Economy

Investors are piling into stocks of European luxury goods and other sectors with exposure to China, believing they offer a safer way to profit from a possible recovery in the world’s second-largest economy than investing directly in its ailing stock market. The Stoxx Luxury 10 index — whose constituents derive around 26 per cent of earnings from China, according to Barclays estimates — has risen 9.3 per cent this year, well ahead of the 0.8 per cent gain in the Stoxx Europe 600, a broad measure of the European stock market. Other equity sectors exposed to China, such as automakers and healthcare, have also outperformed.Strategists say there are early signs that the flagging Chinese economy, which last year grew at one of its slowest paces in decades, will recover. However, they believe a rout that wiped close to $2tn off the value of its stock market makes it a dangerous place to invest. European stocks offer “a safer way” of getting exposure to China, said Florian Ielpo, head of macro at Lombard Odier Investment Managers. “Most of Europe’s sectors could profit from an improvement in China and that improvement is not priced in yet.“If you don’t want to be exposed to the structural problems but do want to be exposed to the cyclical recovery then European equities are the way to go,” he added.Lombard Odier is overweight Europe in its portfolios. Ielpo said luxury stocks were the “obvious” place to invest, as well as healthcare, automakers and industrials.European luxury stocks have been lifted in recent weeks by earnings from heavyweights LVMH and Hermès, which beat analysts’ forecasts, convincing some traders that valuations had been excessively beaten down by gloom about China’s economy. LVMH shares are up 9.2 per cent this year, while Hermès has gained 11.8 per cent. Hermès CEO Axel Dumas brushed off concerns about a Chinese consumer slowdown last week. While he said he had noticed lower shopping mall traffic on his latest visit to the country, he added that this was not reflected in the company’s fourth-quarter figures. “In some cases the negativity on China is quite overdone,” said Emmanuel Cau, head of European equity strategy at Barclays, which has “started to add back in China exposure selectively”, particularly in sectors like luxury. Shares in carmakers Mercedes-Benz and Volkswagen — which both derive more than 30 per cent of profits from China, according to estimates by Barclays — have rallied 6.9 per cent and 14 per cent, respectively, since the beginning of the year.China’s economy grew 5.2 per cent last year, according to official figures from Beijing, slightly above target but still one of the slowest rates in decades. Some economists believe this figure may be an overestimate, as Beijing seeks to quell concerns while the country continues to battle a property crisis and deflationary risks.However, there are tentative early signs that economic activity may be picking up, say some strategists.Data showed China’s services and construction sectors ticking up in January, with the non-manufacturing purchasing managers’ index rising to its highest level since September. Manufacturing continued to contract, but at a slower pace than the previous month. Authorities have also recently ramped up efforts to boost market confidence, with the so-called “national team” of state-affiliated financial institutions pouring money into the market, and tightened restrictions on short selling.China’s CSI300 index has tumbled 43 per cent from its all-time high three years ago, but has recently began to pick up following interventions from Beijing. International investors, however, remain extremely cautious. BNP Paribas upgraded Europe’s luxury sector to overweight on Monday, a move that the bank’s head of equity strategy, Ankit Gheedia, said was “a better way to position for China” than either buying local equities or investing in European industrials. European sectors most exposed to China, including luxury goods and industrials, could also benefit from growth in other regions, particularly in the US, thereby protecting investors against steep losses if the Chinese economy deteriorated, say analysts.“A recovery in European equities is a more diversified bet” than direct investment in China, said Tomasz Wieladek, an economist at investor T Rowe Price. Indirect bets on a Chinese recovery might also help investors avoid being caught out by fraying diplomatic relations between Beijing and Washington — especially in an election year where Republican frontrunner Donald Trump has already proposed steep tariffs on Chinese exports.Even for those more pessimistic about China, some European stocks still offer a cheap option on a surprise recovery in the country’s economy. Gerry Fowler, head of European equity strategy at UBS, remains downbeat on China’s outlook but nevertheless favours Europe’s “very beaten down” mining sector, which is heavily exposed to China, in the bank’s 2024 outlook.This offered “cheap unloved exposure [to China] that would benefit from a recovery”, said Fowler. “We don’t expect it to go down but it could go up significantly,” he said. More

