Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Private UK investors look set to have withdrawn the highest amount in more than two decades from London-listed equities by the end of 2023 as the cost of living crisis bites, further compounding a flight from the local market.British retail investors had sold down £11.9bn worth of shares in London-listed companies by the end of October, according to the latest data from the Investment Association, just short of the £12bn in the whole of 2022, which was the largest outflow in 20 years.Stockbrokers and analysts blame the exodus on a combination of cost of living pressures, higher mortgage rates and the poor performance of the UK equity markets relative to the US and to fixed-income products.The FTSE 100 index is up just 2.1 per cent since the start of the year, while the S&P 500 in the US was up 25 per cent by midday on December 28.“Investors have thought twice about investing this year,” said Richard Flynn, managing director of brokerage Charles Schwab UK. “We’ve seen evidence of clients taking money out to meet short-term needs this year. There’s been an element of a retreat to safety, look at immediate needs rather than long-term goals.”In a survey by the brokerage earlier this year more than half of those surveyed said they were scaling back their investment plans due to the cost of living, with younger investors especially nervous about cost and performance.Wealth and asset managers said their clients were increasing cash withdrawals from their platforms to meet their financial needs. “Platforms have also reported increased withdrawals as investors take out money. I suspect this trend will continue into 2024,” said Holly Mackay, founder of consumer finance website Boring Money.More than a third of respondents to the Charles Schwab survey said the biggest reason for pulling money off the platform was to pay bills, with just 10 per cent of people moving into cash savings and 2 per cent expressing concern about markets.Bestinvest, an investment platform owned by UK wealth manager Evelyn Partners, said that withdrawals were “running modestly higher this year than 2022”.Bestinvest managing director Jason Hollands said: “People ultimately invest to achieve real world goals, including paying off mortgages where they expect to see a significant increase in remortgaging costs. “It’s not surprising that in the current environment, some clients are drawing down on their investments to pay bills or reduce debts given the pincer-like squeeze on household finances from rising prices and higher borrowing costs.”Hargreaves Lansdown, the largest investment platform in the UK, said clients that were withdrawing cash were doing so for “cost of living and financial need”.The latest official data to the end of 2022 shows that British retail ownership of UK equities had hit a historic low, while foreign ownership of London-listed stocks had soared, according to the Office for National Statistics. Analysts warned that retail investors’ enthusiasm for the UK equity market may remain muted for some time. “There’s definitely money flowing out of UK strategies this year,” said Michael Field, equity markets strategist at financial data provider Morningstar. “The UK was a disproportionate share of [retail] investing for many years, now there’s a rebalancing, moving into global and US indices.“In the UK you’re not seeing signs of consumer health; metrics like food bank usage, shoplifting show that the cost of living crisis is really biting . . . you’re looking at another six months of pain for consumers before things start to ease up,” he added. More

NEW YORK (Reuters) -The number of Americans filing initial claims for unemployment benefits rose last week, indicating the labor market continues to cool in the year’s fourth quarter.New state unemployment benefit claims rose by 12,000 last week to 218,000, according to the Labor Department. A Reuters poll showed economists expected an increase to 210,000 initial claims for the week ended Dec. 23.The rolls of those receiving benefits after one week of aid rose 14,000 from the week prior, reaching 1.875 million. Continued unemployment claims, a measure for hiring, have increased since mid-September, indicating those already out of work may be having difficulties getting a job.In November’s economy, 199,000 new jobs emerged, up from 150,000 in October according to the Labor Department’s non-farm payrolls report. The unemployment rate also fell moderately from the month prior, to 3.7% from 3.9%.Amid slower job growth and milder inflation, the Federal Reserve has left its benchmark interest rate unchanged for three consecutive policy meetings, and economists expect its hike campaign to be at an end.The Fed has raised its policy rate by 525 basis points, to the current 5.25%-5.50% range, since March 2022 in a bid to curb inflation. