Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Gilts have endured a bruising new year as investors have a big rethink about the timing of Bank of England interest rate cuts this year.An Ice Bank of America index of UK government debt has sunk by 3.6 per cent this month — more than double its US counterpart — with much of the damage done by an unexpected acceleration of inflation.The surprise added to the uncertainty in global bond markets as central bankers on both sides of the Atlantic try to steer investors away from bets on rapid interest rate cuts this year. January’s bond market sell-off comes on the heels of one of the sharpest two-month bond rallies for decades late last year, fuelled by slowing inflation and dovish comments on rates from the Federal Reserve and other central bankers.  “The UK gilt market moved too far, too fast last quarter with significant short covering being one of the key drivers of the rally” said William Vaughan, associate portfolio manager at Brandywine Global, who added that the surprise inflation print this week caught “the now one-way positioned market off guard.”While the UK’s annual inflation rate unexpectedly accelerated to 4 per cent in December, economic data has been mixed with retail sales data and wage growth this week both softer than the market had predicted.Still, traders in swaps markets are betting that the UK will deliver 1.1 percentage points of interest rate cuts this year, from the current level of 5.25 per cent, a 15-year high. At the start of the year traders had priced in 1.73 percentage points of cuts.“Given the uncertain message coming from the data with UK inflation remaining the highest among major economies and wages still growing at around 6.5 per cent year on year, a hawkish bias from the BoE is likely to remain in place for some time,” said Sebastian Vismara, financial economist at BNY Mellon Investment Management.But gilts have also been hit this year by a global bond market sell-off, as the US economy remains resilient and policymakers warn that they are still focused on inflation.An Ice Bank of America index of US Treasuries has fallen by 1.36 per cent this month, while the index of German government bonds — the benchmark for the eurozone — has fallen by 1.91 per cent. Vaughan said that gilts have been more volatile than other bond markets “mainly due to the extreme valuation anomalies we saw last year and the extremely elevated levels of inflation we saw compared to the EU and US.” Some economists predict that the UK’s underperformance compared with other major bond markets this year will be short lived.“We expect that the UK will be the first major developed market where inflation will fall back below target,” said Jonathan Peterson, an economist at Capital Economics, estimating that a fall in utility prices will push the consumer price index below 2 per cent as early as April. Capital Economics forecasts the 10 year gilt yield will fall from its current level of 3.93 per cent to 3.25 per cent by the end of the year. More

The comments by Finance Minister Mihaly Varga underscored a policy rift within Prime Minister Viktor Orban’s government, with the economy minister repeatedly calling for looser fiscal rules and a higher inflation target to drag the economy out of recession.Hungary’s inflation, which scaled the European Union’s highest levels at 25% a year ago, eased to an annual rate of 5.5% in December, data showed last week.The minister reiterated that the government estimates that prices will rise 5.2% in 2024 in Hungary. “This level cannot yet be called low, and it has its dangers,” Varga told economic daily Vilaggazdasag. “From this level any small global economic or other imbalance could push Hungarian inflation to an uncomfortable level.”The surge in inflation pushed the economy into recession, forcing Orban’s government to cut its 2024 growth forecast to 3.6% at the end of last year.However, Varga also cautioned against government overspending. He emphasized the need to keep the budget deficit low and to further cut government debt while working towards sustainable growth.The government should not spend more on economic stimulus than it can afford, Varga said. “Without balance, economic growth can only be illusory. This means, among many other things, that the state can only finance investments that promise a higher return than the investment.”Hungary’s budget deficit has averaged nearly 7% of gross domestic product in the four years since the COVID-19 pandemic and would need to more than halve this year for Orban’s government to cut the shortfall to its target of 2.9% of GDP. More

