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When can investors expect inflation to fall and central banks to ease the pressure on interest rates? This was the question that dominated stock markets in the US, UK and eurozone in 2023. After the US Federal Reserve raised rates to tackle soaring inflation, investors agonised over whether the Fed had done enough to tame rising prices. Or had it, in fact, overdone its approach, risking a painful recession? At the end of 2023, it appears markets have drawn their own conclusions, by and large shrugging off worries of a “hard landing” in which high rates pitch economies into a downturn. Inflation went into decline in many regions, while data points to a strengthening US economy and labour market. The S&P 500 is up around 23 per cent over the year — the tech-heavy Nasdaq up 41 per cent. That is the background to this year’s FT Money annual investment lunch — a debate including FT specialists and finance experts on the outlook for investors in 2024. Chris Giles, FT economics commentator, and Katie Martin, the FT’s markets editor, join Caroline Shaw, a multi-asset portfolio manager at Fidelity International; Sue Noffke, head of UK equities at Schroders; and Simon Edelsten, a former fund manager, over lunch at the FT’s offices in the City of London.Aside from inflation, the questions focusing the minds of our panellists include the impact of gyrations in the oil price, the outlook for the UK’s unloved equity markets, ESG’s annus horribilis and ever-present concerns over “geopolitical risks”. The US stand-off with China remain a key fault line for the global economy. Closer to home, the ramifications of elections in the US and UK will be inescapable for investors and savers. Have central banks won the battle against inflation? Most investors believe the worst of the high inflation seen in 2022 and this year is over, after price rises eased across many economies. The market is justified in thinking the outlook is significantly better, says Giles. But that still leaves plenty of room for surprises — as the Federal Reserve demonstrated on December 13. It unleashed a global market rally after it gave a strong signal that it planned to start cutting interest rates soon.“There are a lot of uncertainties about how fast central banks will cut, partly because they are going to be incredibly wary about making a second mistake and letting inflation persist for any longer,” says Giles. “So I think markets might be a little bit disappointed in 2024 about how quickly interest rates fall.”Noffke of Schroders agrees, adding that it wouldn’t be the first time the market had been wrongfooted on rates and inflation. “Markets like to look ahead. They are just so eager to move to the next thing. But there are a lot of lags in the pass-through of interest rates. The tightening we’ve seen has not yet had full effect.”Central banks are always at pains to avoid accusations of political influence in their rate-setting, but next year’s US election complicates the timing of any Fed decisions. Giles says: “The US election will completely dominate everything next year. So it might be that the Fed goes a bit early [on rates] and then stops because it’s got a big political risk. Were there to be a Trump government and there were accusations that the Fed was helping the Democrats, that would be very problematic.” In the eurozone, the rates outlook is strongly influenced by another factor: the oil price, which recently dropped to a six-month low. Edelsten says: “If I were the European Central Bank, I’d worry about the very low headline inflation rate, a big chunk of which Mr Putin has a finger on. I wouldn’t want to bet that I could cut rates and be safe, given that it could quite easily go up from here.” Of course, he adds, canny investors can hedge this scenario by including oil stocks in their portfolio.Talk of a 2024 recession in the US, with its serious ramifications for other economies, is fading as inflation comes off the boil. But it remains a plausible scenario, says Martin. “Some of the portfolio managers and chief investment officers I speak to think everyone is kidding themselves and there’s definitely a hard landing coming next year. If this year has taught us anything, it’s to be really humble with forecasts. The markets did not behave themselves at all.”She warns that a paradox lies at the heart of the current optimistic consensus among investors. “The market is saying both that the Fed has pulled off a soft landing but is going to cut by 120 basis points next year. These things can’t both be right at the same time. So I think next year is going to be quite jerky in terms of trying to figure out where yields should be. And everything else is pivoting around benchmark yields.”Central bank policy dominates discussions of triggers for recession. But the “mechanical” effect of monetary tightening is only one element of this story, says Giles. “There’s the animal spirit aspect of how consumers and businesses