Rafidain, were allegedly pulling off in broad daylight what has since been dubbed Iraq’s “heist of the century”.

Lula promises COP27 that ‘Brazil is back’ in climate change fight Brazil’s president-elect has vowed to put his country at the centre of the fight against climate change, telling delegates at the UN COP27 summit in Egypt that he will crack down on illegal deforestation and create a special ministry to represent the interests of indigenous people. He also said he would ask the UN to host the COP30 summit in 2025 in the Amazon rainforest.

Fashion

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