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Is it morally wrong to accumulate money? If you asked most westerners that question today, the answer would be “no”. The expansion of wealth is, after all, the raison d’être of modern finance, be that via hedge funds, pension plans or other investments.But seven centuries ago in Europe, the reply would have been different — as a new exhibition at New York’s Morgan Library lays out, by looking at what happened when money first entered widespread circulation in the west (first with coins, and then via the paper money concept, imported from China.) This technological leap triggered an “unprecedented” surge in trade and economic growth, “transform[ing] every aspect of medieval society”, says Deirdre Jackson, assistant curator of medieval and Renaissance manuscripts at the library. It was the 15th-century equivalent of the introduction of the internet.But this financialisation also sparked a “crisis of values”, Jackson adds, since money was considered intrinsically sinful by the Christian church. Thus artworks from that period, such as Hieronymus Bosch’s “Death and the Miser”, contained elaborate depictions of avarice.The only way for the rich to avoid damnation was to renounce luxury (as paintings of that era show St Francis of Assisi doing), or make donations to support art, education and religion. Economic capital was not admired for its own sake — not unless it was converted to “cultural” capital, to cite the concept developed by the French sociologist Pierre Bourdieu, and encompassed political, moral and social capital too.Eight centuries later, this might seem like mere historical trivia. But the message from the Morgan Library (originally the personal collection of Wall Street financier John Pierpont Morgan) is worth pondering today. Particularly at a time of rising political populism — and as Americans race to make tax-exempt charitable donations before the end of the year.In the last decade, debates about inequality have exploded in the economics community after a long hiatus, following the publication of the unlikely 2014 best-seller Capital in the Twenty-First Century by the French economist Thomas Piketty. This argued that inequality has inexorably increased in modern times because the returns on economic capital held by the rich keep outstripping growth — a view challenged last year in a book by Phil Gramm, Robert Ekelund and John Early (and most recently, in a new paper by Gerald Auten and David Splinter, who criticise Piketty’s methodology).But while this fight about the numbers is fascinating — and likely to intensify — it only captures part of the tale. As the economic historian Guido Alfani shows in his history of the rich in the west, there is also a striking story about cultural shifts. In some senses, the western political economy today retains faint echoes of the sentiments on display in the Morgan Library. Leftwing politicians continue to rail against excessive financialisation and extremes of wealth. And rich people continue to convert at least some of their economic capital into cultural, moral and political capital. Last year, for example, Americans made almost $500bn in philanthropic donations.However, Alfani identifies two notable differences between the past and the present day. First, the accumulation of money is more acceptable now (in the US at least) than it was when Bosch was painting financiers heading to hell. Just think of how the publication of annual “rich lists” sparks admiration and curiosity — as well as fury. Or the fact that when Donald Trump conducted his 2016 presidential campaign he specifically extolled his wealth as a mark of success. “So much seems to have changed since the Middle Ages when the rich were required not to appear to be wealthy . . . as this was considered intrinsically sinful,” Alfani writes. Alfani also argues there is less pressure for the wealthy today to redistribute their riches at times of crisis. “The rich are no longer playing what has been their main social role for many centuries,” he says, noting that while wealth taxes were common in the past, they are wildly controversial today. Instead, a legal ecosystem has emerged that enables the wealthy to minimise their tax bills. And the only occasion when significant redistribution occurred in the last century was after the violent shock of the second world war. On top of this, I would cite a third distinction (albeit one which Alfani does not stress): that the process of turning economic capital into cultural and political capital has become more morally contentious. In centuries past, when wealthy people made donations to artists, intellectuals, churches or social projects, it was assumed that they could control the institutions they patronised. Today, the rich continue to exert influence, but in a subtle manner: the idea that they could use donations explicitly to dominate politics, art or intellectual life is controversial. Just look at the backlash that occurred when wealthy American donors such as the financial titans Bill Ackman and Marc Rowan called for the dismissal of university presidents.Or to put it another way, one hallmark — and irony — of our modern western political economy is that while being rich is no longer considered intrinsically sinful, there is moral unease about the idea of using wealth overtly to control politics, culture or intellectual life. It is a paradox that might have made even John Pierpont Morgan chuckle. [email protected]      More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is European Commissioner for the EconomyThe coming new year will mark a new dawn for the taxation of large multinationals. Rules setting a minimum level of taxation for these businesses will start applying in jurisdictions across the world. This major development will finally put a floor under the harmful competition that, over the past four decades, has created a relentless downward spiral in statutory corporate tax rates worldwide. Since 1980, these have decreased from an average of 40 to 23 per cent; in Europe the fall has been even greater, from 45 to just under 20 per cent. In many cases, additional sweeteners, preferential rates and unacceptable loopholes allowing profits to be shifted to zero or low-tax jurisdictions have resulted in