feel about the world. If people feel the world is turning into a bad place to invest — which could happen for many geopolitical reasons — then you could easily get a recession. It’s not coming directly from monetary policy, although that can exacerbate it.” Can US tech continue to drive growth in 2024? The so-called “Magnificent Seven” — Apple, Meta, Microsoft, Alphabet, Amazon, Nvidia and Tesla — played a huge role in 2023 in fuelling stock market growth, dominating US and global indices. Investors believe developments in artificial intelligence will drive the next wave of growth in many of these companies. Panellists can see the attractions, but risks are lurking. “We’ve seen an AI frenzy, the retail bandwagon getting going and an expansion of valuations around the potential of those hyperscalers in the US,” says Noffke. “The US market is as concentrated as it’s ever been. After a period of concentration you usually get a broadening. This looks to be quite an unusual phenomenon. But they’re great companies, and it’s difficult to knock them.”The concentration risk should worry index investors, says Edelsten. “The Magnificent Seven is now 26 per cent of all global equities. And they’re correlated. Financial advisers often say the index is a low risk, worth investing in. It isn’t when the index itself is very wobbly. Back in 1987 the global index was 50 per cent in Japan — another point when it clearly wasn’t very balanced.” AI’s intellectual advances have been astonishing. But how do these companies make serious profits out of it? One example, says Shaw of Fidelity, is Microsoft. It has been able to raise its licensing prices above inflation by selling the benefits of “impactful” AI-driven improvements in productivity. “Not everybody using Microsoft Office at home is going to benefit. It’s the corporates with software developers, who will be paying more for licences in order to reduce their labour costs. That, to me, sounds like something that’s going to be credible.” The intensity of investors’ interest in the AI theme, however, has unintended consequences. Martin says: “These are proper companies that make proper money. But everyone’s latched on to the AI theme. Not only is it an index play, but if you take a stockpicking approach, you end up running the same equity risk as everyone else.” Bonds are back. What does it mean for investors? Higher interest rates have triggered a rejuvenation of the bond market, with returns attracting a wave of new investors. But retail and professional investors alike have been burnt by volatility in the market over this year.As a result, for individual investors who need immediate access to their money, “it doesn’t look fantastic”, says Martin. But though they may be having “a horrible time” on paper, they should remember the bigger picture: “They have locked their money up for a certain period and they’re getting a juicy yield from it.” The renewed interest in bonds raises the question of whether private investors will return to the tradition of a 60/40 split between equity and bond holdings in their portfolios. Martin warns: “If there is one certainty it’s that bond yields will continue to be volatile.” For those adding these conventionally “safe” assets, “that does introduce a little bit of spice that is not necessarily welcome in that part of your portfolio.” Shaw agrees. “The equity bond correlation has been all over the place. I think we need to see that relationship stabilise again for people to really believe that they can do 60/40 or a similar split of bonds and equities.”When inflation rises, US pensioners managing their own retirement funds have been among the buyers, says Edelsten. “That’s a symptom of the fact that most American pensioners since the financial crisis 15 years ago never saw a point at which they could buy a bond that they could afford. They’ve been overweight equities because they had to be in equities. And equities went up a lot. So the amount of money that’s got to rebalance bonds and equities just through ageing is massive.”  Panellists raised the related issue of cash, which investors built up during the pandemic, returning to it when interest rates went up. US savers typically put it into money market funds; in Europe and the UK, in savings on deposit. When meeting independent financial advisers this week, Shaw said there was one key question they were getting from their clients: “Why should I do anything other than cash?” Martin says there has recently been more interest in long-term fixed income products, where attractive rates can be locked down. But large reserves of cash remain, which investors will seek to put to better use. “Everyone’s talking about this ‘dry powder’. Where is this money going to go? Into financial markets? Are people just going to spend it in the pub? I don’t know. But potentially for investors that’s an exciting new prospect for next year.”Will we see investors return to UK equities?UK stocks have been an unloved asset class for years, though