Economy

Taiwanese voters on Saturday swept the ruling Democratic Progressive Party’s presidential candidate Lai Ching-te into power, rejecting Chinese pressure to spurn him. And on Monday, U.S. Republican presidential candidates face the party’s first nominating contest in Iowa.Here’s a look at key elections in focus for markets, in roughly chronological order. 1/ EUROPEDates: March 10 (Portugal), June 9 (Belgium), June 6-9 (European Parliament), autumn/winter (Croatia), November (Romania), to be confirmed (Austria)Back story: November’s shock win for Geert Wilders’ Freedom Party in the Netherlands galvanised the eurosceptic far right. Its namesake leads Austria’s polls. Portugal’s Chega party’s vote may double, though left parties lead there.Crucially, far-right parties eye gains in the European Union’s legislature, vowing to toughen migration policy and soften green reforms. Market risks: Italian stocks and bonds, Europe’s top 2023 performers, may suffer if gains for eurosceptic parties are seen as weakening the commitment to European integration.The EU raising joint debt to back the post-pandemic recovery has helped reduce the perceived riskiness of Italian debt. With the EU parliament heavily involved in legislation and electing the next head of the bloc’s executive, watch the readout on further support for Ukraine and climate policy. 2/ RUSSIA:Date: March 17Back story:Vladimir Putin, who was handed the presidency by Boris Yeltsin on the last day of 1999, is certain to win another six years in power. Polling shows Putin enjoys approval ratings of above 80% in Russia. Opposition politicians say the election is a carefully stage-managed imitation of democracy. Key market risk: In the campaign, Putin may reveal more of his thinking about the war in Ukraine. Putin has warned the West any attempts to meddle in the election will be considered an act of aggression.     Western governments such as the United States and Japan are considering seizing frozen Russian assets such as cash and government bonds held by its central bank overseas. Russia has said it will retaliate if that happens.     Russia’s economy has been boosted by massive increases in defence spending on the war, though stubborn inflation fanned by a sharp rouble depreciation has forced interest rates higher.3/ TURKEYDate: March 31 (local election)Back story: A return to orthodox economics following President Tayyip Erdogan’s May re-election has started to lure back international investors. JPMorgan reckons 2024 could be a record year for international bond issuance.Key market risk: A weak lira and inflation topping 60% is leading to worries on Erdogan pulling back on the orthodox pivot.Neither widely respected Finance Minister Mehmet Simsek or plucked-from-Wall-Street Central Bank Governor Hafize Gaye Erkan are expected to bend easily. Erdogan has a history of turning on a dime and has fired four central bank chiefs in as many years.4/ INDIADate: April-May, TBCBack Story: Narendra Modi is expected to win a third term as prime minister leading the Hindu nationalist Bharatiya Janata Party (BJP) in national elections. Investors moving cash out of China have turned to India.Key market risk: Persistent inflation could hurt the BJP. Modi would need to form a coalition if it does not win an outright majority.Key commodity exporter India has roiled markets by restricting rice, wheat and sugar exports. A shift back to fiscal populism risks pushing up India’s fiscal deficit which would need funding from potentially record high domestic market borrowing. 