Raphael Stevens

Is it in Europe’s interests to follow America into a conflict over Taiwan? The suggestion by Emmanuel Macron, president of France, that perhaps it is not provoked anger on both sides of the Atlantic. But many French business leaders will quietly agree with Mr Macron’s intention: to defuse tensions between China and the West. After all, the French stockmarket closed at a record high on April 12th, with strong Chinese demand the most obvious cause.lvmh, a luxury-goods giant, is the largest stock in France’s cac 40 index, making up 13% of market capitalisation. On April 12th the company reported a 17% year-on-year jump in sales in the first quarter. Hermès International, Kering and Pernod Ricard, other luxury brands, account for another 8%. The companies make money not only from Chinese outlets, but from Chinese tourists in Europe. All have benefited enormously from the end of the Chinese government’s zero-covid approach. If the performance of France’s China-exposed stocks had been unique, it would have been down to Mr Macron’s stance. But if you look at valuations in rich-world stockmarkets, you would never know relations between China and the West are at a 50-year low. The msci World China Exposure index, which tracks 50 firms with high Chinese revenues, is up by 7% this year—no less than rich-world stocks overall and beating the more modest 3% rise of the msci China index. In the past five years, as China’s relations with the West have deteriorated, China-orientated, rich-world stocks have offered annualised returns of 16%, relative to 9% for rich-world stocks overall and -4% for Chinese shares.In part this reflects concrete realities. Whatever happens to diplomatic relations, rich Chinese consumers are unlikely to cease buying handbags. Some firms with lots of Chinese exposure, including bhp Group and Rio Tinto, two miners, have weathered geopolitical disputes. Although the Chinese government can shuffle the source of its commodities, as a recent short-lived ban on Australian coal demonstrated, such tweaks are ultimately limited by the commodities the country must import.The three largest companies in the China-exposure index are Qualcomm, Texas Instruments and Broadcom. Not only do these three American firms make between one-third and two-thirds of their revenues in China, they are also all semiconductor companies, operating precisely where spats over advanced tech are likely to be fiercest. Their stock prices have seen double-digit percentage rises this year. They are also beating the s&p 500 index of big American firms, and have done so comfortably over the past five years.Tasty net-income margins of between 27% and 44% are a big part of the three firms’ success, sitting well above the 11% margin of the s&p 500 as a whole. Semiconductor companies will also benefit from support Western governments are now offering to tempt them to build closer to home. Yet if the worst came to pass, and the firms had to leave China, offsetting such large revenue shares would require gargantuan new sources of demand. What is more, only Texas Instruments is a physical manufacturer of chips—the kind of company most likely to benefit from subsidies. These firms sit at the top of any list of those that will suffer if Sino-American relations worsen. If they are planning for life after China, they are disguising it well. Last month, Texas Instruments doubled down on a commitment to invest more in the country. Qualcomm has partnerships with China Mobile, a telecommunications giant, and a range of Chinese handset manufacturers.The surprisingly strong performance of Western firms exposed to China suggests two things. The first is that even with the threat of conflict, foreign companies with Chinese exposure are still a much better way to benefit from Chinese economic growth than the domestic stockmarket, which is heavy on state-owned firms and debt-laden property developers. The stockmarket is a third below its level at the end of 2007, despite the country’s rapid growth.The second is that the gap between security hawks and doveish global investors is only growing. It is hard to find any discount for firms with big Chinese revenues. Investors do not believe, or do not want to believe, that businesses with significant exposure to both China and the West will face problems. One of the two views—the increasingly bleak outlook of diplomats, or investors’ sanguine approach—will prove to be wildly wrong.■Read more from Buttonwood, our columnist on financial markets:Stocks have shrugged off the banking turmoil. Haven’t they? (Apr 5th)Did social media cause the banking panic? (Mar 30th)Why markets can never be made truly safe (Mar 23rd)Also: How the Buttonwood column got its name More

