Economy

(Reuters) -U.S. stock index futures took a breather on Friday after a stunning rally in the previous session, spurred by upbeat results from AI poster child Nvidia (NASDAQ:NVDA) that renewed enthusiasm about artificial intelligence.The S&P 500 and Dow Jones Industrial Average surged to record closing highs on Thursday, while the tech-heavy Nasdaq was a whisker away from its all-time high, as investors piled into technology stocks with the AI-fueled frenzy on Wall Street gaining more steam.Nvidia added $277 billion in stock market value on Thursday, Wall Street’s largest one-day gain in history. Shares of the heavyweight chip designer were up 1.8% in premarket trade on Friday and the company is closing in on $2 trillion in market value for the first time.”Yesterday’s rally was exceptional and now the markets are consolidating,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, but added that the AI-fueled momentum is expected to persist this year.”Yes, the valuations are going high, but earnings are going high as well. So there is something really material and big happening right now as a fundamental support to the technology rally.”Corporate earnings have been robust in the fourth quarter, with 78.5% of the 437 companies in the S&P 500 that have reported earnings so far exceeding estimates, compared with the annual 76% average, according to LSEG data on Thursday.Most megacap stocks were subdued on Friday, with Tesla (NASDAQ:TSLA), Amazon.com (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) down between 0.3% and 0.9%. At 07:00 a.m. ET, Dow e-minis were up 39 points, or 0.1%, S&P 500 e-minis were up 1.75 points, or 0.03%, and Nasdaq 100 e-minis were down 8.75 points, or 0.05%.Still, all the three major indexes were set for weekly gains after turbulence in the prior week when hotter-than-expected inflation data dampened expectations of early interest rate cuts from the U.S. Federal Reserve.Traders firmed up bets against any U.S. interest-rate cuts before June after Fed Governor Christopher Waller on Thursday said he was in “no rush” to lower rates. Among other stocks, Carvana surged 30.7% on reporting its first-ever annual profit, helped by its pact with bondholders to cut its outstanding debt by $1 billion.Super Micro Computer (NASDAQ:SMCI) fell 5% after it announced pricing of $1.5 billion convertible senior notes.Jack Dorsey-led Block jumped 15.4% after the payments firm forecast adjusted core earnings for the current quarter above Wall Street estimates, betting on consumer resilience. More

The BofA report showed the equity market rally is broadening beyond the mega caps, as U.S. small cap funds logged their largest weekly inflow in the week to Wednesday since June 2022, at $5.1 billion. BofA said in its weekly roundup of fund flows in and out of world markets citing EPFR data, that flows to cash were running at an annualised rate of $1.3 trillion in the first weeks of 2024 through to Feb. 21. Investors can often opt for cash when they are less confident, but with interest rates at elevated levels and looking less likely to drop in the very near term, cash-equivalent money market funds have drawn in flows. In the latest week, as the S&P 500 hit record highs, investors put $15.2 billion into bonds, including $10.2 billion into investment-grade bond funds, which logged a 16th straight week of inflows, the longest such stretch since October 2021, BofA said.The S&P this month topped the 5,000-mark for the first time ever, thanks to a surge in the so-called “Magnificent Seven” most valuable stocks that include the likes of Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and AI darling Nvidia (NASDAQ:NVDA).BofA’s “Bull & Bear” indicator remained at 6.6 for the latest week, tilting into “bullish territory”, but the bank said this was not overly stretched. On a scale up to 10, a reading above 6 is straying into bullish territory and below 5 is moving into bearish territory. “Positioning (is) not yet at extreme bullish, but (it) won’t take too long,” BofA said in the report.Last week was also the first time since September that both energy and raw materials funds registered a weekly inflow, according to the report. More

Germany’s housebuilding sector is in a “confidence crisis,” Dominik von Achten, CEO of German building materials company Heidelberg Materials, told CNBC.
The sector has gone from bad to worse in recent months with the latest economic indicators hitting all-time lows.
It is questionable whether there is light at the end of the tunnel as pressures such as elevated interest rates continue to weigh on the economy.

A construction site with new apartments in newly built apartment buildings.
Patrick Pleul | Picture Alliance | Getty Images

Germany’s housebuilding sector has gone from bad to worse in recent months.
Economic data is painting a concerning picture, and industry leaders appear uneasy.

