Aurelia Butler

Investing.com — The U.S. releases retail sales and producer price data for December that may or may not encourage more hopes of a pivot from the Federal Reserve. The Bank of Japan is refusing to pivot, however, despite all the bets that it will be forced to abandon its cap on bond yields. The Bank of England is likewise under pressure to tighten after strong inflation data for December. Microsoft is expected to announce a round of job cuts, and PNC Financial and JB Hunt report earnings. Oil hits its highest in over a month on forecasts that the world market will swing to a big supply shortfall by the end of the year. Here’s what you need to know in financial markets on Wednesday, 18th January. 1. Retail sales, PPI to feed Fed pivot narrativeThe U.S. releases retail sales data for December at 08:30 ET (13:30 GMT), in the latest test of the ability of the U.S. consumer to keep spending despite the economic slowdown.Analysts expect a 0.8% drop in sales values, which would translate into a slightly smaller drop in sales volumes given the 0.1% drop in consumer prices last month.There will also be producer price inflation data for December, where a drop of 0.1% is expected. If confirmed, that would take the PPI to its lowest level in 18 months, adding to evidence that the expansion of profit margins which drove inflation during the pandemic is now rapidly reversing.2. There is no Japanese word for ‘pivot’  The Bank of Japan kept its monetary policy unchanged, defying expectations that it would relax its cap on long-term bond yields.Financial markets had bet heavily on the BoJ abandoning its policy of yield-curve control, and the decision prompted some rapid unwinding of speculative positions in the yen, whose rock-bottom interest makes it the funding currency of choice for many rate-based trades.The dollar rose as much as 2% against the yen in the wake of the BoJ’s decisions but later gave up more than half of its gains to trade up 0.9% by 06:15 ET.  That suggests that the market still wants to test the BoJ’s resolve to defend an upper limit of 0.5% to 10-year Japanese bond yields. The BoJ has spent over $260 billion in December on keeping yields down, and now owns over half of the whole JGB market.3. Stocks set to open marginally higher ahead of retail sales; Microsoft set to announce job cutsU.S. stock markets are set to open fractionally higher, but futures are showing little conviction ahead of the retail sales report.By 06:15, Dow Jones futures were up 22 points or less than 0.1%, while S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.2%. The main cash indices had had a mixed day on Tuesday, with weak earnings from Goldman Sachs (NYSE:GS) dragging the Dow down by nearly 400 points.Stocks likely to be in focus later include Microsoft (NASDAQ:MSFT), which reports suggest is likely to announce a round of job cuts in the course of the day. The Redmond-based giant reported its slowest revenue growth in five years in the third quarter. Its fourth-quarter results are due next week.Earnings are due later from Charles Schwab (NYSE:SCHW), Prologis (NYSE:PLD), PNC Financial (NYSE:PNC) and JB Hunt (NASDAQ:JBHT), among others.4. BoE under pressure to keep hiking after strong CPI dataThe pound rose to test a seven-month high after U.K. inflation stayed stubbornly above 10% in December, keeping the pressure on the Bank of England to raise interest rates further.Headline inflation stayed at 10.5%, with prices for food and services still rising strongly. The numbers validated anecdotal reports from the retail sector suggesting that spending has remained strong despite the ongoing cost of living squeeze.By contrast, the euro fell after a Bloomberg report suggesting that various policymakers at the European Central Bank are looking to slow the pace of its rate hikes after its next meeting in February. Bank of France Governor Francois Villeroy de Galhau warned that the guidance for a 50 basis point hike in February is nonetheless still intact.5. Oil hits six-week high after IEA forecasts deficit; API inventories dueCrude oil prices rose to their highest in over a month after the International Energy Agency predicted a sharp swing in the global supply-demand balance in the course of the year due to rebounding Chinese demand.The IEA projects a surplus of around 1 million barrels a day in the first quarter of the year, swinging to a deficit of 1.6 million b/d in the third quarter that widens to 2.4 million b/d by the end of the year, despite record-high global oil supply.By 06:30, U.S. crude futures were up 1.9% at $82.00 a barrel, while Brent was up 1.6% at $87.33 a barrel. The American Petroleum Institute’s weekly data on U.S. inventories are due at 16:30 ET. More

