Economy

BERLIN (Reuters) – Volkswagen (ETR:VOWG_p)’s Skoda unit expects some delays in the production of its Enyaq electric models during November and December due to supply bottlenecks, German business daily Handelsblatt reported on Friday.The paper cited a spokesperson for Skoda. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.British retail sales have fallen to their lowest level since February 2021 as consumers curb their spending in the face of punishing inflation, according to data that sent gilt yields lower.The quantity of goods bought in Great Britain declined 0.3 per cent in October compared with the previous month, the Office for National Statistics said. The figures contrasted with expectations of a 0.3 per cent rise.The sales data highlight the pressure on households ahead of chancellor Jeremy Hunt’s Autumn Statement next week and will bolster expectations that the Bank of England is poised to lower interest rates next year. The fall to the lowest volume of sales since February 2021 suggests household spending is weak ahead of the Christmas shopping season, traditionally the busiest for retailers. The figures represented a 2.7 per cent drop from October 2022, much larger than the consensus forecast of a 1.5 per cent year-on-year decline, as people bought fewer but more expensive goods.Thomas Pugh, economist at audit firm RSM UK, said the retail figures added “to the risks that the economy will slide into a recession at the end of the year”.Separate ONS data last week indicated that a fall in household spending contributed to the economy flatlining in the three months to September. The yield on rate-sensitive two-year gilts, which moves inversely to price, fell sharply after the retail sales figures were released before recovering to around 4.50 per cent, down 0.04 percentage points on the day. Benchmark 10-year gilt yields were 0.08 percentage points lower at 4.08 per cent, while the pound was up 0.2 per cent against the dollar.Markets are now pricing in nearly 30 basis points of cuts to the BoE’s benchmark interest rates — currently at a 15-year high of 5.25 per cent — by June.Revised data also published on Friday showed that retail sales by volume had contracted by 1.1 per cent in September — more than previously estimated.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 retail data give an early indication of the state of the consumer sector in the final quarter. Erin Brookes, European retail and consumer lead at management consulting group Alvarez & Marsal, said a second consecutive monthly decline in retail sales did not “bode well for the high street as we enter the festive season”. In an indication of the impact of high inflation, October’s figures showed that consumers bought 3.1 per cent fewer goods than in the pre-pandemic month of February 2020, but spent 16.9 per cent more.UK inflation dropped to a two-year low of 4.6 per cent in October thanks to lower energy costs, according to data published on Wednesday, but consumer prices remain one-fifth higher than in early 2021. Heather Bovill, ONS deputy director for surveys and economic indicators, said October had been a “poor month for household goods and clothes stores [which suffered from] cost of living pressures, reduced footfall and poor weather”.Clothing stores registered a 0.9 per cent fall in sales volumes, with the mix of wet and warm weather hitting demand for winter wear and footfall. Sales volumes in household goods stores dropped 1.1 per cent, driven by a sharp decline in furniture purchases. Department stores also reported contracting sales, with some retailers pointing to the drop in consumer confidence.Samantha Phillips, partner at consultancy McKinsey & Co, said that, given the slow start to the quarter, “retailers will be fighting to win discretionary spend of both their loyal and new customers on Black Friday and as we head into December”. More

The IBC-Br index, a key predictor of gross domestic product (GDP), posted a seasonally adjusted 0.64% decline in the third quarter. This followed a 0.06% decrease in September compared to August, contrary to the 0.2% monthly expansion anticipated by economists polled by Reuters.On a non-seasonally adjusted basis, the IBC-Br grew by 0.32% over September 2022 and expanded by 2.50% in the 12 months.Finance Minister Fernando Haddad had already been drawing attention to a “very poor” third quarter, attributing it to high borrowing costs and declining commodity prices compared to the same period last year, factors impacting corporate performance and, consequently, tax revenue.The Finance Ministry last estimated a 3.2% gross domestic product (GDP) growth for this year after a robust first-half performance, a figure expected to be revised next week.Meanwhile, private economists surveyed weekly by the central bank project a 2.89% increase in GDP for this year.The September IBC-Br index was in line with a negative performance of the service sector, which accounts for roughly 70% of the country’s activity, said Nova Futura economist Nicolas Borsoi.”There is now a downward bias to our forecast of a 0.2% GDP drop in the third quarter,” he said. “My perception is that the fourth quarter will be even worse. For now we’re sticking to our 3% growth forecast for the year, but 2.8% seems likely as well.”Latin America’s largest economy has previously thrived on the strength of the agribusiness and extractive industries this year. It was also supported by measures implemented by President Luiz Inacio Lula da Silva’s government to enhance household disposable income and consequently stimulate domestic demand. More