Kasahara yoshihisa, boss of Higo Bank, a lender in Japan’s south, beams with pride as he explains plans to lift wages. The firm’s workers will see a 3% boost, as well as regular increases for seniority. But a sheepish look crosses his face when asked about the last time staff saw such a rise. “Twenty-eight years ago,” he admits.Higo Bank is no outlier. Annual nominal wages in Japan rose by just 4% from 1990 to 2019, compared with 145% in America, according to the oecd, a rich-country club. Unions emphasise job stability over raises; bosses are reluctant to lift pay amid poor productivity growth. This has hampered efforts to escape deflation or low inflation. Thus the Bank of Japan (boj) has maintained a doveish policy stance despite headline inflation topping 4% this year. But recent data suggest change may be on the way: this year’s wage negotiations point to the fastest pay growth in 30 years. Daniel Blake of Morgan Stanley, an investment bank, calls it “the biggest macro development in Japan in a decade”. For Ueda Kazuo, who took over as boj governor on April 8th, the data will be a crucial factor in deciding whether to tighten policy. Parsing Japanese wage figures requires understanding local quirks. Wages are set when firms and unions meet for yearly negotiations known as shunto or “the spring offensive”. Headline figures consist of two parts: scheduled seniority-based increases and “base pay”. The latter has more impact on household spending, and thus potential to influence inflation. According to figures released by Japan’s confederation of labour unions on April 5th, base pay will rise by 2.2% and headline wages by 3.7% this year, compared with 0.5% and 2.1% last year. Blue-chip firms have been particularly generous. Fast Retailing, a clothing giant which owns brands including Uniqlo, gave its regular workers increases of as much as 40%. More data will trickle in until July, as medium- and smaller-sized firms report results. Goldman Sachs, a bank, reckons the final figure will settle at 2% growth in base pay, the highest since 1992.Consumer prices have risen at a pace not seen in four decades. Although most of the rise comes from cost-push factors, such as imported food and energy, higher headline numbers have raised expectations and placed pressure on bosses. As Mr Kasahara puts it: “Companies have a responsibility to provide wages that match inflation—and not just big firms in Tokyo.” Tight labour markets have also played a role: Japan has compensated for its shrinking, greying population by bringing more women and elderly into the labour force in recent years, but these opportunities are close to being maxed out. For both workers and the boj, the question is whether the raises are a one-off event or a step change. Even this year’s big gains may not be enough to assuage policymakers. Kuroda Haruhiko, the boj’s former governor, has said that still higher wage growth will be needed to hit the 2% inflation target. At his final press conference as governor, Mr Kuroda said that although wage negotiations were encouraging, easing should continue. At his first press conference on April 10th, Mr Ueda sounded much the same note. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Large-scale strike action has been carried out in recent months by teachers, doctors, civil servants and rail workers, among others — members of the sectors that were the largest contributors to the fall in February services output.
Suren Thiru, economics director at ICAEW, said the Thursday GDP figures “suggest that the economy has lost momentum as sky high inflation and strike action continue to drag on key drivers of U.K. GDP, notably services and industrial production.”

LONDON — The U.K. economy flatlined in February as widespread industrial action and persistently high inflation stymied activity.
Data on Thursday showed a steady GDP in February, missing consensus expectations of 0.1% growth. Both the services and production sectors contracted, partly offset by a record 2.4% expansion in construction. 

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This followed an upwardly revised 0.4% expansion in GDP in January, which means output grew by 0.1% in the three months to the end of February.
Large-scale strike action has been carried out in recent months by teachers, doctors, civil servants and rail workers, among others — members of the sectors that were the largest contributors to the fall in February services output.
“There was anecdotal evidence, reported on monthly business survey returns, to suggest that industrial action in February 2023 had a notable impact on different industries of varying degrees,” the Office for National Statistics said Thursday. 
“These included the health sector (nurses and the ambulance service), the civil service, the education sector (teachers and university lecturers) and the rail network.”

Jeremy Hunt, UK chancellor of the exchequer, holding the despatch box as he stands with treasury colleagues outside 11 Downing Street in London, UK..
Bloomberg | Bloomberg | Getty Images

In response to the figures, British Finance Minister Jeremy Hunt insisted that the country’s outlook was “brighter than expected,” stressing that the U.K. is “set to avoid recession thanks to the steps we have taken,” according to multiple news outlets.