effective tax rates well below those headline figures. As the extent of such practices has come to light, the general public and owners of smaller businesses have become increasingly indignant.The reform that is about to take effect is one of the two elements (or ‘Pillar 2’) at the basis of a historic breakthrough achieved in 2021 in the OECD’s so-called “inclusive framework”. This agreement was the outcome of years of painstaking international negotiations and an important victory for multilateralism. It establishes a global minimum corporate effective tax rate of 15 per cent for multinational companies with annual revenues of more than €750mn. There are more than 140 countries on board — almost three quarters of all UN members, representing over 90 per cent of the global corporate tax base. The EU has played a crucial role in spearheading this effort. And we are now leading the way in turning the 2021 agreement into reality. One year ago, we were among the first jurisdictions in the world to approve legislation implementing the global minimum tax. Today, almost all EU member states are ready to apply the new rules from the start of 2024. The European Commission will continue to monitor the timely and full implementation of this crucial reform. We stand ready to take action if needed to address any delays or inconsistencies.The EU’s rapid move to enact the global minimum tax is spurring others to align their own laws. It is the responsibility of all governments to step up the pace of these efforts. We have also seen some zero or low-tax jurisdictions introducing or raising corporate income taxes and I trust that in 2024 we will see further — and where necessary, more ambitious — moves in this sense.We will work with our partners around the world to encourage as swift and wide an application as possible of the new framework. This includes assisting developing countries in their implementation efforts with technical, financial, and capacity-building support.  At a time when public budgets are strained and the need to invest in the green, digital and social transitions is more pressing than ever, the global minimum tax rate will allow governments to raise much-needed additional revenues. The OECD estimates the annual gains for treasuries around the world at $220bn, or 9 per cent of global corporate tax revenues. EU countries where the new framework is now set to come in to force will also enjoy the possibility of applying a top-up tax to companies that are part of the same group — if other jurisdictions in which they operate do not apply the minimum 15 per cent rate. More than 4,000 large multinationals fall within the scope of this potential future top-up tax in the EU — an additional incentive for jurisdictions elsewhere to comply with the new rules. Looking ahead, no less important is the other half (or ‘Pillar 1’) of the 2021 agreement, covering the reallocation between jurisdictions of taxing rights of the largest multinationals. This is about ensuring that these mega-firms pay tax wherever they generate their profits. Last October, the OECD inclusive framework published a text of the multilateral convention needed to implement Pillar 1, reflecting the broad consensus achieved so far among members. It’s essential that — in line with the agreed, updated timeline — 2024 also sees a successful conclusion to the discussions on the few remaining open issues and the signature of this convention. This will allow us to move forward and to deliver the full benefits of this common path towards fair taxation. More

ISTANBUL (Reuters) – Turkey’s larger-than-expected minimum wage hike, which impacts some 7 million workers, is expected to push already elevated inflation even higher in the coming months, economists and sector officials said.Labour Minister Vedat Isikhan said on Wednesday the monthly minimum wage will be 17,002 lira ($578) in 2024, a 49% increase from the level determined in July and a 100% hike from January.Economists said the wage hike was set to cause a medium-term deterioration in the outlook for inflation, which was already expected to hit around 70%-75% in the first half of 2024. “A two step increase in the minimum wage would have been better both for employees and employers and would not cause a sudden spike in inflation. Prices will increase by at least 25%-30%. This will be reflected in retail prices,” said Berke Icten, the head of Turkey’s Shoes Manufacturers Association.The minimum wage is usually revised once a year but due to high inflation and a depreciating currency, the government raised it every six months in the last two years.Sector officials said the support provided to employers to ease the cost impact of the minimum wage hike on production was less than expected and would strain businesses.The central bank said in the minutes of last week’s monetary policy committee meeting that monthly inflation would rise in January, particularly due to the increase in minimum wage, but it is expected to slow in February and beyond.The central bank has raised its policy rate by 3,400 basis points since June and said it is committed to reining in inflation, which stood at 62% in November.An economist who spoke on condition of anonymity said the large minimum wage hike caused the market to question the government’s commitment to the disinflation programme.”A 40% to 50% increase in the minimum wage was expected, but the increase was at the upper limit. It is not possible to give a clear figure, but we are talking about a level that may have a significant impact on inflation,” the economist said.”This increase will distort the medium-term outlook for inflation. Since inflation will hit 70% in H1, if there is no other increase in the middle of the year, wages will be decreasing in real terms.”According to the median of a Reuters poll, inflation is seen falling to around 43% by the end of next year, declining slowly despite the tight monetary policy.($1 = 29.4430 liras) More

