Aurelia Butler

Electric-car maker Tesla will build a factory in the northern Mexican city of Monterrey, ending doubts over whether the investment could be cancelled over conditions imposed by the government.Mexico’s president Andrés Manuel López Obrador announced the new plant on Tuesday after conversations with Tesla chief executive Elon Musk, suggesting he had dropped earlier calls to redirect the investment to less industrialised parts of the country.“It’s good news, yes, the company Tesla is coming,” the populist president said in his morning news conference. “The battery part is still on hold but [its] the whole auto plant, which I understand will be very big.”“He [Musk] was very receptive, understanding our concerns and accepting our proposals which will be known from tomorrow,” he added.Tesla did not immediately respond to a request for comment but is expected to outline more details of the project at an investors’ day on Wednesday. The value of the deal was not immediately disclosed.Tesla’s investment is the latest in electric vehicles in Mexico after the country was included in billions of dollars’ worth of green subsidies under Washington’s Inflation Reduction act. US president Joe Biden’s legislation has caused tension with Europe, which argues they could unfairly draw investment away from the region.“Without IRA I doubt it would have happened,” said Carlos Serrano, chief economist at bank BBVA Mexico, adding that the legislation meant the US, Mexico or Canada were the best options for Tesla. “Between those Mexico has advantages in competitiveness, a qualified workforce and a sophisticated industry of suppliers.”While López Obrador’s government aims to establish Mexico as a hub for the “nearshoring” of investment, he has also tried to influence the investment decisions of large companies in ways the private sector says has dented confidence in the economy. He imposed significant conditions on Citigroup’s sale of its Mexican retail bank and has cancelled permits and projects that he disagrees with.His supporters say he is cleaning up suspected corruption in investments approved by previous governments and trying to make development more sustainable. The government has vowed to increase investment in poorer southern states to address vast regional inequalities, and pressed companies to relocate.López Obrador last week suggested he might not award Tesla permits if it pressed ahead with plans for a plant in Monterrey because of the city’s acute water shortage problems. But on Tuesday he said the company had committed to using recycled water at the new plant.The northern half of the country’s proximity to the US, educated workforce and superior infrastructure mean it has attracted the lion’s share of industrial investment. Since 2005, the population of the Monterrey metropolitan area has grown more than 40 per cent.“Mexico won, NL [Nuevo León] won, we all won!” Samuel García, the governor of Nuevo León state where Monterrey is located, tweeted on Tuesday.Tesla’s investment cements Mexico’s position as a key beneficiary of companies building factories closer to the US amid supply chain disruptions and trade tensions with China.Biden’s $369bn IRA legislation allows electric cars assembled in Mexico and Canada to qualify for US subsidies. Tax credits are also available for EV battery sourcing and critical minerals for Mexican companies.Earlier this month German carmaker BMW said it would invest €800mn in Mexico to expand electric vehicle production.A plant in Monterrey, a few hours’ drive from the Texas border, would be Tesla’s first in Latin America. The company has four US factories and one each in China and in Germany. More

Disruption from a ransomware attack on a little-known supplier to the world’s largest semiconductor equipment manufacturers will continue into March, in a new setback to chip production after years of coronavirus-related delays. US-based MKS Instruments told investors and suppliers this week that it had yet to fully recover from a “ransomware event”, first identified on February 3, in an attack that has strained supply chains for the global chip industry. “We’ve begun starting up the affected manufacturing and service operations,” MKS chief executive John Lee said in a call with analysts and investors on Tuesday.MKS’s customers include many of the largest companies that produce semiconductors and the specialised equipment necessary to manufacture them, including TSMC, Intel, Samsung and ASML. The company had revealed on Monday that it could still take “weeks” more to restore operations and would cost hundreds of millions of dollars in lost or delayed sales. Most ransomware victims are able to recover in about three weeks, according to industry estimates. The attack affected “production-related systems” as well as critical business software, MKS said earlier this month, forcing it to suspend operations at some of its facilities. The Massachusetts-based company makes lasers, vacuum systems and other specialised equipment vital to chip manufacturing. Lee has said the attack “materially impacted” its systems, including its ability to process orders and ship products in its two largest divisions, photonics and vacuum. After delaying publication of its latest financial results, which were released on Monday, the company has now told the US stock market regulator that it is unable to file its annual report on time. Missing the extended deadline could result in a fine.Its forecast of “at least” a $200mn hit to its current quarter’s revenues is about a fifth of the $1bn in sales that it had forecast before the attack. Analysts at Cowen, a broker, estimate the final impact on quarterly sales could total as much as $500mn — more than half what Wall Street had previously predicted. “The full scope of the costs and related impacts of the incident has not yet been determined,” MKS said, though it hoped to “substantially recover” the lost revenue by the end of the second quarter. The company’s most recent annual report lists Applied Materials and Lam Research as its two largest customers, accounting for more than a quarter of its net revenues in 2021. Applied Materials, the chip equipment manufacturer, warned earlier this month that it faced a potential $250mn shortfall to its current quarter’s revenues due to a “cyber security event recently announced by one of our suppliers”, widely believed to be MKS. Lam Research did not respond to requests for comment on any impact on its business. Another semiconductor industry supplier, Ultra Clean Holdings, has also blamed a cyber attack on an unnamed supplier — which analysts believe is MKS — for an anticipated $30mn hit to its quarterly revenues. Many of MKS’s products are highly specialised parts or tools in the early part of the chip manufacturing supply chain. These include components that become part of machines then purchased by chip manufacturers, said Joe Quatrochi, a director of equity research at Wells Fargo, such as lasers that burn holes into circuit boards, gauges and power supply parts.The semiconductor supply chain, which in many places relies on components made by only one provider, has faced repeated shortages over the past two to three years due to production and logistics delays. However, demand for smartphones and other consumer electronics has waned in recent months as coronavirus lockdowns eased and consumer spending has been squeezed by inflation. That has caused shortages of some components to swing suddenly to a glut, in what has always been a highly cyclical industry. MKS customers were hoping that the delays were a short-term “air pocket” from which it would recover soon, said Quatrochi.

