Aurelia Butler

The third announcement on the outcome of annual pay negotiations compared with the second survey of 5.25% and initial outcome of 5.28% last month, still the biggest rise since 1991 when it logged 5.66%.The results of the closely watched pay talks are announced in several stages, starting with blue-chip firms in mid-March. The average growth of pay hikes tends to shrink from the initial round as an increasing number of smaller firms wrap up negotiations towards the April-June quarter. The next survey result is scheduled to be released on April 18.  Prime Minister Fumio Kishida is counting on high wage growth to pull Japan out of more than two decades of deflation while Bank of Japan Governor Kazuo Ueda stresses sustained wage growth and inflation as crucial for a further pullback from massive monetary stimulus.  More

Fed Chair Jerome Powell retained a cautious stance towards future rate cuts in a speech Wednesday, suggesting that the U.S. central bank will continue to study more data before a rate-cutting cycle is started.”Recent readings on both job gains and inflation have come in higher than expected,” Powell said in a speech to the Stanford Graduate School of Business. While policymakers generally agree that rates can fall later this year, he said this will happen only when they “have greater confidence that inflation is moving sustainably down” to the Fed’s 2% target.Recent strong economic numbers have resulted in the whittling away of U.S. rate cut expectations – rates markets no longer fully expect a move in June or 75 basis points of easing in total this year.This readjustment was helped by comments from Atlanta Fed President Raphael Bostic, a known hawk, who said rates should likely not be reduced until the fourth quarter of this year, with only one cut likely in 2024. “We’ve seen inflation kind of become much more bumpy,” Bostic said. “If the economy evolves as I expect, and that’s going to be seeing continued robustness in GDP and employment, and a slow decline in inflation over the course of the year, I think it will be appropriate for us to start moving down at the end of this year, the fourth quarter.”U.S. stock futures rose Thursday, rebounding after recent losses ahead of more labor market economic data.By 04:00 ET (08:00 GMT), the Dow futures contract was 110 points, or 0.3%, higher, S&P 500 futures climbed 20 points, or 0.4%, and Nasdaq 100 futures rose by 90 points, or 0.5%.The blue chip Dow Jones Industrial Average fell over 40 points, or 0.1%, its third straight losing session, while the broad-based S&P 500 index inched up 0.1% and the tech-heavy Nasdaq Composite gained 0.2%.Wednesday’s strong private payrolls data from the ADP, which saw companies add 184,000 workers in March, added to the recent healthy economic releases which have seen the likelihood of a cut at the Federal Reserve’s June meeting reduced to around 62%, down from about 70% last week, according to the CME FedWatch Tool.There’s more data to digest Thursday, including the weekly initial jobless claims, ahead of Friday’s widely-watched official monthly payrolls report. Walt Disney’s shareholders have voted in favor of retaining the bloc of current board members, ending a prolonged battle for board seats with activist investors including Nelson Peltz’s hedge fund, Trian Fund Management and Blackwells Capital.This result paves the way for chief executive Bob Igor to continue with the turnaround of Walt Disney (NYSE:DIS), including restructuring the company into three separate divisions, reinvigorating its film and television franchises and seeking to make its streaming business profitable.“With the distracting proxy contest now behind us, we’re eager to focus 100% of our attention on our most important priorities: growth and value creation for our shareholders and creative excellence for our consumers,” Disney Chief Executive Bob Iger said in a statement.Disney’s stock price is still far below its March 2021 peak, but it has climbed over 30% since the start of the year January as investors have embraced the transformation at the entertainment giant.Tesla (NASDAQ:TSLA) is set to study sites in India for a proposed $2 billion to $3 billion electric car plant, according to a report in the Financial Times, focusing on the Indian states that have automotive hubs such as Maharashtra, Gujarat and Tamil Nadu.A move into the world’s most populous country would come at an opportune time given EV demand is slowing in its main markets of the U.S. and China as competition heats up.Tesla reported earlier this week that deliveries in the first quarter fell 8.5% from the year-ago quarter and approximately 20% from the fourth quarter, representing the first year-over-year decline since the second quarter of 2020.Fans of the company will see this downturn as due to industry headwinds, but Per Lekander, a hedge fund manager, said “this was really the beginning of the end of the Tesla bubble.”Lekander, a managing partner at Clean Energy Transition, has been shorting the electric vehicle company since 2020, added Tesla was “probably, arguably the biggest stock market bubble in modern history.”“I actually think the company could go bust,” he added.Oil prices slipped lower Thursday, but remained near five-month highs after major producers kept output cuts in place and with supply disruptions continuing.By 04:00 ET, the U.S. crude futures traded 0.1% lower at $85.31 a barrel, while the Brent contract dropped 0.1% to $89.26 per barrel.”Brent is facing some resistance at the US$90/bbl level, with it unable to break above it so far,” ING analysts said, in a note.The Organization of Petroleum Exporting Countries and allies, a group known as OPEC+, decided to maintain its current band of production cuts during a Wednesday meeting, presenting a tight outlook for crude in the near-term. Additionally, a storm of geopolitical factors, including fears of a broader conflict in the oil-rich Middle East and Ukrainian attacks on key Russian refineries, heralded more global supply disruptions.Further gains in crude were held back by mixed readings on U.S. inventories, especially as official data showed an unexpected build in overall crude stockpiles. The build came as U.S. production remained near record highs – a trend that is expected to somewhat offset a tight outlook for oil markets.That said, U.S. fuel demand was also seen rebounding from winter lows, with gasoline inventories seeing a bigger-than-expected draw in the past week. The trend pointed to robust demand in the world’s largest fuel consumer.  More

