Aurelia Butler

U.S. stock futures edged higher Friday, set to end a strong year on Wall Street on a positive note.By 05:30 ET (10:30 GMT), the Dow futures contract was up 25 points, or 0.1%, S&P 500 futures had gained by 5 points or 0.1%, and Nasdaq 100 futures had risen by 22 points or 0.1%.The three main indices have benefited from an impressive late rally with the Federal Reserve signaling that its prolonged rate-hiking cycle is at an end and rate cuts were likely in 2024.The DJIA and S&P 500 are poised to end 2023 over 13% and 24% higher, respectively, with the latter less than 0.5% off its highest closing level, which was set in January 2022. The Nasdaq Composite is on course to record a gain of over 44%, which would be its biggest annual increase since 2003.Nvidia (NASDAQ:NVDA), the U.S. chipmaker, has launched a new version of a gaming chip designed to comply with U.S. export controls targeting China.This chip is the first released by the company since export rules unveiled by the Biden Administration in October meant artificial intelligence chips it created for the Chinese market were blocked for sale.Nvidia has been one of the year’s main stars, benefiting from the surge in interest in artificial intelligence, resulting in it joining an elite club of U.S. companies with a $1 trillion market value.Nvidia has commanded more than 90% share of China’s $7 billion AI chip market, and the U.S. curbs have created concerns that it could lose market share to domestic firms.The U.S. stock markets have enjoyed a strong end to the year, benefiting from the belief that the Federal Reserve will start cutting interest rates in 2024, leading to a so-called ‘soft landing’.Economic growth has cooled and inflation has eased, but the economy has shown little evidence that months of tighter monetary policy will result in a severe downturn.    Key to whether this mindset will continue will be the health of the U.S. jobs market into the new year.Data released on Thursday showed that the number of Americans filing initial claims for unemployment benefits rose by 12,000 last week to 218,000, indicating the labor market continues to cool in the year’s fourth quarter.However, most eyes will be on next week’s December nonfarm payrolls report, with the U.S. economy expected to have added 158,000 jobs in December versus 199,000 in November. Boeing (NYSE:BA) passed another important milestone Friday, after the U.S. plane manufacturer confirmed that all of its 737 MAX jets operated by Chinese carriers are now back in service, following the global grounding in 2019.The company’s best-selling model was grounded after a couple of fatal crashes more than four years ago. Although it generally returned to service in late 2020, Chinese airlines were late to the party, only starting to fly them again in January 2023.This restart would benefit the company greatly as it would allow the carrier to offload dozens of planes in its inventory.Oil prices edged higher Friday, rebounding after the previous session’s sharp losses, but were set to end the year near the lowest levels since 2020 when the pandemic sent prices spiralling lower.By 05:30 ET, the U.S. crude futures traded 0.1% higher at $71.83 a barrel, while the Brent contract climbed 0.3% to $77.39 per barrel. Prices dropped around 3% on Thursday as major shipping firms began returning to the Red Sea, easing concerns about supply disruptions through this key region.Helping the prices recover was the U.S. Energy Information Administration reporting a much larger-than-expected draw in crude inventories, with stockpiles dropping by 7.1 million barrels in the week ended Dec. 22.That said, the crude benchmarks are on course to end the year around 10% lower as production cuts by a number of major producers have proved insufficient to prop up prices, with the slowing global economy and a series of aggressive interest rate hikes to combat soaring inflation weighing. More

LONDON (Reuters) – The dollar edged higher on Friday but was still set to end 2023 with a loss, reversing two straight years of gains, dragged down by market expectations that the U.S. Federal Reserve could begin easing interest rates as early as March.The greenback crept higher on the last trading day of the year although currency moves were mostly subdued amid a holiday lull leading up to the New Year.Since the Fed launched its aggressive rate-hike cycle in early 2022, expectations of how far U.S. rates would have to rise have been a huge driver of the dollar.But as economic data subsequently pointed to signs that inflation in the United States is cooling, investors turned their focus to how soon the Fed could begin cutting