But since it falls within the broad definition of critical national infrastructure, it is unclear if MKS will be encouraged by US law enforcement to resolve the issue by paying a ransom. There are few technical solutions to ransomware, and a company that does not pay the ransom can spend months rebuilding its systems. MKS said it was working to assess “the effectiveness of internal control over financial reporting, in particular with respect to the ransomware event”, which had left it unable to access its business planning systems. Shares in MKS fell by about 15 per cent between February 3, the last day of Nasdaq trading before the company first disclosed the attack, and Monday night’s results release. The stock was about 5 per cent higher in early trading on Tuesday morning following Lee’s comments to analysts. More

UK grocery prices rose at their fastest pace in 15 years, according the most recent data from a closely watched survey, in contrast to latest official figures that suggested food inflation was slowing down.Annual food prices rose 17.1 per cent in the four weeks to February 19, research firm Kantar said on Tuesday, the highest figure on record since the monthly survey began in 2008.“Grocery price inflation is the second most important financial issue for the public behind energy costs, with two-thirds of people concerned by food and drink prices,” said Fraser McKevitt, head of retail and consumer insight at Kantar. Food inflation a year earlier was running at 4.3 per cent, according to Kantar. It said the latest jump in prices would add £811 to the average British household’s yearly shopping bill. “This is having a big impact on people’s lives,” McKevitt added.The latest Kantar data contrasts with official figures that showed a slight fall in food and non-alcoholic drink inflation in January, down 0.1 points to 16.7 per cent compared with a month earlier but still close to the highest level since Office for National Statistics records began in 1988. Headline inflation slowed to a five-month low of 10.1 per cent in January, retreating further away from its 41-year peak in October, according to the ONS. Official inflation data for February will be released on March 22.Kantar research showed that shoppers have been shunning branded products in an effort to save, with sales of supermarkets’ own labels increasing 13.2 per cent this month, in “a trend that shows little sign of stopping”, said McKevitt.

The discount supermarkets continued to benefit as shoppers become more price sensitive, with Aldi and Lidl both boosting their sales more than 20 per cent year on year. The two chains market share rose to 16.5 per cent, up from 14.1 per cent a year earlier, according to Kantar.Less affluent households will be hit hardest by steep price rises at supermarkets with the poorest 10 per cent spending nearly a fifth of their weekly income on food, according to the ONS.McKevitt said he expected the recent rationing of salad vegetables by five out of the six biggest supermarkets was “unlikely to drastically affect consumers” as they tend to buy fruit and veg in smaller quantities than the upper limit set by retailers. More

Inflation will remain high because of strong wage growth in much more volatile markets, the head of one of the world’s biggest hedge funds predicted on Tuesday.Man Group chief executive Luke Ellis told the Financial Times investors needed to get used to volatility with significant moves up and down.“It will take a lot of years before inflation is put to bed again. We’re in a different paradigm,” said Ellis.“The base effects are running out and we still have very significant wage inflation. It’s not squeezing services [sector] wage inflation, and services is such a big part of the economy. You can’t get consistently to [a] 2 per cent [inflation target] when you have 6 to 7 per cent wage inflation,” he added.Ellis said he did not believe stocks, which hit a two-year low in October, had yet bottomed out. He drew a parallel with periods in the 1970s when the real return from equities after inflation was about zero.“You’re going to get big moves in different directions,” he said. “The overall exact number [the performance of markets] I’m not sure. I don’t think we’ve seen the highs for the year, but the lows are a long way down,” he said.His comments come as both France and Spain reported a rise in inflation, beating forecasts. In the US, stocks have fallen this month as investors have grown concerned that the strength of the economy might require higher interest rates, with the Federal Reserve’s preferred measure of inflation rising more than expected in January.Ellis made the comment as shares in the group surged on better than expected full-year results. Man, which manages $143.3bn in assets, reported an 18 per cent rise in pre-tax profit to $779mn for last year, above analysts’ forecasts. That was driven by a 37 per cent jump in performance fees, much of which came from the group’s computer-driven macro funds. Client inflows for the year were $3.1bn.Man’s shares rose 8 per cent to 264.9p.The results follow a very mixed year for the $3.8tn hedge fund industry. While macro managers and quant funds following market trends made big gains in 2022, many equity traders were hard hit by a sharp sell-off in highly valued technology stocks. Ellis said Man was hit by $3bn of outflows from UK defined benefit pension plans in the fourth quarter of last year, about half the total assets that the group runs for such clients, although it reported $400mn of net inflows overall for the quarter.Such pension funds were racing to sell liquid assets and raise cash in order to meet margin calls on derivatives in their liability-driven investment strategies during the UK’s gilt market crisis. Ellis said “a bunch” of that money had since come back into Man’s products. More

