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Every morning a small group of master blenders enters a glass bunker inside cognac house Martell’s complex of 19th-century warehouses to start the daily ritual of tasting, cataloguing and mixing the 300-year-old French company’s heady elixirs.With cognac usually sold as a blend of different vintages, the panel’s job is to create the same taste year after year for each of the Pernod Ricard-owned producer’s lines, mixing hundreds of batches of the grape-based spirit under the watchful eye of the cellar master.“The most important, most decisive tastings are done at the end of the morning from 10am to 11am when we start to feel hungry, so we are much more sensitive to smells and aromas,” said Christian Guerin, one of Martell’s experts. “But the work of learning cognac is one of decades, of tasting and remembering constantly. There is no school for this — you learn in the cellars.”The commitment to constancy stands in contrast to the international ructions filtering into this region of south-west France, where the geographically protected brandy is the dominant industry, boasting sales of almost €4bn ($4.4bn) a year and employing more than 60,000 people directly and indirectly.A sharp drop in exports to the US, cognac’s biggest market, has dented sales for producers, while an anti-dumping investigation launched by China this month amid a wider trade dispute with the EU has created further risks for the industry.The ‘paradis’ cellars of the Bache-Gabrielsen cognac house, the storage room for the oldest batches 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 economist at German bank LBBW and former chief ratings officer at S&PA debt crisis is ravaging what has been dubbed the “global south”. According to the IMF more than half of all low-income countries in sub-Saharan Africa are already in or at high risk of debt distress. After a long lull during the era of low interest rates, sovereign defaults have picked up again. Having been courted by global investors for over a decade, African frontier market sovereigns are now largely locked out of the market to issue new international bonds. For hard currency bonds, the average yield on the S&P Africa Sovereign Bond Index is running at 13 per cent, from below 9 per cent three years ago.When listening to African politicians, the culprits are quickly identified: rating agencies. A wave of downgrades has hit African sovereigns since the pandemic struck the world economy. Finance ministers are rarely ecstatic when their credit rating is being slashed. Their reflexive reaction around the globe has become a bit of a cliché: the agencies do not appreciate the country’s strengths and anyway suffer from home bias. African officials are no different. Ghana’s outspoken finance minister, Ken Offori-Atta, asked in 2020 in the Financial Times whether “rating agencies [are] beginning to tip our world into the first circle of Dante’s inferno?”. Senegal’s president, Macky Sall, took a similar line when speaking in his role as chair of the African Union, stating that “the perception of risk continues to be higher than actual risk”. The UN has implausibly argued that had the rating agencies applied “objective” ratings, African countries could have saved a staggering $75bn in debt service costs. The African Union wants to set up an African rating agency to right the wrongs.Agencies would contest the bias claim. They argue that they apply a common set of criteria for all sovereigns, from Canada to Cameroon. Still, the agencies’ methodologies leave a lot of room for discretion and opinion, for example when assessing the strength of institutions and predictability of policies. Therefore, frustrated finance ministers in frontier countries could have a point lamenting discrimination. But do they?Let’s recall what the rating agencies’ narrow job description actually is. They exist for the sole purpose to rank debtors by relative risk of default. The rating is a shorthand for the expected probability of a sovereign missing a debt payment. With this in mind, answering the question whether an anti-African ratings bias exists is actually not very hard. In a world of perfect ratings, the probability of default of all B-rated sovereigns, to pick an example, should be the same irrespective of the countries’ geography or culture. Ratings are opinions about likelihood of default. As the future is unknown, the claim that an inherent bias exists in the current rating cannot therefore be objectively confirmed or rejected. Only the future will tell. But we can look into the rear-view mirror and assess the comparability of sovereign ratings. Examining observed default episodes that have occurred in the past, we can compare the ratings that had been assigned prior to the default. If B-rated African sovereigns would have been less likely to default within, say, a five-year period than B-rated sovereigns elsewhere, the agencies would indeed have scored African sovereigns unfairly. If, however, the observed default probabilities are identical, then everyone has been rated equally. Nothing to see here, move along.Digging through the data of S&P Global offers surprising findings. Sub-Saharan African sovereigns rated in the B category between 2010 and 2023 defaulted in 22 per cent of all cases within five years. The respective global number stands at a long-term average of only 16 per cent. Over at Moody’s, the observed default ratios look similar at 30 per cent for sub-Saharan African sovereigns and 15 per cent for its global average.The default data shows that default rates of African sovereigns are higher at each rating level than that of their global peers. Africa’s ratings have been too high, not too low. The actual, objectively-observed bias in sovereign ratings has been in favour of Africa.This is not to belittle the severity of the debt crisis ravaging the continent and the consequent setback in its quest for progress and poverty alleviation.However, the data shows that much of African criticism of credit rating agencies is a red herring. The agencies are convenient scapegoats. African leaders should focus instead on pushing for faster debt restructuring mechanisms. Progress in this area has been at a glacial pace. Each day that goes by without removing the debt overhang intensifies the social and economic crisis in Africa.   More