for value investors the London stock market has much to recommend it: prices are low, and many companies produce reliable returns, in the form of profits, dividends, or both. So why have investors been taking their money elsewhere? Noffke says: “People can see that there’s value but they look in the rear-view mirror in terms of returns and think ‘Oh, I’ll just have a bit more global’.”Valuations are compelling for patient investors, she says: “The price to pay is such a high determinant of future returns. And particularly when you look at share buybacks, if no one else is buying, at least the companies are.” Throwing in share buybacks and dividends, she adds, total shareholder return is about 6 per cent. “That’s pretty good.”Next year, UK investors will be keenly assessing the market-related fallout from the general election. Giles says a potential Labour government will impose strong party discipline — as long as it wins a reasonable majority at the ballot box. “If you get that, I think it’s good on broad stability grounds. Do they have a lot of money? No. Are they going to spend some money? Almost certainly.”Some of that could find its way into the UK’s construction and industrials sectors, which are closely watched by Shaw. “Some of the housing data in the UK is a lot better than it is in Europe. So maybe we’re seeing a slight uptick and analyst upgrades on that side of things — that’s industrials, materials, specifically stocks that are leaning into the housing market. We’re at a low base. But we’re ticking up.”In a different property play, Edelsten likes Land Securities. Its fully let estate in Victoria and low gearing translate into a 6 per cent yield, he says. “The thing about a company like Land Securities is that if you get inflation shocks, you wait long enough and you can put your rent up. Because as long as no one gives up using offices, you’ll be able to rent out ahead of inflation.” Edelsten adds that he has had “very low” UK weightings for the last 12 years. “I certainly have more now, in ‘chugging along’ companies which are solid and reliable,” he adds. “That’s where I think there is an extraordinary amount of value.”Questions over ESG Investors slammed the brakes on the trend for environmental, social and governance (ESG) this year, with those in the US and UK pulling money from sustainable funds and a political backlash against ESG in the US. Disagreement persists over definitions of what constitutes an ESG company or fund, and the proliferation of the label on investment funds has sparked accusations of greenwashing. So will 2024 be another difficult year for ESG investment? Our discussion takes place during the COP28 meeting in Dubai, where policymakers struggled to thrash out a consensus over these and other issues. For Katie Martin, FT markets editor, there is no need for investors to get tied up in technical ESG debates: they can find themselves making sustainable returns simply by “following the money”. “If you stick to where the money is and follow US industrial policy, you will end up in stocks that are about green energy, energy transmission and electric vehicles. Hey presto, you’re running an ESG portfolio.”The $780bn allocated by the US government’s investment in renewable and other infrastructure in its Inflation Reduction Act, says Noffke, is a big draw for investors. Could Trump reverse this drive if he regains the White House? “They’re going to go as fast as they can before the election,” she says.Shaw adds that many projects are well advanced. “Quite a lot of it is delivered as credits, so the way it’s administered or operates makes it hard to reverse. Plus, a lot of the spending is in red states,” she says, referring to states dominated by Trump’s Republican Party. “Our analysts say the US megaproject is alive and well. These projects have a lot of capital behind them.”Some of our panellists think the unwieldy ESG label will eventually disappear, as it lumps together three different and often unrelated themes. But more focused approaches have stronger potential. Simon Edelsten, former fund manager, says: “One thing that you can put together is an equity portfolio which minimises environmental damage. You can do that and be pretty serious and systematic about it. But as soon as you start getting into the other stuff, it gets so much more complicated.” More

