Aurelia Butler

Blockades often rely on the co-operation of allies. The US has every reason to want Japan and the Netherlands to join its ban on exporting advanced semiconductor machinery to China. But governments are reluctant to undermine their tech champions. Expect close scrutiny of the fine print once an agreement is concluded.The Netherlands is expected to expand restrictions on ASML, its largest chip equipment maker, which would prevent it from selling some of its advanced machines with extreme lithography technology — crucial to making the latest chips. Japan could set similar limits on local makers Nikon and Tokyo Electron.For ASML, the damage would be shortlived. It has no competitors and a long waiting list for deliveries. Any sales lost to China would quickly be made up elsewhere, to companies such as Intel and TSMC, which are building capacity. This year, ASML’s net sales are expected to grow more than 25 per cent, even faster than last year’s 13 per cent. China accounts for only about 15 per cent of total sales.But China is much more important to lower-tech chip equipment makers such as Nikon and Tokyo Electron, accounting for more than a quarter of total sales for the latter. Local chipmakers use gear running on older standards that Japanese makers provide. Tokyo Electron has already downgraded its full-year earnings forecast. In November, it said that consolidated net profit for the year to March was expected to drop 8 per cent. That was a sharp reversal from the previous guidance of a 20 per cent increase.ASML’s shares are up a quarter this year and trade at 33 times forward earnings, a more than 40 per cent premium to its Japanese peers. That gap should widen further this year. A slump in the chip industry looms, as demand for consumer products drops. Meanwhile, raw materials prices and spending on research and development — which companies must maintain to keep up with rapidly changing technology — remain high. Expect lower dividends and share price upside. More

KARACHI, Pakistan (Reuters) -The Pakistani rupee’s two-day decline slowed on Friday on news that an IMF team was visiting Islamabad next week to discuss unlocking a suspended bailout package, though the currency still closed at a record low against the U.S. dollar.The rupee closed at 262.6 per dollar in the interbank market, down 2.7%, on Friday, after a 9.61% slump on Thursday, which was its the biggest single-day dip, according to the central bank.The rupee has been dropping to adjust to a market based exchange rate after an artificial upper cap on the local currency was lifted in line with IMF reforms.Left with only $3.68 billion in foreign exchange reserves, Pakistan barely has enough to cover three weeks of imports, and desperately needs the IMF to release the next $1 billion tranche of its bailout programme to head off a potential default.The IMF said on Thursday that its delegation would visit Pakistan from Jan. 31 to Feb.9, leaving Prime Minister Shehbaz Sharif optimistic that the disbursements would start flowing again.”An agreement with the IMF, God willing, will be done… We will soon be out of difficult times,” Sharif said at an event in Islamabad.A $6 billion IMF package was agreed in 2019, and topped up to $7 billion after last year’s devastating floods, but disbursements were suspended in November due to the government’s failure to do more to reduce its fiscal deficit.The IMF wants the government to commit to more substantial fiscal measures, and once it decides to resume lending, other multilateral and bilateral lenders are expected to offer more funding to the politically unstable, nuclear-armed South Asian nation.Former finance minister Miftah Ismail told Geo TV that the unlocked funding from the IMF would help head off the risk of Pakistan defaulting on its external obligations.This week’s plunge in the rupee’s value will pile pressure onto Pakistan’s population who are already facing high prices of imported food and fuel.On Friday, the rupee fell 1.1% on the open market to trade between 263-265 per dollar, the Exchange Currency Association of Pakistan said. The closing rates of the open market – which are different to the official rate – are yet to be finalised for the day. The removal of the cap has resulted in the two markets aligning more closely, and exchange companies expected a black market in dollars to eventually dry up. The Pakistan Stock Exchange’s benchmark index weakened 0.31% on Friday, having gained 2% on Thursday in anticipation of encouraging news from the IMF.”Meetings with IMF mission are expected to start from 31 January, the currency may consolidate with the expectations of fresh inflows,” Tahir Abbas, head of research at local brokerage house Arif Habib Limited, told Reuters. More

