Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Spain’s new economy minister will be Carlos Cuerpo, head of the country’s treasury and a key negotiator in a recent deal over the EU’s fiscal rules, replacing Nadia Calviño as she leaves to head the European Investment Bank.Announcing the appointment on Friday, prime minister Pedro Sánchez described Cuerpo, 43, as “a young professional of proven competence and a public servant with an exemplary career within the administration”.Cuerpo will take the reins of the ministry with Spain’s economy in a stronger position than many of its EU peers but heading into a crunch year when tough debt reduction rules agreed by member states in December come into force.Sánchez said Cuerpo would bring the same “professionalism and honesty” that distinguished Calviño, who became well-known and respected in her five years as the face of Spanish economic policy in Brussels and at international forums such as the G20 and IMF.Cuerpo has been a close ally of Calviño and his appointment represented “continuity”, according to one government official.As head of the treasury and a salesman for Spanish sovereign debt, Cuerpo is already well known to many international investors, said another Spanish official.In Spain, the economy ministry also has a crucial role in managing how the EU’s post-pandemic recovery funds are spent. The country is the second-biggest recipient in the bloc after Italy, and is due to receive a total of €164bn in grants and loans — but some businesses have criticised the handling of the funds.The prime minister decided to split Calviño’s role in a mini-cabinet reshuffle, handing her other duties as the most senior of Spain’s deputy prime ministers to finance minister María Jesús Montero.Montero, who is already the number two official in Sánchez’s Socialist party, had been junior to Calviño while running a finance portfolio that was focused on tax and budget policy but excluded international issues.Sánchez said Montero had been essential to making his government’s “reinforcement of the welfare state compatible with fiscal consolidation policies”.Spain’s public debt was equal to 109.9 per cent of gross domestic product in the third quarter of this year, down from a high of 120 per cent at the height of the pandemic in 2020.The EU earlier this month agreed to update fiscal rules in the so-called Stability and Growth Pact, which were suspended during the Covid-19 pandemic but will come back into force in 2024. The deal gave high-debt states some extra wriggle room as part of a transition period, but included stricter overall limits on spending that were crucial to winning over Germany.Countries with debt ratios above 90 per cent of GDP will be required to cut excess debt by one percentage point per year over the duration of their national spending plans.Cuerpo was a negotiator in the talks over the rules because Spain has for the past six months held the rotating presidency of the EU. In an interview with the Cinco Días news site published on December 27, Cuerpo said the deal was “balanced” and that it allows “fiscal consolidation paths adapted to the specific characteristics of each country”. “This is a very important element that the previous, more rigid framework did not have,” Cuerpo added. “We do not want what happened after the great financial crisis to happen to us, where investment was the great victim of consolidation and we spent years decapitalising our economy.”Cuerpo has previously held a series of roles in government relating to public debt and macroeconomic analysis. He has also worked at Airef, Spain’s independent fiscal watchdog.Sánchez applauded the appointment of Calviño as the first woman to lead the EIB, the world’s biggest multilateral lender. He said it “reinforces Spain’s presence and influence at the heart of the European project” along with Josep Borrell, the EU’s chief diplomat and another Spaniard from the Socialist party. More

The Dow touched its all-time peak on Thursday, while the S&P 500 and the tech-heavy Nasdaq also inched closer to their one-year highs. The benchmark S&P was within a whisker of its Jan. 4 2022 intraday high.The three main indexes also eyed their ninth straight weekly gain as well as both monthly and quarterly advances.They were set for double-digit gains in 2023, with the Nasdaq on track for its strongest yearly jump since 2003, sharply rebounding from a slump last year.With the Fed’s aggressive rate hikes cooling the U.S. labor market as well as pressuring the economy, investors have amplified their bets of rate cuts heading into 2024. As per CME’s FedWatch tool, the probability of policymakers cutting the Fed funds target rate by 25 basis points in March stood at 70.1%.The year 2023 was marked by aggressive Fed rate hikes, which were finally halted in September, the U.S. banking crisis in March, an