This article is an onsite version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday and Saturday morningWelcome back. Last July, Chancellor Olaf Scholz’s government published Germany’s first comprehensive China strategy. “China has changed. As a result of this and China’s political decisions, we need to change our approach to China,” the 64-page document stated.Are Germany’s China policies changing a great deal or not much? I’m at [email protected] hasn’t been a smooth start to the year for Scholz’s three-party coalition. This week, the national statistics office reported that Germany’s gross domestic product contracted by 0.3 per cent in 2023, the worst performance among the world’s major economies.Besides that, strikes and protests have broken out across the country, and the popularity of the government’s three parties — Scholz’s Social Democrats, the Greens and the liberal Free Democrats — is plunging.Germany, like its European allies, is striving to maintain financial and military support for Ukraine in its war of self-defence against Russia. Finally, Germany worries about the consequences of a possible victory for Donald Trump in November’s US presidential election.China: competitor, threat, partner — or all three?These circumstances make it a challenging moment to recalibrate Germany’s China policies — all the more so, because of the two countries’ exceptionally close economic relationship. China was Germany’s main commercial partner in 2022 for the seventh consecutive year, with goods worth almost €300bn traded between them.True, Germany’s bilateral trade balance with China has turned into a sharp deficit (Chinese exports to Germany were worth €192bn in 2022, against German exports worth €107bn to China), as this chart by BNP Paribas shows.But German business is deeply committed to the Chinese market in terms of investment, manufacturing and sales as well as imports of essential products and materials. German direct investment in China stood at €102.7bn in 2021, against a mere €4.6bn worth of Chinese direct investment in Germany.China’s far-right friends in GermanyIncreasingly, the German political establishment regards China in certain respects as an economic rival and a security threat, as well as a partner with which it is desirable and even necessary to continue co-operation.However, one party — the far-right Alternative for Germany (AfD), which has risen to second place in opinion polls — sees matters differently. Petr Bystron, its foreign policy spokesman, last year denounced Germany’s China strategy as an “attempt to implement green-woke ideology and US geopolitical interests under the guise of a strategy for German foreign policy”.We should keep in mind that Alice Weidel, the AfD’s co-leader, knows China well. A former employee at investment bank Goldman Sachs, she lived there for six years on an academic scholarship and speaks Mandarin.Tino Chrupalla, left, and Alice Weidel, co-leaders of the AfD at the Bundestag on Wednesday. A fluent Mandarin speaker, Weidel has worked at the Bank of China and lived there for six years on an academic scholarship More

Economists have become increasingly optimistic about the odds of a soft landing. But as 2024 begins to unfold, risks remain.With inflation falling, unemployment low and the Federal Reserve signaling it could soon begin cutting interest rates, forecasters are becoming increasingly optimistic that the U.S. economy could avoid a recession.Listen to This ArticleOpen this article in the New York Times Audio app on iOS.Wells Fargo last week became the latest big bank to predict that the economy will achieve a soft landing, gently slowing rather than screeching to a halt. The bank’s economists had been forecasting a recession since the middle of 2022.Yet if forecasters were wrong when they predicted a recession last year, they could be wrong again, this time in the opposite direction. The risks that economists highlighted in 2023 haven’t gone away, and recent economic data, though still mostly positive, has suggested some cracks beneath the surface.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

(Reuters) -Google will invest $1 billion on building a data centre just outside of London, the U.S. technology giant said on Thursday, in its latest investment in Britain as it meets growing demand for internet services in the region.The data centre, located on a 33-acre (13-hectare) site bought by Google in 2020, will be located in the town of Waltham Cross, about 15 miles north of central London, the Alphabet-owned company said in a statement.The British government, which is pushing for investment by businesses to help fund new infrastructure, particularly in growth industries like technology and artificial intelligence, described Google’s investment as a “huge vote of confidence” in the UK.”Google’s $1 billion investment is testament to the fact that the UK is a centre of excellence in technology and has huge potential for growth,” Prime Minister Rishi Sunak said in the Google statement.The investment follows Google’s $1 billion purchase of a central London office building in 2022, close to Covent Garden, and another site in nearby King’s Cross, where it is building a new office and where its AI company DeepMind is also based.It also comes weeks after Microsoft (NASDAQ:MSFT) unveiled plans to pump 2.5 billion pounds ($3.2 billion) into Britain over three years, including in growing its data centre capacity, to underpin future AI services.”This new data centre will help meet growing demand for our AI and cloud services and bring crucial compute capacity to businesses across the UK while creating construction and technical jobs,” Alphabet (NASDAQ:GOOGL) Chief Financial Officer Ruth Porat said in the statement.Google, which employs over 7,000 people in Britain, also said that waste heat generated from the data centre would be an opportunity for energy conservation that can benefit the local community. ($1 = 0.7881 pound) More