Speaking on the sidelines of the World Economic Forum in Davos, Gentiloni said the bloc could avoid an all-out recession this year and get away with what he called a “limited contraction” of the economy in the first quarter.”The key word of the moment is shallow,” Gentiloni told Reuters, using that word to characterise the depth of any recession a few weeks before the Commission releases its new economic forecasts. While he noted “enormous risks” such as the Ukraine war to Europe’s short-term fortunes, he said the fall in energy prices, the fact that inflation appeared to have peaked late last year, and relatively buoyant labour markets gave cause for hope.Gentiloni noted that the region had thus far avoided its worst fears of a year ago, namely that energy snags would result in mass blackouts for business and consumers, corporate bankruptcies and large-scale social unrest.”Overall this less pessimistic outlook should encourage us in the difficult path we have,” he said, referring to short-term challenges such as safeguarding next winter’s energy supplies while making the economy more resilient and green in the long-term.Gentiloni acknowledged differences between EU capitals on how to fund a new green deal unveiled by Commission President Ursula von der Leyen on Tuesday, but urged those countries to first define the purpose and scope of the effort.”We should avoid starting from the end of the discussion. We know that common funding for the EU is always difficult to address,” he said, urging capitals first to accept the principle that this should be a joint EU effort and to work out what the priority projects should be.Gentiloni identified semiconductors and areas such as green hydrogen as possible areas of priority, citing the need for joint EU projects to achieve the levels of scale required for a bloc of 450 million citizens.Europe has in recent months become more pragmatic about its dealings with China amid concerns ranging from human rights to Beijing’s interpretation of trade rules. Gentiloni said that was leading to a new readiness to envisage industrial cooperation at EU level to make the bloc less dependent on others.”Five to 10 years ago, industrial policy at European level was taboo,” he said. “The challenge that China is making every day more clear is that we have to catch up in some sectors if we want this famous strategic autonomy in coming years.” More

ISTANBUL/LONDON – Turks beset for years by soaring inflation and currency crashes will soon decide whether to forge ahead with President Tayyip Erdogan’s vision of a heavily-managed economy, or ditch it for a painful return to liberal orthodoxy. Presidential and parliamentary elections, perhaps the most consequential in the century-long history of the republic, will likely come in May and determine whether Erdogan, 68, enters a third decade in power. The vote marks a fork in the road for Turks battered by an inflation-driven cost of living crisis that is only just easing. International investors, many of whom have bailed out in the last five years amid recurring market turmoil and Ankara’s embrace of unorthodox economic policies, are watching closely. Fund managers told Reuters even the hint of an opposition win could prompt a significant rally in Turkish assets given promises to roll back ‘Erdonomics’. But his drastic transformation of the economy and financial markets means such a change would bring its own uncertainties.Blaise Antin, head of EM sovereign research at asset manager TCW in Los Angeles, said an immediate “quick kill on FX appreciation seems unlikely to materialise” even if Erdogan loses.Only in the medium-term could markets turn sustainably bullish given the need to address an overvalued currency and re-set interest rates to “a much higher level,” he said. Opinion polls suggest Erdogan could retain the presidency while his Islamist-rooted AK Party loses control of parliament.That could be “the worst case” outcome, Antin said, leading to short-term policy uncertainty and market volatility.There is still a long way to go. A six-party opposition alliance is yet to choose a presidential candidate. One popular option, Istanbul’s mayor, is appealing a jail sentence and political ban. Critics say courts are muzzling Erdogan’s opponents, a claim the government denies. The election will also determine what role regional military power and NATO member Turkey plays in conflicts in Ukraine, where Erdogan has helped broker talks, and in neighbour Syria.ACHILLES HEELErdogan has never looked more vulnerable, with the economy his Achilles heel. A self-described “enemy” of interest rates, his determination to slash rates to 9% from 19% sent the lira crashing in late 2021 and down another 30% last year – its 10th consecutive annual plunge. Inflation roared to a 24-year peak