artificial intelligence stocks boom, the Israel-Hamas war, economic concerns that eventually bolstered the case for policy easing bets, among others.The information technology is set to emerge as the top sectoral gainer in 2023, up 56.8%, benefiting from an AI exuberance and a surge in megacap stocks, while the defensive utilities sector was the worst hit with a 10.1% decline.Nvidia (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META) were the top annual gainers on the S&P 500, eyeing around three-fold gains.Investors are winding down for the holiday season, with markets staying shut on Monday, Jan. 1, on account of New Year’s Day.At 5:39 a.m. ET, Dow e-minis were up 17 points, or 0.04%, S&P 500 e-minis were up 2.75 points, or 0.06%, and Nasdaq 100 e-minis were up 21.75 points, or 0.13%.Among corporate movers, Uber Technologies (NYSE:UBER) and Lyft (NASDAQ:LYFT) lost 1.3% and 4.8%, respectively, in premarket trading, on report that Nomura downgraded the ride-sharing platforms. More

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LONDON (Reuters) -A huge two-month rally in bond prices, powered by expectations that central banks will soon be cutting interest rates, has rescued fixed income markets from an almost unheard-of third straight year of declines.The U.S. 10-year Treasury yield, the benchmark for borrowing costs globally, has dropped 46 basis points (bps) in December after falling 53 bps in November. Its two-month fall is the biggest since 2008, when the Federal Reserve was slashing rates during the global financial crisis.ICE BofA’s global broad bond market index, which includes government and corporate debt, has rallied roughly 7% over the last two months – its strongest eight-week period on record, according to LSEG data which goes back to 1997.The sharp drop in yields, which move inversely to prices, has eased pressure on companies and households as well as housing markets and governments that in October faced the steepest borrowing costs in more than a decade.It has also been a balm for highly indebted countries such as Italy, where bond yields are poised for their biggest monthly fall since 2013.HAWKS TURN DOVISHCentral bankers abruptly changed their tone on inflation in December, fuelling investors’ rate-cut bets. That followed a blockbuster November, when data showed U.S. and European inflation falling much faster than expected.”We were surprised by the strength of this rally,” said Oliver Eichmann, head of rates fixed income EMEA at asset manager DWS.The Fed’s Christopher Waller and the European Central Bank’s Isabel Schnabel, both previously renowned monetary policy hawks, softened their language in December and acknowledged – in Schnabel’s words – a “remarkable” fall in inflation.The Fed triggered fresh market euphoria when it used its December meeting to say that rate hikes were over. Fed Chair Jerome Powell notably declined to push back against market bets on deep cuts next year, although the Fed’s “dot plot” envisaged three 25 bp cuts in 2024, compared to the more than 150 bps priced in by markets.”That was a surprise,” said Jamie Niven, bond portfolio manager at asset manager Candriam. “And it does leave you with the question, what are they seeing that maybe the market isn’t?”The riskier parts of the bond market, increasingly attractive as investors bet on rate cuts next year, have rallied the most.Italy’s benchmark 10-year bond yield is on track to fall almost 60 bps in December, its biggest monthly drop since the euro zone debt crisis in 2013. Meanwhile, the spread of junk bond yields over benchmark risk-free rates in the United States and Europe has fallen to its lowest level since the second quarter of 2022. The two-month jump in bond prices has saved the market from the ignominy of a third year in the red, something not seen in 40 years or more, after two down years driven by inflation and rate hikes.Bond indexes were in negative territory in October as U.S. growth and inflation kept surprising economists, bolstering the case for higher rates for longer. The ICE BofA broad bond market index is now heading for an annual gain of more than 5%.Not all investors are convinced their luck will hold. “It’s gone too far,” said DWS’s Eichmann. He expects more “push-back” from central bankers in the new year and fewer rate cuts than priced in by markets. More

