Economy

NEW YORK (Reuters) -U.S. banking giants are expected to report lower profits for the fourth quarter after they set money aside to cover souring loans while also paying more to depositors.The largest banks’ net interest income (NII) – or the difference between what they earn on loans and pay out on deposits – probably fell on average 10% in the fourth quarter, Goldman Sachs analysts said. An estimated 15% decline in trading revenue will also weigh on earnings, they said.JPMorgan Chase (NYSE:JPM), Bank of America, Citigroup and Wells Fargo report fourth-quarter and full year results on Friday.Banks’ profits will likely be squeezed as they set aside more reserves in the fourth quarter to prepare for customers to default on the loans. Profits could also be curbed by banks paying more to keep depositors’ money in their accounts.Bank of America’s earnings per share (EPS) are expected to drop 23% in the fourth quarter versus a year earlier, while EPS at Citigroup and Morgan Stanley will fall 25% and 17%, respectively, according to analyst estimates compiled by LSEG. EPS is predicted to slide 3% for JPMorgan and 2% for Goldman Sachs.By contrast, earnings at Wells Fargo will benefit from a reduction in expenses, including some related to regulatory orders.Separately, Citigroup investors will look for signs that its sweeping overhaul will raise returns. And Morgan Stanley’s new CEO Ted Pick will provide a strategy update, his first since taking the helm at the start of the year.The largest banks are also expected to book charges to replenish a Federal Deposit Insurance Corp fund after it was drained by the collapses of Silicon Valley Bank and Signature Bank (OTC:SBNY).”There is a lot of macroeconomic uncertainty now and it’s hard to predict the trajectory for net interest income,” said Bank of America analyst Ebrahim Poonawala. He cited the debate about the potential pace of Federal Reserve interest rate cuts this year as one of the key questions hanging over markets. The health of the U.S. consumer is also in focus as lower-income customers fall behind on payments in greater numbers. Although delinquencies are increasing, the strong job market has kept a lid on loan defaults, Poonawala added. Last year was a strong year for bank profits despite the expected slump in fourth quarter net income. Earnings at the largest banks probably rose 5%, compared with a 5% decline for regional banks, Poonawala estimated.The KBW index of banks stocks fell 5.4% last year and accumulates a 0.7% drop in the first days of 2024.”I think 2024 will be a transition year, and will set the stage for the resumption of higher loan growth in 2025,” said Jason Goldberg, an analyst at Barclays. Looking ahead, the slide in NII in the fourth quarter could extend into the first half of this year as banks tighten their lending standards while lower income consumers’ finances become increasingly stretched, Goldman banking analyst Richard Ramsden said. “We could have the opposite effect on the second half as interest rates go down,” he added. Banks are expected to conserve capital this year and stay cautious on buying back their own shares as they brace for potentially stricter rules known as the Basel endgame that are open for public comment, analysts said. The upcoming U.S. presidential election could also change the direction of regulation.Banks had been accumulating paper losses in their portfolios because they held securities that lost value when interest rates rose. As the Fed moves closer to reducing rates, the securities portfolios will regain value, helping to bolster banks’ capital, Goldman’s Ramsden said. EARNINGS PER SHARE IN 4Q BANK EPS 4Q 2023* EPS 4Q 2022 JPMorgan 3.46 3.57 Bank of America 0.65 0.85 Citigroup 0.87 1.16 Wells Fargo 1.21 0.67 Goldman Sachs 3.25 3.32 Morgan Stanley 1.04 1.26 * LSEG mean estimates More

PARIS (Reuters) – The European Central Bank will cut interest rates this year once it sees evidence the inflation outlook has settled in line with its 2% target, ECB policymaker Francois Villeroy de Galhau said on Tuesday.Investors are betting that the ECB will carry out multiple rate cuts this year with the first move coming in March or April though some policymakers have indicated it could take longer to be certain inflation is under control.Villeroy, who is also head of the French central bank, declined to give a timeframe in a News Year’s address to the French financial sector, saying that the ECB’s decisions would be guided by data and would not be rushed.”We will cut rates this year when the inflation outlook is solidly anchored at 2% (with) effective and durable data,” he said.Euro zone inflation has been steadily declining, although it rose in December to 2.9% from 2.4% in November, mainly for technical factors like the end of government subsidies and low energy prices falling out of base figures used to calculate inflation rates. (This story has been corrected to say outlook, not expectations, in the headline and in paragraphs 1 and 4) More

