Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Rishi Sunak will on Monday highlight nearly £30bn of long-term investment pledges by international companies at a major business event intended to showcase Britain’s appeal to global investors.More than 200 executives are set to attend the summit in London including Blackstone boss Stephen Schwarzman, Goldman Sachs chief executive David Solomon, JPMorgan’s Jamie Dimon and Aviva’s Amanda Blanc.The Global Investment Summit is part of the government’s drive to boost investment in the UK and kick-start the economy, which the Bank of England has forecast will flatline until 2025.The Hampton Court Palace event comes days after Sunak and chancellor Jeremy Hunt gave businesses a £11bn-a-year tax break in the Autumn Statement by making the “full expensing” capital allowance regime permanent.Sunak will claim the £29.5bn figure unveiled at Monday’s conference is triple the amount of money “raised” from the last summit in 2021 and that the investments will create thousands of jobs.“Today’s investments . . . will create thousands of new jobs and are a huge vote of confidence in the future of the UK economy,” the UK prime minister will say.The biggest investment pledge is from IFM Investors, a major Australian infrastructure investor, which said it intended to spend £10bn over the next four years on large-scale UK infrastructure and energy transition projects.David Neal, chief executive of IFM, which manages $140bn, said: “We’re proud to sign this memorandum of understanding with the UK government, which is a signal of the confidence IFM and Australian superfunds have in the UK as a place to invest.”Just last month IFM, a large shareholder in Manchester airport, said it had cooled on making further major investments in the UK because of government dysfunction and inefficient planning processes.IFM’s chief strategy officer Luba Nikulina told the Financial Times that while the group wanted to make new investments in the UK, “we need to find financially attractive opportunities, but at the moment, there aren’t many”.Nikulina said UK infrastructure was struggling to attract necessary private investment due to uncertainty over the direction of policy, high costs and labour shortages after Brexit.“The biggest concern is uncertainty, which is not great for long-term capital,” she said in an interview shortly after Sunak cancelled the northern leg of the HS2 rail project.The investment package unveiled by Sunak features Iberdrola, owner of Scottish Power, with a “confirmed £7bn of investment” from 2026 to 2028, adding to previously announced funding for projects from 2023 to 2025.Other investments Sunak highlighted included a £5bn commitment from Australian investment fund Aware Super and a £2.5bn pledge by Microsoft to build AI infrastructure in the UK including data centres.Monday’s summit, which will feature a celebration of “British Ideas — Past, Present and Future”, will be followed by a reception at Buckingham Palace hosted by King Charles III.  More

(Reuters) – A look at the day ahead in Asian markets.Asian markets on Monday could kick off the last week of the month in a bullish mood, as investors looking to claw back some of the previous session’s losses draw support from the lowest volatility on Wall Street in nearly four years.The VIX index of S&P 500 implied volatility – the so-called Wall Street ‘fear index’ – closed at 12.46 on Friday, its lowest close since January 2020. This, and possible hopes for a more lasting ceasefire between Hamas and Israel, could boost sentiment and risk appetite at the open on Monday.Looking ahead to the rest of the week, the stand-out regional events that could move markets include policy decisions from New Zealand, South Korea and Thailand, inflation figures from Australia, and third-quarter GDP data from India.The first purchasing managers index (PMI) numbers for October start trickling in too, which will give a glimpse into how private sector manufacturing and services activity held up this month in a number of key countries including China, Japan and Australia.Monday’s regional data calendar is light, with the highlight being Chinese industrial sector profits for the first 10 months of the year. Year-to-date profits have fallen every single month since June last year, reaching a nadir of -22.9% in February this year. But the pace of decline has slowed since, indicating that corporate China is getting its house back in order. Slowly.The People’s Bank of China has steered the yuan down from its multi-year lows against the dollar to its strongest level since late July, but investors are still extremely cautious on Chinese assets.China’s CSI300 index of blue chip stocks last week fell for a second week in a row, underperforming