The independent Office for Budget Responsibility no longer expects the U.K. economy to enter a technical recession in 2023 — defined as two consecutive quarters of contractions. The country’s fiscal position received a substantial boost from falling gas prices.
This enabled Hunt to announce further fiscal support in his Spring Budget, which the Bank of England projects will increase GDP by around 0.3% over the coming years, although Britain’s tax burden remains at a 70-year high.
Recession fears ‘likely to stalk the UK for some time’
Economists by and large do not share Hunt’s bullishness, particularly as the central bank continues to aggressively hike interest rates in order to rein in persistently sky-high inflation, which unexpectedly jumped to an annual 10.4% in February.
Suren Thiru, economics director at ICAEW, said the Thursday GDP figures “suggest that the economy has lost momentum as sky-high inflation and strike action continue to drag on key drivers of U.K. GDP, notably services and industrial production.”
“Recession fears are likely to stalk the U.K. for some time as the boost to incomes from easing inflation and lower energy bills is substantially offset by rising taxes and the lagged impact of hiking interest rates,” Thiru added.
Charles Hepworth, investment director at GAM Investments, said that Hunt’s contention that the economic outlook is looking brighter is “quite some suspension of disbelief,” given the circumstances.
“Industrial strike action was the primary root cause of stagnating growth in the U.K. over the month. March saw continued striking and April sees no decrease, therefore we are likely to continue to see the depressive effect on any growth,” Hepworth said.

LONDON, ENGLAND – JANUARY 16: Protestors from a range of different trade unions attend a rally against UK government plans to restrict the ability of public sector workers to strike are seen outside Downing Street on January 16, 2023 in London, England. (Photo by Guy Smallman/Getty Images)
Guy Smallman | Getty Images News | Getty Images

PwC Senior Economist Barret Kupelian noted that the prevalence of strikes in large sub-sectors of the economy means that the U.K. is “likely to see a stop-start picture in the future as well,” consistent with the month-on-month fluctuations in output.
“The big picture story is that today’s release, combined with the revisions to economic activity, takes the three month growth rate to around 0.1%,” Kupelian said. “The economy continues to stagnate, with economic activity struggling to grow beyond pre-pandemic levels.”
The U.K. has now recovered to its pre-Covid levels of output, the ONS confirmed, making it the last major economy to do so. Economists have cited several unique factors as driving this sluggishness, such as Brexit-related loss of trade and high levels of economic activity due to the prevalence of long-term illness. 
Much of the population also remains mired in a cost-of-living crisis, as inflation continues to vastly outpace wage growth, exacerbating the threat of further industrial action.
“With real incomes still continuing to fall, households facing significantly higher tax bills this year and interest rates looking set to rise further, it is hard to see where any meaningful recovery in growth is going to come from, and the stagnant picture painted in today’s numbers very much looks as if it will be the norm for the foreseeable future,” said Stuart Cole, chief macro economist at Equiti.
Bottom of the G-20 table
In its World Economic Outlook published Tuesday, the International Monetary Fund projected the U.K. GDP will shrink by 0.3% in 2023, making it the worst performer in a G-20 (Group of Twenty) that includes war-waging Russia.
The British economy is expected to fall short of Hunt’s two major fiscal rules – a falling public debt burden and a borrowing rate below 3% of GDP over the next five years.
The IMF offered a rosier medium-term outlook than its own previous estimates and is now predicting annual GDP growth of 1% in 2024, rising to 1.5% by 2028 — though this remains well below the OBR forecast that underwrote Hunt’s Budget commitments.

The IMF predicts that the budget deficit will reach 3.7% of GDP by 2028, compared to the mere 1.7% projected by the OBR.
Responding to Tuesday’s IMF projections, Hunt highlighted that the U.K.’s growth forecasts had “been upgraded by more than any other G-7 country.”
“The IMF now say we are on the right track for economic growth. By sticking to the plan we will more than halve inflation this year, easing the pressure on everyone,” he added. More

Starting Thursday, Twitter will give users the option to buy and sell stocks and other assets from eToro, the company told CNBC exclusively.
The partnership marks a rare deal for Twitter since Elon Musk took the reins as CEO after buying the platform for $44 billion last year.
Musk has made it his mission to turn Twitter into a so-called “super app” that offers users financial services on top of social media.