A new economic report predicted a year of weak growth and said the world faced a decade of “wasted opportunity.”The global economy is at risk of a “wasted” decade and the weakest stretch of growth in 30 years, the World Bank warned on Tuesday, saying a sluggish recovery from the pandemic and crippling wars in Ukraine and the Middle East are expected to weigh heavily on output.In its semiannual Global Economic Prospects report, the World Bank projected that the growth in world output will slow further in 2024, declining to 2.4 percent from 2.6 percent. Although the global economy has been surprisingly resilient, the report warned that its forecasts were subject to heightened uncertainty because of the two wars, a diminished Chinese economy and the increasing risks of natural disasters caused by global warming.The converging crises in recent years have put the world economy on track for the weakest half-decade in 30 years.“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, the World Bank Group’s chief economist.Global growth is projected to slow for the third straight year in 2024. Developing countries are bearing the brunt of the slowdown, with high borrowing costs and anemic trade volumes weighing on their economies.Although policymakers have made progress in bringing inflation down from its 2022 high, the war in Gaza between Israel and Hamas is threatening to become a broader conflict that could spur a new bout of price increases by causing the cost of oil and food to spike.“The recent conflict in the Middle East, coming on top of the Russian Federation’s invasion of Ukraine, has heightened geopolitical risks,” the report said. “Conflict escalation could lead to surging energy prices, with broader implications for global activity and inflation.”The recent drone and missile attacks in the Red Sea by the Iranian-backed Houthi militia have already affected international commerce by pushing up oil prices and freight and insurance rates while diverting maritime traffic to a much longer and costlier route around Africa.Economists at Capital Economics wrote in a report this month that the redirecting of trade ships away from the Red Sea is unlikely to lead to a resurgence of global inflation, but they suggested that if the war became a broader regional conflict it could pose inflationary risks.The disruptions to shipping routes follow a year in which, other than during worldwide recessions, global trade growth was the slowest in the past 50 years, according to the World Bank.If the conflict in the Middle East does not widen, the World Bank expects that global oil prices will edge lower this year as growth weakens and production of oil increases.Beyond the ongoing wars, signs of fragility in the Chinese economy also remain a worry. World Bank economists pointed to lingering weakness in China’s property sector and lackluster consumer spending as evidence that the world’s second-largest economy will continue to underperform this year. They suggested that could pose headwinds for some of China’s trading partners in Asia.Chinese growth is expected to slow to 4.5 percent this year from 5.2 percent in 2023. Outside the pandemic-induced downturn, that would be China’s slowest expansion in 30 years.Europe and the United States are also poised for another year of weak output in 2024.The World Bank projects that economic growth in the euro area will rise to 0.7 percent in 2024 from 0.4 percent in 2023. Despite easing inflation and rising wages, tight credit conditions are expected to constrain economic activity.Growth in the United States is expected to slow to 1.6 percent this year from 2.5 percent in 2023. The World Bank attributes the slowdown to elevated interest rates — which are at their highest level in 22 years — and a pullback in government spending. Businesses are expected to be cautious about investing because of economic and political uncertainty, including around the 2024 election.Despite such slow growth, Biden administration officials say they deserve credit for corralling inflation while keeping the economy afloat.“I think we’ve made tremendous progress,” Treasury Secretary Janet L. Yellen told reporters on Monday. “It’s very unusual to have a period in which inflation declines as much it has while the labor market remains strong.”She added: “But that’s what we’re seeing, and that’s why I say we’re enjoying a soft landing.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The global economy is on track for its worst half-decade of growth in 30 years, the World Bank has warned in its latest projections for 2024, as higher borrowing costs and geopolitical tensions weigh on output. In forecasts published on Tuesday, the multilateral organisation said gross domestic product in the world economy was set to expand just 2.4 per cent in 2024 — down from 2.6 per cent last year. If the predictions are accurate, it would mark the third year in a row where growth would prove weaker than the previous 12 months. “Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, the World Bank’s chief economist and senior vice-president. The lender said global trade growth in 2024 was expected to be only half the average in the decade before the pandemic. The slowdown in world trade and rise in borrowing costs meant average annual growth for developing countries since 2020 was just 3.9 per cent a year — a full percentage point lower than during the previous decade, it added.The first years of the decade have been marked by the start of the coronavirus pandemic, the ratcheting-up of geopolitical tensions following Russia’s full-scale invasion of Ukraine, and the biggest surge in global inflation in a generation. The Israel-Hamas war has raised concerns over a broader conflict in the Middle East. The warning comes at a time when other multinational organisations are voicing concerns over medium-term prospects for a world economy weighed