Coloured gemstones are defying the downturn in price for diamonds as consumers look past cheaper man-made stones towards more personalised jewellery.While the diamond sector fends off a flood of lab-grown equivalents and struggles with weak global luxury demand, the prices of other precious stones have held up on global markets.Rings and necklaces studded with rubies, emeralds and sapphires are rising in value, helped by endorsements from social media influencers and celebrities such as Halle Berry and Kate Middleton, the Princess of Wales.Mining and retail executives say consumer preference for unique and bespoke jewellery, as well as the growth in reliable, responsible supplies are likely to keep demand high until at least the end of the decade.“Consumer preferences have changed substantially,” said Ankur Daga, founder of Angara, an online jewellery retailer. “Perfection has given way to individual, creative expression. The people that were looking at diamonds as an asset class are migrating to coloured gemstones.”No benchmark pricing exists for coloured gems because of the uniqueness of each stone. However, Gemfields, the world’s largest miner of coloured stones, has tripled production at its Kagem emerald mine in Zambia to more than 30mn carats a years since 2009, and revenue from that asset was eight times higher in 2023, at about $90mn.In Gemfields’s latest ruby auction — regarded as the world’s most important sale — in Bangkok in December, sales rose marginally over last year to $69.5mn. However, the average value per carat soared to $290 versus $154 a year ago.Daga said wholesale buying prices for sapphires have gone up 12 per cent, emeralds 13 per cent and rubies 17 per cent on average each year since 2020 as supply struggles to keep up with red-hot demand. “It’s not just one thing why there has been such a shift to coloured gemstones,” said Sean Gilbertson, chief executive of Gemfields, the world’s largest miner of coloured stones. “It’s fair to say coloured gems have bucked that trend [of falling commodity prices]. It’s one of the few mineral resources that have increased in price dramatically.”The booming market contrasts with a marked downturn in the far larger market for diamonds, as mined stones struggle in the face of competition from lab-grown alternatives. De Beers, the world’s largest diamond producer by value, sold $110mn of diamonds in its tenth and final sale of 2023, down from $417mn a year earlier, while India halted imports of rough diamonds for two months from October to protect its manufacturers from oversupply.Sales of diamond rings in the US market have gradually dropped from 86 per cent of ring sales in 2020 to 82 per cent in 2023, said Edahn Golan, managing partner of Tenoris, a diamond analytics company, based on diamond transaction data collected from retailers. He said emeralds and sapphires had filled most of the gap.Industry executives say natural gemstones’ imperfections are likely to keep the market strong for the rest of the decade.Dev Shetty, chief executive of Fura Gems, a private Dubai-based gemstone mining group, estimates the coloured gemstone market will hit $5bn by 2030, up from $2bn in 2012. The natural rough diamond market has stagnated at $15bn since then, he said.The depth of the diamond market downturn is, in part, because of its larger size. While some producers can try to constrict supply and manage stock levels, others keep producing large volumes.The natural diamond market malaise has brought into question its ability to serve as a store of value and inflation hedge for investors, as it also faces a long-term challenge of a ready supply of lab-grown alternatives.“The lab-grown element for diamonds is a newer phenomenon that consumers and the industry are just starting to get their head around,” said Kieron Hodgson, analyst at Panmure Gordon.By contrast coloured gemstones have faced the same threat from as far back as the 1890s, when French chemist Auguste Verneuil created a synthetic ruby.Some analysts argue the shift back to coloured gemstones could mark the start of a rebalancing towards their centuries-long dominance of the global jewellery market, before De Beers’s successful marketing campaigns reshaped the industry in the 20th century. But others see hope that diamonds will also, in time, shrug off the lab-grown threat. “Lab-grown gemstones are not something new,” said Kent Wong, managing director of Chow Tai Fook, China’s largest jewellery retailer. “Only very few of those went into making jewellery. A lot more have been used for industrial functions . . . such as lab-grown sapphire crystal smartphone screens,” he said, predicting diamonds would go the same way.About 15 years ago, coloured gemstone supply came almost exclusively from informal mine sites that were often unsafe, tied to criminal activity and carried too many reputational risks for large jewellery brands.While that is changing, some risks remain. The UK National Crime Agency in August charged Romy Andrianarisoa, the chief of staff to Madagascar’s president, in August for attempting to solicit a bribe from Gemfields, which the company did not pay. Her lawyer did not respond to a request for comment but Andrianarisoa has pleaded not guilty in London courts.However, Shetty of Fura Gems says the industry’s biggest challenge is keeping up with demand, as production is still only about 20 per cent to 25 per cent of the 140mn to 150mn carats per year of diamonds. “The gap of supply is so much between us and diamonds that there’s a lot of catch-up to be done,” he said. More

