Economy

(Reuters) – A New York state judge is expected to rule on Friday in a $370 million civil fraud case against former U.S. President Donald Trump, who is accused of inflating his net worth to dupe bankers into giving him better loan terms. Justice Arthur Engoron’s ruling could deal a major blow to Trump’s real estate empire as the businessman turned politician seeks the Republican nomination to challenge Democratic President Joe Biden in the Nov. 5 U.S. election.The lawsuit brought by New York Attorney General Letitia James accused Trump and his family businesses of overstating his net worth by as much $3.6 billion a year over a decade. Trump has denied wrongdoing and called the case a political vendetta by James, an elected Democrat. In addition to monetary penalties, James is seeking to permanently ban Trump from New York’s real estate industry and sharply limit his ability to do business in the state. She is also seeking five-year industry bans for Trump’s two adult sons, Don Jr. And Eric, who are also defendants in the case. Engoron ruled in September that Trump had engaged in fraud and ordered his business empire be partially dissolved. The full implications of that order are still unclear, and Trump is appealing. The ruling expected Friday comes after a contentious three-month trial in Manhattan. During defiant and meandering testimony in November, Trump conceded that some of his property values were inaccurate but insisted banks were obligated to do their own due diligence. He used his occasional court appearances as impromptu campaign stops, delivering incendiary remarks to reporters and insisting his enemies are using the courts to prevent him from retaking the White House. Trump is cruising to the Republican nomination despite a host of other legal troubles. He is under indictment in four criminal cases, including one in New York related to hush money payments he made to a porn star ahead of the 2016 election. The judge overseeing that case on Thursday set a March 25 trial date over the objections of Trump’s lawyers, who sought to delay it due to Trump’s crowded legal and political schedule. Trump has also been charged in Florida for his handling of classified documents upon leaving office and in Washington and in Georgia for his efforts to overturn his 2020 election loss. Trump has pleaded not guilty in all four cases. More

TOKYO (Reuters) – Hiromichi Akiba is stocking his Tokyo supermarket with more chicken because customers who used to buy beef are switching to cheaper meat as rising prices put a squeeze on their spending, his business and Japan’s economy.Japan unexpectedly fell into recession at the end of last year as domestic consumption, which accounts for more than half of the nation’s economy, faltered.The 0.4% fall in economic output on an annualised basis in the three months to December means that Germany, rather than Japan, is now the world’s third-biggest economy behind the United States and China.It isn’t the first economic downturn Akiba has faced. He opened his store in 1992 as the economic boom that made Japan the world’s No. 2 economy gave way to stagnation. It is, however, one of the toughest yet as inflation and a sustained depreciation of the Japanese yen push up labour, transport and energy costs that are difficult to pass on to the shoppers who come to his discount supermarket looking for bargains.”Customers used to come with lists knowing what they wanted to buy, but now more are deciding what to get after seeing what is cheap,” he said at his store in a Tokyo suburb next to baskets offering quartered Chinese cabbage heads for 52 cents and crowns of broccoli for 67 cents.Japan’s retailers are “at war” with each other to win customers, he added.Retailing giant Aeon says it has also noticed consumer sensitivity to higher prices, with its Chief Strategy Officer Motoyuki Shikata telling analysts last month that it was seeing more “fatigue” among shoppers being asked to pay more.That inflation pain stands in contrast to a stock market boom enriching investors. The weaker yen has made yen-denominated shares more attractive and helped fatten profits at corporations such as carmaker Toyota (NYSE:TM) which make much of their money overseas.Harumitsu Moriyasu, one of Akiba’s regular customers, doesn’t expect the fortunes of high-street consumers to improve anytime soon. A year from retirement, the 64-year-old social welfare worker says he is worried how he will cope on a pension. “The U.S. and China have more people than Japan so it makes sense that they have bigger economies, but Germany has a smaller population so the situation must be serious,” he said. ($1 = 150.1900 yen) More

Schnabel pointed to a number of factors behind the euro zone’s long-running economic underperformance versus the United States, including lower investment in technology, more red tape and more expensive energy.She argued this could delay the ECB’s victory against high inflation and the timing of its first interest rate cut. “Persistently low, and recently even negative, productivity growth exacerbates the effects that the current strong growth in nominal wages has on unit labour costs for firms,” she told an event in Florence, Italy. “This increases the risk that firms may pass higher wage costs on to consumers, which could delay inflation returning to our 2% target.”Reaffirming her stance, Schnabel said this meant the ECB had to be “cautious” and not cut rates “prematurely” to avoid a second flare-up in inflation as happened in the 1970s. She said making it easier to open and scale-up successful businesses and wind-down failing ones were among measures that could be taken to boost euro zone productivity.Higher productivity would make life easier for the ECB in avoiding both periods of too high and too low inflation, Schnabel said.”Measures that help firms boost productivity growth directly support monetary policy in achieving its objective of securing price stability over the medium term,” Schnabel said. More

