Aurelia Butler

The trade deficit in goods hit 84.7 billion euros ($97 billion) in 2021, equivalent to 3.4% of economic output, as the energy import bill swelled to 43.1 billion euros, the trade ministry said.In December alone, the trade gap reached more than 11 billion euros in the biggest monthly shortfall between exports and imports since French customs records began in 1970.Nearly two months from a presidential election in which Macron is widely expected to seek a second term, Finance Minister Bruno Le Maire said the deficit marked a “blemish” on Macron’s presidency which has otherwise been particularly strong on the economy.Growth hit a 52-year high last year of 7% as that the European Union’s second-biggest economy recovered faster than expected from the coronavirus crisis. However, the record economic activity also fuelled demand for imports while exports were hit by a slump in new aircraft shipments, although Trade Minister Franck Riester said on Tuesday that they should rebound in coming years judging by full order books.Le Maire said that ultimately France needed the re-election of Macron in April to complete efforts to restore exporters competitiveness. Macron, a former investment banker and economy minister, has cut various taxes paid by companies and eased France’s traditionally strict hiring and firing rules.”There is no other solution to improve France’s external trade balance than to massively and quickly re-industrialise,” Le Maire said on France Inter radio.While the trade deficit grew to record levels, France’s services surplus more than doubled to 36.2 billion euros last year despite still weak revenues from tourism. As the world’s top tourism destination, the sector was traditionally a reliable source of income prior to the pandemic.With French ports picking up business from congested rivals elsewhere in Europe, transports services swung massively into a surplus for the first time since 2004, trade ministry data showed.($1 = 0.8770 euros) More

“Gradual”, “data-dependent” – those were the words ECB President Christine Lagarde used to soften the hawkishness of her message last week. But after three days of violent repricing on euro debt markets, there is likely more to come.Borrowing costs for Europe’s southern flank have risen sharply, with investors now demanding a yield premium of 160 basis points to hold 10-year Italian bonds relative to safer German equivalents. That’s 30 bps more than before last Thursday’s ECB meeting. European corporate debt may be due a correction too; Citi reckons top-quality credit spreads could widen to 90 bps from 70 bps at the end of 2021.The recent moves are raising the risk of fragmentation along national lines of debt markets and the derailment of southern European economic recovery, especially given the post-COVID rise in spending deficits. The question now is: How far can the selloff go before policymakers offer reassurance – in other words, the ECB ‘put’, along the lines of the backstop the U.S. Fed is typically seen to provide equity markets?The answer? It might still have some time to run. Yields, while rising, are low in absolute terms and Europe still has the safety net of the EU recovery fund. Lagarde promised “the ECB is “obviously going to respond” if sovereign spreads widen a lot. But as yields resume their climb on Tuesday, JPMorgan (NYSE:JPM) analysts note “the market may be willing to test this commitment”.Elsewhere, Softbank (OTC:SFTBY)’s deal to sell chip designer Arm in a $60 billion deal has collapsed Facing regulatory roadblocks, SoftBank drops sale of Arm to Nvidia (NASDAQ:NVDA), will seek IPO amid regulatory hurdles. That comes days after a $5 billion purchase by Taiwan’s GlobalWafers of Germany’s Siltronic was scuppered by Berlin.(Graphic: Italy, https://fingfx.thomsonreuters.com/gfx/mkt/akveznnwqpr/Pasted%20image%201644271537354.png) Key developments that should provide more direction to markets on Tuesday: -British consumers slowed the pace of their spending last month-France’s BNP beats Q4 profit estimates, BP (NYSE:BP) records highest profit in eight years in 2021-New York Fed issues Q4 Household Debt and Credit Report-U.S. trade balance-U.S. 3-yr notes auction-US earnings: Coty (NYSE:COTY), DuPont (NYSE:DD), Harley Davidson, Thomson Reuters (NYSE:TRI), Pfizer (NYSE:PFE), S&P Global (NYSE:SPGI), Omnicom, Chipotle (NYSE:CMG), Lyft (NASDAQ:LYFT), Peloton (NASDAQ:PTON)-European earnings: Qiagen (NYSE:QGEN), Banco BPM, Evolution Gaming, BP, Ocado (LON:OCDO), BNP Paribas (OTC:BNPQY), TUI-Emerging market central banks: Poland, Moldova   More

