Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.China has spearheaded record levels of central bank purchases of gold globally in the first nine months of the year, as countries seek to hedge against inflation and reduce their reliance on the dollar.Central banks have bought 800 tonnes in the first nine months of the year, up 14 per cent year-on-year, according to a report by the World Gold Council, an industry group. The “voracious” rate of buying has helped bullion prices defy surging bond yields and a strong dollar to trade just shy of $2,000 a troy ounce. Surging consumer prices and depreciating currencies in many markets has triggered a rush to gold as a store of value, while the yellow metal has also historically been held when global inflation rises.The rush to gold by central banks is also driven by countries’ desire to weaken their dependence on the US dollar as a reserve currency, after Washington weaponised the greenback in its sanctions against Russia.China has stood out as the largest purchaser of gold this year as part of a 11-month buying streak. The People’s Bank of China has reported snapping up 181 tonnes this year, taking gold holdings to 4 per cent of its reserves. Poland, at 57 tonnes, and Turkey, with 39 tonnes, followed as the next largest buyers in the third quarter. A further eight banks purchased more than 1 tonne.The continued rapid rate of central bank buying has taken market analysts by surprise, who had been expecting an easing of purchases from last year’s all-time high. Those concerns will have been further stoked by the conflict that has erupted in the Middle East between Hamas and Israel, which has lifted the safe haven asset almost 10 per cent in 16 days.John Reade, chief market strategist at the WGC, said that it expected the annual total of official purchases of gold to “get close to or exceed” last year’s 1,081 tonnes.Central banks report gold acquisitions to the IMF but global flows of the yellow metal suggest that the real level of buying by official financial institutions — especially China and Russia — has been far higher than officially reported.The WGC estimated 129 tonnes of central bank purchases above what was officially reported in the third quarter, taking overall official sector buying to 337 tonnes. The total was more than double of the previous quarter but down 27 per cent on the same period a year ago.In August, BMO analysts wrote that its analysis suggested that privately owned gold holdings and those under the central bank in China “are significantly higher than annual consumer demand and official purchases might suggest”.Chinese central bank gold buying, along with a weak renminbi, vapid local stock market and troubled real estate sector, has also encouraged the country’s consumers to rush towards purchasing bullion to store their wealth.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Those factors have helped keep gold prices not far from its all-time high of $2,072 a troy ounce, despite investors increasingly believing that the US Federal Reserve will keep interest rates “higher for longer”. That led to $8bn of outflows for gold-backed exchange traded funds in the third quarter.Overall, gold demand excluding bilateral over-the-counter flows was 6 per cent weaker year-on-year at 1,147 tonnes. More

Airlines large and small struggled to cope when demand roared back after the pandemic. But their problems have been a boon for the $110bn industry that keeps the world’s aircraft in the skies.A shortage of new planes caused by supply chain issues and a jump in labour costs has led to airlines spending more on maintenance and repairs than ever before as they keep their existing aircraft in the air for longer.“The [maintenance] market is incredibly strong,” said Eric Mendelson, co-president of Heico, a Florida-based company that is one of the world’s leading independent suppliers of replacement parts. “I’ve been at the company for 34 years and I have never seen a demand environment like we are in today.”Labour and raw material shortages have hampered the large manufacturers Airbus and Boeing and their plans to meet demand for new planes, while problems on some engines have added to the challenges in the supply chain. Maintenance spending had historically been 8 per cent to 10 per cent of an airline’s cost structure, said Kevin Michaels, head of Michigan-based consultancy AeroDynamic Advisory.This year, however, he estimated that the world’s airlines would spend more than $110bn on maintenance, including labour and material, or about 14 per cent of total revenues. “It’s the highest we’ve seen it.”Michaels said three factors were driving the higher spend: airlines investing in discretionary maintenance that had been deferred during the Covid-19 pandemic; older aircraft due for retirement having to fly longer than expected given issues with new generations of engines, as well as supply chain constraints; and inflation as the cost of labour and parts had risen. While most of the supply chain crisis had been “about the manufacturing side of things this is the first time we’ve had a supply chain crisis that is really impacting the whole after-market in maintenance, repair and overhaul”, Michaels said. “It’s new territory.”Airlines, already facing higher fuel and labour costs, have had to further increase spending. Delta Air Lines, United Airlines and American Airlines collectively spent $2.2bn on maintenance in the third quarter, a 45 per cent increase on the same period in 2019, according to a recent note by Sheila Kahyaoglu of Jefferies. Trailing 12-month spend by the three is tracking 38 per cent above 2019 levels. When Mike Leskinen, the new chief financial officer at United, spoke about costs during the airline’s earnings call earlier this month, he cited the “increased need for spare parts” when repairing aircraft as well as engines. “Some of that is related to supply chain, and it’s difficult to see when that ends,” he said.Judson Rollins, senior consultant at aerospace consultancy and news site Leeham, said labour shortages and supply chain bottlenecks were also hitting the maintenance sector, driving prices for services higher.