The company made the novel claim, echoing arguments by SpaceX and Trader Joe’s, in a legal filing while fighting a case.In the latest sign of a growing backlash within corporate America to the 88-year-old federal agency that enforces labor rights, Amazon argued in a legal filing on Thursday that the National Labor Relations Board was unconstitutional.The move followed a similar argument by SpaceX, the rocket company founded and run by Elon Musk, in a legal complaint in January, and by Trader Joe’s during a labor board hearing a few weeks later.The labor board consists of a prosecutorial arm, which issues complaints against employers or unions deemed to have violated federally protected labor rights; administrative judges, who hear complaints; and a five-member board in Washington, to which decisions can be appealed.Amazon’s filing was part of a case before an administrative judge in which labor board prosecutors have accused Amazon of illegally retaliating against workers at a Staten Island warehouse known as JFK8, which unionized two years ago.The company’s lawyers repeatedly denied in their filing that Amazon had broken the law. Then, under a section titled “Other Defenses,” they argued that “the structure of the N.L.R.B. violates the separation of powers” by “impeding the executive power provided for in Article II of the United States Constitution.”The company also argued that the board or its actions or proceedings violated Articles I and III of the Constitution, as well as the Fifth and Seventh Amendments — in the last case because, the filing said, board hearings can seek legal remedies beyond what’s allowed without a trial by jury.Amazon declined to comment.The claims it made in the filing echo arguments that lawyers for SpaceX made in a federal lawsuit last month, after the labor board issued a complaint accusing the company of illegally firing eight employees for criticizing Mr. Musk. SpaceX sued in Texas, but a federal judge there on Thursday granted the board’s motion to transfer the case to California, where the company’s headquarters are located.In a statement, the board’s general counsel, Jennifer A. Abruzzo, said, “I am pleased that SpaceX’s blatant forum-shopping efforts in Texas attempting to enjoin the agency’s litigation against it have failed.”Wilma Liebman, a chairwoman of the labor board under President Barack Obama, called the arguments by Amazon and SpaceX “radical,” adding that “the constitutionality of the N.L.R.B. was settled nearly 90 years ago by the Supreme Court.”The arguments appear to align with a broader conservative effort to question the constitutionality of a variety of regulatory actions, some of which have resulted in cases before the Supreme Court.In January, the Supreme Court also agreed to hear a case brought by Starbucks, which is challenging a federal judge’s order reinstating employees who were fired during a union campaign. The outcome of the case could rein in the labor board’s longstanding practice of seeking reinstatement for workers while their cases are litigated, a process that can take years. More

TOKYO (Reuters) – Japan’s benchmark Nikkei got off to a roaring start on Friday, opening the morning session at its highest since Japan’s economic bubble burst in the late 1980s.The Nikkei share average was last up 1.6% at 38,769.64, surpassing the post-economic bubble era high of 38188.74. So far it’s up 14.0% for the year. The broader Topix was up 1.1% at 2620.53. The Nikkei was within touching distance of the all-time record high of 38,957.44 hit in December 1989. The stock market was buoyed by a strong day on Wall Street overnight. U.S. stocks closed higher as retail sales data declined more than expected, feeding hopes the Federal Reserve will soon start cutting interest rates in coming months.The largest percentage gainers in the index were Advantest Corp up 4.91%, followed by Tokyo Electron Ltd gaining 4.74% and Resonac Holdings Corp up by 4.32%. More

NEW YORK (Reuters) -Federal Reserve Bank of Atlanta President Raphael Bostic said on Thursday that while the U.S. central bank has made a lot of progress lowering inflation pressures, ongoing risks mean that he’s not yet ready to call for interest rate cuts. “We have made substantial and gratifying progress in slowing the pace of inflation,” Bostic said in a speech before a gathering held by the Money Marketeers of New York University Inc.“My expectation is that the rate of inflation will continue to decline, but more slowly than the pace implied by where the markets signal monetary policy should be,” he said.Bostic said it is too soon to declare victory over high inflation, and that “leaves me not yet comfortable that inflation is inexorably declining to our 2% objective.”As a result, it could take a while before the Fed has sufficient confidence that the economy is on a path that will allow a cut in interest rates. “We will likely soon contemplate the appropriate time for monetary policy to become less restrictive,” Bostic said. “Right now, a strong labor market and macroeconomy offer the chance to execute these policy decisions without oppressive urgency,” he added. Markets have been actively debating the timing of a central bank cut in what is now an interest rate target of between 5.25% and 5.5%. Markets had been eyeing a spring easing in light of rapidly cooling price pressures, but a range of Fed officials have signaled that it will take longer to gain the needed confidence to support lower rates. In addition, stronger-than-expected data on January consumer prices has raised fears that inflation will not retreat as swiftly as thought, pushing back investor expectations of a rate cut. Bostic said that relative to his colleagues’ collective expectation that the Fed can cut rates three times this year, he had penciled in two cuts for 2024 because he was expecting an uneven retreat in price pressures. The Fed will update those forecasts at its policy meeting next month. In his speech, Bostic said the economy’s strength in the face of rapid Fed rate hikes and the ability of inflation to fall despite a very strong job market confounds what many had been expecting. It is also possible, he said, that the economy has grown less responsive to changes in monetary policy. The economy may even have “pent-up exuberance” that could drive up demand again, which represents an upside risk to inflation, he said. Bostic also said he did not see a reason for the Fed to slow or stop its ongoing balance sheet drawdown, which has seen around $1.4 trillion come off the central bank’s balance sheet. He said market liquidity still looked solid and he is watching for signs it may be getting tighter. More