down by tighter credit conditions and heightened conflict-related risks. The IMF’s projections for the next five years are at their lowest level since the rise of globalisation in the 1990s. Fund officials have repeatedly warned governments against loosening trade ties, which the fund claims will weaken growth and feed into inflation. Advanced economies were expected to see growth of just 1.2 per cent, according to the World Bank, down from 1.5 per cent in 2023. “The main concern in advanced economies is shifting back from inflation to output,” Gill said at a press briefing to mark the report’s release, adding that this was the main takeaway from the US Federal Reserve’s plans to cut rates three times this year from their current 22-year high of 5.25-5.5 per cent. Meanwhile, the slowdown in growth in China was creating a significant “headwind” for other developing economies, particularly its trading partners in east Asia. Eastern Europe would see slower growth owing to its links with Russia, the bank said. Low-income countries would perform better this year, with the world’s poorest economies recording average growth of 5.5 per cent, up from 3.5 per cent in 2023.However, Gill noted that many of these countries and other developing economies remained hamstrung by “more than half a trillion dollars of debt overhang” and shrinking fiscal space.The multilateral lender urged countries to invest more, saying this could be “transformative” in raising living standards. “When it comes to . . . increasing access to the internet, or coping with problems of inequality, you see significant progress when countries have sustained investment growth,” Gill said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Unemployment in the eurozone fell back to a record low of 6.4 per cent in November, defying recent economic gloom after the number of jobless people fell almost 100,000 from a month earlier. The continued strength of Europe’s labour market will add to caution among European Central Bank policymakers about the timing of a potential cut in interest rates as they worry that rapid wage growth could keep price pressures elevated. The region’s job market is proving more resilient than expected by economists, who had forecast an unchanged unemployment rate for November of 6.5 per cent in a recent Reuters poll. “Real economic weakness is not yet feeding through to the labour market,” said Tomasz Wieladek, economist at investor T Rowe Price. “As a result, the near-term weakening in inflation will not comfort the ECB since risks of elevated wage pressures and hence above target medium-term inflation remain high.”The ECB, which was due to meet to discuss monetary policy on January 25, pushed back against investor expectations of imminent rate cuts last month, saying it wanted to see signs of wage pressures cooling to be sure inflation was on track to hit its 2 per cent target.Eurostat, the EU’s statistical agency, said on Tuesday the number of jobless people in the eurozone fell to 10.97mn, down 99,000 from the previous month and 282,000 from a year earlier. The biggest recent improvement was in Italy, where the ranks of unemployed people declined by 66,000 to just over 1.9mn in November. Economists expected the eurozone unemployment rate to rise this year as a result of sluggish growth, weak demand, rising wages and growing numbers of companies signalling plans to dismiss workers. “Looking ahead, surveys suggest that hiring intentions are coming down and some firms, predominantly in manufacturing, are looking to shed workers as the outlook for their sector remains bleak,” said Melanie Debono, an economist at consultants Pantheon Macroeconomics.The bloc’s unemployment rate has almost halved since peaking at 12 per cent in 2013 when millions of people lost their jobs in the region’s debt crisis. It rose briefly in 2020 when pandemic lockdowns paralysed the economy, but furlough schemes cushioned the blow and the jobless rate has kept falling despite a slowdown in activity over the past year.Many companies have been hoarding labour, retaining more staff than they need in the hope that demand will rebound and they will be able to operate at increased capacity. But Wieladek said this was unsustainable. “After all, if real wages continue to rise, it will become unaffordable to keep so many workers on while productivity growth is so low,” he said.Economists expected the eurozone economy to remain weak in the fourth quarter of last year and recent data painted a mixed picture. Exports from the bloc rose 3.7 per cent in November from the previous month, while manufacturing orders in Germany were up 0.3 per cent. However, German factory output fell 0.7 per cent in November, its sixth monthly decline in a row. There were few signs of a rebound in December after a 3.5 per cent drop in truck traffic on German motorways — which is usually a strong indicator of a further drop in industrial activity in the bloc’s largest economy.Consumers also reined in their spending in the run-up to Christmas with retail sales in the eurozone falling 0.3 per cent in November from a month earlier, confounding economists’ expectations for a rebound. More