SINGAPORE (Reuters) – The dollar headed for a second weekly gain in a row on Friday on signs of resilience in the U.S. economy and caution about rate cuts from central bankers.Weekly gains on the risk-sensitive Australian and New Zealand dollars of 1.7% and 2.1% are set to be the largest since November and June respectively. Markets price a 57% chance of a U.S. rate cut in March, down from 75% a week ago. The dollar index is up 0.9% to 103.4 on the week and at 148.12 yen the dollar is up almost 5% on the Japanese currency this year as confidence that the Bank of Japan (BOJ) is about to hike rates has also been rattled. Data on Friday showed Japan’s core inflation slowed to 2.3% in the year to December, its lowest annual pace since June 2022 – seemingly vindicating policymakers’ wait-and-see approach.”The market’s realisation that rates hikes will not be easy for the BOJ in the coming months and the coincident repricing of Fed rate cut risks have already been reflected in the move higher in dollar/yen,” said Rabobank strategist Jane Foley.Rabobank revised its one-month forecast for dollar/yen to 148 from 144, expecting further unwinding of bets on the pace of U.S. rate cuts to support the dollar.Currency moves early in the Asia session were modest on Friday, leaving the euro down 0.7% for the week at $1.0878 and sterling down 0.3% to $1.2708.The Aussie caught a little support from stabilising iron ore prices and rose 0.1% to $0.6578. The kiwi was steady at $0.6118. [AUD/]Overnight U.S. labour-market data was strong, with weekly jobless claims dropping to their lowest level in nearly 1-1/2 years, adding to the pressure on market rate-cut wagers.Two-year Treasury yields, which track short-term interest rate expectations, are up 22 basis points this week to 4.3587%. [US/]Earlier data showed retail sales rose more than expected in December. Federal Reserve Governor Christopher Waller said on Tuesday the U.S. economy’s strength gives policymakers flexibility to move “carefully and slowly” which traders took as pushing back at pricing for a speedy fall in rates.A similarly hawkish chorus from European central bankers has also dialled back expectations for cuts in Europe, limiting the euro’s fall on the dollar and driving gains for crosses such as euro/yen and euro/swissy.An unexpected rise in British inflation also drove a sharp pullback in bets on Bank of England interest rate cuts, and leant support to sterling.Bitcoin hit a five-week low at $40,484 overnight as traders have taken profits following the U.S. approval of spot bitcoin exchange-traded funds. Speculators drove the price 150% higher during 2023 in anticipation that the approval paved the way for large-scale investors to buy the cryptocurrency. More

TOKYO (Reuters) -Japan’s core inflation stayed above the central bank’s 2% target in December but slowed for a second straight month, data showed on Friday, reinforcing expectations it will be in no hurry to phase out its massive monetary stimulus.The data, which matched median market forecasts, highlights receding inflationary pressure from raw material imports, and heightens the chance the Bank of Japan will maintain ultra-low interest rates at next week’s meeting.The core consumer price index (CPI), which excludes fresh food but includes energy costs, in December rose 2.3% from a year earlier, government data showed, marking the slowest pace of increase since June 2022.It followed a 2.5% rise in November.The slowdown was largely due to a 11.6% fall in energy costs, which reflected the base effect of last year’s sharp rise and government subsidies to curb gasoline and utility bills.The price of food and daily necessities continued to rise, in a sign of pain higher living costs is inflicting on households.The “core core” index that strips away both fresh food and energy prices, closely watched by the BOJ as a better gauge of the broader price trend, in December rose 3.7% from a year earlier after a 3.8% gain in November.Services prices rose 2.3% in December from a year earlier, the data showed, underscoring broadening inflationary pressure.Japan’s core consumer inflation has exceeded the BOJ’s 2% target since April last year as soaring raw material costs prodded many firms to pass on higher costs.After peaking at 4.2% in January, inflation has slowed due to easing cost-push pressures in line with the BOJ’s forecasts.The key from here is whether wage hikes accelerate enough to give households purchasing power, so that companies can continue price hikes and keep inflation durably at the BOJ’s 2% target.While the BOJ is expected to end negative rates sometime this year, Governor Kazuo Ueda has stressed the need to maintain ultra-loose policy until inflation can stay around 2% for a durable amount of time while wages rise on a sustainable basis. More