(Reuters) -U.S. stock index futures edged higher on Friday as Treasury yields extended declines from the previous session after recent weak economic data supported bets of a dovish pivot by the Federal Reserve next year.The S&P 500 and the Nasdaq eked out marginal gains on Thursday as Treasury yields fell after higher-than-expected jobless claims data underscored market expectations that interest rates have peaked.The yield on the 10-year Treasury note dropped further to a two-month low on Friday and was last at 4.4082%. [US/]Most megacap stocks edged higher in premarket trading, with Amazon.com (NASDAQ:AMZN) and Nvidia (NASDAQ:NVDA) up 0.5% and 0.3% respectively.Pressuring futures for the tech-heavy Nasdaq, Applied Materials (NASDAQ:AMAT) shares lost 7.2% on news that the semiconductor equipment maker was under investigation.Futures for the small-cap Russell 2000 index climbed 1.4%, outperforming broader markets.Wall Street’s three main indexes were poised to gain about 2% for the week, also on course for their third straight week of gains, as multiple data, including the consumer and producer prices index, pointed towards easing inflationary pressures.”Currently, bad news is good news as the market focus is on central banks becoming more accommodative,” Mohit Kumar, chief Europe economist at Jefferies, said in a note.While money markets have fully priced in the Fed will hold rates steady at the current 5.25%-5.50% level in its December meeting, they also see a near 69% chance of at least a 25 basis point rate cut in May 2024, according to the CME Group’s (NASDAQ:CME) FedWatch tool. Investors will now await comments from Fed officials, including policy voting member Chicago Fed President Austan Goolsbee, due later in the day for any cues on the monetary policy trajectory.On the economic data front, markets will monitor the housing starts data for October, scheduled for release at 8:30 a.m. ET. At 7:06 a.m. ET, Dow e-minis were up 93 points, or 0.27%, S&P 500 e-minis were up 10.75 points, or 0.24%, and Nasdaq 100 e-minis were up 6.5 points, or 0.04%.Among major movers, Gap surged 19.1% before the bell as the apparel retailer posted better-than-expected third-quarter results due to improving sales at Old Navy and easing supply expenses.ChargePoint (NYSE:CHPT) Holdings slumped 28.0% as the electric-vehicle charging network provider lowered estimates for its third-quarter revenue in its preliminary results and appointed Rick Wilmer as CEO. More

BUENOS AIRES (Reuters) – Argentine voters are angry and afraid. Which is stronger will tip the balance of the South American country’s presidential election on Sunday and may reshape its diplomatic ties, economic future, and the wider region’s political fault lines.The country of some 45 million people will vote in the Nov. 19 run-off election between Sergio Massa, currently economy minister for the ruling Peronists, and libertarian outsider Javier Milei. Opinion polls indicate a tight race and a deeply divided electorate.On the ground in Buenos Aires and beyond there is fury with the government, which has presided over inflation racing towards 150% that has pushed two-fifths of the population into poverty. That has weakened Massa and driven the abrupt rise of his right-wing rival.Up against this is fear of Milei, a wild-haired former TV pundit whose outspoken and aggressive style has led some to compare him to former U.S. President Donald Trump. He has often appeared at rallies brandishing a chainsaw, a symbol of his plans to slash state spending.The two candidates offer vastly different visions for the future of the country, an important exporter of soy, corn, beef and lithium, the largest debtor to the International Monetary Fund (IMF) globally, and a rising producer of shale oil and gas.Milei is a harsh critic of China and other leftist governments he loosely calls “communists,” including in Brazil; he wants to dollarize Argentina’s embattled economy and shut the central bank; and he opposes abortion.Massa, a wheeler-dealer centrist in a left-leaning government, has portrayed himself as a defender of the welfare state and regional trade bloc Mercosur, but has the yoke of his failure to stabilize the economy around his neck.”I am leaning towards Milei,” said Raquel Pampa, a 79-year-old retiree in Buenos Aires, adding she was tired at what she said was corruption by mainstream politicians.”Money is not going into public works, or putting food on the table of retirees or workers earning a pittance – it’s lining the pockets of politicians.”Massa, however, has won over some voters with his criticisms of Milei’s “chainsaw” economic plan that he says could impact welfare