The application is a sign of Starlink’s expansion in Southeast Asia after Malaysia issued it a license to provide internet services in the country last year, and a Philippine-based firm signed a deal with SpaceX in 2022.Budi Arie Setiadi, Indonesia’s minister of communications, said, “what’s important is that we have to have a fair business, with a level-playing field.”He added Starlink will have a trial in Nusantara, Indonesia’s new capital that is under construction in the jungles of Borneo island, sometime in 2024.SpaceX’s Starlink, which owns around 60% of the roughly 7,500 satellites orbiting earth, is dominant in the satellite internet sphere. It did not immediately respond to a request for comment on Thursday.Starlink has built a hub but has not fulfilled all the requirements to apply for an ISP permit, a ministry official Wayan Toni Supriyanto said. More

GUANGZHOU, China (Reuters) – U.S. Treasury Secretary Janet Yellen arrives in China’s southern factory hub of Guangzhou on Thursday with a tough message to Chinese officials: you’re producing too much of everything, especially clean energy goods, and the world can’t absorb it. China is unleashing a flood of electric vehicles (EVs), batteries, solar panels, semiconductors and other manufactured goods onto global markets, the result of years of massive government subsidies and weak demand at home. Global prices for many goods are tanking, pressuring producers in other countries. “We see a growing threat of money losing firms that are going to have to sell off their production somewhere,” a senior U.S. Treasury official said of overproduction in key Chinese sectors.In a series of meetings with top Chinese economic officials from Friday through Monday, Yellen will seek to convey her view that the excess production is unhealthy for China and that there is a growing drumbeat of concern about it in the U.S., Europe, Japan, Mexico and other major economies.The official, who spoke on condition of anonymity, added that Yellen would explain: “If there are trade actions around the world, it’s not an anti-China thing, it’s a response to their policies.”But Beijing appears to be doubling down on investing in more manufacturing capacity in favored high-technology sectors, a stance that also is increasingly at odds with the European Union, Japan, Mexico and other major economies.”I do think the stage is set for renewed tensions with China,” said Brad Setser, a former trade official at both the U.S. Treasury and the U.S. Trade Representative’s office. “It’s an intrinsic question whether other countries want to import China’s distortions.”Setser added that Yellen’s warnings about Chinese overproduction may be an initial step by the Biden administration towards new tariffs or other trade barriers on Chinese EVs, batteries and other goods.En route to Guangzhou, Yellen declined to say whether she would raise the threat of new tariffs in her meetings in Guangzhou and Beijing with Chinese Vice Premier He Lifeng and Guangdong Province Governor Wang Weizhong, who has also presided over hundreds of billions of dollars worth of recent new projects.But she said that the Biden administration was determined to develop American supply chains in EVs, solar power and other clean energy goods with investment tax credits and would not “rule out other possible ways in which we would protect them.”In March, China’s leadership pledged to follow through on President Xi Jinping’s new mantra of unleashing “new productive forces” in China by investing in developing technology industries including EVs, new materials, commercial spaceflight and life sciences – areas where many U.S. firms hold advantages.FACTORY FIRSTThe results of China’s prior investment binges are staggering.Including EVs and combustion-engine cars, China by the end of 2022 had the capacity to produce 43 million vehicles annually, but its plant utilisation rate – a measure closely linked to profitability – was just under 55%, according to data from the China Passenger Car Association.Bill Russo, the Shanghai-based founder and CEO of advisory firm Automobility, estimated that this translates to excess auto production capacity of about 10 million vehicles a year, or roughly two thirds of North American auto output in 2022.The Rystad Energy research group estimates that China will soon be able to meet all global demand for lithium-ion vehicle batteries, even as dozens of battery and component plants spring up across the U.S.And new entrants are still coming into an increasingly cut-throat Chinese EV market. Mobile phone maker Xiaomi (OTC:XIACF) on Tuesday launched sales of its sporty new Speed Ultra 7 (SU7) EV.SOLAR DOMINANCEThe situation in China’s solar panel sector may be worse, where overproduction pushed prices down 42% last year to levels 60% below the cost of comparable U.S.-made products. China now accounts for 80% of global production capacity, and major solar producers are continuing to build factories, backed by provincial and local subsidies.At the end of 2023, China had the capacity to build 861 gigawatts of solar modules per year, more than double the global total installed capacity of 390 million gigawatts. Another 500-600 gigawatts of annual capacity is forecast to come online this year — enough to supply all global demand through 2032, according to energy research firm Wood Mackenzie. More