5/ MEXICODate: June 2Back story: Presidential election will involve a full Congress reshuffle and nine state elections. Polls give incumbent National Regeneration Movement (Morena) party and its candidate, ex-Mexico City mayor Claudia Sheinbaum, a wide double-digit lead. A more balanced Congress preventing constitutional changes from populist Morena is anticipated. But given the success of current President Andres Manuel Lopez Obrador’s spending drives, Sheinbaum is expected to follow suit.Key market risk: Heftier spending could pull down Mexico’s peso and hurt government bonds. 6/ SOUTH AFRICA Date: May-August 2024 (TBC)Back story: The ruling African National Congress risks losing its parliamentary majority in elections for the first time since Nelson Mandela led it to power in 1994.Economic turmoil, power cuts, austerity and graft allegations have alienated voters. The ANC may need to partner with the Democratic Alliance or the Marxist Economic Freedom.Key market risk: Pre-election, the government could ease austerity, pushing up debt. If the ANC allies with a leftist party, social spending could rise. Worries about a weak currency and public finances could slow down rate cuts. 7/ UNITED STATESDate: Nov 5Back story:Donald Trump is predicted to win the Republican nomination in upcoming primaries, setting the stage for a tight battle with Democrat incumbent Joe Biden – a rerun of the 2020 election that ended with a pro-Trump mob storming Congress in an attempt to block certification of Biden’s victory.Trump faces criminal trials in four jurisdictions and an array of other legal cases, while he still claims falsely that the 2020 election was stolen. Biden calls his opponent a threat to democracy who would seek vengeance on his many foes if he regains power. Market risks:Markets shrugged off the violence that followed the election four years ago. But given the heated rhetoric on both sides this time around, a Trump-Biden rematch could still worry investors over the risk of social unrest.A bitter election could affect consumer sentiment as the world’s biggest economy seeks to avert a recession from the lagged effects of aggressive interest rate rises.The dollar could swing on election probabilities. Stocks could be hurt by caution over U.S.-China tensions if the parties harness the popularity of trade barriers, with analysts saying higher tariffs would fuel inflation, force up the dollar and hurt the yuan, euro and Mexican peso.Spending cut pledges by either party could upend a complex but popular U.S. bonds trade that wagers government borrowing will increase. And watch oil: Trump favours more U.S. drilling, which Biden has reined in.8/ BRITAIN Date: due by Jan 2025, expected by end-2024 Back Story: The opposition Labour party under centre-left candidate Keir Starmer leads the ruling Conservatives in the polls. Market risks:Pre-election, a stagnant economy and tight fiscal budget mean government bonds could be unsettled by any surprise spending promises. A March 6 budget might well contain new tax cuts.Labour plans to loosen planning rules, in a risk for house-builders and make targeted changes to tax rules which could hurt energy companies. It also wants closer relations with the European Union following Brexit, which could boost sterling. 9/ VENEZUELA Date: 2024 TBCBack Story: Incumbent Nicolás Maduro has an advantage in presidential elections, with main opposition candidate, María Corina Machado, banned from participating due to alleged crimes such as supporting U.S. sanctions on Maduro’s government and backing former opposition leader Juan Guaido. Market risks:In October, the U.S. lifted oil sanctions for six months and debt sanctions indefinitely, allowing U.S. investors to trade in some bonds in exchange for talks to ensure fair and free elections.    Re-instated sanctions could shake Venezuelan stocks and bonds. Pricing deeply distressed, bonds more than doubled after sanctions were lifted. A possible debt restructuring is also in focus. More