handouts and push up the price of transport, energy bills and healthcare, currently subsidized by the state.”My vote is for Sergio Massa because of the two models that are now under debate, his is the one that basically guarantees me staying alive,” said Fernando Pedernera, a 51-year-old media sector worker. He also criticized Milei’s running-mate for defending Argentina’s former military dictatorship.Leftist presidents in Brazil, Mexico and Spain have voiced their support of Massa, while Peruvian Nobel Prize-winning author Mario Vargas Llosa and right-wing former leaders from Chile and Colombia have backed Milei.’NOT MY FIRST CHOICE’Neither Massa or Milei goes into the second round with a strong mandate. Massa got 37% in the first round in October, while Milei had 30%, though has since won the backing of a key conservative bloc, which could push him over the line if it translates into votes.Opinion polls have the pair neck-and-neck, with some favoring Milei and others predicting a win for Massa. Many voters around the country aren’t convinced by either.”This Sunday I have already decided that I am not going to vote for either of the two candidates,” said Nicolas Troitino, 31, in Buenos Aires.”For me, neither of them represents the hopes that I have for the future of the country. They spend more time fighting among themselves than solving people’s problems.”Milei, a libertarian economist who only got into politics two years ago, has energized a hardcore of support, especially among the young, while also luring some middle-ground voters looking to punish the Peronists for the economic crisis.”I’m going to vote for Milei, it wasn’t my first choice, but it’s what I have left,” said 21-year-old student Valentina, who declined to give her last name.”I don’t agree with all of his social policies, but I do agree with most of his economic plans. It seems to me that Massa is not proposing a plan, he is not saying what he is going to do.”Massa, brought in as a “super minister” last year to try to right the economy, has struggled so far to get it under control, with inflation speeding up to its highest level in 30 years. Net foreign currency reserves are deep in the red.However, he does have solid political experience – unlike Milei – and is seen as someone able to negotiate across the political divide, as well as with the country’s powerful unions, companies and investors.”It seems to me that looking forward he is the only political actor who really has the support of the entire arena of politicians, whether from the opposition or the ruling party,” said 31-year-old judicial worker Gonzalo, giving only his first name.”I don’t know if he is the best, but in this context, in this head-to-head situation, it seems to me that he is the most viable option for the country.”The new Congress, already decided in the October first-round vote, will be highly fragmented, with no single bloc having a majority, meaning whoever wins will need to get backing from other factions to push through legislation.This would likely put a brake on more radical reforms and force Massa or Milei to moderate. The powerful regional governors are also split between the Peronists and the main conservative coalition, with none allied to Milei.The divided electorate also increases the chance of social unrest, said Benjamin Gedan, director of the Wilson Center’s Latin America Program, adding Argentina could be in for a “wild ride” if the new president fails to improve things fast.”For now, Argentines are keeping their powder dry, clinging to a faint hope that the next government will find a solution to the country’s profound troubles,” he said. “That patience will not last long, no matter who wins on Sunday.” More

LONDON (Reuters) -World stocks held near two-month peaks on Friday, while oil prices were set for a fourth week of declines in a boost for the inflation outlook and government bond markets that are increasingly confident interest rate cuts are coming next year.The dollar slid 1% against the yen and was set for one of its steepest weekly falls against other major currencies this year as market rate expectations shift.MSCI’s World Stock Index edged back up towards highs hit earlier this week, while European shares rallied 1% and U.S. stock futures pointed to a positive open for Wall Street later . Oil prices attempted to bounce back after sliding almost 5% on Thursday to four-month lows in a move that was blamed on economic and supply concerns, though technical selling likely played a part when the $80 bulwark broke. [O/R]Brent was last up 1% at $78.23 a barrel, but still down almost 20% from the $97.69 top hit in late September. U.S. crude also rallied 1% to $73.7. Whatever the cause, the recent rout should put added downward pressure on global inflation and reinforce expectations of policy easing next year.A softer tone to U.S. economic data this week has fuelled rate-cuts bets, pushing Treasury yields down and lifting equity markets. November so far has seen one of the strongest performances for stock markets this year, with MSCI’s world stock index and the S&P 500 index both more than 7% higher. “We’re