of 85% in October as food, fuel and rent costs ballooned. To offset voters’ strains, Ankara has rolled out record social aid spending worth some 1.4% of the annual budget, including energy subsidies, doubling the minimum wage, and allowing more than 2 million Turks to retire immediately.”Erdogan is offering one (support) package after another”, which will put “significant pressure” on the public purse, said Galip Dalay, associate fellow at Chatham House in London. “But if he loses the election that will be someone else’s problem.” Turkey still has much lower debt levels than most countries but years of FX reserve depletion, erosion of the central bank and judicial system’s independence and unorthodoxy more generally have left their mark. Credit ratings from Moody’s (NYSE:MCO) and Fitch have slid from investment-grade in 2016 to “junk” – on a par with Bolivia and Cameroon.”The policies just don’t look sustainable,” Fitch’s Paul Gamble said.EXODUSInvestors say Turkey’s free-market model began metamorphosing around 2017 when it adopted an executive presidential system concentrating power in Erdogan’s hands. In 2019, authorities worried about destabilising speculation squeezed international lira markets. Trading in centres like London now averages under $10 billion a day, down from $56 billion in 2018, Bank of England data shows. Foreigners have slashed holdings of Turkish government bonds to less than 1% from 20% in 2017 and now own just 30% of the equity market, compared to 65% a few years ago. Turks seeking a way to hedge against soaring prices have filled the gap, helping lift the Istanbul index by 200% last year. They now account for 70% of stock holdings, up from 35% in 2020. Mehmet Hasim Acanal, a farmer in Turkey’s southeast, sold one of his fields and tapped savings to put 10 million lira ($533,620) into stocks. “I thought it would protect against inflation … and provide more return than dollars and gold,” he said. Turkey’s depreciation-protected bank deposit scheme, brought in to stop the lira’s 2021 plunge, is an example of its unorthodox and sometimes costly approach. In the short-term it seems to have worked however, halting a years-long rise in Turks converting lira into dollars. Injections into state coffers from “friendly” countries like Qatar and Russia, and from a tourism rebound, have meanwhile helped the lira stay roughly between 18.0 and 18.8 to the dollar since August – around the time Erdogan’s opinion poll ratings started rebounding.Authorities have been constantly tinkering too, bringing in around 100 additional regulations to bolster currency stability. One banker told Reuters some foreign investors had started putting short-term bets on the lira given an almost doubling of central bank net FX reserves since November. Yet the lira, which has lost over 90% of its value against the dollar since 2008, is still 15% overvalued based on economic imbalances and fiscal stimulus, said Robin Brooks, chief economist at the Washington-based Institute of International Finance. “The credit stimulus keeps growth higher than Turkey can really sustain,” he added. But predictions that Erdogan’s policies would lead to disaster have not materialised, noted Sergey Goncharov, EM fund manager at Vontobel. Last week, Turkey had no problem borrowing $2.75 billion from international capital markets. That complicates the choice for voters who could face a painful initial economic downturn if an opposition victory were to bring a return to free market policies. “It is an unstable equilibrium,” Goncharov said. “But it is a hard one to move out of.”($1 = 18.7400 liras) More

By Francesco CanepaFRANKFURT (Reuters) – European Central Bank staff are losing confidence in the institution’s leadership following the ECB’s failure to control inflation and a pay award that lagged the leap in prices, according to a survey by trade union IPSO. The responses underline that even central banks, whose primary responsibility is fighting inflation, are not immune to staff dissatisfaction with the sharply rising cost of living.The survey was organised in the context of a dispute between IPSO, which holds six out of nine seats on the ECB’s staff committee, and the central bank’s board over pay and remote-working arrangements.An ECB spokesperson did not comment directly on IPSO’s findings when asked but pointed to a separate staff survey, run by the ECB itself last year, showing that 83% of nearly 3,000 respondents were proud to work for the ECB and 72% would recommend it.Results of IPSO’s survey, which largely focused on pay and remote-working arrangements but also included questions about trust in the board, were sent to ECB staff on Tuesday in an email, seen by Reuters. They showed two-thirds of roughly 1,600 respondents said