rates – expectations that gathered steam after a dovish tilt at the central bank’s December policy meeting.Against a basket of currencies, the greenback was up 0.12% on Friday to 101.35, rising from a five-month trough of 100.61 hit in the previous session.The dollar index was still on track to lose more than 2% for the month and for the year.”Markets are looking for a cut earlier in the U.S. and are less certain that the European Central Bank (ECB) will cut as quickly, so that’s why the dollar is very soft,” said Niels Christensen, chief analyst at Nordea.”We also have positive risk appetite which is another negative for the dollar. Going into 2024, the soft dollar will be a theme towards the March central bank meetings.”A weakening dollar, meanwhile, brought relief to other currencies, with the euro last at $1.1049, hovering just below a five-month peak of $1.11395 reached on Thursday and on track to rise more than 3% for the year, its first positive year since 2020.Sterling was on track for a 5% yearly gain, its best performance since 2017. The British pound was last 0.2% lower on the day at $1.2711.While policymakers at the ECB and the Bank of England (BoE) did not signal any imminent rate cuts at their policy meetings this month, traders continue to bet that a Fed pivot and the prospect of lower U.S. rates next year would give room for other major central banks to follow suit.”While it feels like the market might have moved too far too fast, the facts are that growth is non-existent in Europe, slowing in the U.S., and inflation is falling globally,” said CJ Cowan, portfolio manager at Quilter Investors. “The ECB is famously slow to change policy course so almost two cuts priced by April looks aggressive, even if it might be the right thing to do.”Elsewhere in Europe, the Norwegian crown strengthened against both the euro and the dollar on |Friday after the Norwegian central bank said it would sharply reduce its purchase of foreign exchange for the sovereign wealth fund in January, cutting it to 350 million Norwegian crowns ($34.41 million) per day from 1.4 billion previously.”It was a surprise that they announced such a low number,” Nordea’s Christensen said.”It’s good news for the Norwegian crown and supports the rally that we’ve seen in December.”ASIA CONTRASTThe yen is set to fall more than 7% in 2023, extending its losses into a third straight year, as the Japanese currency continues to come under pressure from the Bank of Japan’s (BOJ) ultra-loose monetary policy stance.While market expectations are for the BOJ to exit negative interest rates in 2024, the central bank continues to stand by its dovish line and has provided little clues on if, and how, such a scenario could play out.”The outlook for Japan is encouraging going into 2024, with expectations of robust economic growth and improving inflation that shows signs of being sustainable,” said Aadish Kumar, international economist at T. Rowe Price, citing a weak currency and accommodative policy stance as “key supports” to the view.”Any potential moves to tighten policy via a hike in interest rates represent a key risk to the outlook. Given the BOJ will not want to risk undoing all the good work achieved to date, we believe it will remain dovish in its communication and keep policy accommodative.”The yen was last 0.3% weaker at 141.835 per dollar.In China, the onshore yuan was headed for a yearly loss of nearly 3%, pressured by a faltering post-COVID recovery in the world’s second-largest economy.The yuan last stood at 7.111 per dollar, while its offshore counterpart was last at 7.1286 per dollar.($1 = 10.1702 Norwegian crowns) More

HANOI (Reuters) -Vietnam’s economic growth slowed to 5.05% this year from an expansion of 8.02% last year, official data showed on Friday, weighed by weak global demand while public investment stalled amid an intensified anti-graft crackdown.This year’s gross domestic product (GDP) growth was below a government target of 6.5% and lower than average growth of 5.87% during the previous decade, according to data released by the government’s General Statistics Office (GSO).Vietnam is a regional manufacturing hub that relies heavily on trade. Exports in 2023 fell 4.4% from last year to $355.5 billion, with shipments of smartphones, its largest foreign currency earner, dropping 8.3%, the GSO said in its report.Its industrial production index in 2023 rose 1.5% from last year, while average consumer prices in the year rose 3.25%, according to the GSO. Retail sales were up 9.6%. “Though this year’s growth is below a government target of 6.5%, it is still a positive result, putting Vietnam in the group of the fastest