Financial institutions need to step up support for affordable rental housing, the People’s Bank of China said in a statement on its website.Since Jan. 1 last year, the PBOC has activated a concentrated management system for property loans, asking lenders to cap outstanding property loans and mortgages. More

Shares in Chinese healthcare companies sold off after the US commerce department added pharmaceutical group WuXi Biologics to its “unverified” list for exporters, lopping off more than a fifth of the company’s market value.The addition of WuXi and 32 other Chinese entities to a list that curbs their ability to access US technology sent Hong Kong’s Hang Seng Healthcare index down almost 5 per cent on Tuesday, putting it on track for its biggest drop since early December.WuXi, a Chinese drugmaker, suspended trading of its Hong Kong-listed shares, which plummeted as much as 32 per cent. The company’s stock was down more than 22 per cent when its shares were frozen, wiping $10bn from its market capitalisation and putting it on track for its biggest daily decline on record. The Biden administration has worked to make it more difficult for China to secure cutting-edge technologies by placing its companies on a series of entity lists and blacklists that restrict trade and investment. Despite the sell-off, WuXi said in a public statement that its inclusion on the list would not significantly impact its business. “WuXi Biologics has been importing certain hardware controllers for bioreactors and certain hollow-fibre filters that are subject to US export controls but have received [US] approval for the last 10 years,” the company said in a statement late on Monday.It added that the commerce department had “a routine process to verify the proper use . . . of these [materials] on site”, which had not been completed for two years as a result of the coronavirus pandemic.

The commerce department adds groups to its list if it cannot verify the end-use of goods exported to them. The addition of 33 Chinese groups to the unverified list came as the US steps up scrutiny of Chinese companies.US exporters must apply for a licence if they want to export certain items to companies on the “unverified” list, while Chinese companies have to prove that they are in compliance with Washington’s regulations in order to be removed from it. In December, the US added eight Chinese companies to its investment blacklist and 11 biopharmaceutical organisations to its “entity list”, which bans companies from exporting certain American technology. But analysts said the impact of the bans could be minimised by replacing US components in any products. That is a potential path forward for WuXi, since the ban only affects two types of equipment used by the company.John Yung, an analyst at Citigroup in Hong Kong, said WuXi was “more likely to seek alternatives in EU or China” rather than deal with expected delays for US parts as it sought the necessary approvals. More

TOKYO (Reuters) – When Japan handed Tokyo bus driver Keiki Nambu and his wife, Takako, $870 for each of their nine children, they spent it exactly as the government had feared: paying down a mortgage instead of going shopping.That kind of financial prudence has helped Japanese households amass a staggering $17 trillion in assets over the years, with more than half of that parked in savings. But it also represents a headache for policymakers, who struggle to kick-start consumption and boost a moribund economy.Prime Minister Fumio Kishida’s government has paid nearly $17 billion in cash stimulus to families. But unlike U.S. stimulus that lifted consumer spending, the impact is seen as limited in Japan, where households are more likely to save the money or repay debt like the Nambus.It highlights a consistent problem in the world’s No. 3 economy, where public debt is already more than twice the size of the gross domestic product (GDP).”If dad’s salary remains the same but prices keep going up, all we can do is ask him to do his best and work as much as he can,” said 39-year-old Takako.Her husband makes about $44,000 a year, including the discretionary “bonus” paid twice yearly by Japanese companies but cut when times are lean, as happened during the pandemic. In the end, the stimulus money is just helping to make up for that shortfall, Keiki said.The Nambus’ children range in age from less than a year to 17. Kids only get water and milk to drink, although the family consumes about five litres of milk a day. Keiki makes sure the kids take quick showers to keep the water bill down.In terms of size, the Nambus are hardly typical – the average Japanese household has shrunk https://tmsnrt.rs/3Go0HeD to 2.21 people as of late 2020 from 2.82 in 1995, according to census data. Tokyo’s average was even smaller, at 1.92.Their frugality is common, however.BIG SAVERSPrivate consumption accounts for more than half of Japan’s GDP.But households may be spending just 10% of the stimulus cash and saving the rest, said Koya Miyamae, senior economist at SMBC Nikko Securities. Economic insecurity keeps consumption flat, Miyamae added, and a recent surge in Omicron infections has also made people hesitant to spend.Another economist, Hideo Kumano of Dai-ichi Life Research Institute, reckons that about 75% of the handouts will end up as savings, although he cautions that number could be higher if parents decide to set aside more for their children’s education.Concern that the money would end up in savings prompted some municipalities to pay half of the stimulus as vouchers. Tokyo wasn’t one of them. Separate cash payments to all residents of Japan earlier in the pandemic saw about 27% of the money spent, according to a July 2020 survey by Mitsubishi Research Institute. The Nambus received around $8,700 in total from this round of stimulus – 100,000 yen ($870) yen per child and another one-off payment from the government.They initially flirted with the idea of an overnight family trip to a hotel run by their city ward. In the end, frugality won out, although they did spend about $210 on sushi and ice cream.They will also use some of the money to buy a school bag and gym clothes for Keifu, 6, who is starting primary school in April.The hand-me-down gym clothes were too threadbare after being worn by six of his older siblings.($1 = 115.3400 yen) More