their trust in Lagarde and the rest of the six-member ECB board had been damaged by recent developments such as high inflation and a pay increase that did not match the rise in prices.Asked how much trust they had in Lagarde and the board when it comes to leading and managing the ECB, the central bank for the 20 countries that use the euro, just under half of respondents said “moderate” (34.3%) or “high” (14.6%).But over 40% of respondents said they had “low” (28.6%) or “no” (12%) trust, while 10.5% could not say.”This is a serious concern for our institution, as no one can correctly lead an organisation without the trust of its workforce,” the union said in its email.INFLATION SURGE, PAY BATTLESThe survey was the first by IPSO to ask about trust in top management since Christine Lagarde took over as ECB President in late 2019.A similar IPSO survey of ECB staff, taken just before her predecessor Mario Draghi stepped down, showed 54.5% of 735 respondents rated his presidency “very good” or “outstanding”, with support for his policy measures even higher.Then, however, inflation in the euro zone had been low for a decade. Its recent surge to multi-decade highs in countries around the world has seen a revival in battles over pay between workers and the companies and institutions that employ them. And a majority of respondents in the October 2019 survey also complained about a lack of transparency in recruitment and perceived favouritism under Draghi. The most recent Bank of England staff survey, also conducted in 2019, showed 64% of respondents had “trust and confidence in the Bank’s leadership”. A 2022 U.S. government survey of employees at departments and federal agencies found that 61% of respondents had “a high level of respect” for their organisation’s senior leaders – roughly stable compared to the previous two years.The ECB spokesperson also pointed to internal surveys in 2020-21 that found roughly 80% of respondents were satisfied with health-and-safety measures taken by the ECB in response to the coronavirus pandemic. The latest IPSO survey showed 63% of staff who responded were worried about the ECB’s ability to protect their purchasing power after being handed a pay increase of just 4% last year – or roughly half the rise in consumer prices. The ECB has been criticised by politicians, bankers and academics for initially underestimating a surge in the cost of living and then making up for it with large and painful increases in borrowing costs.Lagarde, who is not an economist and had not been a central banker before joining the ECB, colourfully defended her board at an event with staff last month.”If it wasn’t for them I’d be a sad, lonely cowgirl lost somewhere in the Pampa of monetary policy,” Lagarde said, according to a recording of the Dec. 19 town hall seen by Reuters.She and fellow board members have long worried about the risk of a potential “wage-price spiral”, where higher salaries feed into prices, which they argue would make it harder for the ECB to bring inflation back down to its 2% target.But IPSO said that concern is misplaced and workers should not be made to bear the brunt of the current bout in inflation. “The ECB might be preaching lower real wages, but this is not our stance as your staff union,” it wrote in its message to ECB employees. More

Good morning. Investors had dramatically different reactions yesterday to results from two of Wall Street’s biggest banks.Both Goldman Sachs and Morgan Stanley reported that net earnings fell in the fourth quarter of 2022 and that investment banking fees were down almost 50 per cent, amid a dearth of mergers and new stock market listings.But investors cheered Morgan Stanley’s shift into wealth management under chief executive James Gorman, pushing the shares up almost 6 per cent by the end of the session. Shares in Goldman Sachs on the other hand fell more than 6 per cent as investors punished the bank’s diversification into consumer banking. Chief executive David Solomon, who yesterday celebrated his 61st birthday, admitted Goldman’s fourth-quarter performance had been “disappointing”.Goldman last week began cutting thousands of jobs in New York, London and Hong Kong in its biggest cost-cutting programme since the financial crisis. Other US lenders less reliant on market cycles have benefited from the sharp rise in US interest rates as consumers deposit more of their money with banks, as their results on Friday showed. The one bright spot for Solomon and Goldman was the contentious trading division. Revenues from trading fixed income, currencies and commodities beat expectations. In other financial services news: The crypto-focused US bank Silvergate yesterday reported a $1bn loss for the final three months of 2022. Have you been affected