growing economies in the region and in the world,” the GSO said.Imports in 2023 fell 8.9% to $327.5 billion, resulting in a trade surplus of $28 billion for the year, according to the report. A large trade surplus is supportive for the dong currency, but a sharp fall in imports could indicate a slowdown in manufacturing activities in the months ahead. The country’s central bank, in an effort to boost economic growth, has this year cut its policy rates four times, reducing its refinance rate and discount rate by an accumulated 150 basis points each, but credit growth remains much weaker than its target of 14%. Overall credit growth in the economy as of end-November was 8.2%, according to data from the State Bank of Vietnam, the country’s central bank, which said the “the economy was still facing difficulties with a slow economic recovery and therefore the demand for loans was weak”.To compensate for the fall in exports, Vietnam has decided to extend a value-added tax cut to boost domestic consumption, while authorities have sought to speed up public investment, mostly on infrastructure. But public investment has stalled this year amid an intensification of the country’s “blazing furnace” anti-corruption campaign, which has often paralysed activities. Disbursement of public funds in the year to the end of November was estimated at 461 trillion dong ($18.98 billion), meeting only 65% of the target set for the year, according to the Ministry of Planning and Investment. For the fourth quarter of this year, GDP grew 6.72% from a year earlier, faster than an expansion of 5.47% in the third quarter and a growth of 5.92% in the same period last year, according to the GSO. Third quarter GDP growth was revised up from 5.33%.Capital Economics, however, said the fourth-quarter momentum is unlikely to last if exports weaken and commercial banks pull back on lending in response to a sharp rise in non-performing loans.”We think the economy will struggle in 2024,” it said in a note, forecasting next year’s growth at 6.0%. The central bank will likely cut rates further next year, with inflation likely to remain within target, Capital Economics said, though it added that the consensus expects no change.Vietnam’s legislature in November approved government targets for next year of GDP growth of 6.0% to 6.5% and inflation in a range of 4.0% to 4.5%. More

With hopes high for big central banks to start cutting interest rates soon, euphoric financial markets could soon be tested, while the timing of a Bank of Japan rate increase remains in focus.Here’s your look ahead to the first trading week of the new year with Kevin Buckland in Tokyo, Yoruk Bahceli in Amsterdam, Ira Iosebashvili in New York and Dhara Ranasinghe in London. 1/ GOLDILOCKS, STICK AROUNDThe health of the U.S. jobs market is crucial to gauging whether a Goldilocks scenario continues into 2024, putting Friday’s December non-farm payrolls report in the spotlight.Economic growth has cooled and inflation has eased, fueling a massive cross-asset rally and allowing the Federal Reserve to pencil in more rate cuts for 2024. At the same time, the economy has shown little evidence that months of tighter monetary policy are spawning a severe downturn.Signs of deviation from that scenario – in the form of exceedingly strong jobs growth or a sudden drop in employment – could shake investors’ confidence in a soft landing.Economists polled by Reuters expect the U.S. economy added 158,000 jobs in December versus 199,000 in November. 2/ INFLATION SURPRISE?For all the joy in markets, data also out on Friday is expected to show euro zone inflation rose in December for the first time since April.A Reuters poll sees it jumping to 3% from 2.4% in November, snapping a sharp drop which saw inflation undershoot expectations for three straight months. Economists reckon the rise will largely result from energy support measures a year ago, particularly in Germany, where the government had covered household gas bills, meaning a lower “base” to which December 2023 prices are compared.So, investors will have to sift through the data to assess how current price pressures are evolving. Any surprise higher would unnerve traders expecting over six, quarter-point ECB rate cuts in 2024.The good news: core inflation, excluding volatile food and energy prices, should continue dropping. The narrowest measure is seen falling to 3.4%, which would be the lowest since March 2022. 