“Any maintenance, repair and overhaul provider right now can push through 15 or 20 per cent increases year over year. What are the airlines going to do? The next provider on the block has no greater capacity than the current provider.”The maintenance and overhaul market is dominated by the original equipment manufacturers. Airbus, Boeing and engine makers Rolls-Royce, Safran, Pratt & Whitney and General Electric all provide services and sell spare parts. The engine makers make the bulk of their profits from servicing their engines rather than from the original sale, and operate large global networks of repair shops.Significant players also include operations affiliated with airlines but that now generate a greater share of revenues from servicing other carriers, such as market leader Lufthansa Technik. Germany’s Lufthansa has been looking to sell a stake in its maintenance subsidiary. There are also large independent specialists such as Illinois-based AAR.Heico is among those that makes the same products and components as original equipment manufacturers but less expensive, similar to generic medicines.Airlines historically resisted buying alternative spare parts but Heico sends out thousands of components a day from distribution hubs across the globe. Mendelson said carriers had “benefited as a result of having an alternative source of supply both in terms of parts availability and quality and pricing”.Heico, which is in the process of buying rival Wencor for just over $2bn, reported record sales of $722.9mn in the third quarter ended July 31, while operating income jumped 16 per cent to $149.4mn. GE reported last week that it sold $42.4mn worth of spare parts a day during the third quarter — up 44 per cent from this period last year. The company told analysts that “given the pace of demand for both after-market services and new engine deliveries” it needed “to do more as do our suppliers”. France’s Safran on Friday raised its forecast for “civil after-market sales” after a similarly strong quarter. The engine segment of the market remains particularly strained. US group Pratt & Whitney said in July that more than a thousand of its geared turbofan engines would need to be inspected earlier than expected after a manufacturing flaw emerged. P&W owner RTX has warned that the additional inspections and potential replacements of engines is creating more work for the company’s maintenance, repair and overhaul network, which is under strain because of problems getting materials. RTX told analysts last week that “it’s a challenging time for the customers, there will be a fair amount of the aircraft on the ground, we’ve got to accelerate [maintenance and repair] output and the key part of that is capacity and material flow”.The suspected sale of falsely documented parts which has affected a small portion of older engines sold by CFM, the GE-Safran joint venture, has added to the challenges for engine makers. Industry experts expect conditions in the maintenance market to remain constrained for some time, with lack of workers and the availability of parts cited among the biggest challenges by executives, according to Adil Slimani, director of after-market advisory and appraisal at IBA Group. “There are price wars for lead times,” he added.Iván González Vallejo, director of strategy and supply chain at Iberia Maintenance, said the industry would remain constrained for some time yet. “The supply chain constraint will still be with us for another two years . . . Demand will not go down.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Arçelik, one of the world’s biggest household goods’ manufacturers through its Beko branded refrigerators and washing machines, has warned that next year will be “very tough” for Europe’s home appliance market as persistently high energy prices and rising borrowing costs hit consumers. Turkey-based Arçelik expected the European appliances market to shrink 5 per cent on a unit sales basis in 2024, said chief executive Hakan Bulgurlu. He added that the contraction could reach 10 per cent “if things go bad”.“I see headwinds pretty much everywhere at the moment in Europe,” Bulgurlu said in an interview with the Financial Times, adding that “it’s increasingly looking very likely that 2024 will continue to be very tough”.The gloomy outlook from one of Europe’s biggest appliance makers highlights how the region’s economy is sustaining an outsize blow from elevated energy prices, rising interest rates and cooling Chinese demand.“We’re predicting very, very low [economic] growth for Europe as a whole,” Bulgurlu said. He pointed to Germany as a particular weak spot, saying Europe’s economic powerhouse was “really slowing down”.Germany’s federal statistical agency said on Monday that Europe’s largest economy had contracted for a third quarter in a row, pointing particularly to a slump in consumer spending amid high interest rates. Large German chemical groups such as BASF, Evonik and Covestro have likewise in recent months warned of slowing demand for consumer goods, as they have reported severe slumps in sales of chemicals that go into a wide range of products ranging from plastics to cosmetics and furniture. Industry-wide shipments of major home appliances in Europe fell 7 per cent in the third quarter on a year-on-year unit sales basis and were down 10 per cent in 2022, according to an estimate by Sweden-based Electrolux, which competes with Arçelik. Electrolux has also said it has a “negative” outlook on European sales volumes for 