Aurelia Butler

Spain has logged its warmest January since records began in 1961 and last year was the country’s second warmest, while a recent study showed parts of the Iberian peninsula were suffering from the driest period in 1,200 years. Scientists have linked scorching temperatures and dry and windy conditions in many parts of the world, including southern Europe, to climate change. De Cos said that the materialization of those risks would lead to a 0.2 percentage points reduction in the core tier-1 capital ratio of Spanish banks and would persist over a three-year horizon.”Bank capital consumption in this adverse scenario is mainly explained by higher impairment losses and lower net income generation, in line with lower economic activity”, De Cos said at an event in the Balearic Islands.De Cos said banks would probably react by reducing their loan portfolios, which would mitigate the effect on solvency, but exacerbate the economic impact. “In any event, if droughts and heatwaves were to become recurrent, their negative impact on the solvency and profitability of the banking sector would be greater than the short-term effects identified in this analysis,” he said.Findings were part of the results of various papers from the Bank of Spain.De Cos, who is also a member of the European Central Bank governing council, said that heat waves and droughts can occur simultaneously in several countries, posing additional risks.Last month, the ECB hinted it could make its monetary policy greener as part of a new push to take climate change into account in its work. More

(Reuters) -The dollar firmed on Friday after two days of declines and was still on track for its fifth straight weekly gain as investors scaled back expectations for Federal Reserve rate cuts, while the yen was anchored around the key 150 per dollar level.The dollar had come under pressure after mixed U.S. data, with retail sales falling more than expected in January. Investors await U.S. producer price data later in the session which could provide an update on key services components of the Personal Consumption Expenditure (PCE) index, the Fed’s preferred inflation gauge.Some analysts said the U.S. currency’s rebound could have run out of steam.The dollar retracement “has been much greater than the retracement in U.S. yields and that might mean there are limits to further dollar strength over the near-term,” said Derek Halpenny, head of research, global markets EMEA at MUFG.”Still, in a backdrop of near recessionary conditions in Europe and Japan and a real estate crisis in China, we would continue to see upside risks for the dollar,” he added.The dollar index, which measures the U.S. currency against six major rivals, was up 0.02% at 104.26 on Friday, having eased around 0.6% the two previous days. The index is on course to eke out a 0.18% gain for the week, its fifth in a row.Remarks by Federal Reserve Chair Jerome Powell early this month and strong U.S. data have quashed expectations of early and deep rate cuts from the Fed.Traders are now pricing in a rate cut in June, according to the CME FedWatch tool, which had initially priced in March as the starting point of the Fed’s easing cycle. They discount 100 basis points (bps) of cuts this year as the most likely outcome, much lower than the 160 bps priced in at the end of 2023.”The dollar correction (this week) is again the symptom of some investors’ impatience to join what remains a consensus view, despite recent data, that the U.S. will decline at some stage in 2024,” said Francesco Pesole, forex strategist at ING. “This is also why we think EUR/USD is not too far from a supporting floor despite more dollar strength in the near term.”The euro was up 0.05% to $1.0778, but set for a 0.55% decline on the week.BofA reiterates its forecast of a euro/dollar exchange rate of 1.15 at year-end.”We expect the European Central Bank (ECB) to start cutting rates at the same time and at the same pace (as the Fed), we have been arguing that Fed cuts matter more for markets, as they have global implications and affect overall risk sentiment,” said Athanasios Vamvakidis, global head of forex strategy at BofA, who sees the greenback as overvalued.Increasing risk appetite usually weakens the dollar which market participants see as a safe-haven asset.Investors focused on ECB speakers after President Christine Lagarde reiterated the bank’s cautious stance on easing monetary policy. Francois Villeroy de Galhau said the ECB should not hold off for too long on an initial cut, while Isabel Schnabel argued that sluggish productivity growth may slow the inflation fall. The pound briefly flickered higher on Friday after data showed UK retail sales grew at their fastest pace in nearly three years in January, beating expectations, but did little to shift expectations around Bank of England monetary policy.YEN WORRIESThe Japanese yen weakened 0.18% to 150.16 per dollar, hovering around the 150 mark, a level that puts the market on alert for possible intervention by Japan to support its currency as well as comments from officials.Finance Minister Shunichi Suzuki said that while a weak yen has merits and demerits, he was “more concerned” about the negative aspects of a weak currency.”Diminishing effectiveness of verbal interventions may require Japanese officials to take concrete action to slow down the pace of yen depreciation if U.S. Treasury yields rise further,” said Kieran Williams, head of Asia FX at InTouch Capital Markets.The yen, which is highly sensitive to U.S. rates, is down 6% against the dollar this year as investors pare back their expectations of rate cuts from the Fed. “We expect the Bank of Japan (BoJ) to start hiking policy rates from April 2024 amid persistent inflation and strong wage growth, but at a 10bp per quarter pace, which is unlikely to roll back the robust carry trade momentum,” said Shinichiro Kadota, chief forex strategist at Barclays Japan.The Japanese government and wealthy Japanese, especially pensioners, are running a massive carry trade funded in local bank liabilities and invested in domestic and foreign assets. More