BUENOS AIRES (Reuters) – Argentina’s economy likely entered a technical recession – two straight quarters of economic contraction – in the third quarter, a Reuters poll of analysts showed on Thursday, with an expected 0.7% contraction hurt by lower grains sales.The South American country’s GDP would have contracted in the July-September period between 0.3% and 1.4%, the forecasts from 12 analysts showed, hit by lower consumption and a drop in industrial activity. The economy shrank 4.9% a quarter earlier.Argentina, which ushered in a new government last week, is battling likely stagflation on the horizon, a toxic mix of triple-digit inflation and recession that will likely squeeze people and push up the poverty rate, already at over 40%.The economic picture also likely darkened further at the end of the year, analysts said, with the political uncertainty that surrounded the October-November elections and recent sharp devaluations of the peso currency.”October-November were complex months for the economy, with the readjustment after the August devaluation and the uncertainty of the elections,” said Federico González Rouco, economist at Empiria consultants.He said the Q3 decline was due to a major drought that hit the key grains sector, along with weaker consumption and obstacles to imports that have been snarled by tight capital controls and a lack of foreign currency reserves.Argentina, the third largest economy in Latin America, is going through a complicated financial situation, with 160% inflation, negative net central bank reserves and a “debt bomb” owed to local and global creditors.Argentina’s official statistics agency will publish GDP data for the third quarter on Friday at 4 p.m. (1900 GMT). More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK consumer confidence rose for the second consecutive month in December, according to research company GfK, suggesting households could be more inclined to spend this Christmas.The consumer confidence index — a measure of how people view their personal finances and broader economic prospects — rose two points to minus 22, its highest level since September and the second-highest since January 2022, new data showed on Friday. Consumer confidence has been volatile in recent months, reflecting contrasting factors in the wider economy. Elevated prices and high borrowing costs have weighed on households’ budgets. But wages have begun to rise faster than inflation while mortgage rates are down from their summer peak, supporting people’s sense of financial security.“Despite the severe cost of living crisis still impacting most households, this slow but persistent movement towards positive territory for the personal finance measure looking ahead is an encouraging sign for the year to come,” said Joe Staton, client strategy director at GfK.Investors closely watch the index as an early indicator of spending trends. Households with greater confidence in their financial situation and general economic outlook are typically less inclined to save and more likely to spend, boosting the economy. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The increase in confidence in December could help prevent markets from raising their bets on how much the Bank of England could cut interest rates by next year. On Thursday, the central bank held rates at a 5.25 per cent high, saying “further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures”.Markets are expecting the central bank to cut rates to 4 per cent by the end of December next year, following a contraction in economic output in October and wage growth slowing more than expected. The data showed that confidence was also sharply higher from minus 42 in December 2022. For the year ahead, expectations of their personal financial situation rose one point to minus 2 in December, up strongly from minus 29 in December 2022. Staton said the recovery in that sub-index was encouraging because it indicated household “financial optimism and control over personal budgets”. Ellie Henderson, economist at Investec, said some of chancellor Jeremy Hunt’s announcements in the Autumn Statement were likely to have “boosted respondents’ perception of their future financial situation”.These included the decision to cut employees’ National Insurance contributions by 2p from January and a 9.8 per cent rise in the National Living Wage from April. However, she pointed out that consumer confidence remained well below its long-term average, “reflecting the still challenging economic backdrop”. More

(Reuters) – Peru’s central bank on Thursday cut its interest rate by 25 basis points to 6.75%, in line with expectations and as the speed of price increases in the Andean nation comes under control amid a recession.The monetary authority signaled in a statement that the rate cut did not necessarily imply more would follow.The central bank’s fourth-consecutive cut comes as Peru’s annual inflation rate slowed to 3.64% in November, nearing the upper end of the bank’s target range of 1% to 3%.”Annual inflation is projected to reach the target range within the next few months,” the central bank said.Annual core inflation, which strips out some volatile items such as food and energy, is projected to come within target by the end of 2023, the bank added.”This would be explained by the moderation of international price effects on several items, the reversal of supply shocks in the agricultural sector and the expectation of reduced inflation,” the monetary authority said.”However, there are risks associated with climatic factors coming mainly from the El Nino weather phenomenon.”Peru, the world’s No. 2 copper producer, has been battling a technical recession this year on the adverse impacts of El Nino, lower private investment and lingering effects from social conflicts sparked late last year.The government has since announced a slew of measures meant to kickstart the economy. More