2023 as a whole. Arçelik’s revenue in Europe was steady at €787mn in the third quarter of this year compared with the same period in 2022, according to the group’s quarterly earnings figures. The company had been helped by a rise in eastern European revenues and as price increases and an improved product mix dulled the impact of sharp unit declines in western Europe, Bulgurlu said.Bulgurlu said he thought the cycle of price rises in Europe “is kind of through”. Still, he said “geopolitical risks” represented a major source of uncertainty since Arçelik’s business is sensitive to commodity prices. International crude benchmark Brent is up 20 per cent since the start of June and analysts say the oil price could rise more if the Israel-Hamas conflict escalates into a broader regional conflagration.Despite the struggles in Europe, Arçelik is pushing ahead with a deal that will hand it control of Whirlpool’s European home appliance business. The EU approved the deal this month, but the UK has opened an in-depth review of the tie-up on concerns it “could reduce choice in the supply of washing machines, tumble dryers, dishwashers and cooking appliances”.In contrast to the European market, Turkish demand for appliances has been high this year as soaring inflation has prompted consumers to buy up white goods as a store of value. The government has been attempting to cool consumer demand through interest rate and tax rises that are part of a broad economic overhaul that began after President Recep Tayyip Erdoğan’s re-election in May. But Bulgurlu said Arçelik’s home market was still holding up “surprisingly well”. Arçelik generated revenues in Turkey of TL22.4bn (€770mn) in the third quarter, up 121 per cent from the same period in 2022. The increase was a slimmer 37 per cent on a euro basis, according to FT calculations. Overall, the group’s operating profit before financial expenses rose 120 per cent in the third quarter to TL4bn, a rise of 37 per cent in euro terms.Bulgurlu said he was “confident” Erdogan’s new economic team would be successful in reviving Turkey’s $900bn economy and luring back foreign investors who have fled after years of unorthodox economic policies. Arçelik issued a $400mn dollar-denominated bond in September, making it the first Turkish non-financial company to sell a bond on international markets since January 2022. Bulgurlu said he expected Turkish consumer demand would eventually falter as the new economic programme took effect. “There will be a big slowdown. We will all suffer from it, but we’ll come out the other side a much healthier economy,” he said. Additional reporting by Patricia Nilsson in Frankfurt More

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SINGAPORE (Reuters) – The yen hovered near a two-week high on Tuesday, boosted by a report that the Bank of Japan (BOJ) could further tweak a key bond yield policy tool when it announces its monetary decision later in the day.The dollar looked set to end the month largely unchanged against a basket of currencies, having lost some steam after a roughly 2.5% gain in September. Yet, the greenback is being underpinned by risks of another rate hike from the Federal Reserve, analysts say, noting a still-resilient U.S. economy.The Japanese yen was last at 149.13 per dollar, after jumping to a two-week high of 148.81 in the previous session following a Nikkei report that the BOJ could potentially allow 10-year Japanese government bond yields to rise above 1% at a keenly-awaited policy decision later on Tuesday.”This of course may prove to be something of a red herring, and they may leave policy unchanged, instead offering a strong view that changes to the yield curve control cap are imminent,” said Chris Weston, head of research at Pepperstone.”All things being equal, a move to lift the YCC cap from 1% to 1.5% should bring out further (yen) buyers, and push USD/JPY and the crosses lower through trade.”Against the euro, the yen last stood at 158.24, having similarly risen to an over one-week high of 157.70 per euro on Monday. The Australian dollar last bought 94.50 yen.In other currencies, the dollar edged broadly lower following a pick up in risk appetite, with Israel’s ground offensive in Gaza seemingly less extensive than previously feared.The dollar index last stood at 106.20.Armoured Israeli forces attacked the Gaza Strip’s main city from two directions on Monday and targeted the main road linking it to the south of Gaza, witnesses said.”Israel’s forces have begun their invasion of the Gaza strip in a restrained way – more slowly and deliberately than the fast-paced campaign designed to bring victory quickly,” said Thierry Wizman, Macquarie’s global FX and interest rates strategist.”Traders… hope that restraint will leave the door open for a diplomatic de-escalation deal.”The euro looked set to reverse two straight months of losses with a slight 0.4% gain for October, with the single currency last steady at $1.0611.Data on Monday showed inflation in Germany eased noticeably in October, while a separate report the same day showed Europe’s largest economy shrank slightly in the third quarter.Spain’s 12-month inflation in October was unchanged from the previous month at 3.5%, preliminary data also out on Monday showed.The figures come ahead of euro zone inflation data due later on Tuesday.Sterling fell 0.07% to $1.2159 and was poised to give up more than 0.3% for the month, ahead of an interest rate decision by the Bank of England later in the week where expectations are for the central bank to stand pat.”Central banks around the world are likely to respond to local economic conditions rather than take cues from the Fed, and we believe the Bank of England and European Central Bank will cut rates earlier than the FOMC,” said economists at Wells Fargo.”We continue to believe the U.S. dollar can broadly strengthen into early 2024.”Elsewhere, the Australian dollar shed 0.09% to $0.6368 and was headed for a monthly loss of more than 1%.The New Zealand dollar lost 0.15% to stand at $0.5835 and was set for a 2.7% decline for October, pressured by fragile risk sentiment globally and as a surprisingly low reading of domestic inflation in the third quarter lessened the chance of another rate hike. More