Volvo expected consultations to become finalised during the first quarter of this year. In 2022, Arquus, with about 1,200 employees in France, represented around 1% of Volvo Group revenues, it said in a statement.”This prospective acquisition contributes to strengthening cooperation between France and Belgium in a strategic sector,” said Belgium’s John Cockerill in a statement. ($1 = 10.2926 Swedish crowns) More

LONDON (Reuters) – Global hedge funds kicked off the largest net selling of U.S. financial stocks in 16 weeks just as earning season started in the week ending Jan. 11, a Goldman Sachs note to clients said. Hedge funds exited long positions and added short bets that stock prices would fall in banks, insurance companies and financial intermediaries before bank earnings were released on Friday, said the Goldman note dated Jan. 12 and seen by Reuters on Monday. The note, written by Goldman’s prime brokerage which serves hedge funds, tracked trading activity from Friday Jan. 5 to Thursday Jan. 11. U.S. banks’ shares fell on Friday after major lenders reported lower profits in a choppy fourth quarter clouded by special charges and job cuts, with signs an income boost from high interest rates is waning and some consumer loans are starting to sour.The S&P 500 banks index closed over 1% down after earlier hitting its lowest level since Dec. 14.JPMorgan Chase (NYSE:JPM) and Bank of America posted a drop in fourth-quarter profit, while Wells Fargo posted higher fourth-quarter profit but warned that its net interest income could fall 7% to 9% this year, sending its shares down more than 3% on Friday.Financials, consumer companies that make products that people buy but don’t necessarily need and healthcare stocks were sold, the Goldman note said. Shorting activity focused on the finance sector was particularly elevated, said the bank. This was also true for real estate and the travel and leisure industries, it added. U.S. markets are closed on Monday for the Martin Luther King holiday. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Poland’s Prime Minister Donald Tusk is maintaining the protectionist stance of the previous government and is set to oppose the renewal of an EU free-trade deal with Ukraine. The European Commission on Tuesday is expected to propose extending until June 2025 the suspension of tariffs and import quotas on Ukrainian products in a bid to help keep the country’s economy afloat while it continues to fight against Russia’s invasion. Poland’s stance will not affect the outcome, as the decision is taken by majority voting.But Tusk sticking to a policy introduced by the nationalist, Eurosceptic government led by the Law and Justice (PiS) party stands in contrast to his pledge when he took office last month to put Poland back at the heart of EU policymaking after years of feuding with Brussels. It highlights the difficulty for the Polish premier to strike a balance between his pro-European agenda and the interests of farmers and hauliers who want to maintain import bans and have been blockading the country’s border crossings with Ukraine since November in order to force the government to back their demands. PiS has also launched a significant backlash, supported by the country’s president, to any attempts by Tusk to undo reforms and appointments made by the previous government. Tusk is preparing to visit Kyiv in the coming days to try to ease tensions provoked by the border blockade and to reach a compromise on the import ban the PiS government imposed last spring on Ukrainian grain. He has called on Ukraine to help defuse tensions with Polish farmers and truck drivers rather than demand that Poland lifts its import ban. Poland’s deputy agriculture minister Michał Kołodziejczak warned at the weekend that “there is no consent” from his government to the EU renewing preferential trade conditions for Ukraine because that is “a threat” for Polish farmers. “The interest of Polish farmers, our food security and profitable production are a priority,” Kołodziejczak said on the social platform X. The commission is considering a tougher safeguard clause that would allow exports to be stopped quickly if they swamped the market in some member states.Officials say Tusk is seeking a similar deal to the one struck with Romania and Bulgaria. They lifted a blockade last year in return for Ukraine agreeing an export licensing system which limited the flow into their countries.“The bulk of the work is in the dialogue between the two capitals [Warsaw and Kyiv],” said an EU diplomat. Since taking office, Tusk has also shied away from ordering Polish police and border guards to break up the blockade. Echoing farmers, Polish truckers are complaining about cheaper and unregulated competition from Ukraine under a temporary free transport agreement with Brussels agreed four months after Russia’s all-out attack on Kyiv in February 2022. According to Polish government data, about 90 per cent of trucks delivering to Poland from Ukraine are Ukrainian, up from 60 per cent before the liberalisation. Tusk said on Friday that Poland would continue to give Ukraine full support in its war against Russia, but he also pledged to defend key Polish economic sectors against unfair competition. He called on Kyiv to help stop “the game of dirty interests” in cross-border trade, repeating a claim made by PiS that the EU’s help to Ukraine’s agriculture was a boost for oligarchs who control the sector rather than small farmers. “I’ll expect the Ukrainian side to help us cure these pathologies so that our farmers and hauliers do not have to block the borders,” he said during an interview with Poland’s three main broadcasters.   More

The manufacturing sector, excluding construction, fell by a sharp 2%, led by lower production in the energy supply sector.
The fourth quarter recorded a similar 0.3% drop compared with the July-September period.
The office said that the German economy stagnated in the third quarter, implying the country has narrowly avoided a technical recession that is defined by two successive quarters of consecutive GDP declines.

German Chancellor, Olaf Scholz arrives for the weekly federal government cabinet meeting on Oct. 11, 2023 in Berlin, Germany.
Michele Tantussi | Getty Images News | Getty Images

Europe’s largest economy contracted by 0.3% year-on-year in 2023, as high inflation and firm interest rates bit into growth, the Federal Statistical Office of Germany said Monday.
The estimate is in line with the expectations of analysts polled by Reuters. The decline in economic output eases to 0.1% when adjusted for calendar purposes.

“The overall economic development in Germany stalled in 2023 in the still crisis-ridden environment,” said Ruth Brand, president of the federal statistics office, according to a Google translation. 
“Despite the recent declines, prices remained high at all levels of the economy. Added to this were unfavorable financing conditions due to rising interest rates and lower demand from home and abroad,” Brand added.
German inflation ticked up by 3.8% year-on-year in December on a harmonized basis, the statistics office said on Jan. 4. The European Central Bank in December opted to hold rates unchanged for the second consecutive time, shifting its inflation outlook from “expected to remain too high for too long” to expectations that it will “decline gradually over the course of next year.”
Germany’s manufacturing sector, excluding construction, fell by a sharp 2%, led by lower production in the energy supply sector. Weak domestic demand last year and “subdued global economic dynamics” also stifled foreign trade, despite a drop in prices. Imports fell by 1.8%, declining more sharply than exports and leading to a positive trade balance.