(Reuters) -Costco Wholesale topped Wall Street estimates for quarterly sales and profit on Thursday, as more customers turned to its stores to shop for cheaper groceries and essentials, sending its shares up about 2% after the bell.Costco (NASDAQ:COST) has increased its sales and market share thanks to its strategy of maintaining low prices on basic essentials as well as a devoted membership base that benefits from incentives offered like a yearly 2% reward on qualified purchases at its warehouses.The company has also seen sales surge for its consumable categories like fresh food and sundries as well as private-label brand Kirkland Signature, as persistent inflation and higher borrowing costs pinches household budgets.CFO Richard Galanti on a post-earnings call said the company saw some non-food categories like televisions and appliances show an improvement during the quarter.Galanti also said that Costco saw better-than-expected Black Friday and Cyber Monday sales, echoing sentiment from other retailers like Foot Locker (NYSE:FL) that have signaled optimism over holiday season sales. “Costco’s performing very well relative to the rest of the retail sector,” Telsey Advisory Group analyst Joseph Feldman said, adding that it is well positioned in the market by catering to middle-to-upper-income consumers.Costco saw its total paid household members rise by 7.6% in the quarter, while its membership fee revenues jumped 8.2% to $1.08 billion.”We’re happily surprised that we are continuing to drive people in on an increasing basis,” Galanti said.The company’s gross margins rose 43 basis points to 11.04% as it saw shipping costs ease from their peak last year. The membership-only retailer also announced a special cash dividend on its common stock of $15 per share payable on Jan. 12.Total revenues rose 6.1% to $57.8 billion in the first quarter, compared with analysts’ estimates of $57.72 billion, according to LSEG data. Costco reported a per-share profit of $3.58, above expectations of $3.42. More

By Medha Singh and Lisa Pauline Mattackal(Reuters) – If 2022 was the year that “broke bitcoin”, 2023 has been the year of trauma recovery. Bitcoin has bounced pluckily in the face of depressed crypto prices, low trading volumes and tough economic conditions. It even found a second wind in October following a summer slump. “We’ve had a nice recovery, but we’re just in the cusp of the new cycle,” said Kelvin Koh, co-founder and managing partner at investment firm Spartan Group.Indeed, 2023 has been a surprisingly good year for bitcoin. The king of cryptocurrencies has leapt 164% since Jan. 1 and is trading above $40,000. It has outpaced traditional assets, including gold which has risen 10% and the S&P 500 which has gained 20%. Bitcoin also increased its share of the total cryptocurrency market, from 38% to above 50%, according to CoinGecko data. The overall crypto market cap has swelled to $1.7 trillion from $871 billion at the end of 2022, with ether’s price jumping 95%. Much of bitcoin’s gains came later in the year as a potential U.S. spot bitcoin exchange-traded fund (ETF) and hopes of easier monetary policy renewed investor energy. Trading volumes have picked back up too, with the combined spot and derivatives trading volume on centralized exchanges hitting $3.61 trillion in November, up from about $2.9 trillion in January, according to CCData. Meanwhile, stablecoins – cryptocurrencies whose value is pegged to a real world asset like the dollar – have also grown. Tether, the largest such coin, has seen its market cap soar to an all time high of over $90 billion. FALL OF TITANS After a torrid 2022 saw the downfall of FTX and Sam Bankman-Fried, 2023 has seen more crypto giants come a cropper.Binance chief Changpeng Zhao, plead guilty to breaking U.S. anti-money laundering laws, most notably, part of a multi-billion dollar settlement with regulators. The co-founder of Voyager Digital also found himself on the wrong end of American regulatory action, while Celsius founder Alex Mashinsky was arrested in the U.S. in July, pleading not guilty to criminal counts including securities fraud. And not forgetting SBF – after a whirlwind trial, the former industry poster child was convicted of fraud in November. On a brighter note, Ripple’s XRP token clocked gains of 82% for the year after a key legal victory for the industry when a U.S. judge ruled Ripple Labs’ sales of the token on public exchanges did not violate securities law. BITCOIN IN 2024Most of bitcoin’s 55% run in the fourth-quarter has been attributed to bets that a spot bitcoin ETF will be approved in the U.S. and pull in money from retail and institutional investors alike on the ease of gaining exposure to the digital