“The housebuilding sector is, I would say, a little bit in a confidence crisis,” Dominik von Achten, chairman of German building materials company Heidelberg Materials, told CNBC’s “Squawk Box Europe” on Thursday.
“There are too many things that have gone in the wrong direction,” he said, adding that the company’s volumes were down significantly in Germany.
In January both the current sentiment and expectations for the German residential construction sector fell to all-time lows, according to data from the Ifo Institute for Economic Research. The business climate reading fell to a negative 59 points, while expectations dropped to negative 68.9 points in the month.
“The outlook for the coming months is bleak,” Klaus Wohlrabe, head of surveys at Ifo, said in a press release at the time.

Meanwhile, January’s construction PMI survey for Germany by the Hamburg Commercial Bank also fell to the lowest ever reading at 36.3 — after December’s reading had also been the lowest on record. PMI readings below 50 indicate contraction, and the lower to zero the figure is, the bigger the contraction.

“Of the broad construction categories monitored by the survey, housing activity remained the worst performer, exhibiting a rate of decline that was among the fastest on record,” the PMI report stated.
The issue has also been weighing on Germany’s overall economy.
German Economy and Climate Minister Robert Habeck on Wednesday said the government was slashing its 2024 gross domestic product growth expectations to 0.2% from a previous estimate of 1.3%. Habeck pointed to higher interest rates as a key challenge for the economy, explaining that those had led to reduced investments, especially in the construction sector.

Light at the end of the tunnel?

Ifo’s data showed that the amount of companies reporting order cancellations and a lack of orders had eased slightly in January, compared to December. But even so, 52.5% of companies said not enough orders were being placed, which Wohlrabe said was weighing on the sector.
“It’s too early to talk of a trend reversal in residential construction, since the tough conditions have hardly changed at all,” he said. “High interest rates and construction costs aren’t making things any easier for builders.”
Heidelberg Materials’ von Achten however suggested there could be at least some relief on the horizon, saying that there could be good news on the interest rate front.

“I’m positive inflation really comes down now in Germany, maybe the ECB [European Central Bank] is actually earlier in their decrease of interest rates than we all think, lets wait and see, and if that comes then obviously the confidence will also come back,” he said.
Even if interest rate cuts are a slow process, von Achten says as soon as “people see the turning point” confidence should return.
Speaking to the German Parliament about the economic outlook on Thursday, Habeck said the government was expecting inflation to continue falling and return to the 2% target level in 2025.
The European Central Bank said at its most recent meeting in January that discussing rate cuts was “premature,” even as progress was being made on inflation. While the exact timeline for rate cuts remains unclear, markets are widely pricing in the first decrease to take place in June, according to LSEG data.    More