Household consumption contracted by 0.8% on the year, adjusted for prices, while government expenses slimmed by 1.7%.

The fourth quarter recorded a similar 0.3% drop compared with the July-September period. The office said that the German economy stagnated in the third quarter, implying the country has narrowly avoided a technical recession that is defined by two successive quarters of consecutive GDP declines.
Early indicators do not signal a quick German economic recovery is in the cards, a German economy ministry report out Monday warned, according to Reuters.
Capital Economics also expects Germany’s troubles are not yet over and forecasts no growth for the country in 2024.
“The recessionary conditions which have been dragging on since the end of 2022 look set to continue this year,” Chief Europe Economist Andrew Kenningham said in a note. “Admittedly, the recent fall in inflation should provide some relief for households, but residential and business investment are likely to contract, construction is heading for a steep downturn and the government is tightening fiscal policy sharply. We forecast zero GDP growth in 2024.”
Germany was haunted by its moniker as the “sick man” of Europe for the better part of last year, despite weathering the shocks of losing access to some sanctioned Russian energy supplies in the wake of Moscow’s invasion of Ukraine. Analysts had predicted Germany would be the only major European economy to shrink last year.

The German economy faced the throes of a deep budgetary crisis at the end of last year, after a constitutional court ruling over the national borrowing restrictions threatened a $17-billion-euro gap in the country’s 2024 spending plans.
Enshrined in Germany’s constitution, the national debt brake restricts the federal deficit to 0.35% of GDP outside of emergencies and became a major bone of contention in national politics last year. The German government agreed to suspend the limit on borrowing, after the constitutional court blocked attempts to repurpose any leftover emergency funds initially assigned to address the Covid-19 pandemic.
Weeks-long negotiations yielded a budget deal that retains debt restrictions into 2024, with the government expecting to save 17 billion euros ($18.6 billion) in its core budget by ending climate-damaging subsidies and implementing cost cutting, German Chancellor Olaf Scholz’s three-way coalition announced in mid December. More