ANKARA (Reuters) – Turkey’s central bank is expected to keep its key interest rate steady at 45% next week, after a 250 basis-point hike last month, marking the end of its aggressive tightening cycle, a Reuters poll showed on Friday.The monetary policy committee meeting on Feb. 22 comes after Fatih Karahan was appointed central bank governor on Feb. 3 after the resignation of Hafize Gaye Erkan, who cited a need to protect her family from what she called a media smear campaign.All 11 economists surveyed by Reuters agreed that the policy rate will be kept steady this month. Since June, after President Tayyip Erdogan prevailed in May elections and initiated a U-turn in economic policy, the central bank has lifted its key rate by 3,650 basis points.After its latest hike, the bank said it had achieved the policy setting needed to establish disinflation and this rate level will be maintained until there is a significant decline in the underlying trend of monthly inflation.Presenting the quarterly inflation report last week, Karahan said the bank will maintain a tight policy stance until inflation drops to target, keeping a year-end inflation forecast of 36% despite expectations it might need to rise.He said another rate hike was not currently needed but it was too early to talk about easing, damping expectations of a quick easing cycle and reinforcing analysts’ views that he will remain hawkish until inflation begins to cool around mid-year.According to the median forecast of the Reuters poll, the policy rate is expected to be 37.5% at end-2024. Only one of the 10 institutions who responded to this query expected the policy rate to remain at 45% at the end of the year, with the estimates in a 35-45% range.Turkey’s inflation rate climbed to an annual 64.9% last month, having risen 6.7% on a monthly basis on the back of some big one-off annual price rises and a 49% minimum wage increase. Market forecasts for end-year inflation are between 40-45%.Karahan, previously deputy governor and a former Federal Reserve Bank of New York economist, is the fifth governor Erdogan has named in as many years. As deputy, he played a key role designing the tightening cycle.The bank will announce its rate decision at 1100 GMT on Feb. 22. More

The revised amount is slightly higher than 1.17 trillion baht previously approved and aims to attract more private companies to invest in government projects.The public-private partnership committee also approved an investment worth about 18.4 billion baht at Laem Chabang port in the eastern province of Chonburi, it said in a statement.The government will also expedite other infrastructure projects which have high economic value, it said, as Southeast Asia’s second-largest economy has lagged regional peers.The finance ministry has forecast only 2.8% growth this year after 1.8% growth estimated for 2023, a sharp downgrade from earlier forecasts. Official 2023 gross domestic product is due on Monday. The economy expanded 2.6% in 2022.($1 = 36.06 baht) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Retail sales in Great Britain rebounded in January following a slump in December, suggesting the economy has picked up some momentum after a weak end to 2023.Sales volumes jumped by 3.4 per cent in January, following a revised fall of 3.3 per cent in December 2023, according to figures published by the Office for National Statistics on Friday. It was the biggest monthly increase since April 2021, the ONS said, taking volumes back to the level of November 2023. The numbers suggest the economy is starting to shrug off some of the weakness seen at the end of 2023, when the UK slipped into a technical recession. Lower inflation coupled with firm wage growth should permit household spending to pick up in the coming months, economists said. “The strong pick-up in sales suggests the worst is now behind the retail sector and falling inflation and rising wages in 2024 will provide a strong platform for recovery,” said Joe Maher at research company Capital Economics. But the data still points to an economy that is in a sluggish state. Sales volumes remain 1.3 per cent below their pre-pandemic level in February 2020. Compared with this time last year, they are up by 0.7 per cent. Official figures showed on Thursday that UK gross domestic product fell 0.3 per cent in the final three months of 2023, following a 0.1 per cent decline in the third quarter, pulling the country into a technical recession.The GDP figures provided a harsh backdrop to chancellor Jeremy Hunt’s upcoming Budget, as the Conservative government seeks to generate a lift in opinion polls via tax cuts. January’s increase in retail sales, which was driven by food stores, exceeded the 1.5 per cent month-on-month rise forecast by economists in a Reuters poll. Volumes rose in all areas except clothing stores, with some retailers reporting improvements driven by January sales, the ONS said. Thomas Pugh, economist at audit firm RSM UK, said the bounce in January sales volumes suggested the technical recession at the end of 2023 would not extend into 2024. “While January’s pace of growth is unlikely to be maintained there are plenty of reasons to expect retail sales volumes to gradually recover this year,” he said, pointing to projections that inflation — now at 4 per cent — would be back at the Bank of England’s 2 per cent target by the summer. “This will kick-start a consumer-spending led recovery that should feed through into growing retail sales and see the economy finally return to growth,” Pugh added.Andrew Bailey, BoE governor, suggested this week that the UK was seeing signs of an economic “upturn” after the weakness at the end of last year.The central bank’s latest forecasts pointed to a “somewhat stronger growth story” ahead, Bailey said, while cautioning that trends in productivity and investment meant there was still a “very constrained” supply side of the economy. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief administrative officer and managing partner at Fiera CapitalOne day, the question of whether inflation-ridden economies experience a hard or soft landing will be settled. Inflation will moderate, probably in the ballpark of between 2 and 2.5 per cent. Free markets will price in the real cost of capital as opposed to negligible levels that the world has gorged on during the last cycle. We’ll also see a period of detoxication as central banks and governments adjust to a new economic paradigm.What then after this “Great Correction”? With inflation volatility under control, do we go right back to where we started? The journey to price stabilisation is being heralded as the end rather than the beginning of structural change. I couldn’t disagree more. All signs are pointing to the next decade or two being universally different from that which came before.   The return of normalised inflation that anyone over the age of 40 will remember will inevitably influence asset allocation as investors expect returns significantly above the risk-free rate. But it is the more persistent issues plaguing the developed world — more so than inflation — that will apply the greatest long-term drag on productivity and keep growth low. These include demography, climate change, rising healthcare costs, food security and the obsolescence of legacy infrastructure.The golden thread that unites these challenges is that solving them will require unprecedented capital expenditure.Russell Napier, the market strategist and economic historian, describes this as a “capex boom”. Others call it an incoming “productivity renaissance”. Whatever way it’s badged, the premise is that industries that enable us to tackle these mission-critical issues will ultimately attract seismic inflows of investment into physical assets.Estimates from McKinsey & Company suggest that capital spending on physical assets will amount to approximately $130tn through to 2027, led principally by the three “Ds”: digitalisation, decarbonisation and deglobalisation.But this figure does not account for more recent developments in energy-hungry and computational heavy fields such as AI and robotics, where demand for the capacity to store and exchange more data will overlap with capex requirements to upgrade global grid networks, harness renewable energy, extract resources to meet growing demand for batteries and modernise the west generally.  Forward-thinking investors with a longer-term outlook are already thinking about what this chapter will hold — not least because private capital will have a principal role to play in this age of formation that will dwarf previous smaller capex cycles that were broadly state-led.Exposure to traditional physical assets that are fast becoming “stranded” in the energy transition and the greening of material supply chains are some areas where investors are expecting enhanced returns. Others include logistics supporting “nearshoring” of production facilities, data centres, battery production, the retrofitting of carbon-intensive buildings and utilities upgrades.In some ways, this tilt to capex-ready industries is already bearing out in the breakdown in the traditional 60/40 portfolio split between bonds and equities. There is now a stronger emphasis placed on risk concentration. This means more interest in international smaller companies and overlooked emerging markets — but also private assets with a low correlation to stocks and bonds, such as agriculture and forestry, alternative real estate and renewable energy infrastructure.How capital is deployed is equally as important as where capital is deployed. Active asset management will make greater strides than passive investment in a capex boom — particularly as the goal is to selectively invest in physical assets necessary to power the new economy as opposed to seeking a broad “catch-all” exposure. The consequence is that, on public exchanges, broad indices may obscure the real winners of this supercycle while in private markets, there is a real bifurcation emerging between assets fit for the new economy and those that are being downgraded.It will still take time for institutional investors and intermediaries to get accustomed to this shift. But concerns over international supply chain dependency, the case for refreshing infrastructure, and capitalising advanced industries, are fast becoming policy priorities.When the inflation plane does eventually land, we’ll all open the hatch to a new and unfamiliar normal. And who will take priority? The investors with a head start, of course.                   More

When I started investing professionally in the early 1980s, I would constantly hear tales of the 1973-4 crash. It was one of those events seared on the corporate memory, just as the financial crisis of 2007-8 would be for subsequent generations.Fifty years on, there are still lessons to be learnt from that two-year bear market. For me, the enduring one is that companies often lay the tramlines for a successful future in the most difficult times.The past few years may not have been as calamitous for investors as that spectacular crash — the London stock market (the FT30, as it was then) lost three-quarters of its value in 1973-4 — but they have been seriously challenging. Covid, supply-side shocks, double-digit inflation, sharply rising interest rates and recession concerns have been a lot to overcome. A prolonged period of stress can be the opportunity for a reset.Rising pricesInflation is a major influence on asset prices and an important consideration in investment decisions. When UK inflation spiked last year it was a good time for companies to bury the bad news of their own price rises. Those that failed to pass on costs sufficiently will have seen margins squeezed. That reduced profitability may now be baked into their financial infrastructure, because customers become less tolerant of sharp price rises as inflation falls — and, despite the recent uptick, I believe inflation is falling.Technology was a big driver in containing inflation over the 20 years that preceded the recent spike. One product was particularly important — the smartphone. Though expensive, it replaced the need for a host of other