3/ WARNING SIGN What goes up, must come down. Rate-cut exuberance means markets start the new year on a high – stocks are at their highest in over a year, government bond yields are at multi-month lows. Perhaps complacency is too strong given elevated geopolitical risks, the prospects for corporate defaults to rise and key elections starting with Taiwan on Jan 13.Well-known market fear gauge, the VIX index, hit over three-year lows in December, and the MOVE Treasury market volatility indicator is well below a March peak.The coming days will put investor confidence to the test. And if a new year is a moment to reflect on a year gone by, don’t forget the curve balls (banking crisis, Hamas-Israel war, Argentine election result) that caught many by surprise. 4/ HIDDEN HAWK?         Building bets for an imminent end to the Bank of Japan’s negative rates policy were batted back in December, when it stuck to a resolutely dovish stance.Yet Governor Kazuo Ueda, with a penchant for the unexpected, offered a tantalizing morsel to hawks, saying that “generally speaking” a stimulus exit could include an element of surprise.     So, while the surface message continues to be one of patience, borne out by data showing inflationary pressures waning, comments from the BOJ ahead of its Jan. 23 meeting are in focus.    In fact, in a Dec. 27 interview, Ueda hinted again that the results of spring wage negotiations are not essential to a hawkish shift, and that “quite a lot of information” could be gleaned from the BOJ’s regional branch manager meeting in mid-January. 5/ SAME TARGET, BIGGER CHALLENGEWith China’s economy on track to meet Beijing’s 5% growth goal in 2023, government advisers seem confident in calling for the same target in 2024.    A big issue though is there won’t be the same flattering annual comparison with the COVID-lockdown slump of 2022.    That means tough choices for policymakers, particularly around loading up on more debt, as Beijing struggles to shift from construction-led development to consumption-fueled growth.    Investors, expecting more stimulus, will be watching China headlines closely in the next few days. Domestic demand is still tepid and the property market, where 70% of household wealth is parked, is teetering near collapse.    Official growth targets won’t be announced until March, but what measures emerge before then will say a lot about China’s strategy – and the risks of falling afoul a Moody’s (NYSE:MCO) threat for a ratings downgrade.    (Graphics by Kripa Jayaram, Kevin Yao, Vineet Sachdev, Pasit Kongkunakornkul, Marc Jones and Sumanta Sen; Compiled by Dhara Ranasinghe; Editing by Miral Fahmy) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Falling inflation is set to prompt the European Central Bank to start cutting interest rates by the second quarter of 2024, according to the majority of economists polled by the Financial Times.Rate-cut expectations have intensified since inflation in the euro area slowed to 2.4 per cent in November, down from its peak above 10 per cent a year earlier and only slightly above the 2 per cent ECB target. Almost 60 per cent of respondents in the FT survey predicted inflation would reach the 2 per cent threshold in 2024, although some said it was likely to speed back up again from there. “Inflation may shortly dip below 2 per cent in the second quarter of 2024,” said Fritzi Köhler-Geib, chief economist at German state-owned development bank KfW. “Yet for most of the year the inflation rate will be somewhat above 2 per cent.”The ECB has warned that it expects inflation to reaccelerate in December before slowly declining to its target in mid-2025. Isabel Schnabel, an ECB executive board member, recently told Süddeutsche Zeitung newspaper: “We still have some way to go and we will see how difficult the famous last mile will be.”How quickly price pressures subside will be the key question as the central bank decides when to start lowering borrowing costs.Only two of 48 economists surveyed by the FT forecast that the ECB would start cutting rates in the first three months of 2024, despite investors pricing in a greater than 50 per cent chance of such a move in March.“Being too slow to cut rates [could] well prove more damaging for the ECB credibility than failing to raise rates quickly in response to an energy shock,” said Davide Oneglia, head of European and global macro at TS Lombard.The ECB has raised its deposit rate from minus 0.5 per cent last year to its highest ever level of 4 per cent, in response to the biggest surge in consumer prices for a generation.Almost 42 per cent of economists said they thought the ECB had overtightened monetary policy by raising rates too high, while half of them said its response had been “about right” and only 2 per cent thought it still had not done enough.