1. Bank earnings aheadGoldman Sachs and Morgan Stanley are due to report their latest quarterly results later this week after a mixed set of earnings from some of their biggest banking peers on Wall Street.Investors will be keen to see how the two lenders, whose operations tend to focus more on investment banking and asset management, fared during a time of weaker mergers and acquisitions activity that has weighed on key advisory fees.On Friday, a slew of large U.S. banks said that fourth-quarter trading profits were boosted by recent hopes that the Federal Reserve may soon lower interest rates down from more than two-decade highs. The optimism fueled a stock market rally late last year, while signs emerged that a dormant deal pipeline was starting to reawaken.Months’ worth of elevated rates also supported net interest income, or the difference between what a bank pays for deposits and receives from loans, although some analysts wondered if this backstop was beginning to wane.These institutions — which included JPMorgan, Bank of America, Wells Fargo and Citigroup — set aside more provisions set aside to cover these souring loans, flagging an uptick in loan defaults back to pre-pandemic levels. Deep job cuts and steep one-off expenses dented returns as well.But, even still, they presented a broadly upbeat assessment of the outlook for the U.S. economy, noting that consumer spending has remained resilient despite lingering pressures from higher borrowing costs.2. U.S. markets to shutted for holidayU.S. stock markets are set remain closed on Monday for the Martin Luther King Jr. holiday.The major averages were muted to end the prior week, with the benchmark S&P 500 adding just 0.1% and the tech-heavy Nasdaq Composite mostly unchanged. The laggard was the 30-stock Dow Jones Industrial Average, which dipped by 0.3%.Along with the choppy bank earnings, investors were gauging data showing that headline U.S. producer prices unexpectedly dipped in December on a monthly basis due to a decline in costs for items like diesel fuel and food. The measure, which was also revised lower for November, has now fallen for three straight months.Traders largely maintained bets that the Fed could slash rates from the current level of 5.25% to 5.50% as early as March, although several officials at the central bank have recently moved to temper these expectations. Many economists are now predicting that a cut in May or June is more probable.”[T]he Fed probably needs to send a clearer message that the latest data does not justify the kind of aggressively dovish view embedded in money market pricing,” analysts at ING said in a note.Policymakers will have fewer high-profile data points to parse through this week, though retail sales and University of Michigan inflation expectations may add more color to the U.S. inflation picture.3. “Uncertainty” clouding new-term outlook – WEF surveyUncertainty is clouding over the near-term outlook for the global economy, according to a survey conducted ahead of the World Economic Forum’s closely-monitored annual meeting.Growth prospects in 2024 are “subdued,” the survey of the world’s top economists found, with 56% of respondents expecting conditions to weaken in the coming year. However, nearly a quarter foresee a stronger economy, while 20% predict that the environment will stay unchanged.”The relative resilience of the world economy in the recent years will continue to be tested,” the survey said, adding that activity is “stalling” amidst indications of a slowdown in both the manufacturing and services sectors. Financial conditions, meanwhile, are expected to loosen as inflation eases and labor market tightness subsides.The report comes as leaders in both government and business gather in the Swiss resort town of Davos to discuss issues ranging from economic trends and geopolitical concerns to the rise of generative artificial intelligence and environmental developments.4. Baidu slips on report Ernie AI used by Chinese militaryHong Kong-listed shares of Baidu (HK:9888) slid as much as 12% on Monday after the South China Morning Post reported that the technology giant’s flagship Ernie artificial intelligence was used in testing by the People’s Liberation Army.Baidu’s shares closed down 11.5% to HK$100.50, after falling as far as 12% earlier in the session.The South China Morning Post (SCMP) reported that a research laboratory associated with the People’s Liberation Army (PLA) Strategic Support Force had tested an experimental AI system on Ernie, Baidu’s answer to OpenAI’s ChatGPT.Baidu told the SCMP that the search engine company had no affiliation with the laboratory, and that any version of the Ernie bot used in the testing was likely a publicly available version. But the report ramped up concerns that any potential affiliation with the PLA could attract sanctions from the U.S., especially as both countries explore military applications of AI.5. Crude choppy with Middle East in focusOil prices edged lower on Monday, paring back earlier gains, as fears remained that tensions in the Middle East could disrupt supplies through a key shipping route between Europe and Asia.By 05:05 ET (10:05 GMT), the U.S. crude futures traded 0.8% lower at $72.25 a barrel, while the Brent contract fell 0.6% to $77.81 a barrel.The benchmarks jumped more than 2% last week to touch their highest intraday levels this year after the United States and Britain carried out the strikes on the Houthi forces in Yemen in retaliation for attacks by the Iran-backed group on shipping in the Red Sea.The Houthi group threatened a “strong and effective response” on Sunday, potentially escalating the situation which has seen several shipping operators suspend routes through the Red Sea. More

Worries are growing in Washington that a flood of Chinese products could put new American investments in clean energy and high-tech factories at risk.The Biden administration has begun pumping more than $2 trillion into U.S. factories and infrastructure, investing huge sums to try to strengthen American industry and fight climate change.But the effort is facing a familiar threat: a surge of low-priced products from China. That is drawing the attention of President Biden and his aides, who are considering new protectionist measures to make sure American industry can compete against Beijing.As U.S. factories spin up to produce electric vehicles, semiconductors and solar panels, China is flooding the market with similar goods, often at significantly lower prices than American competitors. A similar influx is also hitting the European market.American executives and officials argue that China’s actions violate global trade rules. The concerns are spurring new calls in America and Europe for higher tariffs on Chinese imports, potentially escalating what is already a contentious economic relationship between China and the West.The Chinese imports mirror a surge that undercut the Obama administration’s efforts to seed domestic solar manufacturing after the 2008 financial crisis and drove some American start-ups out of business. The administration retaliated with tariffs on solar equipment from China, sparking a dispute at the World Trade Organization.Some Biden officials are concerned that Chinese products could once again threaten the survival of U.S. factories at a moment when the government is spending huge sums to jump-start domestic manufacturing. Administration officials appear likely to raise tariffs on electric vehicles and other strategic goods from China, as part of a review of the levies former President Donald J. Trump imposed on China four years ago, according to people familiar with the matter. That review, which has been underway since Mr. Biden took office, could finally conclude in the next few months.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