still in this environment where we are late cycle and flirting with the idea of whether we go into a recession or not,” said Justin Onuekwusi, chief investment officer at investment firm St James’s Place. “This is the key reason why central bank expectations have become a key driver to risk and right now it’s hard to look beyond near-term.” BOND BULLS OUTGlobal bond markets were in a bullish mood. A fall in U.S. Treasury yields gathered momentum, with the 10-year yield falling to its lowest level since September at around 4.38% – a sharp drop from the 5.02% high hit just last month.Two-year Treasuries yields are down 25 basis points for the week at 4.81%. That means they are set for their best weekly performance since March, when a banking crisis gripped world markets. Rate-sensitive two-year bond yields in Germany and Britain fell to their lowest levels since June with money markets now pricing in roughly 100 basis points worth of rate cuts in the United States and the euro area. Corporate bond spreads have also tightened sharply this week in another sign that risk appetite has picked up.”The most striking number this week was the (U.S.) CPI, which was a bit lower than consensus and led to some euphoria in bond markets,” said Christian Hantel, a portfolio manager at Vontobel Fixed Income Boutique. “That tells you two things. One that in terms of inflation, we continue to move in the right direction and second, that there had been some doubts in markets on the topic of a soft landing so as more data confirmed that view, there was a strong move.”Data on Tuesday showed U.S. consumer prices were unchanged in October, and the annual rise in underlying inflation was the smallest in two years.Adding to the disinflationary theme was commentary from Walmart (NYSE:WMT) executives that costs were “more in check” and they were planning on cutting prices for the holiday season.DOLLAR BEATINGIn FX markets, the sea change in market pricing for the Fed weighed on the dollar, with the U.S. currency down 1% below 150 yen.The euro was a fifth of a percent firmer at $1.0872 and sterling reversed earlier falls to stand a touch firmer at $1.2433.In Asia, shares outside Japan eased 0.45%, while Japan’s Nikkei closed up 0.48%, to be around 3% firmer for the week, helped by reassurance from the Bank of Japan that it was sticking with its super loose policy. Chinese blue chips were 0.12% lower, having missed on the general rally so far this week. Alibaba (NYSE:BABA) Group’s Hong Kong shares slumped 10% after it scrapped plans to spin off its cloud business. Sentiment in Asia had been supported by the apparent easing of tensions between the United States and China, with the Chinese press lauding the meeting between President Xi Jinping and President Joe Biden. Gold nudged up to $1,989 an ounce, about 0.45% firmer. [GOL/] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Nationwide warned that mortgage arrears are creeping up but at a slower pace than expected, as profits at the UK’s third-largest mortgage lender were boosted by rising interest rates.The building society flagged a slight uptick in bad loans in its half-year results, with 0.38 per cent of its residential mortgage portfolio behind on repayments for more than three months at the end of September, compared with 0.32 per cent at the start of April. It warned that inflation, economic uncertainty and high borrowing costs remained “key risks”. “[Arrears] will continue to rise, [they] will creep up but it will be nothing as severe as we would have thought this time last year,” said chief executive Debbie Crosbie, a former TSB chief executive who took over as head of the building society last year.Nationwide, which is owned by its members, slashed its provisions for loans that may not be repaid to £54mn. That was half of the amount it had set aside for bad loans over the same period last year, when it increased provisions more than three-fold to reflect a sudden deterioration in the economic outlook in the wake of former prime minister Liz Truss’s disastrous “mini” Budget.Chief financial officer Chris Rhodes said the economic outlook remained unchanged one year on, adding that the housing market would stay “subdued” into the next year, but provisions for rising arrears were already accounted for in Nationwide’s books.The lender provided about 31,000 first-time buyers with mortgages in the period, compared with 40,000 at the same time last year, reflecting squeezed affordability in the property market caused by high interest rates and the end of a government help scheme.Crosbie said the building society would welcome any government initiatives that could help first time buyers get on the property ladder in the Autumn Statement next week.The total balance of Nationwide’s residential mortgage book grew to £202.3bn at the end of September, up from £201.7bn at the start of April, in a sign of resilience for the lender in the face of a wider slowdown in house sales. Statutory profits before tax rose to £989mn in the six months to September 30, up from £969mn at the same time last year as rising interest rates boosted its earnings. Nationwide’s