regional and global peers – MSCI’s Asia Pacific ex-Japan and Emerging Market stock indices both rose for a second week in a row, and the MSCI World index and Wall Street’s big three all rose for a fourth week. Three central banks in the Asia & Pacific region hold policy meetings this week. Like Bank Indonesia last week, the central banks of New Zealand, South Korea and Thailand are all expected to leave key rates unchanged. With the U.S. Federal Reserve probably on hold for the next six months or so, according to current rate futures market pricing, Asian central banks will probably refrain from policy changes and remain in a holding pattern too. Inflation in some countries is sticky and exchange rates are weak, so policymakers will be wary of cutting rates prematurely. But, broadly speaking, no further tightening from the Fed gives central banks in Asia a bit more breathing room.On the political front, meanwhile, China, Japan and South Korea have agreed to restart cooperation and pave the way for the first summit between the three since 2019, in the latest move to ease tensions between the Asian neighbors.Here are key developments that could provide more direction to markets on Monday:- China industrial sector profits- Japan service sector PPI- U.S. Treasury auctions two- and five-year notes (By Jamie McGeever; Editing by Diane Craft) More

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The bill would implement the recommendations of a review of the Reserve Bank of Australia (RBA) released in April that requires legislation enacted by parliament, Treasurer Jim Chalmers said on Sunday.The review outlined a range of reforms including a separate RBA board for day-to-day operations, fewer policy meetings and a simpler dual mandate of price stability and full employment, bringing it more in line with other major central banks.”We want to ensure Australia’s central bank remains world class with a monetary policy framework fit to meet our current and future economic challenges,” Chalmers said in a statement.The Treasury Laws Amendment (Reserve Bank Reforms) Bill 2023 will reinforce the RBA’s independence from government, including by repealing the power of the treasurer to overrule monetary policy decisions, he said. It follows months of government consultation with the opposition parties. Chalmers had indicated in-principle agreement to all 51 of the recommendations made by the review, which he set up in July 2022. Chief among them was to split the RBA’s board into one for monetary policy and one for governance. The review recommended the new Monetary Policy Board (MPB) consist of six external members with expertise in macroeconomics, the financial system, labour markets and the supply side of the economy. The details of the new MPB will be finalised next month, Chalmers said. The six external members on the current board are mostly business executives. The RBA governor, deputy governor and the treasury secretary are the other three members.The review recommended the government legislate changes to take effect on July 1, 2024. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Is eurozone inflation still falling?Investors searching for reasons to believe central banks will start cutting interest rates sooner rather than later could be encouraged by a further drop in eurozone inflation when the latest price data is released on Thursday. The harmonised index of consumer prices in the 20 countries that share the euro is set to fall from 2.9 per cent in October to 2.8 per cent in November, according to economists’ forecasts compiled by LSEG.“We expect lower core inflation to be the main driver of lower headline with both goods and services inflation likely [to be] lower,” said UBS economist Anna Titareva, forecasting the core rate, excluding energy and food, would drop from 4.2 per cent to 3.7 per cent.The expected decline in headline inflation would take it closer to the European Central Bank’s 2 per cent target. This could generate more excitement about how soon rate cuts will start. The ECB only stopped raising rates last month and investors are betting it could start cutting as early as April.However, ECB president Christine Lagarde said last week it was still too early to “start declaring victory” in the push to tame inflation, warning price growth was set to reaccelerate “in the coming months” as recent disinflationary forces start to fade.Lagarde said ECB rate-setters needed to see more evidence that wage growth was stalling before being sure that inflation is on track to drop to its target. This caution will have only been reinforced by negotiated wage data published by the ECB last week, showing it accelerated from 4.4 per cent in the second quarter to 4.7 per cent in the third quarter. Martin