LONDON (Reuters) -This year might go down as one of the most unusual ever in financial markets – mainly because everything seems to have come good despite a lot of turbulence and many predictions turning out to be wrong.Take equity markets. World stocks are nearly 20% higher despite the highest interest rates in decades and a mini crisis that wiped out one of Europe’s best known banks – Credit Suisse – along with a few smaller ones in the U.S.In the bond markets, just a few months ago investors were expecting the Fed & Co to raise rates and leave them there while recessions rolled in. Now bond markets are looking to central banks to embark on a rate-cutting spree with inflation apparently beaten.Other areas of the markets have experienced wild gyrations that are hard to explain. Bitcoin is up 150% on the year. Some of the most beaten up emerging market bonds have achieved triple-digit gains. The “magnificent seven” tech giants have seen a 99% surge in their shares over the year.”If you’d told me at the start of year that we would have a U.S. regional banking crisis and Credit Suisse would cease to exist, then I’m not sure we would have guessed that we would see the year we’ve had for risk assets,” PIMCO’s CIO for Global Fixed Income, Andrew Balls, said.The result has been 3.5% – 6.5% returns from top government bonds and a $10 trillion rally in world stocks, although that has been top heavy.Meta (NASDAQ:META) and Tesla (NASDAQ:TSLA) have soared 190% and 105%. The Nasdaq is on the cusp of its strongest year in two decades, while AI’s demand for semiconductor chips has catapulted Nvidia (NASDAQ:NVDA) 240% higher into the $1 trillion dollar club.But it has been a very bumpy ride.In March, the collapse of Silicon Valley Bank, a mid-sized U.S. lender, and the rescue of 167-year-old Credit Suisse triggered a slide in world shares where they lost all of the 10% gains made in January.The scramble for safety pushed gold up 7% and U.S. and European government bond yields – the main drivers of global borrowing costs – recorded their biggest monthly drop since the 2008 financial crisis.The steady climb in interest rates around the world then kept investors sweating through the summer, and in October Hamas’ attacks in Israel ratcheted up geopolitical tensions.ROUND-TRIPPINGIn the forex markets, the dollar is down a barely-noticeable 1% on the year. But Japan’s seeming reluctance to raise interest rates and China’s sputtering economy mean the yen and yuan are down 9% and 3.5% respectively.As usual, the big moves have been in emerging markets.Turkey’s efforts to tackle its economic problems following Tayyip Erdogan’s re-election have not been made any easier by another 35% dive in the lira.Egypt has devalued its currency 20%, Nigeria has cut the naira by 45% and Argentina’s new president Javier Milei has just slashed the peso in half.On the upside, Colombia and Mexico’s pesos are up 23% and 14%. Poland’s zloty is up 11%, followed by Brazil’s real which is up 8.5%. And of the major currencies, the safe-haven Swiss franc has been the strongest performer up 7.5%.”Once the dollar starts to move down there could be a lot of fuel for that to continue,” DoubleLine’s Bill Campbell said, referring to a potential weakening of the dollar and also questioning what a potential return to power by Donald Trump might mean. One of the most remarkable round trips is that the key 10-year U.S. Treasury yield will end the 2023 almost exactly where it started despite touching 5% in October.BofA calculates that the battle against inflation has produced around 125 interest rate hikes globally this year versus 60 cuts. If the previous 18 months are added the total is 510 hikes compared with just over 1,370 cuts since the global financial crash in 2008. And cuts will start to dominate next year with roughly 150 now expected compared with 40 hikes. “Everyone expects a soft landing to happen, everyone expects bond yields to be lower and everyone expects Fed rate cuts,” BofA strategist Elyas Galou said, highlighting the group think the bank’s investor surveys showed.The big discrepancy though is that the Fed has only cut rates when unemployment is as low as it now five times the last 90 years.ELECTION FEVERJapan’s Nikkei has surged 17% in dollar terms, or 27% in yen terms, setting it up for its best year in a decade.Property woes have continued to drag on China, which has had a knock-on impact on oil, which is down almost 8% on the year. Gold has jumped 11.5%.Other standouts include El Salvador bonds, which are now battling out of default and have returned 114% on the year.U.S. sanctions relief has seen Venezuela’s bonds vault 150% and Pakistan and Sri Lanka’s have made 97% and 71%.Next year won’t be quiet on the political front. There are more than 50 major elections scheduled next year, including in the United States, Taiwan, India, Mexico, Russia and probably Britain. That means countries that contribute 80% of world market cap and 60% of global GDP will be voting. Taiwan kicks it off with elections on January 13, followed just a few days later by the New Hampshire primary for the 2024 U.S. Presidential race.Other dates for the diary include the Fed’s first rate cut, which is pencilled in for March 20, while OPEC and G7 meetings are scheduled for June.”This is an era of boom and bust,” BofA Galou said. “We are not out of the woods.” More