WARSAW (Reuters) -Poland will gain access to up to 137 billion euros ($148 billion) in European Union funds, the head of the EU executive said on Friday, after the new government in Warsaw began implementing reforms it says will restore judicial independence in the country.Unblocking the cash was a promise made by Prime Minister Donald Tusk’s pro-European coalition government, and gaining access to it will provide an investment boost for an economy that has been buffeted by the fallout of the war in Ukraine and is weighed down by weakness in big trading partner Germany.”I have good news,” European Commission President Ursula von der Leyen told a press conference in Warsaw. “Next week the college will come forward with two decisions on European funds that are currently blocked for Poland. These decisions will lead to up to 137 billion euros for Poland.”Poland will gain access to around 60 billion euros in funds designed to help countries bounce back from the COVID-19 pandemic and transition away from fossil fuels.Warsaw will also be able to tap around 76.5 billion euros in cohesion funds designed to help raise living standards in the European Union’s poorest members.”It’s a ton of money, we will use it well,” Tusk said.’INVESTMENT REBOUND’The Polish zloty was 0.14% firmer on the day following the announcement, reversing losses from earlier in the session.”The actual spending of the funds will take several months (we won’t see an investment rebound until 2025), but they will help finance this year’s deficit,” ING economists wrote on social media platform X.The previous government under the nationalist Law and Justice (PiS) party was embroiled in a long-running spat with the EU over reforms that critics said increased political influence over the courts.Brussels blocked Warsaw’s access to the funds as a result of the row and said Poland had to meet milestones on judicial independence to unfreeze it.Poland has already accessed 5 billion euros that were not dependent on rule-of-law conditions.The new government’s task has been complicated by the fact that President Andrzej Duda, who can veto laws, is a PiS ally and the fact that the party has loyalists in important positions in the judicial system.However, EU officials have welcomed Poland’s action plan on restoring the rule of law.($1 = 0.9240 euros) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.I popped into Sainsbury’s this week to buy tea bags. It took some time out of my working day, but I had read of potential shortages and my family hates to run out of tea. It turned out to be a false alarm: the supermarket’s shelves were packed with boxes of the stuff, from PG Tips to Twinings and Tetley Tea.Tetley admitted last week that its stock of tea was “much tighter than we would like it to be” because vessels sailing through the Red Sea are being attacked by Houthi rebels protesting the Israel-Hamas war in Gaza. There is little problem of production in India or Kenya, but tea is taking longer to arrive as container ships are diverted away from the Suez Canal and around the Cape of Good Hope.My trip was self-defeating, given that supermarkets tend to run out of stock more when shoppers panic than because of endemic shortages. But we have been made jumpy by the pandemic and the supply chain inflation that followed. I used to be confident that tea, coffee, rice and cereals would be there without fail but it now takes discipline to remain calm.Cocoa could be next. The price of cocoa powder and hot chocolate in UK shops rose 25 per cent in the year to January (more than confectionery). Cocoa futures are at record levels because West Africa, from where most cocoa comes, has been affected by extreme weather and crop disease. Many of the 6mn small farmers who tend cacao trees globally face hardship.The cost of food and drink has increased sharply in general but the disruption to cocoa, coffee and tea is especially instructive. These beverages were early products of empire and the trade routes established by the British East India Company and other merchant adventurers. They were first enjoyed as exotic luxuries in the 17th century, then gradually became part of everyday life at home and work.The strains are emblematic of the fragility of globalisation and the smooth production and transport of consumer products from the global south to Europe and the US. Arabica coffee is back in surplus after a price spike in 2021 due to drought and frost in Brazil, but lower grade robusta beans from Vietnam are in short supply, not helped by the troubles in the Red Sea.There is an irony in tea being transported the long way around Africa, rather than via the Suez Canal. It was the opening of the canal in 1869 that put an end to the “tea races” of clipper sailing ships such as the Cutty Sark to bring tea supplies from China to the west as rapidly as possible. As soon as steam ships could cut thousands of miles off the journey, sailing became redundant.Victorians used to celebrate the arrival of new tea from Shanghai in London and prices would drop as the clippers docked. There is less excitement about refreshment now: a tea bag is a tea bag and it is easy to forget how far processed leaves in branded packets have come. What was an adventure has turned into a routine bit of logistics.But it is time to wake up and smell the coffee. The Suez Canal will probably be able to resume normal operations in time, but a vital trade route will remain a tempting target for attackers. The Panama Canal has also had to limit passages, in its case because of drought. It is getting hard to ensure safe and easy navigation for ships that have been loaded with products for our consumption.It is also more difficult to fill up those vessels without fail. Agricultural commodities were always volatile, with good growing seasons one year and failures the next. But climate change increases the risks and is making it difficult for farmers and farm workers to earn a consistent living. They have less capital to invest in trees and bushes, and less reason to carry on trying.Cocoa is suffering the effects. It was originally consumed as a drink in England until the 19th century turn to solid chocolate. Higher cocoa prices presage the same impact on confectionery later this year. Growing conditions have been so problematic in countries such as Ghana and Nigeria that farmers cannot harvest enough cocoa pods from their trees to be processed into butter for chocolate makers. Hedge funds have not been helping by speculating on even higher cocoa prices, but the underlying crisis is real. Even well-meaning measures can have unintended effects: a new EU law meant to discourage deforestation could lead to the destruction of coffee and cocoa being stored in European warehouses. The intention is laudable but the consequences may be perverse for vulnerable African growers.Few brands that sell these products now ignore such things: every box of tea bags in Sainsbury’s bore a logo from an organisation such as Fairtrade or the Rainforest Alliance. They make more effort than before to ensure that life is sustainable for growers and plantation workers on whose efforts they, and we shoppers, depend.But the old empires of coffee, cocoa and tea are getting fragile amid climate change and the interruption of global trade routes. The price of their weakness is already becoming obvious, and the supermarket shelves may not always stay [email protected] More