ArnoldWill the Fed’s inflation gauge show an easier pricing environment?Thursday sees the release of US core personal consumption expenditures data including the Federal Reserve’s preferred inflation gauge, known as core PCE.Price pressures eased more than expected in October, but the watchful tone of last week’s Federal Reserve meeting minutes signalled officials are unconvinced yet that inflation is clearly on course to return to the Fed’s 2 per cent target.For October, core PCE, which strips out energy and food, is expected to have risen 0.2 per cent from September, down from a rate of 0.3 per cent, according to economists polled by Reuters. Year-on-year in September, the gauge rose 3.7 per cent. That matched the year-end projection by Fed committee members made that month. At the Fed’s last meeting however, staff forecast a rate of 3.5 per cent for December.Several strategists have warned against assuming a steady easing in inflation from this point.“While each softer inflation print does increase the chance that inflation may convincingly return to 2 per cent in the coming months without a deeper economic slowdown, we do not see that as likely,” wrote Citigroup economists. “Core inflation . . . still appears more volatile than usual month-to-month around a higher 3-4 per cent average pace.” Jennifer HughesIs Chinese manufacturing in a renewed downturn?Data out on Thursday will hint at the efficacy of policymakers’ recent attempts to stimulate China’s stuttering economy.Factory activity from the world’s second-largest economy expanded for the first time in almost half a year in September but contracted unexpectedly in October. November’s manufacturing purchasing managers’ index will go some way to answering whether last month was a blip or the start of a renewed downturn. The non-manufacturing PMI last month came in at 50.6, marking a slight increase in activity. But that was the slowest rate of expansion so far this year, with economists having forecast a reading of 52. “Most early indicators [of manufacturing activity] point to subdued momentum,” said Julian Evans-Pritchard, head of China economics at Capital Economics. He added that construction activity, which contributes to the non-manufacturing PMI, “probably dropped back” in November and that new housing starts also “almost certainly fell”, offsetting any acceleration in infrastructure construction. Chinese policymakers have for months been trying “and largely failing” to stabilise the country’s struggling property market, said Evans-Pritchard. Downpayment requirements and purchase controls were relaxed in several major cities in September, and additional support continues to be rolled out. But the measures have so far “failed to put a floor beneath the volume of new home sales”. China’s stop-start recovery since it abandoned strict coronavirus controls this year has weighed down on domestic stock markets, with global investors having now pulled about three-quarters of the money they invested during the first seven months of 2023. Yet there are signs of improvement elsewhere. China’s consumer and industrial activity expanded faster than expected in October, and analysts at Barclays said they this month turned “more constructive” on growth in 2024 thanks in part to “some improvement” in relations between China and the US and officials having stuck with their 5 per cent target for annual gross domestic product. George Steer More

BERLIN (Reuters) – Germany’s budget crisis has given new momentum to reforming self-imposed borrowing limits even among the opposition conservatives, as hunger for sorely needed investment trumps an earlier political obsession with fiscal rectitude.A constitutional court ruling on Nov. 15 against a budget manoeuvre to get around Germany’s “debt brake” threw the financial plans of Chancellor Olaf Scholz’s coalition into disarray.It also indicated that his and future governments would have to stick more closely to the spirit of the brake, which limits a government structural budget deficit to 0.35% of gross domestic product, even as spending needs rise.Business and political leaders fear Berlin will not be able to finance responses to growing challenges, from climate change to the Ukraine war. Europe’s largest economy has already suffered years of chronic under-investment, contributing to its current stagnation, economists say.Calls are growing for reform of the brake, even among conservatives, whose complaint prompted the court ruling. Those in power at state level and having to deal themselves with the consequences of the ruling are particularly open to a new debate.Billions of euros in state subsidies agreed with U.S. chipmaker Intel (NASDAQ:INTC) for planned plants in the Saxony-Anhalt – considered key for Germany’s