FirstFT: Changing of the Guard

Republicans will regain 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 surprisingly close US midterm elections.

Republicans secured the 218 seats required to regain control of 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 uncertain as seven races were still too close to be called. The smaller-than-expected Republican majority in the House reveals strong divisions within the party ranks and casts doubt on Kevin McCarthy’s nomination for president.

Earlier this week, McCarthy won a secret ballot to become his party’s nominee for president, by a margin of 188 to 31. But defections from right-wing members of Congress loyal to former President Donald Trump have indicated that McCarthy would face a tough road in January, when he will need the support of at least 218 lawmakers for the top job.

Senate Republicans held their own leadership election on Capitol Hill yesterday morning, in which Mitch McConnell, the longtime Republican leader of the upper house, was challenged by Rick Scott, who led the campaign effort of the GOP as we approach the midterms.

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

Trump, who launched his third race for the White House this week, is fending off high-profile Republican donors, who refuse to fund his re-election bid. Blackstone chief executive Stephen Schwarzman yesterday became the latest backer to defect.

Joe Biden praised the Republican Party for securing control of the lower house and said he was ready to work with them “to get results for working families.”

While Democrats have secured control of the Senate, the changing of the guard in the House will cripple 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 cutting federal spending.

• Opinion: It would be a mistake for Democrats to think that the American Kraken was just killed off. The mythical sea monster that came to represent America’s identity has not gone away, claims Edward Luce.

Five other stories in the news

1. Scaramucci’s SkyBridge bought $10 million worth of FTX tokens in return for investment FTX founder Sam Bankman-Fried asked fund manager Anthony Scaramucci to buy digital tokens created by his cryptocurrency exchange as a condition for him to take a 30% stake in SkyBridge Capital, according to three people aware of the agreement. The FTX bankruptcy shook the cryptocurrency industry last week. Genesis Trading yesterday became the latest crypto broker to halt client withdrawals.

• To listen: In 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 he has to say about the future of crypto.

2. EY split threatens to weaken both sides of the company, say retired associates More than 150 retired EY partners have written to the accounting firm’s management opposing the sweeping plan to spin off its consultancy and audit businesses. In a three-page memo seen by the Financial Times, the retired US partners said the plan as it was envisioned threatened to weaken both halves of the business.

3. Elon Musk discussed potential successor as Tesla CEO, says James Murdoch Elon Musk had identified a potential successor as Tesla chief executive in recent months, company chief James Murdoch told a Delaware court during testimony in a case brought by investors who claim that Musk unfairly received an unprecedented multi-billion dollar salary.

4. Yale and Harvard Law Schools Avoid Influential Rankings Two of America’s most prestigious law schools have withdrawn from the influential US News & World Report ranking system, damaging 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 not reflecting financial aid — undermines their efforts to admit students from low-income backgrounds.

5. France and Germany launch stalled fighter jet project The two partners are ready to move on to the next phase of their flagship fighter jet project, reviving Europe’s largest weapons program and removing a critical irritant in their bilateral relations. A deal could be reached in the coming days, two people familiar with the talks said.

The day ahead

Retail revenue Clothing retailer Gap and department store Macy’s are expected to come under scrutiny today as investors seek to better understand changing consumer spending habits as the holiday season approaches. year. Shares of the companies fell 6% and 8% respectively yesterday after Target reported a “dramatic” slowdown in sales, led by its discretionary items, including clothing, as customers curb spending to cope with a high inflation and rising interest rates.

Lodging New residential construction is expected to fall to 1.41 million units in October from 1.44 million in September, as weaker demand for home purchases spills over into the housing industry. Mortgage rates in the 7% range have kept many potential buyers out of the market. Building permits are expected to have fallen to 1.51 million in October from 1.56 million the previous month.

Unemployment benefit claims The state’s new jobless claims are expected to have held steady at 225,000 for the week of Nov. 12 from the previous week. The labor market remained relatively resilient despite efforts by the Federal Reserve to cool the economy – demand for workers rebounded in September after a sharp drop in August, signaling a tight labor landscape.

Monetary Policy Fed Governor Michelle Bowman will deliver a speech on financial literacy and inclusion ahead of the Financial Literacy and Education Commission’s virtual town hall meeting (you can watch it here). Separately, Governor Philip Jefferson will discuss opportunity and inclusive growth in a panel moderated by Minneapolis Fed President Neel Kashkari at the 2022 Research Conference of the Opportunity and Inclusive Growth Institute of the United States. plugged. Elsewhere, Atlanta Fed President Raphael Bostic will deliver a speech to the Metro Atlanta Chamber. Cleveland Fed President Loretta Mester will speak at her branch’s 2022 Financial Stability Conference, which will explore the policy challenges of the “new normal.”

UK financial statements In the UK, Jeremy Hunt will deliver his belated but crucial financial statement, aimed at restoring Britain’s tarnished economic reputation after his predecessor’s disastrous ‘mini’ budget on September 23. For coverage of this pivotal tax event, visit our live blog.

What else we read

Australia’s defense dilemma: project force or provoke China? The freshly built shipyard in Osborne, a suburb 20km north of Adelaide on the Gulf of St Vincent in South Australia, looks like a Hollywood set. But it is the symbolic heart of Australia’s burgeoning military industry at a time when competition between China and the United States in the Indo-Pacific is driving the world’s largest military buildup in the past of the last 70 years.

Political dysfunction is catching up with Peru’s once-bright economy As legal troubles pile up for Peru’s President Pedro Castillo, his third finance minister of the year has admitted boiling political dysfunction is hurting the business climate in the Andean nation. “If there’s no confidence or it’s been shaken, obviously the investment rate won’t go up,” Kurt Burneo told the Financial Times.

Trade must play its part to save the planet For decades, environmentalists and free traders have surrounded each other in mutual mistrust. But this dysfunctional relationship misses a great opportunity: to increase positive environmental measures in commerce, writes Alan Beattie. Subscribe to his Trade secrets newsletter heredelivered every Monday.

Iraq reeling from a tax of 2.5 billion dollars, the “heist of the century” For nearly a year, armored vehicles carrying hundreds of thousands of Iraqi dinar notes have been criss-crossing the bustling streets of Baghdad every week. The trucks, loaded with tax funds diverted from the public bank Rafidain, are said to have carried out in broad daylight what has since been called the “robbery of the century” in Iraq.

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

Fashion

Fashion Matters, FT’s first newsletter dedicated to the $2.5 billion fashion industry, launches today. Fashion editor Lauren Indvik will take you behind the scenes of the fashion industry and explain how you can get involved. Register here.