Economy

Among other things, the report points out a significant shift, particularly driven by lower-income households, who are moving away from traditional brick-and-mortar (B&M) stores in search of better online deals.“Compared to 2019, 5% of in-person B&M spending during the holidays has shifted away from Black Friday and Christmas Eve last year, as consumers shop earlier and online,” the report states. Meanwhile, Cyber Monday has gained a 2% share of holiday spending, signaling a growing preference for online convenience over in-store experiences.This surge in online shopping, which accelerated during the pandemic, has shown little sign of slowing down, even as restrictions have eased.The August 2024 data suggests that online spending made up 26% of total retail card spending, with a 1.5 percentage point increase over the past two years, largely driven by households earning less than $50K annually.This trend of “trading lines for screens” is especially relevant during the holiday season, as consumers seek convenience and savings. For example, online sales peak around Cyber Monday, with a bump seen again just before Christmas as shoppers allow time for deliveries.Interestingly, higher-income households have not abandoned shopping malls to the same extent.While lower-income consumers have shifted significantly to online platforms—mall spending for these households has fallen 20% since 2021—higher-income households have only reduced their mall expenditures by 4%.“This suggests much more stability for higher-end shopping malls,” BofA remarked.Overall, the bank’s findings indicate that while traditional holiday hotspots like Black Friday and Christmas Eve still hold sway for B&M spending, their influence is waning.The share of holiday spending happening in malls during the two weeks around Christmas dropped to 15% in 2023, down 3 percentage points from 2019. In contrast, online spending during the same period has risen to nearly match that of B&M stores.“13% of 2023 total retail (excluding groceries, restaurants and gas) spending during the holidays occurred online in the two weeks around Cyber Monday, up 2 percentage points compared to 2019 and now accounting for nearly the same share of retail spending during the holidays as B&M retail spending around Black Friday,” BofA said.Looking ahead, it will be interesting to see if recent port strikes will have an impact on holiday shopping trends, though BofA Global Research suggests minimal disruption unless the strikes are prolonged. Retailers may absorb additional costs to avoid passing them on to consumers.As the 2024 holiday season approaches, online spending is expected to grow, with consumers shopping earlier.Lower-income households, in particular, will likely focus on value and bargains, making the retail landscape highly competitive. More

According to Wells Fargo, the size of the cut, alongside Fed chair Jerome Powell’s commentary, signaled some concern over the state or direction of the job market and less concern regarding inflation.“Powell indicated during his press conference that the labor market was in a strong place, and the Fed’s rate decision was intended to keep it there,” Wells Fargo strategists said in a recent note.Federal Open Market Committee (FOMC) members expect unemployment to rise slightly, to 4.4% for 2024 and 2025, while GDP growth is projected at 2.0% annually during the same period.According to Wells Fargo, this suggests that the “labor market that is cooling, but not considerably.”“Notably, the FOMC members also see inflation continuing to decline. We believe this base scenario sets the stage for rate cuts but leaves their magnitude in question, especially for the implied rate cuts in 2025,” they added.However, the Fed’s updated projections differ from market expectations. According to the report, the market is pricing in 125 bps of rate cuts for both 2024 and 2025, which is more aggressive than the Fed’s median projection of 100 bps of cuts in each year.“With all but one FOMC participant seeing 100 bps or less of cuts in 2024, the market may be in for some disappointment,” strategists continued.“Market pricing would require at least one additional 50 bps cut in 2024 instead of two 25 bps cuts, which we do not believe is supported by the current state of the labor market. Also, judging by commentary from Powell, we do not believe the Fed sees that outcome either.”Looking ahead, strategists remain cautious about the market’s expectations for the Fed’s rate-cutting cycle, considering them “too optimistic.” They suggest that a total of 200 bps of cuts through 2025 would likely require a notably worse economic environment than either their own or the Fed’s current projections.“If the economy continues to move toward a gradual slowdown followed by a recovery in the second half of 2025, as we expect, we believe the cut in September will probably be the only 50 bp rate cut we see in this cycle,” the note states.Also, Wells Fargo believes inflation could potentially resurge by mid-2025, which could limit the Fed’s ability to implement all the rate cuts it has projected.In their view, a more realistic scenario would see an additional 50 bps of cuts in 2024 and 75 bps in 2025. More