Good morning. No one wrote in to tell us that Monday’s selection of wildly speculative short bets were pure insanity, which is evidence that either market sentiment among Unhedged readers is pretty negative, or that no one reads to the bottom of the letter. We don’t know which of those to prefer. If you have a wild bet or two on, email it to us: [email protected] and [email protected] is not the important number right nowWhen negative-yielding sovereign debt first became a significant slice of the global bond market a decade or so ago, people got worked up about it. There is, admittedly, something very odd about paying someone to borrow your money. Negative-yield buyers were not in it to make borrowers richer, of course. They were either buying it because they had to have risk-free assets, whatever the yield, or because they thought that rates would fall more, leaving them with a capital gain. Negative yielding debt is not insane, and the move into negative territory, while psychologically important, was just another move along a financial continuum.Now the same thing is happening in reverse. The financial punditocracy is excited about to charts like this one, from Chris Verrone of Strategas, showing a fast decline in the volume of negative-yielding debt around the world. Note the log scale:

But the zero barrier doesn’t tell us much. It is not a magical threshold, beyond which investors will come rushing back to risk-free debt, having been forced into riskier assets by the presence of a minus sign.What is important is just the plain fact that rates are rising, and why. My excellent colleagues Kate Duguid and Eric Platt made an important point about this on Sunday. What has been driving rates up in the past month or so is not higher expected inflation, but higher real rates. Here is their chart of inflation break-evens — nominal US bond yields minus the yields on inflation-protected bonds, which renders a market estimate of future inflation:

People expect less inflation now than they did a month ago — not surprising, given that the Federal Reserve’s posture (or the consensus interpretation of it) is more hawkish now. What is rising is the rate of interest after inflation:

Real rates are not just rising, but rising fast. Duguid and Platt report one common interpretation of this, linking higher real yields to higher growth expectations. In combination with lower break-evens, they anticipate a Fed that will kill inflation without killing the economy:Analysts say this increase in so-called real yields indicates traders are expecting the US economy to continue expanding in the years to come even as policymakers withdraw stimulus measures to slow intense price growth.This is not the only interpretation available, however. Another was offered to me by Unhedged’s friend Edward Al-Hussainy of Columbia Threadneedle. He rejects the notion that real rates are an indicator of growth expectations, citing several examples. In May 2013, when Ben Bernanke announced that the Fed would start tapering asset purchases at some point in the future, real rates rose 130 basis points almost immediately. Presumably this was not because of a sudden increase in growth expectations. Similarly, growth went gangbusters for all of 2021, but real rates went nowhere until December. Looking over longer periods, we know that real rates have been falling rapidly across developing economies — the US, Europe, Asia — for years, even though growth has not been declining in all of those regions.What real rates are telling you, Al-Hussainy argues, is how close monetary policy is to the neutral rate of interest, which economists call R*. It is the rate of interest in an economy that is consistent with full employment and stable inflation. This, not zero, is the number that matters. Unfortunately, we don’t know exactly what R* is, and there is not much consensus about what determines it.What we are pretty sure about is that R* has been declining, and at a pretty good clip. Consider just one very imperfect proxy for it: the Federal Open Market Committee’s estimate of the appropriate long-term policy rate, as expressed in the famous “dot plots”. In 2012, it was over 4 per cent. Now it’s under 2.5 per cent.What are the mechanics by which a tightening policy stance drives real rates up? The Fed says “we are going to raise rates and stop buying bonds”. All else being equal, such an announcement drives nominal rates up, and inflation expectations down. Higher real rates result, just by arithmetic.So how do we know that monetary policy has hit or even exceed R*, given that we can’t observe R* directly? When the risk-seeking behaviour that is enabled by holding interest rates below the neutral rate comes screeching to a halt. “We know we’ve hit R*,” Al-Hussainy says, “when risk assets puke all over themselves. It’s the only way. Otherwise we are just feeling around in the dark.”If you buy Al-Hussainy’s interpretation, you might look at the nausea gripping riskier assets right now, and conclude the R* has come down even lower than the Fed currently believes.Meme stocks are deflating, but crypto is doing its own thingAre crypto and meme stocks connected? You might believe, for instance, that both are speculative manias downstream of loose monetary and fiscal policy. The government spent and the central bank printed and so the market rotated into insanity.Well, now monetary policy is tightening, the fiscal impulse is negative and the savings rate is back to normal. So you might expect all that speculative junk to collapse. If that’s your view, the past few months have delivered some vindication:

The fallout is hitting meme-stock land hard, with true believers holding out hope that GameStop shares will skyrocket once more. They pray for the “mother of all short squeezes”, or MOASS — a deus ex machina by forced hedging. A recent Wall Street Journal story interviewed some of the hangers-on:The MOASS adherents say GameStop shares will soar to unprecedented highs — thousands or perhaps even millions of dollars per share. The theory goes that legions of small investors will hit the jackpot while losses cripple the financial elite.[Tesla salesman Ben] Wehrman, who said he has 80% of his investment portfolio in GameStop, plans to quit his job once the squeeze occurs — to travel the world and work on his blog.We’ll leave the final verdict to the historians. But it looks to us like the pandemic created a meme-asset moment that is now passing. AMC and GameStop execs knew this, and used their inflated valuations to issue shares and refinance debt. We never got a dramatic freefall, but now the air is seeping out. The diehards are probably right: an apocalyptic short squeeze is the only way to restore the glory days.Something broadly similar is happening in crypto. Retail investors are finding other things to do. Robinhood’s crypto trading revenue has fallen 79 per cent from its quarterly high in mid-2021, including a 5 per cent slump in the most recent quarter. That’s in line with a broad volume drop in crypto, which has been declining since last January and fell further in December:

But unlike the meme stocks, in crypto, retail is only half the story. Crypto firms are swimming in institutional money, mostly provided by VCs. On Monday, Polygon raised $450mn from funders including Sequoia Capital and SoftBank’s Vision Fund 2. Or consider this scoop in the FT last week:The start-up behind Bored Ape Yacht Club, the non-fungible token collection that counts celebrities such as Gwyneth Paltrow and Snoop Dogg as owners, is discussing a financing with Andreessen Horowitz that would value it at between $4bn and $5bn.According to people with knowledge of the discussions, NFTs pioneer Yuga Labs is seeking to sell a multimillion-dollar stake in a new funding round . . . People familiar with the talks said Yuga could even issue crypto tokens to investors and existing Bored Ape holders, which could then prove valuable on the resale market.Ebbing retail interest and falling prices have not deterred VCs, who smell huge profits if crypto becomes critical financial infrastructure. So with peak speculation behind us, meme stocks are listless while crypto has the funding to push on.