transition to a carbon neutral economy – are now up in the air, for example.”It’s about strategic investments – there must be a way (to finance them),” the conservative state premier Reiner Haseloff told Reuters. “Otherwise these technologies will go to the United States.”German under-investment is already around 300 billion euros over the past decade vis-a-vis other AAA-rating economies, according to Scope Ratings.Haseloff was one of 10 senior members of the Christian Democratic Union (CDU) or its Bavarian sister party the Christian Social Union (CSU) that Reuters spoke to who has come around to the idea of the need for a reform allowing for greater investment without throwing fiscal caution to the wind.Others have even started to campaign publicly for reform. “As I have long been saying, we must fear that the debt brake becomes ever more a brake on the future,” said Berlin mayor Kai Wegner on social media platform X. Still, reforming the brake would mean changing the constitution, which requires a two-thirds supermajority in parliament and still looks a long way off.Federal CDU leader Friedrich Merz, who is reaping the benefit of a government in turmoil, continues to say Germany should stick to the brake.But so do even the fiscally hawkish Free Democrats (FDP), who are in coalition with Scholz’s centre-left Social Democrats (SPD) and the Greens. A government spokesperson said on Friday reform was not on the agenda for now.CHANGING TIMES, CHANGING RULES?Germany introduced the brake with cross-party consensus in 2009 in the wake of the global financial crisis and at the dawn of the European debt crisis.But it has had to suspend the brake since the onset of the coronavirus pandemic in 2020 – which it is allowed to do in the event of “exceptional emergencies” – in order to finance its response.Since then, further crises have piled up, forcing it to resort ever more to off-budget funds, even as debt has become more expensive with interest rates rising.The court ruling on Nov. 15 against a budget manoeuvre to shift 60 billion euros of unused pandemic aid to a fund for a green transition has suggested Berlin will need to stick more closely to the spirit of the brake going forwards.It also forced the government this week to suspend the brake for the fourth year running – a clear sign reform was necessary, said ING Chief Economist Carsten Brzeski.”The debt brake was implemented when Europe had a debt sustainability issue and Germany wanted to lead by example,” he said. “Now, particularly Germany has a growth and competitiveness issue. When times change, debt brakes should also change.” Germany’s debt-to-GDP ratio was only marginally above 60%, while it was above 100% in France, Italy and Spain, he said.”Germany is now experiencing fully self-inflicted self-destruction,” he said.To a standing ovation at a Greens party conference, Economy Minister Robert Habeck on Friday questioned whether the debt brake was applicable in changed times from “when climate protection was not taken seriously, wars were a thing of the past, China was our cheap workbench”.”With the debt brake as it is, we have voluntarily tied our hands behind our backs and are going into a boxing match,” he said. The Greens’ campaign programme ahead of the last election included debt brake reform to allow for greater investments. Proponents of reform are growing more vocal in Scholz’s SPD too.The opposition far-left Left party has always been against the brake.TWEAKS, NOT A REWRITEConservative politicians still fear reforming the break will foster fiscal laxity at home and indirectly elsewhere in Europe. To avoid that, they are proposing very targeted solutions.Lawmaker Roderich Kiesewetter proposed exempting all investments in the military as well as support for Ukraine from the brake, rather than rewriting it altogether.Others have proposed solutions that do not involve touching the brake, such as creating a new off-budget fund written into the constitution, like the special fund to upgrade the military established after Russia’s invasion of Ukraine last year, to focus on investment.The issue is to become more pressing for the conservatives at the latest by the 2025 federal elections, said one member of the CDU’s federal leadership. Polls suggest they are on track to win, meaning the government’s fiscal woes will become theirs.Given the need for a supermajority, debt brake reform would be a project for another grand coalition of Germany’s traditionally strongest parties, the SPD and conservatives – like the one which introduced it in the first place, said Stefan Marschall, political scientist at the University of Duesseldorf.”Any reform would require cooperation,” he said. “So whether reform comes quickly is questionable.” More