(Reuters) – A New York state judge is expected to rule on Friday in a $370 million civil fraud case against former U.S. President Donald Trump, who is accused of inflating his net worth to dupe bankers into giving him better loan terms. Justice Arthur Engoron’s ruling could deal a major blow to Trump’s real estate empire as the businessman turned politician seeks the Republican nomination to challenge Democratic President Joe Biden in the Nov. 5 U.S. election.The lawsuit brought by New York Attorney General Letitia James accused Trump and his family businesses of overstating his net worth by as much $3.6 billion a year over a decade. Trump has denied wrongdoing and called the case a political vendetta by James, an elected Democrat. In addition to monetary penalties, James is seeking to permanently ban Trump from New York’s real estate industry and sharply limit his ability to do business in the state. She is also seeking five-year industry bans for Trump’s two adult sons, Don Jr. And Eric, who are also defendants in the case. Engoron ruled in September that Trump had engaged in fraud and ordered his business empire be partially dissolved. The full implications of that order are still unclear, and Trump is appealing. The ruling expected Friday comes after a contentious three-month trial in Manhattan. During defiant and meandering testimony in November, Trump conceded that some of his property values were inaccurate but insisted banks were obligated to do their own due diligence. He used his occasional court appearances as impromptu campaign stops, delivering incendiary remarks to reporters and insisting his enemies are using the courts to prevent him from retaking the White House. Trump is cruising to the Republican nomination despite a host of other legal troubles. He is under indictment in four criminal cases, including one in New York related to hush money payments he made to a porn star ahead of the 2016 election. The judge overseeing that case on Thursday set a March 25 trial date over the objections of Trump’s lawyers, who sought to delay it due to Trump’s crowded legal and political schedule. Trump has also been charged in Florida for his handling of classified documents upon leaving office and in Washington and in Georgia for his efforts to overturn his 2020 election loss. Trump has pleaded not guilty in all four cases. More

TOKYO (Reuters) – Hiromichi Akiba is stocking his Tokyo supermarket with more chicken because customers who used to buy beef are switching to cheaper meat as rising prices put a squeeze on their spending, his business and Japan’s economy.Japan unexpectedly fell into recession at the end of last year as domestic consumption, which accounts for more than half of the nation’s economy, faltered.The 0.4% fall in economic output on an annualised basis in the three months to December means that Germany, rather than Japan, is now the world’s third-biggest economy behind the United States and China.It isn’t the first economic downturn Akiba has faced. He opened his store in 1992 as the economic boom that made Japan the world’s No. 2 economy gave way to stagnation. It is, however, one of the toughest yet as inflation and a sustained depreciation of the Japanese yen push up labour, transport and energy costs that are difficult to pass on to the shoppers who come to his discount supermarket looking for bargains.”Customers used to come with lists knowing what they wanted to buy, but now more are deciding what to get after seeing what is cheap,” he said at his store in a Tokyo suburb next to baskets offering quartered Chinese cabbage heads for 52 cents and crowns of broccoli for 67 cents.Japan’s retailers are “at war” with each other to win customers, he added.Retailing giant Aeon says it has also noticed consumer sensitivity to higher prices, with its Chief Strategy Officer Motoyuki Shikata telling analysts last month that it was seeing more “fatigue” among shoppers being asked to pay more.That inflation pain stands in contrast to a stock market boom enriching investors. The weaker yen has made yen-denominated shares more attractive and helped fatten profits at corporations such as carmaker Toyota (NYSE:TM) which make much of their money overseas.Harumitsu Moriyasu, one of Akiba’s regular customers, doesn’t expect the fortunes of high-street consumers to improve anytime soon. A year from retirement, the 64-year-old social welfare worker says he is worried how he will cope on a pension. “The U.S. and China have more people than Japan so it makes sense that they have bigger economies, but Germany has a smaller population so the situation must be serious,” he said. ($1 = 150.1900 yen) More

Schnabel pointed to a number of factors behind the euro zone’s long-running economic underperformance versus the United States, including lower investment in technology, more red tape and more expensive energy.She argued this could delay the ECB’s victory against high inflation and the timing of its first interest rate cut. “Persistently low, and recently even negative, productivity growth exacerbates the effects that the current strong growth in nominal wages has on unit labour costs for firms,” she told an event in Florence, Italy. “This increases the risk that firms may pass higher wage costs on to consumers, which could delay inflation returning to our 2% target.”Reaffirming her stance, Schnabel said this meant the ECB had to be “cautious” and not cut rates “prematurely” to avoid a second flare-up in inflation as happened in the 1970s. She said making it easier to open and scale-up successful businesses and wind-down failing ones were among measures that could be taken to boost euro zone productivity.Higher productivity would make life easier for the ECB in avoiding both periods of too high and too low inflation, Schnabel said.”Measures that help firms boost productivity growth directly support monetary policy in achieving its objective of securing price stability over the medium term,” Schnabel said. More