Video: Where crypto ‘anarchy’ will end | Lex Megatrends

And crypto has recovered from enough slumps to assure some commentators that the revolution is coming. Here’s historian Niall Ferguson writing in Bloomberg over the weekend:Bitcoin today is seen primarily as “digital gold” . . . As my Hoover Institution colleague Manny Rincon-Cruz argued in a brilliant essay last month, “Bitcoin’s core value proposition, and technological innovation, is digital scarcity via a public, decentralised ledger that tracks a fixed supply of 21 million bitcoins.” It’s that scarcity that investors like, compared with — as the pandemic made clear — the potentially unlimited supply of fiat currencies . . . Applying financial history to the future, I expect this crypto winter soon to pass. It will be followed by a spring in which bitcoin continues its steady advance toward being not just a volatile option on digital gold, but dependable digital gold itself; and [decentralised finance] defies the sceptics to unleash a financial revolution as transformative as the ecommerce revolution of Web 2.0.Unhedged is wary of making predictions, but we do like thinking about the range of other people’s guesses. The “crypto revolution” trade is a crowded one, as is the “crypto is going to zero” trade. The middle range is neglected. What if crypto just turns out to be a medium-sized technical innovation that improves the delivery of certain services? Not a thrilling bet, but the cost of carry sure is cheap. (Ethan Wu)One good readHalf of Unhedged went to college with US Olympic figure skater Karen Chen, who has just won silver in Beijing. On campus, Chen’s name was spoken in awestruck tones. “How the hell is she also a pre-med?” was asked more than once. Jerry Brewer brings that same feeling to the pages of The Washington Post. More

Juan Manuel Canals and Basma Eddaheri, both in their 20s, are part of the reason why Spain has confounded predictions of massive job losses in Covid’s wake.During the pandemic, Canals started work as an IT engineer; Eddaheri has been staffing a Covid helpline for a month. Their first experiences of work mirror broader changes in the Spanish economy. More people are now employed by sectors such as health, IT and social services than was the case when Covid-19 hit just under two years ago.Such growth — partly fuelled by state spending — helps explain why the number of people in work has hit a record 20mn. Unemployment has fallen to its lowest level since 2008, roughly half the one in four rate once predicted by groups such as the OECD.“It’s very easy to get jobs in this sector,” says Canals, an engineer at Kyndryl, an IT services company spun off from IBM last year. “As someone who has just come into the labour market I see many opportunities . . . I feel very optimistic.”At a different extreme of the job market, Eddaheri also expresses optimism after being aided by Fundación Iter, a Madrid non-profit to help young people find work.

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“I like the fact that I can help people,” she said. “My contract [on the Covid helpline] is for three months, but afterwards I would like to do something else like it.”Unemployment has been Spain’s glaring failing for decades and the country’s jobless rate of 13 per cent remains twice the EU average, as does its youth unemployment rate of 31 per cent. But strikingly more than one-third of all eurozone jobs created last year were in Spain. The country’s youth unemployment is down 10 percentage points on its level a year ago.The Spanish government, which last week narrowly passed a long-negotiated reform of labour laws to restrict temporary contracts, argues that faster technological change and increased social spending sparked by the pandemic are here to stay. Madrid plans to spend 30 per cent of its €70bn in EU coronavirus recovery funds on digitalisation, as well as increasing funds for health. Last month, the social security ministry said there were 429,000 more jobs than in February 2020 — 229,000 in the public sector and 200,000 in the private sector. “If you look at the last three Spanish economic crises, never have jobs recovered so fast,” said a government official.Spain’s figures are part of a global trend that has defied expectations of huge job losses, as demand has returned to the economy and labour has proved scarce rather than surplus.Christine Lagarde, president of the European Central Bank, said last week there was “good news to celebrate” after eurozone unemployment fell to a record low of 7 per cent, while worker participation rebounded above pre-pandemic levels at 73.6 per cent.The US also reported strong numbers last week, with the increase of 467,000 jobs in January — three times expectations. Spain’s figures also reflect a Europe-wide bet on furlough schemes. At its peak, Spain’s scheme — known as ERTEs — supported 3.6mn people. As of last month, just 106,000 people were on the pandemic scheme. “We had analysts saying 1mn people on ERTEs would end up unemployed,” said the government official. “But the number of people still on the schemes is just a tenth of that and steadily going down.” Rafael Doménech, head of economic analysis at BBVA, the bank, said: “Europe made a bet to maintain jobs, on the expectation that businesses could recover their previous activity, and for most companies, in almost all sectors, that’s what has happened.”It is a contrast with the aftermath of the financial crisis, when Spain’s oversized construction sector collapsed — destroying vast numbers of jobs and pushing unemployment up to 26 per cent in 2013. More than one in two young people were jobless.But he acknowledges a Spanish paradox: despite the improvement in the jobs market, the country’s gross domestic product remains about 4 per cent behind 2019 levels. Much of the reason for the disparity, he thinks, is because of tourism, a seasonal business that is responsible for about 12 per cent of GDP. Last year, the number of foreign tourists visiting Spain — and the money they spent — were down more than 60 per cent on 2019 levels.