SINGAPORE/LONDON (Reuters) -The dollar fell across the board on Thursday with the Japanese yen, euro, and pound at their strongest against the U.S. currency in five months as bets the Federal Reserve will cut rates sharply in 2024 while avoiding a recession drove markets. The dollar index, which measures the U.S. currency against six rivals, fell to a fresh five-month low of 100.61. The index is on course for a 2.7% decline this year, snapping two straight years of strong gains. “With little news to trade over the holidays, markets have just continued doing what they were doing previously – taking Treasury yields lower, equities higher – and in effect pricing the kindest of soft landings that has consequently seen the dollar continue to sell-off,” said Nick Rees, FX analyst at Monex Europe. The day’s bigger mover was the Japanese yen. The dollar dropped as much as 0.82% to 140.66 yen, its lowest since July. The yen is particularly sensitive to moves in U.S. rates and the yield on the benchmark 10-year U.S. Treasury dropped nearly 10 basis points on Wednesday to its lowest since July. [US/] Because of moves earlier in the year, however, the dollar is still up over 7% on the yen in 2023. Public broadcaster NHK reported on Wednesday that Bank of Japan Governor Kazuo Ueda said he was in no rush to unwind ultra-loose monetary policy as the risk of inflation running well above 2% and accelerating was small. Markets are pricing in an 88% chance of a U.S. rate cut in March 2024, according to the CME FedWatch tool. Futures imply more than 150 basis points of Fed easing next year, though the route to that may be bumpy.”Markets are now looking for more than six full rate cuts from the Fed and no U.S. recession, which seems optimistic to us,” said Rees. “Though we could ultimately end up there, it would be very surprising if we did not see at least some hiccups in the process that aren’t currently priced in, something which should see the dollar snap back when markets pick up again in January.” While the Fed took an unexpectedly dovish stance in its December meeting, opening the door to rate cuts next year, other major central banks, including European Central Bank, retained their stance of needing to keep rates higher for longer. Markets though are still pricing in as much as 165 basis points of rate cuts from the ECB next year.The euro was last up 0.15% at $1.121, having touched a five-month peak of $1.11395 earlier in the session. The single currency is heading for a yearly gain of 3.7%, its strongest performance since 2020.Sterling rose to $1.2825, its highest since August. The pound is on track for a near 6% gain in the year, its biggest since 2017.The Swiss franc firmed to 0.8339 per dollar, its strongest level since January 2015, when the Swiss National Bank discontinued its policy of having a minimum exchange rate against the euro. The dollar’s weakness has also lifted emerging markets currencies. MSCI’s emerging market currency index touched a 20-month high and was on track for its strongest year since 2017 with yearly gains of 5%. More

Gains in megacap stocks in premarket trading kept the Nasdaq futures higher, while those tied to the S&P 500 remained subdued. Wall Street managed to eke out some gains on Wednesday as all three indexes oscillated between modest gains and losses throughout the session, but finished higher for the day. All the indexes are on course for monthly, quarterly, and annual gains. Focus will now be on the S&P 500. A closing above the January record close of 4796.56 would confirm the bellwether index entered a bull market after it hit the bear market closing trough in October 2022.Traders will be closely monitoring the weekly jobless claims due at 8:30 a.m. ET as it is the last catalyst to influence the direction of markets before the end of 2023.Optimism around early rate cuts with a possible soft landing for the American economy next year, and the artificial intelligence frenzy powered a rally in U.S. stocks in 2023, but fears of the economy slowing more sharply still persist as the full effect of higher borrowing costs filters through. “Goldilocks is being counted on to make an appearance next year, with inflation cooling but the US economy staying warm enough, though there is still a risk that the bears return to prowl again,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.Money markets have priced in an 86% probability that policymakers will reduce the Fed funds target rate by at least 25 basis points at the conclusion of their March policy meeting, according to CME’s FedWatch tool.At 6:13 a.m. ET, Dow e-minis were down 49 points, or 0.13%, S&P 500 e-minis were up 0.75 points, or 0.02%, and Nasdaq 100 e-minis were up 37.75 points, or 0.22%.Among individual stocks, U.S.-listed shares of Chinese companies rose in premarket trading as China’s blue-chip stocks staged their biggest jump in five months on Thursday on strong foreign inflows. Shares of Alibaba (NYSE:BABA) Holdings, PDD Holdings and JD (NASDAQ:JD).Com Inc advanced between 1.4% and 3.7%. More