LONDON (Reuters) -World stocks nudged at 5-1/2 month highs and the dollar held close to an eight-month low on Friday, as reassuring U.S. economic and inflation data kept the bulls largely in charge ahead of next week’s slate of top central bank meetings. Asia-Pacific shares maintained their best start to a year overnight with a 9-month high despite ongoing drama in India, where shares of Adani Enterprises sank 20% as the fallout continued from a scathing report by a U.S. short seller Hindenburg Research.MSCI’s all-country index held onto modest gains and headed for 6-day winning streak. The global index is heading for a gain of 7.2% this month, which would mark its strongest performance for January since 2019.The tug-of-war over how central banks will respond to news that major economies are holding up and inflation is coming down was playing out everywhere.Currency traders who had pushed the dollar up after news the U.S. economy grew faster than expected at the end of last year were offloading it again. At the same time, dealers were nudging the benchmark government bond yields that reflect borrowing costs back up. [GVD/EUR]Add in a rise in oil prices but also a near 16-month low in European gas prices – and the recent huge shifts in the Japanese yen and China’s COVID restrictions – and it was a mixed picture to say the least. “The data at the moment is kind of telling you what you thought you knew – that inflation is slowing but that the labour market remains tight,” said Societe Generale (OTC:SCGLY) strategist Kit Juckes “Everyone is now saying perhaps we have gone too far in January,” he added, pointing to the big dollar, yen and euro move. “So now we are sat back on our haunches a bit trying to get positions out of our feet.” European shares rose 0.13%, led by gains in the energy sector, which got a boost from a stronger crude oil price, while retailers such as H&M and luxury goods company LVMH were on the backfoot, after reporting earnings. “In the short-run the rally (in markets) is over extended and there is a need for consolidation, especially on the equities side,” Francois Savary, chief investment officer at Prime Partners, said. One the most explosive stories of the week continued in India where shares of Adani Enterprises sank another 20% in the wake of Hindenburg Research’s report about the firms debt levels and use of tax havens.Seven listed companies of the Adani conglomerate – controlled by one of the world’s richest men Gautam Adani – have lost a combined $45 billion in market capitalisation since Wednesday, casting serious doubt on the company’s record $2.45 billion share sale plan.Adani Group has dismissed the Hindenburg report as baseless.”There were heavy positions in Adani group (shares), the way they have risen in the last couple of years,” said Neeraj Dewan, director at Quantum (NASDAQ:QMCO) Securities in New Delhi.”This is a classic case of panic selling,” he said, noting the concerns were also spreading to Indian banks with exposure to Adani Group’s debt. Thursday U.S. data had shown consumers boosting Q4 spending on goods, but it could be the last quarter of solid GDP growth before the lagged effects of the Federal Reserve’s jumbo interest rate hikes are fully felt. A separate report showed that labour market remains tight and could lead the Fed to keep interest rates higher for longer. Futures markets are now pricing in a 94.7% probability of a 25-basis-point hike next Wednesday and see the Fed’s overnight rate at 4.45% by next December, or lower than the 5.1% rate Fed officials have projected into next year.Data on U.S. personal consumption expenditures (PCE) due at 1330 GMT will provide further clues on inflation.CENTRAL FOCUSNext week will also feature Bank of England and European Central Bank meetings, both of which are expected to keep pushing up their rates in the coming months.Japan’s potential move away from borrowing cost suppression is also key. Data there overnight showed core consumer prices in Tokyo, a leading indicator of nationwide trends, rose 4.3% in January from a year earlier, marking the fastest annual gain in nearly 42 years.The Japanese yen rose 0.3% to 129.86 per dollar as the data reinforced market expectations that quickening inflation could nudge the Bank of Japan to move away from its ultra-easy policy. “We still think the policy change is a long way off,” ING regional head of research Robert Carnell said. “The spring salary negotiations are key to watch as wage growth is a prerequisite for sustainable inflation.”The dollar index, which measures the U.S. currency against six other peers, was last up 0.1% against the euro at $1.0877 and up 0.4% at $1.2366 against sterling.Oil rose on expectations of a boost to demand from China’s reopening and after the strong U.S. data. Brent crude futures rose 1.5% to $88.78 a barrel, while U.S. West Texas Intermediate crude rose 1.6% to $82.26 per barrel. [O/R] More

STOCKHOLM (Reuters) -Fashion retailer H&M’s profits were almost wiped out in the September-November quarter by soaring costs, which the Swedish company held back from passing on in full to cash-strapped customers.The world’s second biggest fashion chain, which raised some prices, will continue with this pricing strategy even though it will not fully compensate for the higher costs, such as for energy, transport and raw materials.Chief Executive Helena Helmersson said: “Rather than passing on the full cost to our customers, we chose to strengthen our market position further.” Helmersson, speaking at a news conference on Friday, said the group would keep raising prices in some categories to a varying extent in different markets to partially make up for continued high costs. “It’s a very dynamic pricing strategy,” she told Reuters in an interview. “It will still be very challenging in the first quarter of 2023. And then of course we need to increase prices, but not to cover the whole.” The retailer said its exit from Russia and the financial impact of a cost-cutting drive announced last year also contributed to the fall in profit. The world’s second-biggest fashion retailer reported a profit before tax for the period of 463 million Swedish crowns ($44.94 million), against a year-earlier 6.0 billion. Analyst polled by Refinitiv had forecast a fall to 3.5 billion crowns. H&M’s shares were down by 6% at 1222 GMT, capping a year-to-date rise to 10%. Having already reported that sales in the quarter were flat measured in local currencies, H&M said on Friday the sales from Dec. 1 to Jan. 25 – the start of its fiscal first quarter – were up 5%. Helmersson told the news conference chances were good that sales and profitability would improve in 2023, primarily towards the end of the year. The group in September launched a drive to cut costs by 2 billion crowns annually, with savings expected to start showing from the second half of 2023. It flagged in November it would cut around 1,500 jobs as part of the programme. H&M gradually closed its stores across Russia last year, and decided to exit the market. The hit to fourth-quarter profit from winding down in Russia, higher costs for energy, freight and raw materials, currency translation effects and the previously flagged restructuring charge totalled 5 billion crowns. “Gross margins were weaker than expected,” analysts at Credit Suisse said in a note to clients. “The company has clearly decided not to pass on the full increase in input costs,” they said, adding that sales so far in the current quarter were strong – as expected given colder December weather across Europe. H&M has struggled to keep up with bigger rival Inditex (BME:ITX), the owner of Zara. Inditex in December reported a jump in profit for the nine months through October but said sales growth slowed in the final three months of that period due to the weakening consumer environment. It will report its next quarterly results in March. Britain’s Superdry on Friday cut its profit forecast for this year as its wholesale business underperformed. H&M proposed an unchanged dividend of 6.50 crowns per share. ($1 = 10.3029 Swedish crowns) More