“I’m comfortable to continue this,” Bostic said of the balance sheet drawdown commonly referred to as quantitative tightening. Bostic said he doesn’t see a shortage of liquidity that would cause the Fed to shift gears on the balance sheet cuts, in comments to a gathering held by Money Marketeers of New York University Inc. More

(Reuters) -Australia’s QBE Insurance Group’s full-year profit more than doubled on Friday, helped by higher income from premiums, but missed analysts’ expectations, sending its shares on track for their worst session in three months. The group, which operates in 27 countries including the U.S., said adjusted net cash profit after income tax was $1.36 billion for the full year ended Dec. 31, compared with $664 million a year earlier.It, however, missed an LSEG estimate of $1.40 billion and a Citi forecast of $1.46 billion. Shares of QBE were trading about 3.3% lower at 2330 GMT, after falling as much as 4.8% to A$15.61 earlier, their biggest intraday loss since Nov. 15. Analysts at Citi said the results are “certainly a disappointment” relative to its forecasts. However, they still think QBE should be performing better given that the insurance cycle has been at its strongest in 20 years. The country’s biggest insurer by market value said it expected premium rates to remain supportive, targeting a mid-single digit growth in fiscal 2024 on a constant currency basis. QBE’s gross written premiums on a headline basis rose 9% to $21.75 billion in 2023, supported by higher premium rates as well as targeted new business growth.However, its net cost of catastrophe claims increased marginally to $1.10 billion due to extreme weather conditions in its areas of operation. Strong returns on fixed income assets amid higher interest rates boosted net investment income to $1.37 billion, compared with an investment loss of $773 million in the prior year. QBE reported combined operating ratio of 95.2%, compared with 95.9% a year earlier, and said it was targeting a COR of about 93.5%. A ratio below 100% means the insurer earned more in premiums than it paid out in claims.It also declared a final dividend of 48 Australian cents apiece, up from 30 cents a year ago. More

TOKYO (Reuters) – Japanese Finance Minister Shunichi Suzuki said on Friday that monetary policy including whether and when the central bank may end its negative interest rate policy was up to the Bank of Japan to decide.”I am aware there are various opinions in the market,” Suzuki told reporters when asked if weak gross domestic product data may affect the timing of an end to negative rates, which many investors expect to happen in March or April. More

(Reuters) -Coinbase Global on Thursday posted its first quarterly profit since 2021 on sturdy trading volumes due to a resurgence of interest in crypto, sending its shares up nearly 13% after the bell.Investor enthusiasm for crypto was rekindled in recent months by the U.S. Securities and Exchange Commission’s (SEC) highly anticipated approval of the first spot bitcoin exchange-traded funds (ETFs).While the ETFs were approved only in January, expectations of a favorable decision by the SEC propelled bitcoin’s price 57% higher in the last three months of 2023.That drove a 64% jump in crypto exchange Coinbase (NASDAQ:COIN)’s transaction revenue to $529.3 million in the fourth quarter.”Results this quarter were exceptional as they far exceeded both our expectations and Street consensus,” said Michael Elliott, equity research analyst with CFRA Research.The crypto exchange now expects a strong first quarter for its subscription and services unit, which houses businesses other than trading. It forecast revenue from the unit between $410 million and $480 million, higher than LSEG estimate of $356.22 million.In the fourth quarter, revenue from the unit jumped nearly 33% to $375.4 million, with the biggest boost coming from stablecoin revenue – the interest that Coinbase earns from its partnership with fintech firm Circle. Circle issues the USD Coin (USDC) stablecoin that it jointly governs with Coinbase. The interest on reserves backing USDC are a major source of revenue for Coinbase, which has been able to pocket higher income because of the Federal Reserve’s interest rate hikes.Overall, the company reported a profit of $273.4 million, or $1.04 per share, in the three months ended Dec. 31, compared with a loss of $557 million, or $2.46 per share, a year earlier. Analysts had expected a loss of 1 cent per share, according to LSEG data.Elliott said he had longer-term concerns that “the spot ETFs may lead more investors to look for crypto exposure off the Coinbase platform.”But the company brushed aside such concerns.”ETFs have just been net positive for the industry and additive to Coinbase,” CFO Alesia Haas said. More