things, such as a watch, a diary, a map, a camera and so on. It also gave us ever-ready access to pricing information that shaped the rest of our spending. Price comparison websites and search engines left no hiding place for uncompetitive businesses.Other online developments created excess supply. For instance, Airbnb meant there were many more “hotel rooms” in every town. As the textbooks teach us, a rapid increase in supply will lower prices if demand does not keep up.The next wave of technological advance is coming. Artificial intelligence will allow many companies to reduce the workforce while still enhancing services. The transition to a low-carbon world is lifting infrastructure spending and technology investment — which is initially inflationary, but change will come.I have previously expressed my enthusiasm for companies working to produce and store electricity from hydrogen — a sector that could benefit hugely from the drive to a low-carbon world. Nuclear power may hold opportunities too. Scientists have achieved ignition by a nuclear fusion reaction, which generated more energy than it consumed. An interesting business working in this area is First Light Fusion, in which quoted company IP Group has a stake. It aims to build a power plant producing 150 megawatts of electricity — enough to power 300,000 homes — and costing less than $1bn.The ingenuity of those working in this sector means energy will eventually be more abundant, cleaner and cheaper — bolstering economic growth and adding another deflationary force into the mix. But what about the more immediate future?The pricing-power testIt is worth looking at companies and whether they have been able to increase their prices. Be careful about top-line nominal revenue figures when checking shareholder updates — price rises can mask falls in sales and may still not be sufficient to cover raised costs.Remember, although we think of it as an aggregate figure, inflation is a composite of many elements. Some costs are rising faster than others. Take wage inflation. Annual wage growth in the UK from September to November 2023 was 6.6 per cent at a time when inflation generally was 3.9 per cent.That is a challenge for labour-intensive businesses like pub chain JD Wetherspoon, where labour constitutes over 30 per cent of costs. But it might be good for a company like the Gym Group, which has relatively low staff numbers and has successfully raised prices almost in line with inflation while its biggest cost — rent — has remained flat.Companies in cyclical businesses may recover some lost ground on pricing when the market picks up, as I believe it will when inflation stabilises at a lower level and interest rates fall. More immediately, though, they can offset price pressure by implementing difficult decisions to reduce costs.Building materials supplier Marshalls has exited its Belgian operation and streamlined manufacturing to save £9mn a year in costs, closing a plant near Glasgow. Last month, a trading update from brickmaker Ibstock showed it had cut jobs and closed a second factory, which will help save £20mn a year, while it continues work on a more efficient plant, based in the West Midlands, which will produce the UK’s lowest-carbon bricks when it opens soon.Another well-run company, ceramics specialist Morgan Advanced Materials, closed a lot of its facilities during Covid. The business was just coming out of the other side of that and was regaining momentum when a cyber attack dragged earnings down again. It has now got through this and its balance sheet is in a much better place. It has reinvested in R&D and is lean on costs. Its share price is weighed down by negative sentiment towards industrial companies, but that makes it cheap. And it is yielding around 4.5 per cent.Indirect winnersCrises can create indirect winners by taking out weak competition. At least three Italian budget airlines have folded since 201, as well as Flybe, which once provided more than half of UK domestic flights outside London. They have left companies such as Ryanair and easyJet with a clearer field.The rise in bond yields benefited many companies, sending their pension schemes into surplus. One of our holdings, logistics specialist Wincanton, is no longer pumping over £20mn a year into its pension fund to plug a deficit. This has freed money for vital investment and to repay shareholders, which is what may have persuaded a recent bidder to offer a premium of 50 per cent on the share price.During the Covid crisis, energy group Shell was one of many companies to reset dividends. It had been handing out too much cash to shareholders and, because of its reputation as a dividend darling, was loath to stop. Because of the pandemic, it was able to slash dividends and invest in projects like decarbonisation. At just over 4 per cent — from nearer 10 — its dividend looks more secure and is supplemented by a $3.5bn share buyback programme.The move by companies to reset dividends — at all levels — is one reason for optimism about the dividend prospects of the UK. The FTSE All-Share is yielding 4.8 per cent. And smaller companies are also generating handsome yields. Weakness in the smaller companies markets means there are many businesses in the UK with strong recovery and growth prospects paying well. Ibstock pays about 5 per cent now; Marshalls 3 per cent. We consider these both good companies that are well placed to thrive when housebuilding recovers, as it must.Falling interest rates will diminish returns on cash savings and make these dividends look increasingly attractive. That means the chance to secure this dividend income at such appealing prices will not last for ever. Just as the tramlines for success are laid for company managers in times of stress, so for investors. Markets bounced back strongly in 1975. UK shares may do the same this year. And if I am wrong? At least we are being well rewarded in dividends for our patience.James Henderson is co-manager of the Henderson Opportunities Trust; Law Debenture; and Lowland Investment Company More