Elon Musk told a Morgan Stanley conference last month he wants Twitter to become “the biggest financial institution in the world.”
Budrul Chukrut | Sopa Images | Lightrocket via Getty Images

Twitter will let its users access stocks, cryptocurrencies and other financial assets through a partnership with eToro, a social trading company.
Starting Thursday, a new feature will be rolled out on the Twitter app. It will allow users to view market charts on an expanded range of financial instruments and buy and sell stocks and other assets from eToro, the company told CNBC exclusively.

Currently, it’s already possible to view real-time trading data from TradingView on index funds like the S&P 500 and shares of some companies such as Tesla. That can be done using Twitter’s “cashtags” feature — you search for a ticker symbol and insert dollar sign in front of it, after which the app will show you price information from TradingView using an API (application programming interface).
With the eToro partnership, Twitter cashtags will be expanded to cover far more instruments and asset classes, an eToro spokesperson told CNBC.
You’ll also be able to click a button that says “view on eToro,” which takes you through to eToro’s site, and then buy and sell assets on its platform. EToro uses TradingView as its market data partner.
“As we’ve grown over the past three years immensely, we’ve seen more and more of our users interact on Twitter [and] educate themselves about the markets,” Yoni Assia, eToro’s CEO, told CNBC in an interview. 
“There is very high quality content, real-time content on financial analysis of companies and what’s happening around the world. We believe this partnership will enable us to reach those new audiences [and] connect better the brands of Twitter and eToro.”

The partnership marks a rare and noteworthy business deal for Twitter since Elon Musk took the reins as CEO after buying the platform for $44 billion last year.
Founded in Israel in 2007, eToro is an online brokerage that lets users buy and sell stocks, cryptocurrencies and index funds.
Among its most popular features is a function that allows people to mimic the trading strategies of other users. The company has more than 32 million registered users across Europe, Asia and the United States, Assia said.
Under Musk’s time as CEO, Twitter has cut staffing sharply, taking its headcount down from 8,000 to 1,500 when he took over, in a bid to reduce costs and reach profitability.
His actions have spooked advertisers, with many brands leaving the platform in light of concerns that its content moderation standards would slip.
On Wednesday, Musk said that “almost all” advertisers had returned to the app. However, Stellantis and Volkswagen, which paused advertising there, said they do not yet plan to resume advertising.
Assia said he worked with the same team at Twitter on the stock market data tool that he had worked with on previous partnerships with the company.

Assia didn’t have any contact with Musk directly, he said. However, he joked that after having met Warren Buffett and Bernard Arnault, who are among the world’s richest men, a meeting with Musk was inevitable.
“We are very excited about the intersection of finance and social media,” Assia told CNBC in an exclusive interview this week.

‘Fintwit’

Assia said that “Fintwit,” or financial twitter, has become a popular trend on the app, which many people use to find breaking news and updates on stocks and other assets. Twitter was a key platform involved in the boom in retail trading in 2021.
Twitter added pricing data for $Cashtags in December 2022. Since the start of 2023, there have been more than 420 million searches for Cashtags, with the number of searches averaging about 4.7 million a day.
Musk has made it his mission to turn Twitter into a so-called “super app.” Such apps tend to offer users a range of services such as instant messaging, banking and travel. 
The concept has proven wildly popular in East Asia. In China, internet giant Tencent offers payments through its WeChat messaging app.
Earlier this week, Musk changed the corporate name of Twitter to X Corp after merging with a shell company with that name, according to a court filing, highlighting his ambition to turn the firm into a super app.
Weeks before he completed his acquisition of Twitter, which followed multiple attempts to back out of the deal, Musk tweeted that buying the company was an “accelerant to creating X, the everything app.”
“We’re following that story probably like the rest of Twitter users,” Assia told CNBC. “So it will be exciting to see how Twitter focuses more on finance, and we hope to see our partnership expand even beyond this step.”
Musk told a Morgan Stanley conference last month he wants Twitter to become “the biggest financial institution in the world.”
WATCH: Why retail investing has taken off in the U.S. — but not Europe More