Cyber Monday, as the first Monday after the Thanksgiving holiday has become known as merchants step up online promotions, is set to be the biggest online shopping day of the year in the United States.Strong online traffic on Black Friday demonstrated a notable pattern of shoppers putting time and effort into selecting the lowest-cost, best-value merchandise, said Rob Garf, vice president and general manager for retail at Salesforce (NYSE:CRM), which tracks data flowing through its Commerce Cloud e-commerce service. Despite an earlier start to retailers’ holiday promotions this year, there weren’t a lot of great deals initially, Garf said. Yet “consumers were patient, diligent, and they played a game of discount chicken. And they won once again.”On Black Friday, the day after Thanksgiving, retailers “stepped up the discounting” to roughly 30% on average in the U.S., he said. And “consumers clicked the buy button,” spending $16.4 billion online in the U.S. and $70.9 billion globally that day, according to Salesforce. “We saw a big spike,” Garf said, adding that the strong Black Friday online outlay would “pull up” the overall tally for the entire Cyber Week, which started on Tuesday and ends on Monday. On Cyber Monday, Salesforce expects to see discounts averaging 30% again. The risk for consumers, however, is that products may not be available if they wait, he said.Salesforce says it derives its benchmarks for online traffic and spending from data flowing through its Commerce Cloud e-commerce service, which it says provides a window into the behavior of 1.5 billion people in 60 countries traversing thousands of e-commerce sites. Other firms use different measurements to gauge online shopping patterns. Rival Adobe (NASDAQ:ADBE) Analytics forecasts that shoppers will spend a record $12 billion Monday, 5.4% more than last year, representing what it says will be the largest-ever e-commerce shopping day in the U.S. Retailers are set to dangle average price cuts of 30% on electronics, and 19% on furniture, said Vivek Pandya, lead analyst at Adobe Digital Insights.Last-minute Cyber Monday shoppers could spend $4 billion between 6 p.m. and 11 p.m. EST alone “because consumers are going to be concerned about discounts weakening after that,” Pandya said.Adobe provides merchants with Experience Cloud, a service which powers their e-commerce platforms, giving Adobe a window into aggregate transaction data at 85% of the top 100 internet retailers.Overall, “consumers are being very strategic, wanting to maximize their shopping when they think they’ll get the best discounts,” Pandya said. “The online retail sector is one of the few where the consumer is a bit more in the driver’s seat,” he said, particularly with toys and seasonal holiday merchandise. “There are a lot of online merchants vying for their dollar and they can easily compare prices.”Mastercard (NYSE:MA), which measures retail sales across all forms of payment, said e-commerce sales rose 8.5% on Black Friday, while in-store sales rose 1%. “Digital grew dramatically during the pandemic and then it had a reversion to the mean, when people went back to stores,” said Steve Sadove, senior adviser for Mastercard and former CEO of Saks Inc. “Now you are seeing an acceleration in digital, once again. It’s becoming more important.” More

LONDON/JOHANNESBURG (Reuters) -The collapse of Zambia’s $3 billion bond rework deal this week is reverberating well beyond the country’s borders, raising doubts about the very framework designed to get bankrupt nations back on track quickly.Zambia’s government said on Monday an International Monetary Fund-approved deal with bondholders – agreed in principle less than a month ago – could not proceed due to objections from bilateral creditors, who say the terms of the deal are not comparable to relief offered by a group of countries including France, China and India.The setback sent the bonds of countries in the midst of debt reworks such as Ghana and Sri Lanka tumbling. It also raised fresh questions about the commitment of Western nations and multilateral lenders to help poor countries claw their way out of unmanageable debt.”To me there is a real problem, and the real problem goes beyond Zambia,” said Brad Setser, a Council on Foreign Relations fellow and former U.S. government official, suggesting the way debt sustainability and market accessibility for low income countries was assessed might need to be adjusted.The core of the issue is the Common Framework, a G20-backed debt negotiation architecture that aimed to smooth and speed deals for insolvent low-income countries thrust into crisis during the COVID-19 pandemic with a historically complicated tangle of lenders that, for the first time, included China.It established basic principles