PARIS (Reuters) -French President Emmanuel Macron appointed 34-year-old Education Minister Gabriel Attal as his new prime minister on Tuesday, seeking to breathe new life into his second mandate ahead of European parliament elections.The move will not necessarily lead to any major political shift, but signals a desire for Macron to try to move beyond last year’s unpopular pension and immigration reforms and improve his centrist party’s chances in the June EU ballot. Opinion polls show Macron’s camp trailing far-right leader Marine Le Pen’s party by around eight to ten percentage points.Attal, a close Macron ally who became a household name as government spokesman during the COVID pandemic, will replace outgoing Prime Minister Elisabeth Borne.One of the country’s most popular politicians in recent opinion polls, Attal has made a name for himself as a savvy minister, at ease on radio shows and in parliament. “Dear @GabrielAttal, I know I can count on your energy and your commitment to implement the project of revitalisation and regeneration that I announced,” said Macron, who at the end of last year said he would announce new political initiatives.Attal will be France’s youngest prime minister and the first to be openly gay. He and Macron have a combined age just below that of Joe Biden, who is running for a second mandate in this year’s U.S. presidential election.Macron has struggled to deal with a more turbulent parliament since losing his absolute majority shortly after being reelected in 2022.”By appointing Gabriel Attal … Emmanuel Macron wants to cling to his popularity in opinion polls to alleviate the pain of an interminable end to his reign,” said Jordan Bardella, the 28-year old leader of Le Pen’s National Rally party.”Instead, he risks taking the short-lived Education Minister with him in his fall.” Other opposition leaders were quick to say they did not expect much from the change in prime minister, with Macron himself taking on much of the decision-making.”Elisabeth Borne, Gabriel Attal or someone else, I don’t care, it will just be the same policies,” Socialist Party leader Olivier Faure told France Inter radio.But MP Patrick Vignal, who belongs to Macron’s Renaissance party, said Attal is “a bit like the Macron of 2017”, referring to the point at which the President first took office as the youngest leader in modern French history, at the time a popular figure among voters.Attal “is clear, he has authority”, Vignal said. More

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The world’s biggest auto market also became the top auto exporter for the first time in 2023, with the CPCA announcing at a press conference that exports of cars jumped 62% to a record 3.83 million vehicles. Japanese customs data showed passenger car exports at 3.5 million for the first 11 months of the year, excluding second-hand vehicles.China’s total auto exports were estimated to hit 5.26 million units for the whole of last year valued at about $102 billion, while Japan’s full-year exports were forecast at about 4.3 million units, according to the association.The numbers offer the latest indication of the global auto exports powerhouse that China has now become, riding largely on the strength of its nimble electric vehicle automakers. BYD overtook Tesla (NASDAQ:TSLA) Inc as the world’s top seller of EVs in the fourth quarter, though based mostly on China sales.The increasing Chinese clout overseas has caused consternation in some governments, who are fearful of the repercussions of that trend on their domestic automakers.In September, the European Commission launched a probe into Chinese-made electric vehicles over subsidies they may have received, which was branded by Beijing as “protectionist”. The Biden administration in the United States is discussing raising tariffs on some Chinese goods including EVs, the Wall Street Journal reported last month.Chinese customs are due to publish trade numbers for December on Friday.Tesla, which exported 344,078 China-made electric vehicles, also contributed to the export boom.DOMESTIC MARKET China’s domestic auto market, the world’s biggest, chugged along in 2023, with vehicle sales rising 5.3% to 21.93 million for its third consecutive year of growth amid a bruising price war as car makers sought to woo consumers unnerved by a faltering economic recovery. Sales of pure battery-powered vehicles in China climbed 20.8% last year after a 74.2% jump in 2022. Sales of plug-in hybrids, more economically affordable than pure electrics, grew 82.5% last year after a 160.5% surge a year earlier.Domestic brands in China’s total sales are expected to further increase to 63% in 2024 from 56% last year, bolstered by strengthening brand recognition in the EV segment and a rapid electrification of the industry, UBS auto analyst Paul Gong told a roundtable on Tuesday. BYD, which is 7.98% owned by Warren Buffett’s Berkshire Hathaway (NYSE:BRKa), has expanded aggressively in Southeast Asia and Europe, although most of its deliveries are in China, where it has spurred sales with hefty incentives to dealers.Tesla, however, operates with more efficiency in China, selling far more cars per store than BYD.French auto brands lost the most ground this year in China with sales down 41%, according to data for the first 11 months of the year. Sales of Japanese cars skidded 10.7% while U.S. brands saw sales decline 1.4%. In contrast, German vehicle sales were up 2.5% while those for Chinese cars jumped 15.7%. Competition is only expected to heat up further.Popular Chinese smartphone maker Xiaomi (OTC:XIACF) took the wraps off its first electric vehicle last month and promptly announced it was aiming to become one of the world’s top five automakers. More