by the cost-cutting on Wall Street? Email me at [email protected] or hit reply on this email — Gordon.Five more stories in the news1. Global oil demand set to reach record high The International Energy Agency has predicted demand for oil this year will reach record levels as China reopens after abandoning its zero-Covid policy. The IEA said in its first monthly oil report of 2023 that oil prices may rise in the second half of the year as robust demand meets tight supply. West Texas Intermediate, the US benchmark, which gained 8 per cent last week, rose above $81 a barrel this morning while Brent crude jumped to $87 a barrel.More on the global economy: Business leaders and top government officials gathering in the Swiss ski resort of Davos have expressed optimism about the outlook for the global economy this year. 2. BoJ keeps yield control measures The Bank of Japan has defied market pressure and left its yield curve control measures unchanged, sending the yen sharply lower and stocks higher as it stuck to a core pillar of its ultra-loose monetary policy. The decision follows weeks of turmoil in the Japanese government bond market, during which yields surged.3. Chinese tech stocks rally China’s tech stocks have staged a $700bn rally as the country reopens and a clampdown on the sector loosens. Hong Kong’s Hang Seng Tech index has soared almost 60 per cent from its October lows, with heavyweights such as Tencent and Alibaba gaining $350bn combined in market value.4. Ukrainian interior minister among 18 killed in helicopter crash Eighteen people, including Ukraine’s interior minister and three children, were killed when a helicopter crashed near a nursery school in Kyiv, officials said. The cause of the crash is unknown but the authorities in Kyiv have launched an inquiry they said earlier today. 5. Republicans target proxy advisers in ESG backlash Republican state attorneys-general in the US have taken aim at corporate proxy advisers, challenging Institutional Shareholder Services and Glass Lewis over their recommendations tied to climate and social goals. The two companies, which dominate the business of guiding investors on board votes and shareholder resolutions, are the latest financial groups to receive pressure from Republican state officials on the attack over sustainable investing principles.The day ahead Market outlook European stocks and US futures are steady as investors bet that cooling inflation would allow central banks to pause their rate increases earlier than previously thought. The UK today became the latest country to report inflation had fallen further from recent peaks. Economic data The US publishes its December retail sales and producer price index, and the Federal Reserve issues its Beige Book on economic conditions. The National Association of Home Builders will release its monthly housing market index.Musk trial to begin A group of nine jurors will hear opening arguments in a trial over Elon Musk’s tweets claiming he had “funding secured” to take Tesla private in 2018. Read more on what investors allege.Nato The alliance’s defence ministers, including counterparts invited from membership applicants Finland and Sweden, gather in Brussels for a two-day meeting.Yellen meets China’s economic tsar US Treasury secretary Janet Yellen meets Chinese economic tsar in Zurich, in a move that signals Washington and Beijing’s commitment to improving ties.Corporate results United Airlines will hold its full-year earnings call this morning with industry analysts. Last night it reported fourth-quarter net income a third higher than in 2019 and predicted 2023 revenues would be well ahead of forecasts. Broker Charles Schwab, infrastructure group Kinder Morgan, logistics company JB Hunt and consumer bank PNC Financial all report earnings today.The World Economic Forum continues. Tune in to the Davos Daily Show, hosted by the FT’s Andrew Hill, from 12pm GMT January 17-19. Register here for free.What else we’re reading Can Apple decouple from China? In November, workers at Apple supplier Foxconn protested against Beijing’s strict Covid-19 policies. Police responded with riot gear. When confronted by a reporter on the incident, Tim Cook declined to comment, in a scene later widely replayed and criticised by US media. As the tech giant increasingly finds itself beholden to America’s biggest geopolitical rival, the question is whether diversification is even possible.Entrenched: Read the first of this two-part series on how Apple tied its fortunes with China.