NEW YORK (Reuters) – When Ted Pick takes over as the new CEO of Morgan Stanley next week, the three-decade bank veteran’s frank manner and steady hand will help him steer the firm through a dealmaking slump.Pick’s cool head in difficult situations is an asset, said Tom Glocer, Morgan Stanley’s independent lead director since 2017 and former Reuters CEO.”The great sin that gets people into super trouble at banks is the trader’s instinct to hold on (to losing positions)… Ted has that ability to be disciplined” and take action, Glocer said.Over a frenetic weekend in 2021, Pick worked with a team into the night to cut Morgan Stanley’s exposure to Archegos Capital Management, said Glocer. The family office’s collapse triggered huge losses at global banks.Morgan Stanley lost more than $900 million in the Archegos ordeal, in what was otherwise a bumper year for the firm. Credit Suisse and Nomura took hits of $5.5 billion and $2.9 billion, respectively, while Goldman Sachs and Deutsche Bank exited their positions relatively unscathed.Pick, 55, will be elevated at a time of heightened economic uncertainty and geopolitical tensions. Dealmaking conditions are improving, but activity remains dismal, posing challenges for the banking industry.  “He goes from boom to bust easily,” said a close friend, referring to Pick’s career navigating market cycles. The executive worked alongside Pick for more than 20 years and declined to be identified discussing internal Morgan Stanley business. Pick declined to comment for this story.The executive’s success on initial public offerings won him support from private equity investors, which helped when he handled Morgan Stanley’s stock buyback program during the global financial crisis.”He got along well with some shareholders and was also smart playing poker with the market when the firm did not have a lot of liquidity,” the former executive said.Morgan Stanley was saved in 2008 by a U.S. government bailout and emergency investment from Mitsubishi UFJ (NYSE:MUFG). As the tumult spread through the financial system, Pick convinced Roberto Mignone, founder of hedge fund Bridger Capital, to keep his money at the bank as a sign of confidence. The two have been close friends ever since.”Ted never forgot that,” Mignone said. “He’s an old school Wall Street guy that cares about long-term relationships.”Years later, Mignone gifted Pick a replica of the Titanic as a joking reminder of potential disasters.Billionaire and former Blackstone (NYSE:BX) executive Hamilton “Tony” James said the private equity giant chose Morgan Stanley to lead its 2007 IPO mainly because of Pick. The banker later advised Blackstone as its stock dove to $3 after the financial crisis, from a debut of more than $30.”He’s a truth teller, I was very impressed by that,” said James. “He tells you straight out when something is not going to work.”The banker once joined James for fly fishing in the Brazilian Amazon (NASDAQ:AMZN) in search of Peacock bass, even though he had never fished, nor met James’ dozen other friends on the trip.”He threw himself into it and was the life of the party,” James said.While Pick gained prominence for turning Morgan Stanley’s equities business into a global leader, he also tackled its challenges. The executive turned around its fixed income division, cutting 25% of employees, and helped raise capital when the bank was on the brink of collapse in 2008.He inherits a company that current CEO James Gorman, 65, built into a wealth management juggernaut since taking the helm in 2010. Australian-born Gorman will become executive chairman for a transitional period after Pick is elevated, and will also join the board of Disney next year.Steady revenue from the wealth unit has fueled a 214% climb for Morgan Stanley’s stock under Gorman’s leadership, compared with 126% at rival Goldman Sachs and 304% at JPMorgan Chase (NYSE:JPM) in the same period. At $152 billion, Morgan Stanley’s market capitalization exceeds Goldman’s by $28 billion.Pick “has a broad range of experience, and appreciates the value of wealth management,” said Colm Kelleher, the chairman of UBS Group, who preceded Pick as president of Morgan Stanley and left in 2019.The new CEO will present his first quarterly earnings in mid-January and give a strategy update that will be closely scrutinized by investors. His debut as CEO follows a 27% decline in investment banking revenue for the third quarter.LOW PROFILEWhile Pick holds one of the biggest jobs in finance, he keeps a low profile. He tends to celebrate birthdays privately with his wife and two daughters, ducking plans for larger gatherings, said Mignone.Despite his busy schedule, Pick enjoys attending his daughters’ school events and sports matches, his friends said. The incoming CEO is also known to be a foodie who is always willing to try new cuisines.A fan of the New York Rangers ice hockey team, Pick prefers to buy his own tickets and attend games with family instead of entertaining clients. The executive lives in New York’s Upper East Side and spends vacations at his house in Martha’s Vineyard.In a break with Wall Street tradition, Pick’s competitors for the top job — executives Andy Saperstein and Dan Simkowitz — will stay on with expanded roles. Both will get $20 million bonuses if they stick around for at least three more years.Gorman, meanwhile, may remain for up to a year to help with the transition. Rob Kindler, the global chair of mergers and acquisitions (M&A) at law firm Paul, Weiss, Rifkind, Wharton & Garrison, welcomed the arrangement.”James is there because employees and stockholders wanted him to be there,” said Kindler, who previously ran M&A at Morgan Stanley. “But I really don’t think Ted needs any handholding. He is ready.” More