JPMorgan Chase was aware in 2006 of accusations that disgraced former financier Jeffrey Epstein paid to have underaged girls brought to his home, according to the latest allegations in a high-profile legal case.
Erdoes, a veteran JPMorgan executive who became head of the giant bank’s asset and wealth management division in 2009, was recently interviewed under oath in the case.
She “admitted in her deposition that JP Morgan was aware by 2006 that Epstein was accused of paying cash to have underage girls and young women brought to his home,” according to the filing.

Charges against Jeffrey Epstein were announced on July 8, 2019 in New York City. Epstein will be charged with one count of sex trafficking of minors and one count of conspiracy to engage in sex trafficking of minors.
Stephanie Keith | Getty Images News | Getty Images

JPMorgan Chase was aware in 2006 of accusations that disgraced former financier Jeffrey Epstein paid to have underaged girls brought to his home, according to the latest allegations in a high-profile legal case.
A filing released Wednesday as part of a lawsuit begun last year by the U.S. Virgin Islands contained fresh revelations about internal discussions at the biggest U.S. bank by assets tied to Epstein, who died by apparent suicide in 2019.

Mary Callahan Erdoes, a veteran JPMorgan executive who became head of the bank’s giant asset and wealth management division in 2009, was recently interviewed under oath in the case.
She “admitted in her deposition that JPMorgan was aware by 2006 that Epstein was accused of paying cash to have underage girls and young women brought to his home,” according to the filing.
Erdoes was referring to accusations gleaned from news reports, according to a person with knowledge of the matter. New York-based JPMorgan declined to comment on the filing.
The latest filing details the extent to which JPMorgan executives wrestled with thorny questions tied to banking Epstein, who was convicted of sex crimes in 2008. Despite concerns raised in 2006, the bank served Epstein for another seven years. The scope of the case appeared to have widened in recent weeks as a series of bold-faced names from the business world, including Google founder Sergey Brin and former Disney executive Michael Ovitz were set to be served subpoenas in the case.

‘Without merit’

Late last year, the U.S. Virgin Islands and a group of alleged Epstein victims sued JPMorgan, accusing it of facilitating the sex offender’s crimes. JPMorgan went from initially defending a former executive, ex-investment banking chief Jes Staley, to blaming him for any fallout tied to Epstein.

In an earlier filing, the bank declined to admit that the two plaintiffs’ allegations were accurate, and in a statement called the lawsuits “misplaced and without merit.”
Concerns about whether JPMorgan should bank Epstein spurred Erdoes to hold meetings with other senior executives, including Staley and former general counsel Steven Cutler from 2008 onwards, the suit alleged.
The USVI suit claimed that Epstein’s reputation was “so widely known” at the bank that executives joked about it. Erdoes allegedly received an email in 2008 that asked her whether Epstein was attending an event with the singer Miley Cyrus.

Internal worries

Furthermore, JPMorgan compliance staff brought up their concerns repeatedly; in 2010 one official said that Epstein “should go.” In 2011, other staffers discussed news articles connecting Epstein to human trafficking of underaged girls.
“Numerous articles detail various law enforcement agencies investigating Jeffrey Epstein for allegedly participating, directly or indirectly, in child trafficking and molesting underage girls,” according to the suit.
In her deposition, Erdoes testified that JPMorgan dropped Epstein as a client in 2013 after she learned that his withdrawals were for “actual cash,” according to the suit.
But Epstein had made cash withdrawals totaling more than $800,000 in each of 2004 and 2005.
Those withdrawals drew the attention of bank compliance staff in 2006, who noted that he routinely withdrew $40,000 to $80,000 several times per month, according to the suit.
The transactions continued in the years after Epstein’s guilty plea, though JPMorgan accepted his explanation that the money was for fuel and landing fees for his planes, even during years when Epstein was under house arrest, the USVI suit alleged.
See below for the lawsuit from the U.S. Virgin Islands : More

Alejandro Lopez-Lira, a finance professor at the University of Florida, says that large language models may be useful when forecasting stock prices.
He used ChatGPT to parse news headlines for whether they’re good or bad for a stock, and found that ChatGPT’s ability to predict the direction of the next day’s returns were much better than random.
Lopez-Lira said he was surprised by the results, adding they suggest that sophisticated investors aren’t using ChatGPT-style machine learning in their trading strategies yet.