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Disney activist investor focuses on Fox deal Nelson Peltz, the activist investor who is trying to force his way on to Disney’s board, has fixated on a $71bn deal that saw the entertainment company buy Fox’s movies and television business. Peltz blames the deal for what he calls Disney’s “balance sheet from hell”, saddling it with extra debt and preventing the company from returning cash to investors.Tackle global debt before it’s too late The system we currently have for resolving the debts of poor countries is not “fit for purpose”, writes Martin Wolf. The same is true of that for helping poor countries through adverse shocks and towards sustainable development — and change is needed urgently.Accountants seek control of climate data as disclosure rules loom The US Securities and Exchange Commission is finalising a rule to require audited emissions data be included in corporate financial reports, while accounting standards setters in Europe are close to publishing new climate reporting guidelines. The developments raise the stakes for companies.Arrest saps strength of the Sicilian mafia The capture of Matteo Messina Denaro, the last fugitive Cosa Nostra “godfather”, highlights the progress security services in Italy have made against organised crime in the past three decades, experts say. Take a break from the newsWho was the writer of the 1969 sci-fi novel The Andromeda Strain? Try your hand at 1-across in this FT crossword puzzle. More

DAVOS, Switzerland (Reuters) – Saudi Arabia’s finance minister said on Wednesday the kingdom is changing the way it provides assistance to allies, shifting from previously giving direct grants and deposits unconditionally.The kingdom, the world’s top oil exporter and an Arab powerhouse, was encouraging countries in the region to enact economic reforms, Mohammed al-Jadaan said at the World Economic Forum in Davos.”We used to give direct grants and deposits without strings attached and we are changing that. We are working with multilateral institutions to actually say we need to see reforms,” the minister said.”We are taxing our people, we are expecting also others to do the same, to do their efforts. We want to help but we want you also to do your part.”Saudi Arabia and other Gulf Arab states like the United Arab Emirates and Qatar have increasingly moved towards investing rather than extending direct financial aid.Earlier this month, Saudi state media reported the kingdom could boost its investments in cash-strapped Pakistan to $10 billion, from $1 billion announced in August, as well as increase the ceiling on deposits into the Pakistan central bank to $5 billion.In June, Saudi Arabia signed deals worth $7.7 billion with Egypt, including to build a $1.5 billion power plant, and said it intended to lead investments worth $30 billion, helping a long-standing ally that faces a weakening currency and shortage of foreign currency.The kingdom also set up companies in Egypt, Jordan, Bahrain, Sudan, Iraq and Oman to seek up to $24 billion in investments there.Jadaan added that Riyadh had early on seen global inflation coming and acted accordingly, helping to keep inflation in the kingdom at an average of about 2.6%.”The likelihood of next year is that inflation will not be as high,” he said.Asked about Saudi ties with major trade partner China, Jadaan said Riyadh was taking a “wider approach” in which relations with both Beijing and Washington were important as well as building ties with other countries.”We are looking to enhance our relationship with Europe. We are actually advancing our relationship with Latin America, with Asia,” he said. More

The ECB has raised rates by 2.5 percentage points since July and flagged a 50 basis point move in February and possibly in March, all in the hope of getting inflation back to 2% by sometime in 2025 from levels near 10% now.”We must stay the course in our battle against inflation; it’s not yet won,” Villeroy told a World Economic Forum (WEF) annual meeting panel in Davos.His comments come after a Bloomberg News report that some policymaker are contemplating a smaller hike in March. Villeroy appeared to dismiss this, saying that ECB President Christine Lagarde’s guidance for a 50 basis point move in February and possibly at subsequent meetings remain valid. Headline inflation could peak in the first half of 2023, followed by underlying price growth, and overall inflation could fall to the ECB’s 2% target by late 2024 or early 2025, he said. Villeroy was also relatively optimistic on growth, arguing that a recession, part of the ECB’s baseline forecast, could be avoided given recent indicators. “If I look at the situation from Europe – it’s probably the same in the U.S., more or less – activity is more resilient than expected, and we should avoid a recession this year, which I wouldn’t have (expected) three months ago,” Villeroy added. For daily Davos updates in your inbox sign up for the Reuters Daily Briefing here More