As per BCA Research, recent revisions to U.S. economic data suggest that the odds of a recession have decreased, and the economy is stronger than previously assumed. This outlook demands a pivot from defensive sectors like Utilities and Telecoms, which typically provide downside protection in a downturn, to more growth-oriented and economically sensitive sectors that tend to thrive when economic momentum persists.BCA Research recommends increasing exposure to sectors that benefit from economic strength, such as Energy and Technology, while reducing allocations in sectors that are traditionally favored during economic slowdowns. The strategic emphasis is on positioning for a “no-landing” scenario where economic growth is sustained and monetary easing could potentially lead to overheating, rather than a recession.Defensive sectors such as Utilities and Telecoms were favored over the past quarters as investors anticipated a slowdown or recession. However, given the stronger-than-expected economic data, the value proposition of these sectors is now less compelling. BCA suggests booking profits in these areas and shifting to sectors with higher potential upside.The brokerage has upgraded Energy to a tactical overweight position. This decision is based on a combination of geopolitical factors, such as heightened tensions in the Middle East, and an expectation of a resurgence in demand driven by sustained economic activity. Moreover, recent increases in oil prices and a firm dollar also support this call.While Technology faced headwinds earlier in the year due to high valuations, BCA now sees value in this sector, especially given its recent underperformance relative to other cyclical areas. With a neutral stance, they flag opportunities within Software and Hardware segments, which appear oversold and may benefit from a renewed growth outlook.Consumer Discretionary and Industrials, which typically benefit from strong consumer spending and business investment, are positioned to outperform in a sustained growth scenario. This includes segments like retail and travel, which are tied to consumer strength and services demand.The backdrop of stronger-than-expected economic data, alongside easing measures and a steady labor market, suggests that investors should be prepared for the possibility of higher inflation and upward pressure on bond yields. This environment favors sectors that are positively correlated with rising economic activity and commodity prices.However, the shift in strategy comes with caveats. BCA warns that a “no-landing” scenario could eventually morph into an overheated economy, requiring a rapid reversal in monetary policy stance. This would potentially introduce volatility into growth sectors. As a result, they advise tactical rather than long-term overweights in these areas, particularly Energy, and to remain nimble in adjusting positions as new data emerges. More

TOKYO (Reuters) – Japanese Prime Minister Shigeru Ishiba said on Saturday he would not intervene in monetary policy affairs, as the central bank is mandated to achieve price stability.”It’s important to avoid vocally intervening” in monetary policy affairs, or appear as if he was doing so, Ishiba said in a news conference gathering leaders of major parties ahead of the Oct. 27 general election.”Whatever the government has to say, the Bank of Japan makes an individual decision on policy,” Ishiba said. “I believe the BOJ’s governor and staff have a strong sense of responsibility over achieving price stability.”Ishiba also said strength in consumption is key to achieving a sustained exit from deflation, calling for the need for measures to boost real wages.The former defence minister became Japan’s prime minister on Oct. 1 after winning the ruling party’s leadership race.A day after assuming the role, Ishiba stunned markets by saying the economy was not ready for further interest rate hikes, an apparent about-face from his previous support for the BOJ unwinding decades of extreme monetary stimulus.The surprisingly blunt remarks pushed the yen lower against the dollar and cast fresh doubts over how aggressive the BOJ would be in raising rates.It is historically rare for the country’s leader to comment directly on the BOJ’s interest rate policy in public, as it would infringe upon the central bank’s independence – stipulated by law – in setting monetary policy.The BOJ ended negative interest rates in March and raised the short-term benchmark to 0.25% in July on the view Japan was making progress towards durably achieving its 2% inflation target.Governor Kazuo Ueda has signalled the bank’s readiness to keep raising interest rates if economic and price developments move in line with its forecast.While politics is unlikely to derail the longer-term case for rate hikes, analysts say uncertainty on Ishiba’s stance on monetary policy and the outcome of the Oct. 27 election could complicate the BOJ’s decision on how soon to raise borrowing costs. More