ANKARA (Reuters) – Turkey’s central bank is expected to keep its key interest rate steady at 45% next week, after a 250 basis-point hike last month, marking the end of its aggressive tightening cycle, a Reuters poll showed on Friday.The monetary policy committee meeting on Feb. 22 comes after Fatih Karahan was appointed central bank governor on Feb. 3 after the resignation of Hafize Gaye Erkan, who cited a need to protect her family from what she called a media smear campaign.All 11 economists surveyed by Reuters agreed that the policy rate will be kept steady this month. Since June, after President Tayyip Erdogan prevailed in May elections and initiated a U-turn in economic policy, the central bank has lifted its key rate by 3,650 basis points.After its latest hike, the bank said it had achieved the policy setting needed to establish disinflation and this rate level will be maintained until there is a significant decline in the underlying trend of monthly inflation.Presenting the quarterly inflation report last week, Karahan said the bank will maintain a tight policy stance until inflation drops to target, keeping a year-end inflation forecast of 36% despite expectations it might need to rise.He said another rate hike was not currently needed but it was too early to talk about easing, damping expectations of a quick easing cycle and reinforcing analysts’ views that he will remain hawkish until inflation begins to cool around mid-year.According to the median forecast of the Reuters poll, the policy rate is expected to be 37.5% at end-2024. Only one of the 10 institutions who responded to this query expected the policy rate to remain at 45% at the end of the year, with the estimates in a 35-45% range.Turkey’s inflation rate climbed to an annual 64.9% last month, having risen 6.7% on a monthly basis on the back of some big one-off annual price rises and a 49% minimum wage increase. Market forecasts for end-year inflation are between 40-45%.Karahan, previously deputy governor and a former Federal Reserve Bank of New York economist, is the fifth governor Erdogan has named in as many years. As deputy, he played a key role designing the tightening cycle.The bank will announce its rate decision at 1100 GMT on Feb. 22. More

The revised amount is slightly higher than 1.17 trillion baht previously approved and aims to attract more private companies to invest in government projects.The public-private partnership committee also approved an investment worth about 18.4 billion baht at Laem Chabang port in the eastern province of Chonburi, it said in a statement.The government will also expedite other infrastructure projects which have high economic value, it said, as Southeast Asia’s second-largest economy has lagged regional peers.The finance ministry has forecast only 2.8% growth this year after 1.8% growth estimated for 2023, a sharp downgrade from earlier forecasts. Official 2023 gross domestic product is due on Monday. The economy expanded 2.6% in 2022.($1 = 36.06 baht) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Retail sales in Great Britain rebounded in January following a slump in December, suggesting the economy has picked up some momentum after a weak end to 2023.Sales volumes jumped by 3.4 per cent in January, following a revised fall of 3.3 per cent in December 2023, according to figures published by the Office for National Statistics on Friday. It was the biggest monthly increase since April 2021, the ONS said, taking volumes back to the level of November 2023. The numbers suggest the economy is starting to shrug off some of the weakness seen at the end of 2023, when the UK slipped into a technical recession. Lower inflation coupled with firm wage growth should permit household spending to pick up in the coming months, economists said. “The strong pick-up in sales suggests the worst is now behind the retail sector and falling inflation and rising wages in 2024 will provide a strong platform for recovery,” said Joe Maher at research company Capital Economics. But the data still points to an economy that is in a sluggish state. Sales volumes remain 1.3 per cent below their pre-pandemic level in February 2020. Compared with this time last year, they are up by 0.7 per cent. Official figures showed on Thursday that UK gross domestic product fell 0.3 per cent in the final three months of 2023, following a 0.1 per cent decline in the third quarter, pulling the country into a technical recession.The GDP figures provided a harsh backdrop to chancellor Jeremy Hunt’s upcoming Budget, as the Conservative government seeks to generate a lift in opinion polls via tax cuts. January’s increase in retail sales, which was driven by food stores, exceeded the 1.5 per cent month-on-month rise forecast by economists in a Reuters poll. Volumes rose in all areas except clothing stores, with some retailers reporting improvements driven by January sales, the ONS said. Thomas Pugh, economist at audit firm RSM UK, said the bounce in January sales volumes suggested the technical recession at the end of 2023 would not extend into 2024. “While January’s pace of growth is unlikely to be maintained there are plenty of reasons to expect retail sales volumes to gradually recover this year,” he said, pointing to projections that inflation — now at 4 per cent — would be back at the Bank of England’s 2 per cent target by the summer. “This will kick-start a consumer-spending led recovery that should feed through into growing retail sales and see the economy finally return to growth,” Pugh added.Andrew Bailey, BoE governor, suggested this week that the UK was seeing signs of an economic “upturn” after the weakness at the end of last year.The central bank’s latest forecasts pointed to a “somewhat stronger growth story” ahead, Bailey said, while cautioning that trends in productivity and investment meant there was still a “very constrained” supply side of the economy. More