(Reuters) -U.S. President Joe Biden on Friday announced student debt cancellation of nearly $5 billion for an additional 74,000 borrowers, including more than half who earned forgiveness after 10 years of public service as teachers, nurses and firefighters.The White House announcement brings the total loan forgiveness approved by the Biden-Harris administration to $136.6 billion for more than 3.7 million Americans.Nearly 44,000 of the borrowers approved for relief are those with a decade of public service, with close to 30,000 are people who have been repaying their loans for at least 20 years but never got the relief through income-driven repayment plans.Biden vowed to continue working to deliver student debt relief to as many borrowers as possible in the wake of the Supreme Court’s June 30 ruling blocking his plan to cancel hundreds of billions of dollars in debt. “I won’t back down from using every tool at our disposal to get student loan borrowers the relief they need to reach their dreams,” he said in a statement.Education Secretary Miguel Cardona said the department was moving “full speed ahead” with efforts to deliver even greater debt relief for more borrowers and to help them get on a faster track to loan forgiveness under a new SAVE repayment plan.As of June 2023, approximately 43.4 million student loan recipients had $1.63 trillion in outstanding loans, according to the Federal Student Aid website. The figure represents an increase of nearly $17 billion in the outstanding loan balance and almost 600,000 in the number of student loan recipients since last year, it said.Progressive voters, who are part of the coalition that helped elect Biden in 2020, long pressed the White House to address student loan debt, and the issue remains high on the agenda of younger voters, many of whom have concerns about Biden’s foreign policy on the war in Gaza and fault him for not achieving greater debt forgiveness. More

BRASILIA (Reuters) -Chinese Foreign Minister Wang Yi on Friday welcomed Brazil’s recent support for Beijing’s “One China policy” that states Taiwan is an inseparable part of China, in a sign of stronger bilateral ties with South America’s largest country. At the end of a two-day visit to Brazil, Wang made a stop in the northeastern Brazilian city of Fortaleza to meet Brazil’s President Luiz Inacio Lula da Silva at an air force base before departing to Jamaica by the late afternoon. There were no details of their meeting.In Brasilia earlier, Wang said their two countries, both members of the BRICS group of leading emerging economies, must work together to build a multi-polar world based on peace and security.Brazil’s Foreign Minister Mauro Vieira said he and Wang discussed the conflicts in Ukraine and Gaza and how they can be resolved, with China’s top diplomat saying the two trade partners need to build closer levels of confidence.China-Brazil relations were ruffled during the far-right government of former President Jair Bolsonaro, and have improved under Lula, a popular leftist leader in his third term.Wang and Vieira signed a visa agreement between the two nations extending their validity from five to 10 years, aimed at spurring business travel and tourism.Wang stopped in Fortaleza en route to Jamaica, the last stop of his tour that began in African nations.Lula was traveling in northeast Brazil, his main political bastion, eyeing municipal elections this year.Brazil’s position on Taiwan was established in April in a foreign ministry statement that expressed Brazil’s “firm support to the One China Principle” and said China was “the sole legitimate government of the whole of China, and Taiwan being an inseparable part of the Chinese territory.”China is Brazil’s largest export market, mainly for soy and iron ore. Chinese companies are planning to increase their investments in Brazil, in power transmission, oil and electric vehicles, businessmen said at a Brazil-China meeting last week in Shenzhen with major Chinese corporations.Marcos Caramuru, a China watcher and former Brazilian ambassador in Beijing, said he is seeing growing interest of Chinese companies in investments in electric vehicles and in infrastructure in Brazil, as well as new investments in areas where China has been investing for a while, such as the electricity sector and e-commerce.”Lula as president has helped to increase the level of mutual confidence in Brazil-China relations,” Caramuru said. More

The session’s gains were fueled by chipmakers surging on AI optimism and investor bets that the Federal Reserve will cut interest rates in 2024. The benchmark’s new record high close confirms that the S&P 500 ended a bear market when it closed on Oct. 12, 2022, and that it has been in a bull market since then, according to one measure. The S&P 500 had lost nearly 25% in a sell off between its last record high on Jan. 3 2022 and its low in October 2022.On Friday, S&P 500 climbed 1.2% on the day to end at 4,839.81 points, exceeding its previous record close of 4796.56 on Jan. 3, 2022.The S&P 500’s most recent downswing and recovery was in line with the median time of nearly two years between record highs since the 1920s, according to LSEG.The Dow Jones Industrial Average, which also hit a record closing high on Friday, had already confirmed on Dec 13, 2023 that it had been in a bull market since Sept. 30, 2022.Meanwhile, while the Nasdaq composite recovered 43% in 2023, it would need to rise another 4.8% to return to its record high close of 16,057.4437, reached on Nov. 19, 2021. More