asset on a regulated stock exchange.Asset management giants like BlackRock (NYSE:BLK) and Fidelity are among the 13 companies that have submitted applications to the U.S. Securities and Exchange Commission for the multi-billion dollar product.Such a fund is expected to pull in as much as $3 billion from investors in the first few days of trading and billions more thereafter.Not everyone is as bullish though.J.P.Morgan expects the crypto market recovery to continue through the expected approval in early 2024, however, remains skeptical of the magnitude of success in adoption that broader market is pricing in.JPM expects the bitcoin ETFs to pull in assets in the low or low to mid-single digit percentage range of the $1.7 trillion crypto market compared with some optimistic outlooks of 10%.If adoption falls short of investor expectations of around 10%, crypto markets could reverse their recent gains, it said.To some market watchers, though, it looks like the current bitcoin recovery is still in early stages. The net dollar-denominated realized profit locked in by bitcoin investors has reached $324 million per day, which remains an order of magnitude below the peaks experienced during the later stages of the 2021 bull market, which eclipsed $3 billion a day, according to analytics platform Glassnode.This suggests bitcoin’s current performance remains very much within the bounds of an early rather than a late-stage bull market, Glassnode said. More

SYDNEY (Reuters) – Bankers in Asian equity capital markets are hopeful of a better year in 2024 after a dismal showing for IPOs this year, noting that interest rates have stabilised globally but they add that elections across the region and in the U.S. could crimp demand.High interest rates, sticky inflation and geopolitical tensions have seen share sales by Asia Pacific (including Japanese) companies sink by a fifth in value so far this year to $229 billion, LSEG data shows. That’s put this year on course to be the weakest since 2012. The data covers new and secondary share sales, convertible bond issues and block trades.But as interest rates in many countries appear to have peaked and talk turns to rate cuts next year, equity capital market (ECM) sentiment has improved in the last few weeks, bankers said.”We’re in a window right now where the market has factored in a fairly benign macro outlook which could prompt issuers to come. The pipeline is strong,” said Udhay Furtado, Citi’s co-head of Asia equity capital markets.Evidence of the improvement in sentiment for share sales has been seen in a number of block trade deals in the region over the past few weeks. These include Bain Capital selling down $448 million worth of its shares in India’s Axis Bank this month.Furtado said, however, that windows for companies to come to market for funds would be “tight and tough to navigate” as elections get underway. As political activity heats up, businesses are typically reluctant to make major deal decisions, wary of potential policy changes.Elections in the region will kick off with Taiwan next month. Indonesian, South Korean and Indian voters will also head to the polls and the U.S. election will be held in November.Major deals in the pipeline for next year include Alibaba (NYSE:BABA) logistics firm Cainiao’s plan to raise $1 to $2 billion in a Hong Kong IPO. It would be the first major listing of an Alibaba unit.Competition for IPOs in Asia is fierce with fees generated from ECM deals accounting for almost 40% of the region’s investment banking wallet versus 25% globally.CHINA, HONG KONG China is set to be the world’s busiest IPO market in 2023 for the second year in a row, despite a 35% drop in the value of IPOs to $37.3 billion so far this year amid a sputtering economy. Regulators have also sought to slow the pace of mainland IPOs as they work on improving mechanisms in secondary markets.China’s economic woes as well as U.S.-Sino friction have generally kept foreign investors underweight on Chinese equities this year but moves by Beijing to shore up the economy appear to be having an effect.”We are still seeing international investors be relatively cautious towards exposure in China, recent policy changes are providing comfort and sentiment is starting to turn a little more positive,” said Sunil Dhuphelia, co-head of ECM for Asia ex-Japan at JPMorgan.New listings in Hong Kong, which had previously long benefitted from Chinese companies rushing to raise capital in the city, have plunged 36% to about $5 billion this year and are on track for their weakest year in least 20 years, according to LSEG data. For investment banks in Hong Kong, which had bulked up staff during the pandemic when rates were low, the slump has prompted widespread job cuts.”Going forward, it will be very helpful for facilitating a successful listing in Hong Kong if listing applicants could have more than just a China story,” said Richard Wang, a partner at law firm Freshfields Bruckhaus Deringer who advises on M&A deals. More