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Working hours are also down on pre-pandemic levels despite the increase in employment. Even in the fourth quarter of last year, the total number of hours worked was down almost 4 per cent on the same period of 2019 — a difference Doménech suggests may be because of factors such as self-isolating staff and businesses wary of spending too much.Domestic demand is still weak in Spain and, as in other countries, salaries have failed to keep pace with inflation, which has hit 30-year highs of up to 6.5 per cent. Some unions are stepping up wage claims. “The main question mark remains whether the economy can sustain higher wage growth and an unemployment rate still in double digit territory,” said Giada Giani, an economist at Citigroup.Youth unemployment also remains a huge problem. “For someone without studies, it is very hard to get a good job; you only get the work no one wants,” says Carlos Inca, who recently did Fundación Iter’s training course near Madrid.But things are looking up for the 18-year-old, who has just obtained a job promoting solar panels — another area where Spain says it is using EU funds to invest in its future. More

UK consumer spending growth slowed at the start of the year as rising living costs and restrictions imposed to contain the high number of coronavirus infections limited social activity, according to bank transaction data.Consumer card spending rose 7.4 per cent in January compared with the same period in 2020, before the first coronavirus restrictions, the smallest uplift since April 2021, figures from payments company Barclaycard showed on Tuesday.The figure, which tracks nearly half of all UK credit and debit card transactions, was down from a 12 per cent increase in December and 16 per cent in November.Jose Carvalho, head of consumer products at Barclaycard, said: “January’s Covid restrictions, combined with the rise in the cost of living, clearly impacted consumer spending levels.”Spending on hospitality and leisure slipped into a 6 per cent contraction after five consecutive months of growth. The fall was partially driven by a 17 per cent contraction in restaurant spending, down from 14 per cent in December. All figures refer to a comparison with the same period two years earlier, before the pandemic.The travel sector was also affected by the government’s “Plan B” restrictions, with public transport seeing a steeper decline than last month as working from home guidance resulted in people delaying their return to the office.

Overall, spending growth on non-essentials was halved compared with December. Spending on essential items, such as groceries and fuel, grew 10 per cent, the smallest increase since April 2021.Barclaycard also revealed in its monthly consumer survey published alongside the spending data that nearly nine in 10 Britons said they were concerned about the impact of rising inflation on their household finances. About three in 10 said they expected increasing household bills to affect the amount they spend on discretionary purchases.This anxiety threatens the recovery of UK consumer spending, which has helped drive the economic rebound from the pandemic. The headline decline could hide an even bigger slowdown as the figures are not adjusted for inflation, which rose to the highest level in 30 years in December. The same is true for UK retail sales figures for January, published on Tuesday by the British Retail Consortium, an industry group. It reported that sales were up 7.5 per cent compared with the same month in 2020, but warned that a “portion of the sales growth will be a reflection of rising prices rather than increased volumes”.Helen Dickinson, BRC chief executive, said that in the coming months retailers would face competition from other spending opportunities as the public floods back to restaurants, cafés and live events. Moreover, she noted that “rising inflation, driven by higher costs of production, higher energy and transport prices, as well as other looming price hikes this spring will mean consumers will have to tighten their purse strings”. More