SEOUL (Reuters) – The Bank of Korea is considering overhauling how it provides guidance on the likely future path of interest rates by extending the timeframe and giving visual estimates in a bid to boost transparency, said four sources familiar with the issue.The proposal, however, faces opposition from at least one of the central bank’s seven-member governing board and a senior official, they said, amid concerns telegraphing future policy could undermine public confidence in policy, particularly if conditions suddenly change.Since first flagging the idea during a speech at the Federal Reserve’s Jackson Hole symposium in 2022, Governor Rhee Chang-yong has been developing plans to regularly map out conditional forward guidance on policy interest rates for six months or longer.Those projections would be accompanied by more detailed growth and inflation forecasts, according to sources familiar with the discussions.The move would represent a major change to how the bank produces and communicates policy and be part of a wider push to improve transparency and boost public understanding of its actions.Any visual estimates on the likely course of monetary policy would the first by the BOK, which currently issues mostly verbal forward guidance.South Korean authorities have been trying to introduce reforms across financial markets as the export powerhouse attempts to improve governance, transparency and communication.”One of the many formats under review is charting the future interest rate path, as the point is to give quantitative forward guidance,” said one of the sources, on condition of anonymity due to the sensitivity of the matter.Asked if it could be similar to the Fed’s “dot plot,” the de facto monetary policy forecast of the U.S. central bank, a second source said it was too soon to tell but that the new format “should aim to be straightforward, to leave little room for interpretation.”A BOK spokesperson declined to comment when asked if a new format of forward guidance was being discussed.Any overhaul of the bank’s communication tool would need to be approved by the seven-member board, according to the BOK.Analysts expect the BOK to cut its key interest rate by 50 basis points by the end of this year from 3.50% currently as inflation slows to the mid-2% range.The BOK’s current approach to forward guidance is on a meeting-by-meeting basis, which means central bank watchers mostly scan monetary policy statements for key words such as “sufficiently long period of time” or “for the time being.” No charts or quantitative estimates are provided in the statement.At recent post-meeting press briefing, Governor Rhee has provided three-months-ahead indications on where interest rates could go, making the news conferences the most closely watched form of communication for BOK watchers.Starting from the second half of this year, the bank’s research team will publish growth and inflation forecasts on a quarterly basis from the current half-yearly basis, a plan Rhee announced in January.”This is to build foundations for forward guidance expansion,” one BOK official said.Internal concerns about more explicit forward guidance, however, centre on the experiences of other central banks such as the Fed and the Reserve Bank of Australia, which have been criticised for failing to foresee recent price spikes in their projections.Such miscalculations can lead to sharp U-turns on policy signals, which can in turn lead to financial market volatility as investors rush to reposition themselves.”For a small open economy like Korea projections can go wrong more easily and risks such as currency volatility are outside of anyone’s control,” one of the sources said. More

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This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Congratulations to Disney’s Bob Iger, who won a shareholder vote against the activist Nelson Peltz yesterday. Hopefully now Iger can take Disney back to its roots: sticky, crowded theme parks and training children to annoy parents until they buy high-margin merch. If your child has a Frozen II Nerf gun they used once and never again, email us: [email protected] and [email protected]. The US economy is less confusing nowSeveral times last year, Unhedged wrote pieces making the dumb point that the pandemic-rattled US economy was confusing. In September, for instance:The cycle is hard to read when you are living inside of it. It is even harder to read while supply and sectoral disruptions are rippling through the economy, since the archetypical cycle is about demand fluctuations.Since the shocks of the pandemic, the cycle has been so inscrutable that some people think we are at the beginning of it while others think we are at the end.It’s now incumbent on us to make the opposite dumb point: the US economy has become a lot less confusing. The economy is growing roughly at, or possibly a bit above, its long-term potential. Inflation is not back to target, but it’s close. Consumer confidence, long depressed and much debated, has in recent months begun to rise. Most importantly, sectoral shifts and supply shocks have settled down. The New York Fed’s global supply chain disruption index has been bang in line with the long-run average since November 2023, shrugging off a clogged Panama Canal and war-stricken Red Sea. The goods-to-services spending rotation, after enduring two years of volatility, found an equilibrium in 2023 and has stayed there since (despite a small recent blip in the chart below):Steadier goods spending and lower cost inflation seem to have relieved pressure on US manufacturing. This