Turkey’s economy grew rapidly in 2022 thanks to buoyant consumer spending, according to data that underscores how President Recep Tayyip Erdoğan is prioritising growth over fighting high inflation. Gross domestic product increased 5.6 per cent on an inflation-adjusted basis, Turkey’s official statistics office reported on Tuesday. The rate was higher than the 2.3 per cent recorded by the G7 group of advanced economies and the IMF’s forecast of 3.9 per cent for emerging markets. The report, which covered the period before this month’s devastating earthquake, highlighted Erdoğan’s focus on pumping up economic output rather than following the path of most other countries, which have sacrificed growth in an effort to tame inflation through higher borrowing costs.Consumer price growth in Turkey exceeded 85 per cent in October and remained at almost 60 per cent last month. Consumer spending, which makes up almost 60 per cent of Turkey’s economic output, rose 19.7 per cent in 2022. Consumers will during periods of high inflation often prefer to buy goods rather than wait for them to become more expensive. Erdoğan faces the toughest election campaign of his two decades in power when Turks go the polls for a vote set for May 14, although some analysts expect the date to be put back because of the quake.His government had boosted the minimum wage, public sector salaries and pushed up pensions in an effort to secure votes. “The way Turkey has adapted to its high-inflation environment has been through government support,” said Liam Peach, economist at Capital Economics in London.Peach said the fast pace of consumer spending was a sign that Turkey’s economy was “overheating” as a result of fiscal support measures from the government and a series of sharp interest rate cuts last year. Erdoğan’s insistence on slashing rates despite the high price growth and his government’s other unorthodox economic policy approaches inflamed the inflation problem, according to economists. The central bank cut interest rates again this month as it sought to shore up the economy against the effects of the devastating February 6 quake, which caused $34bn in physical damage, equivalent to about 3.8 per cent of Turkey’s 2022 GDP, the World Bank estimated.Analysts are still assessing the full impact of the disaster on Turkey’s economy, but many expect a short-term hit to growth followed by a fresh surge in government spending to fund the huge recovery effort. Turkey’s economic growth rate is forecast to ease to 2.7 per cent this year, according to economist estimates collated by FactSet, many of which were produced prior to the quake. Trade was strong in 2022, with exports rising 9.1 per cent and imports increasing 7.9 per cent. However, trade turned into a drag at the end of last year, with exports falling on a quarter-on-quarter basis both in the final three months of 2022 and the previous three-month period. Peach and many other economists say the lira, which has been propped up by central bank interventions and a series of government programmes to discourage holdings of foreign currency, remains too strong — hurting the competitiveness of Turkish exports. More

SYDNEY(Reuters) – Australian home prices almost steadied in February as Sydney snapped a year-long losing streak, though analysts cautioned it was far too early to call an end to the downturn with interest rates set to rise further. Figures from property consultant CoreLogic on Wednesday showed prices nationally eased 0.1% in February from January, when values dropped 1.0%. That marked the smallest monthly fall since May last year when the Reserve Bank of Australia (RBA) started hiking interest rates. Prices were still down 7.9% from a year earlier.In particular, prices in Sydney rose 0.3% in February from a month earlier, driven by a 0.7% rise in the top end market. Every other capital city except Hobart in Tasmania saw values fall by less than half a percent over the month.CoreLogic’s research director Tim Lawless said the stabilisation in housing values over the month coincides with consistently low advertised supply levels and a rise in auction clearance rates. “Considering the RBA’s move to a more hawkish stance at the February board meeting, along with an expectation for a weaker economic performance and a loosening in labour markets, there is a good chance this reprieve in the housing downturn could be short-lived,” said Lawless. “We also have the fixed-rate cliff ahead of us; arguably the full impact of the aggressive rate hiking cycle is yet to play out.”In Melbourne, price gains during the COVID pandemic have all but been erased, while prices in Sydney still were 7.7% higher than March 2020 levels. Separate data from PropTrack also out on Wednesday showed home prices rose 0.2% in February from January, with every capital city aside from Hobart seeing prices rebound. The RBA has lifted rates by a whopping 325 basis points to a 10-year high of 3.35% to curb red-hot inflation.In a hawkish tilt that surprised many, the RBA flagged at least two more rate hikes earlier this month, prompting investors to wager on further hikes towards a peak rate of 4.35%. More