WASHINGTON (Reuters) – U.S. officials continue to discuss with allies what to do with Russian assets immobilized after Moscow’s invasion of Ukraine two years ago, a senior U.S. official said, as Treasury Secretary Janet Yellen heads to Brazil on Sunday to meet Group of 20 counterparts, some of whom continue to trade with Russia.A senior U.S. administration official said Yellen had been clear that it was “both appropriate but also urgent for us to consider ways that Russian assets can be used to benefit Ukraine consistent with international and domestic law.”U.S. President Joe Biden remains locked at loggerheads over efforts to approve some $61 billion in further aid to Ukraine with the leader of the Republican-led U.S. House of Representatives.The U.S. official gave no details how Russian assets could be used and said he did not expect any specific outcome on the Russia asset issue from next week’s Group of Seven (G7) advanced economies in Sao Paolo, Brazil, but stressed that the issue remained top of mind for Treasury.Deputy Treasury Secretary Wally Adeyemo told Reuters in a separate interview on Thursday that Washington plans to hit over 500 targets with fresh sanctions on Friday, and will be joined by allies, marking the second anniversary of Russia’s invasion.Russian assets frozen by countries after Moscow’s invasion of Ukraine will be a key topic for G7 officials meeting during the G20 gathering, the Treasury official said, as some European countries fret that seizing those assets could set dangerous precedents.In Brazil, Yellen will hold a news conference on Tuesday and participate in a public event with Brazilian Finance Minister Fernando Haddad, as well as a bilateral meeting with her Brazilian counterpart.She will also hold bilateral meetings with her counterparts from Germany, France, Saudi Arabia and Argentina, in addition to taking part in plenary sessions on the global economy and debt and financing for sustainable development.On Thursday, she will travel on to Chile, with a goal of continuing to strengthen bilateral ties with a country rich in critical minerals needed to underpin global efforts to build more electric vehicles, Treasury said.In Chile, Yellen plans to meet Chilean officials, women economists and local business leaders, and take part in a press conference with her Chilean counterpart on Friday, March 1.Yellen will also tour a lithium processing facility operated by U.S.-based Albemarle (NYSE:ALB) Corp in Antofagasta (LON:ANTO), Chile, where she plans to underscore the Biden administration’s commitment to bolstering global energy security, developing resilient clean energy supply chains, and working on a green transition.”We think developing more diversified, secure supply chains with key trusted partners is an important part of securing our energy future. And I think Chile probably represents this about as well as anybody,” the senior official said. More

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The ECB has kept interest rates at a record high since last September and consistently pushes back on rate cut talk, arguing that wage growth is still too quick for it to sound the all-clear and start unwinding restrictive policy.”Even though it may be very tempting, it is too early to cut interest rates,” Nagel said in a speech. “We will only receive a more detailed picture of how domestic price pressures are unfolding during the second quarter. Then we can contemplate a cut in interest rates.”Isabel Schnabel, the other German on the 26-member Governing Council and another influential voice, was also cautious in her assessment on Friday, arguing that the final phase of getting inflation under control may be more difficult than some anticipate. “We need to be cautious .. there are reasons for the last mile to actually be more difficult than the first phase,” she told a university lecture in Milan. She also argued that, with markets already anticipating rate cuts, financial conditions had already loosened substantially, unwinding some of the ECB’s efforts and adding to the need for caution. Market bets on rate cuts have been extremely volatile in recent weeks. Investors were betting on 150 basis points of easing in 2024 just a few weeks ago, but expectations have receded and now stand at just 88 basis points with the first move seen in June.HOPEFUL SIGNAL The ECB has long argued that crucial figures on 2024 wage settlements will only come out in May, so the June meeting will be the first occasion policymakers will have evidence if rapid wage growth is slowing. Sending a hopeful signal, Schnabel said that the ECB was already receiving some evidence that firms were starting to absorb some of the rapid wage growth, a potential piece of good news because it suggests that not all of the wage growth is translating into higher prices. This would be a reversal from the early stage of rapid inflation when firms enjoyed strong pricing power and raised prices sharply to enjoy some of their best margins in years. Inflation projections are also likely to come down because of lower energy prices and benign food prices, but that does not necessarily lower underlying price pressures. Indeed, an early rate cut runs the risk of missing the inflation target and could, in an extreme case, force the ECB to raise rates again, a costly blunder, Nagel argued.Nagel appeared especially worried about underlying price growth, which reflects broader price pressures in the economy, including wages and the crucial services sector. “Inflation rates – especially the ‘hard core’ – will still remain markedly higher than 2% in the coming months,” Nagel said. The period of rapid decline in inflation was now over and setbacks were also possible, Nagel said, partly due to statistical effects, including the timing of holidays such as Easter, which impact how businesses price products and services. More