week’s ISM purchasing managers’ index confirmed that manufacturing returned to modest expansion in March, after 16 months in contraction. In cycles since 1951, ISM manufacturing surveys have never shrunk for more than 14 months without a recession, note Don Rissmiller and Brandon Fontaine of Strategas. Manufacturing leaving contraction nixes one of the economy’s last few soft spots: Consumer balance sheets have normalised. The pick-up in credit card and auto loan distress has been widely noted, and for now both look like a return to the pre-pandemic world. The famous “excess savings” of the Covid-19 era appear exhausted. (Excess savings is a slippery concept, hard to interpret and even harder to measure. It is generally defined as the aggregate amount of personal savings above what the pre-pandemic trend would imply. This has probably supported consumer spending.) The latest update to the San Francisco Fed’s excess savings measure verges on zero:The labour market is still on the tight side, but far closer to 2019 levels of tightness than the 2021-22 quitters’ market. The Jolts data published earlier this week underscores the point. Across quits, firings, job openings and hiring, there was little to see, and as Nick Bunker, economist at Indeed, noted on Tuesday, “Today’s Jolts report reminded me of boring reports circa 2018. They were snoozefests on a month-over-month basis, but were signalling a strong labour market.” Goldman Sachs’ labour market tightness tracker (red line below) is back to where it was in 2019:After a rip-roaring boom in 2022, bank credit growth decelerated throughout 2023 and has closed in on the pre-pandemic trend. Looking at credit levels against a trend line is helpful, because volatile base effects make recent growth rates hard to interpret. Overall bank lending is about 2 per cent above the 2017-19 trend (see chart below), offset by cyclically sensitive commercial and industrial lending about 3 per cent below trend. The broad picture is one of normalisation, though weak C&I lending is notable.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The big exception is housing. As we’ve written about many times, high rates have frozen the market. They have locked up existing-home supply (no one will give up their 3 per cent fixed rate) and squelched mortgage demand. Without lower mortgage rates, a thaw is unlikely. This is likely why the Fed is taking its time to cut rates: it fears a housing snapback while the economy is already running somewhat hot. It must choose between risking an inflationary boom that could force further rate increases, or holding firm on rates at the risk of further damage to housing. To us, leaning against inflation seems the better choice, especially given how resilient growth has been. But the irony is that housing, the final abnormality, may be what is enabling so much normalisation elsewhere. (Ethan Wu)Utilities might not be boringThe problem with any analysis of the utilities industry is that people are unlikely to read it. Boredom, after all, is utilities’ primary characteristic as an investment. Steady demand, regulated returns, no surprises. If you have read even this far in this section of the letter, you are a hearty soul.That said, I assert that this chart is actually quite interesting:That is the total return of the S&P 500 sectors since this current rally began in October 2022. Utilities’ performance is not only the worst, it’s by far the worst, trailing the index by a whopping 38 percentage points. This is excitement — of a sort — at last. If you believe that, sooner or later, markets revert towards the mean, utilities are setting up for an absolutely glorious reversion. And this has happened in the past: in 2011 and 2014, for example, after several years of underperformance, utilities’ returns roared back and crushed the market by 15 and 18 percentage points, respectively. Utility outperformance is not limited to recessions and big market corrections.   The problem in recent years has been obvious enough. Most investors buy utilities for their dividend yields, as a bond substitute. But since the pandemic began, bond yields have risen, and utilities’ yields have not.In 2020, you were getting 2 percentage points of extra yield for owning utilities versus the 30-year Treasury. Today you get a percentage point less. And today you don’t even have to take duration risk to earn income, if you don’t want to. You can get the same yield on the two-year. Why on earth would you own utilities?The problem may be worse than this. Looking at the first chart, you will notice that of the four worst-performing sectors, two are rate-sensitive (utilities and real estate). But the other two are defensive (healthcare and consumer staples). Yields aside, defensiveness is unpopular in itself lately.Utilities should make a comeback when inflation finally arrives at target and the Fed begins to cut rates. How big, though? The increase in Treasury yields does not just reflect inflation. Real interest rates have risen too, and may stay high even in the face of Fed cuts. Still, they are due a snapback eventually. It would be nice if they were slightly cheaper, though, in dividend yield or even price/earnings terms. If you screen for utility companies that have solid yields, reasonable debt levels and have consistently grown both dividends and shareholder equity, you get a list like the one below. The compound annual growth rates in the chart are from 2019-23: Tempted? Email us. One good readJapan faces Sato-mageddon.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, hosted by Ethan Wu and Katie Martin, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youSwamp Notes — Expert insight on the intersection of money and power in US politics. Sign up hereDue Diligence — Top stories from the world of corporate finance. Sign up here More