TOKYO (Reuters) – The Bank of Japan will likely revise up its inflation forecasts and discuss further tweaks to its bond yield control at its policy meeting on Tuesday, amid growing expectations the days of the controversial monetary tool are numbered.The Japanese yen climbed to a two-week peak against the dollar after the Nikkei newspaper reported on Monday that the BOJ would consider making adjustments to its yield curve control (YCC) at the two-day meeting ending on Tuesday.One of the ideas the BOJ will consider at its meeting is to allow the 10-year Japanese government bond (JGB) yield to rise above a 1% cap by revising its guidance to conduct unlimited bond buying operations to defend that level, the Nikkei said.While any such move could reduce the need for the BOJ to ramp up bond buying, it would also cement market expectations of a near-term end to YCC and negative interest rates, analysts say.”Tweaking the bond-buying guidance will be the final step in the YCC modification process,” said Ataru Okumura, a strategist at SMBC Nikko Securities. “The market’s focus will shift to the timing of an exit from minus rates and subsequent rate hikes.”The BOJ sets a target of around 0% for the 10-year yield under YCC. Under criticism that its heavy defence of the cap is causing market distortions and an unwelcome yen fall, it raised its de-facto ceiling for the yield to 1.0% from 0.5% in July.Since then, rising global bond yields and persistent inflation have put the BOJ in a tight spot with the 10-year JGB yield threatening to breach the 1% cap. The 10-year bond yield rose to a fresh decade high of 0.955% on Tuesday.Sources told Reuters last week the BOJ could debate further tweaks to YCC at the Oct. 30-31 meeting to relax its grip on the 10-year yield.The BOJ is widely expected to maintain the 0% target for the 10-year yield and that for short-term rates at -0.1%.In fresh quarterly forecasts due after the meeting, the BOJ is likely to revise up its projections to show inflation hitting or exceeding its 2% target this year and next.But the bank is seen projecting slower inflation in 2025, reflecting weaker growth and uncertainty over next year’s wage negotiations in Japan.Japan remains a dovish outlier among global central banks that have mostly hiked rates aggressively in recent years to combat rampant inflation.Despite repeated assurances by BOJ Governor Kazuo Ueda that ultra-low interest rates will stay, markets are already predicting a policy shift early next year.Nearly two-thirds of economists polled by Reuters expect the BOJ to end negative rates next year.Inflation stayed above the BOJ’s 2% target for the 18th straight month in September. Surveys have shown heightening inflation expectations, which lower the real cost of borrowing.The decision comes just hours after data showed Japan’s factory output rising 0.2% in September, much slower than market forecasts for a 2.5% gain, as sluggish Chinese demand squeezes manufacturers. More

According to the report, there has been a notable decline in dual-income households this year compared to 2019. This trend points towards an increasing number of workers exiting the labor market due to growing childcare responsibilities. The situation may further deteriorate with the potential closure of nearly 70,000 child-care facilities across the country.Interestingly, all this data was collected prior to the termination of the Child Care Stabilization program, a $24 billion initiative that previously subsidized childcare expenses, making it more affordable for families. The end of this program could potentially exacerbate the current situation, as it previously played a crucial role in enhancing the affordability of childcare.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Newly elected House Speaker, Mike Johnson (R-La), has committed to avoiding a government shutdown during his recent appearance on FOX News’ “Sunday Morning Futures.” Congress faces a deadline of November 17 to pass legislation preventing a partial shutdown. Johnson’s proposed solution is a stopgap continuing resolution (CR) that extends funding until either January 15 or April 15 of next year, depending on the support from House Republicans.The GOP’s slim majority, which can only withstand four defections while passing legislation, may be put to the test with upcoming aid packages for Israel and Ukraine. The ousting of former House Speaker Kevin McCarthy (R-Calif) by eight GOP members led to a 22-day scramble for leadership, culminating in Johnson’s election.Goldman Sachs analysts caution that an extended reliance on short-term extensions decreases the likelihood of Congress securing a deal on full-year spending bills. This could potentially impact funding through to the end of the fiscal year on September 30, 2024.Earlier, Goldman Sachs had predicted a 2-3 week government shutdown this quarter due to geopolitical tensions including the Israeli conflict and U.S. air strikes in Syria. However, this prediction has now been nullified due to changes in House leadership. Despite this, Goldman Sachs’ economists, including Jan Hatzius, have emphasized potential triggers for future governmental disruptions such as unresolved policy disagreements and dependency on temporary extensions of spending bills. This could potentially lead to a shutdown in early 2024, resulting in instability in future government operations.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More