at its 2020 launch, with more to be defined and debated along the way. Progress has, however, proven more arduous than expected. Zambia – the Framework’s test case – is entering its fourth year of default and its long, thorny path could deter other struggling countries such as Tunisia, Egypt and Kenya from Common Framework debt reworks. International bondholders say the Framework failed to provide the transparency on other creditors’ concessions needed to cut comparably fair deals. Most agree it provides no clarity on what fair treatment of various creditors would actually look like, nor how the value of concessions given to indebted nations should be calculated.Milestones such as Zambia’s memorandum of understanding (MoU) with bilateral creditors on restructuring $6.3 billion of debt and similar successes for Ghana raised hopes the Framework was working. Now there are once again whispers that it’s failing. “This has not been a success and we need a reset,” said Kevin Gallagher, director of Boston University’s Global Development Policy Center. The IMF did not respond to a request for comment sent over a U.S. holiday. A QUESTION OF FAIRNESSThe current rift centres on “Comparability of Treatment” – a principle from the Paris Club of wealthy creditor nations aimed at ensuring its members don’t give outsized concessions compared to private lenders or others outside the group. Zambia’s government said the Official Creditor Committee (OCC) sank the bondholder deal because it fell afoul of that principle under a “base case” scenario. This outraged bondholders, who say they offered more debt relief than bilateral lenders on a net present value (NPV) basis and a principal haircut of 18% when official creditors tabled none. With no rules on how to calculate concessions, creditors can come to different conclusions regarding the figures. “One of the founding principles of the Common Framework was indeed Comparability of Treatment. The fact that we’ve gotten this far without reaching a common understanding of what that is, is indeed unhelpful,” said Yvette Babb, a portfolio manager at William Blair.Tallying different creditors’ priorities is tricky: Bondholders target shorter-term cashflows but will accept principal writedowns, while official creditors favour maturity extensions. “Are you willing to allow deals that allow bondholders to get a lot of money out before official creditors? And are you willing to let bondholders take money out when the IMF is putting money in?,” said Setser. HOW TO FIX ITZambia’s government said there was no consensus between OCC co-chairs China and France on the concessions needed from bondholders to secure a deal. The OCC statement also did not say which creditor country raised concerns, making it harder to address them, investors said. Convincing China, which emerged as a key creditor after a decade-long lending spree, to cut deals alongside other creditors has been a core challenge.China’s repeated assertions that it must safeguard its taxpayers’ money, its rejection of blanket acceptance that multilateral lenders do not take haircuts and its objections to the IMF’s debt sustainability assessments have upended the official lenders’ historic approaches to debt deals.China’s central bank and finance ministry did not respond to requests for comment. Already, a group called the Global Sovereign Debt Roundtable – comprised of development banks, G20 chair India and official and private creditors – is trying to work through the Framework’s snags and seek a consensus on net present values and comparability of treatment. Any such consensus, William Blair’s Babb said, would eliminate “a large degree of this discretionary assessment”. “That is a fundamental principle that I think could be agreed on to avoid this becoming a stumbling block in other discussions,” she added.The IMF has also promised to rejig its debt sustainability calculations – key figures in restructurings – and make its process more transparent. With a record $554 billion of sovereign debt in default globally, according to the Institute of International Finance, getting countries out of distress quickly is key. Zambia’s finance minister has said the long delays have curtailed economic growth and hit the poorest of the population. Some say the Framework, while flawed, is the only way, and that countries outside it, such as Suriname and Sri Lanka, have also struggled to finalise deals.”Sovereign debt restructuring is a very ugly, messy process,” said Mark Sobel, a former U.S. representative at the IMF, adding its aim was also to cut through the web of competing domestic powers within China to allow it to give debtor countries much-need relief.”To me, the Common Framework, for better or for worse, is the only game in town.” More