“The working age population in the euro area is projected to fall by 6.4% by 2040,” Morgan Stanley in its Future of Europe Bluepaper published Oct. 9, estimating a 4% hit to euro area GDP by 2040.As a country or region’s working age population declines, there are fewer individuals contributing to its economic output and productivity, marking a blow to GDP, or gross domestic output, particularly when coupled with a aging population. But some euro-area countries are likely to feel more pain than others: Italy, with a working age population expected to shrink by as much as 10% between 2025 and 2040, faces the steepest challenges. While France, given its relatively stronger demographic outlook, would likely be the least affected among major economies.The demographic crisis in Europe isn’t a new phenomenon. Japan and South Korea have faced these challenges for decades. These Asian economies, which have been at the sharp end of dealing with aging populations and declining birth rates, can offer a window into this problem and valuable insight into how effective, or not, the solutions have proved along the way.     Japan has implemented a myriad policies to address its demographic challenges, including efforts to increase female labor force participation, raise the retirement age, and cautiously open up to more immigration.These measures, however, have had limited success, as cultural norms and economic pressures continue to discourage higher birth rates. For the past three decades, Japan’s fertility rate has been below 1.5, and the most recent statistics in 2022 recorded the lowest level, 1.26, according to data from the Center for Strategic and International Studies. Still, Europe’s hopes for addressing these demographic headwind may involve a mix of the policies implemented in the East, Morgan Stanley said. Three potential policy options could counteract these headwinds in Europe: increasing net migration, raising the effective retirement age, and closing the gap between male and female labor force participation rates.These policies could add between 1.3% and 2.5% to baseline GDP for the euro area by 2040, according to Morgan Stanley’s scenario modelling. But the degree of success of these policies in addressing the demographic problem will vary from country to country as some may have a head start having pursued these policies early than others. Germany, the UK, and Spain, would “see the greatest impact from increased net migration, while Italy, could benefit most from closing the gender participation gap in the workforce,” Morgan Stanley said.Increasing net migration by one standard deviation relative to each country’s historical levels could boost euro area GDP by 1.8% by 2040.Closing the gap between male and female labor force participation rates could also have a significant impact, potentially increasing euro area GDP by 2.5% by 2040, Morgan Stanley estimates. Italy, which has a male vs. female labor force participation 8% below the euro area average, could see meaningful increases in its labour force if it were to reduce this gap.Raising the effective retirement age by one year could increase euro area GDP by 1.3% by 2040. France and Spain, where the effective retirement age remains 2 years to 3 years below the European average, stand out as the countries that would benefit most from this policy. This demographic challenge is already impacting European corporate outlooks. And if allowed to exacerbate without policy action, Morgan Stanley estimates, could lower companies’ long-term earnings growth from 5.1% to 4.2% by 2030.This theme is already emerging a hot topic of conversation in European C-suite commentary, with quarterly transcripts showing a notable rise in mentions of “aging population,” especially compared to US companies, it added.The estimated hit to corporate earnings in Europe, however, assumes no increase in margins or gains in productivity from AI or automation, which “could potentially offset some negative impacts,” Morgan Stanley said.The productivity boost from widespread use of AI and automation tools is likely to become more evident as companies begin to see the fruits of their AI investments and adoption efforts as soon as next year.”2024 is the year of AI investment and adoption; in 2025, we think corporate gains should be more evident,” Morgan Stanley said.Automation will also have an increasing role to play to plug the productivity gap from a decline in the working age in Europe, which is relatively under-penetrated by automation technologies. Industrial robot density in South Korea, for instance, was just over 1,000 per 10,000 people employed in the manufacturing in 2022, compared with less than half that number in Germany. As Europe grapples with this demographic shift, the race is on to find solutions that can mitigate its economic toll and ensure sustainable growth in the decades to come. While the experiences of Japan and South Korea offer valuable lessons; Europe will need to tailor its approach to its unique social, political, and economic landscape.The challenge is clear: Europe must implement effective policies that address its declining working-age population. While policies aimed at increasing migration, lifting the statutory retirement age, increasing female workforce participation will help cushion the impact, Europe must embrace technological advancements including AI and automation to help bridge the productivity gap. The key to successfully counteracting the impact on growth and safeguarding Europe’s economic future requires effectively implementing these strategies while ensuring they align with societal values and economic goals. More