(Reuters) -Several U.S. banks reported a plunge in fourth-quarter profits on Thursday, hurt by a drop in interest income and charges tied to replenishing a deposit insurance fund. Higher payouts on deposits to retain customers from chasing high-yielding alternatives have resulted in an industry-wide contraction in net interest margins for the banks that had until recently benefited from the U.S. Federal Reserve’s rate hikes.Potential Fed rate cuts this year will likely further dent margins this year, some banks have warned.Meanwhile, most U.S. banks are also paying the Federal Deposit Insurance Corporation (FDIC) a fee to refill its insurance fund, used to safeguard customer deposits in case of bank failures.On Thursday, another top regulator announced plans for new short-term liquidity rules to help lenders respond to bank runs like the ones that crushed three banks last year. MUTED DEMANDKeyCorp (NYSE:KEY) posted a near 92% plunge in quarterly profit and forecast a 2%-5% drop in its net interest income (NII) in 2024. Total loans at the end of the quarter were nearly $114 billion, 3.2% lower than the year before.Borrower appetite is “muted,” KeyCorp CEO Chris Gorman told Reuters in an interview. “There is not a lot of loan demand, there are not a lot of transactions.” Raymond James analyst David Long said KeyCorp’s stock could be under pressure as the bank’s earnings per share get squeezed.Shares fell 5.5% to $13.10.DEPOSIT COST CONCERNS Investors are closely monitoring deposit cost trends in bank earnings reports this quarter. Reuters reported earlier this month that analysts fear 2024 earnings per share at 11 U.S. regional banks will drop from a year earlier, mostly due to increased deposit costs.”The results were not well taken. The general theme is deteriorating credit, continuing pressure on net interest margins due to higher deposit costs and little loan growth. That’s why you’re seeing pressure on some of those banks today,” said Macrae Sykes, portfolio manager at Gabelli Funds.At Truist, one-time charges of more than $6 billion and weaker NII led to it swinging to a loss. M&T Bank (NYSE:MTB)’s profit plummeted 37% due to higher deposit costs and the special assessment fee, while asset and wealth manager Northern Trust (NASDAQ:NTRS)’s profit fell 27%. Digital banking and payments services firm Discover Financial reported a 62% drop in profit on Wednesday, due to bigger provisions for potentially sour loans.The S&P 500 financials sector index dipped 0.3%. Goldman Sachs banking analyst Ryan Nash, however, said regional banks were well positioned for 2024.”It’s clear that we are getting closer to the trough in net interest income, which should happen by the middle of the year.” More

Labour has warned Rishi Sunak’s government that the UK faces border disruption and risks to its food supply chains ahead of the scheduled introduction of post-Brexit import checks on January 31.The government is due to start bringing in new paperwork requirements for EU businesses sending animal and plant products to the UK from the end of this month, with physical inspections beginning in April. Officials said on Thursday that there would be no further delays to the introduction of the border checks, which have been postponed five times since the EU-UK Trade and Cooperation Agreement came into force in January 2021.The scheduled launch date has prompted concerns across industry: food importers have warned about gaps on supermarket shelves, while Dutch flower growers have said the extra paperwork will land ahead of events including Valentine’s Day, Easter and Mother’s Day. In a letter seen by the Financial Times, Labour frontbencher Nick Thomas-Symonds warned deputy prime minister Oliver Dowden that the January 31 start date ran the risk of queues at ports, delays to imports and increases in inflation, particularly in food prices.“It is vital that you are clear with businesses, our EU neighbours and consumers about the progress being made for implementing these measures, as well as ensuring urgent steps are taken to minimise disruption to supply chains,” he wrote.Thomas-Symonds, shadow minister without portfolio, emphasised that Labour was not trying to reverse Brexit and would not attempt to re-enter the EU single market or customs union. Single-market membership allows EU member states to trade freely with each other, according to a common rule book, without internal border checks.However, Thomas-Symonds urged Dowden to consider Labour’s policy of trying to negotiate a so-called sanitary and phytosanitary agreement with the EU on plant and animal products. Such a deal would “significantly reduce trade barriers, [and] help reduce costs and delays for hard-pressed UK producers and consumers”, he wrote.In his letter, Thomas-Symonds asked if the government had undertaken any assessments of the benefits of this kind of agreement.He also asked what preparations had been made at UK ports, airports and other important logistical points to minimise delays, and what assessments had been undertaken into the inflationary impact of the controls on UK consumers. Industry groups have warned that EU businesses exporting to Britain may not be fully prepared for the checks or might give up exporting to the UK after they are introduced, scrambling some supply chains.Thomas-Symonds said there was still uncertainty about whether the changes on January 31 would definitely happen given the five previous delays. “It is vital to minimise the friction and disruption caused by the measures you are committed to introducing,” he wrote.One government official said ministers and civil servants had worked closely with businesses to “get this right”.The person acknowledged the potential impact on inflation but said it would be “negligible”, at an anticipated rate of less than 0.2 per cent over three years.The government said it was committed to delivering “the most advanced border in the world”, adding: “We will use technology and data to make it simple for businesses to trade, while maintaining the flow and security of goods.“The changes we’re bringing in will help keep the UK safe, while protecting our food supply chains and our agricultural sector from disease outbreaks that would cause significant economic harm.” More