“The ECB has raised interest rates very aggressively — by large amounts and quickly — and there is a risk that it has overestimated the strength of the euro area economy and overtightened,” said Stefan Gerlach, former deputy head of Ireland’s central bank who is EFG Bank chief economist.A third of economists predicted that the ECB would wait until the second half of the year to start lowering borrowing costs, while one out of eight thought this would not happen until 2025. Once the cuts started, the economists on average expected the ECB to keep lowering its deposit rate until it reached close to 2.25 per cent.Just over half the respondents said they did not think the ECB’s credibility had been seriously damaged despite criticism for being too slow to start raising rates last year, while a third said its reputation had been tarnished.Eric Dor, director of economic studies at IESEG School of Management, said the surge and subsequent decline of energy prices raised questions about the ECB’s ability to control inflation.“The current decrease in the headline inflation rate is essentially due to the downturn of energy prices, directly and indirectly,” he said, adding: “There is little evidence that the increase in interest rates is directly depressing aggregate demand.”Debt levels of several EU governments have risen to record levels above 100 per cent of gross domestic product in recent years, including Italy, France and Spain. But most economists were sanguine about the risk of a financial crisis. Almost 80 per cent said the spread between the 10-year bond yield of highly indebted southern European countries and those of Germany was unlikely to rise significantly. “I would not be surprised to see European periphery spreads fall further in 2024,” said Katharine Neiss, chief European economist at investor PGIM Fixed Income.The EU recently agreed new debt and deficit rules that will require most governments to rein in their spending. Sandra Phlippen, chief economist at Dutch bank ABN Amro, identified “debt sustainability as politicians start to turn towards austerity” as one of the main risks looming over the euro area economy. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Apple supplier Luxshare is taking over an iPhone assembly factory from Taiwanese rival Pegatron, as the Chinese contract manufacturer deepens its relationship with the US technology giant. Luxshare, the second-largest iPhone manufacturer following Foxconn, will pay about $300mn to acquire a 62.5 per cent stake in a facility in Kunshan, a city north-west of Shanghai, according to a Pegatron filing on the Taipei Exchange. In Asia morning trading on Friday, Luxshare shares rose 4 per cent in Shenzhen while Pegatron’s shares dropped 4 per cent in Taipei.The deal is the latest example of how ties between Apple and China have, in some areas, strengthened in spite of growing geopolitical tension between Washington and Beijing. In recent years, Chinese-owned electronics contract manufacturers, including Luxshare, Goertek and Wingtech, have boosted their share of Apple business. Earlier this year, the Financial Times reported that Luxshare had clinched contracts for assembling premium iPhone models.Foxconn, Apple’s biggest supplier, has been under increasing pressure from Luxshare, its main Chinese rival, which is assembling a greater number of sophisticated devices. The Shenzhen-based company is the sole assembler of Apple’s Vision Pro mixed-reality headset.“Luxshare’s pricing is more aggressive. They manage their cost control better, making their quotes to Apple more competitive,” said Qi Yingnan, an analyst at Counterpoint Research. Earlier this month, Luxshare clinched a deal with US chip company Qorvo to buy assembly and testing operations owned by the group in Beijing and Dezhou, south of the capital. Citi analysts said the Qorvo acquisition would “increase Luxshare’s capabilities and talent pool”, opening the door to more US customers, in addition to the major Android smartphone makers it already supplies.In a statement Pegatron said: “There’s limited impact on the company’s overall operation since the current business model has no change due to the capital injection.”As Apple expands its relationship with some Chinese manufacturers, it is also working to diversify its supply chain outside the country. Earlier this month, the FT reported that Apple was pushing for batteries for its latest iPhones to be made in India. Foxconn is building up operations in the country, announcing earlier this month that it was spending $1.5bn on additional factory capacity. Chair Young Liu said in August that the company was going to invest “several billions of US dollars” in India. Additional reporting by Hudson Lockett in Hong Kong More