Higher interest rates since June last year have reduced economic imbalances and revived confidence, the IMF said on Saturday, adding that improved market sentiment had prompted foreign and domestic investors to shift into lira-denominated assets.The central bank has hiked its main policy rate to 50% from 8.5% to battle high inflation. The government raised taxes and some fees to boost income, while implementing fiscal measures to balance risks in the economy. More

The ministry said at a press conference that it would “significantly” increase government debt issuance to provide subsidies to low-income households, support the property market, and replenish state banks’ capital as part of efforts to jumpstart economic growth.The much-anticipated briefing comes after the central bank and other regulators in late September announced the most aggressive monetary stimulus measures since COVID-19, including steps to revive the ailing property market such as mortgage rate cuts. Reuters reported last month that China plans to issue special sovereign bonds worth about 2 trillion yuan ($283.02 billion) this year as part of fresh fiscal stimulus. Below are the key measures announced by Finance Minister Lan Foan, at a news conference, where he was joined by Vice Finance Ministers Liao Min, Wang Dongwei, and Guo Tingting.LOCAL DEBT RESOLUTION China will increase support for local governments to address hidden debt risks, enhancing their capacity to support the economy. The government has allocated 1.2 trillion yuan ($169.81 billion) in local bond quotas this year to help resolve existing hidden debts and settle government arrears to firms.China plans a large-scale debt swap program, alongside continued use of bond quotas for debt resolution, described as the “biggest” policy measure in recent years. Detailed policies will be announced after the necessary legal procedures are completed.BANK RECAPITALISATION China will expand the use of local government bond proceeds to support the property market and recapitalise large state-owned banks. Special treasury bonds will be issued to bolster the core Tier-1 capital of major state-owned commercial banks, improving their ability to withstand risks and provide credit to the real economy.PROPERTY MARKET SUPPORTLocal governments will be allowed to use special bonds to purchase unused land, enhancing their ability to manage land supply and alleviating liquidity and debt pressures on both local governments and property developers. China will also support the purchase of existing commercial housing for use as affordable housing and continue funding affordable housing projects.The government is studying policies on value-added taxes that are linked to residential properties, and is looking at other tax policies to support the property market.SUPPORT FOR LOW-INCOME HOUSEHOLDS AND STUDENTSThe government will increase support for low-income individuals and students to boost consumption. The number of national scholarships for undergraduates will be doubled from 60,000 to 120,000 annually, with the value of each scholarship rising from 8,000 yuan to 10,000 yuan per student per year.Lan also noted that the central government has “relatively large room” to raise debt and increase the budget deficit, though he did not provide details. China has set this year’s budget deficit at 3% of GDP, down from a revised 3.8% last year. The issuance of 1 trillion yuan in special ultra-long treasury bonds this year is not included in the budget. Local governments will issue 3.9 trillion yuan in special bonds in 2024, compared to 3.8 trillion yuan last year.($1 = 7.0666 Chinese yuan renminbi) More