A trader works on the floor of the New York Stock Exchange.
Jason Decrow

Alejandro Lopez-Lira, a finance professor at the University of Florida, says that large language models may be useful when forecasting stock prices.
He used ChatGPT to parse news headlines for whether they’re good or bad for a stock, and found that ChatGPT’s ability to predict the direction of the next day’s returns were much better than random, he said in a recent unreviewed paper.

The experiment strikes at the heart of the promise around state-of-the-art artificial intelligence: With bigger computers and better datasets — like those powering ChatGPT — these AI models may display “emergent abilities,” or capabilities that weren’t originally planned when they were built.
If ChatGPT can display the emergent ability to understand headlines from financial news and how they might impact stock prices, it could could put high-paying jobs in the financial industry at risk. About 35% of financial jobs are at risk of being automated by AI, Goldman Sachs estimated in a March 26 note.
“The fact that ChatGPT is understanding information meant for humans almost guarantees if the market doesn’t respond perfectly, that there will be return predictability,” said Lopez-Lira.
But the specifics of the experiment also show how far so-called “large language models” are from being able to do many finance tasks.
For example, the experiment didn’t include target prices, or have the model do any math at all. In fact, ChatGPT-style technology often makes numbers up, as Microsoft learned in a public demo earlier this year. Sentiment analysis of headlines is also well understood as a trading strategy, with proprietary datasets already in existence.

Lopez-Lira said he was surprised by the results, adding they suggest that sophisticated investors aren’t using ChatGPT-style machine learning in their trading strategies yet.
“On the regulation side, if we have computers just reading the headlines, headlines will matter more, and we can see if everyone should have access to machines such as GPT,” said Lopez-Lira. “Second, it’s certainly going to have some implications on the employment of financial analyst landscape. The question is, do I want to pay analysts? Or can I just put textual information in a model?”

How the experiment worked

In the experiment, Lopez-Lira and his partner Yuehua Tang looked at over 50,000 headlines from a data vendor about public stocks on the New York Stock Exchange, Nasdaq, and a small-cap exchange. They started in October 2022 — after the data cutoff date for ChatGPT, meaning that the engine hadn’t seen or used those headlines in training.
Then, they fed the headlines into ChatGPT 3.5 along with the following prompt:

“Forget all your previous instructions. Pretend you are a financial expert. You are a financial expert with stock recommendation experience. Answer “YES” if good news, “NO” if bad news, or “UNKNOWN” if uncertain in the first line. Then elaborate with one short and concise sentence on the next line.”

Then they looked at the stocks’ return during the following trading day.
Ultimately, Lopez-Lira found that the model did better in nearly all cases when informed by a news headline. Specifically, he found a less than 1% chance the model would do as well picking the next day’s move at random, versus when it was informed by a news headline.
ChatGPT also beat commercial datasets with human sentiment scores. One example in the paper showed a headline about a company settling litigation and paying a fine, which had a negative sentiment, but the ChatGPT response correctly reasoned it was actually good news, according to the researchers.
Lopez-Lira told CNBC that hedge funds had reached out to him to learn more about his research. He also said it wouldn’t surprise him if ChatGPT’s ability to predict stock moves decreased in the coming months as institutions started integrating this technology.
That’s because the experiment only looked at stock prices during the next trading day, while most people would expect the market could have already priced the news in seconds after it became public.
“As more and more people use these type of tools, the markets are going to become more efficient, so you would expect return predictability to decline,” Lopez-Lira said. “So my guess is, if I run this exercise, in the next five years, by the year five, there will be zero return predictability.” More