net interest margin — a closely watched measure of the difference between the interest banks charge on loans and the rate they pays to consumers for deposits — rose year on year to 1.7 per cent, from 1.5 per cent.Rhodes said Nationwide had given support to 5,000 borrowers through the mortgage charter initiative, a government-mandated initiative designed to help struggling borrowers, as of September and that the amount had risen to a total of 8,000 today.UK lenders have been enjoying a boost from rising interest rates that is likely to soon come to an end, after the Bank of England earlier this month voted to hold its benchmark rate at ​​5.25 per cent — a 15-year high — for the second successive time. The decision signalled that the boom in interest income for the sector may wane.Under Crosbie’s leadership, the building society rebranded itself and sought to position itself in contrast to large retail banks as it renewed its pledge to keep most of its branches in UK cities and towns open until 2026. More

This article is an on-site version of our Unhedged newsletter. Sign up here to get the newsletter sent straight to your inbox every weekdayGood morning. We told you we would keep an eye on Walmart’s earnings. There was plenty to see. Executives warned about recent weakness in consumer spending, and the retailer’s shares fell 8 per cent yesterday. We remain stubbornly optimistic about the likelihood of a soft landing, but the Walmart wobble is a reminder that the post-pandemic balancing act is very delicate. Email us: [email protected] and [email protected]. Unhedged talks to Olivier BlanchardIf years of dire predictions have dulled your sense of urgency about budget deficits, we sympathise. In a low-rates world, deficit hawks could be safely ignored.The low-rate world looks increasingly far away, though. In its place we have rallying long-term yields, massive deficits and rising interest burdens. The most important fiscal relationship, the gap between real rates and long-term growth (“r minus g”), has gone from negative to near-zero.Olivier Blanchard, MIT professor, IMF chief economist during the global financial crisis, and now fellow at the Peterson Institute, is worried about where the fiscal story ends. In a blog post this month, he lays out the ultra-narrow path governments must walk: reducing fiscal burdens slowly enough to avoid killing demand, but quickly enough to soothe bond investors, all while investing in military readiness and climate mitigation. In a recent conversation, Unhedged quizzed Blanchard on inflation, why long yields are rising, and the fiscal endgame.The interview below has been edited for clarity and concision.Unhedged: You make a distinction in your blog post between high debt ratios, which are somewhat inevitable given our political situation, and a debt explosion. How do we know when we have crossed that line? And what are the consequences of an explosion?Olivier Blanchard: That’s indeed the issue. Visually, one is a convex curve, which explodes, and one is a concave curve, which converges to some level. In real time, how do you decide which one you face? I think you decide based on what the government seems to be willing to do in terms of the sequence of primary deficits.The simple case is where r minus g is zero, roughly where we are today. Then you just ask: is there a plan to actually get primary deficits to zero in some finite time, in a credible way? Is it all smoke and mirrors, or real measures? If [governments] use a growth rate which is not realistic, if they use an interest rate which is lower than the market rate, then you know they’re not serious. There have to be measures which do the job. That’s how you decide when one is okay and the other is not.Unhedged: How reassured should we be if inflation continues to come back towards the 2 per cent target? Blanchard: I think it depends on where you look on the yield curve. Clearly, the news [in this week’s October CPI report] was good. Maybe the Fed doesn’t have to increase interest rates; maybe it can decrease them faster. But I think what we’ve seen, and what led me to write the blog, is that it should not have much effect on the five-year/five-year rate [ie, where markets expect the five year rate to be five years from now]. Looking five or 10 years out, how long it will take for the Fed to succeed in the fight against inflation shouldn’t be relevant.So what has happened is the five-year/five-year and other rates which are beyond the effects of short-run monetary policy have gone up. That’s the worrisome part. And it’s not clear that the news on CPI has much to do with that.Unhedged: And why are long rates rising?Blanchard: That’s the trillion-dollar question. There are a number of possible factors. The first thing is policy being tighter for longer. As I just said, I don’t believe that that’s relevant five years out. So we’ll leave this aside. Second is a higher than expected inflation rate into the distant future. The break-even rates [ie, market pricing of future inflation] suggest that long-run inflation expectations really have not moved much, so this can be left aside as well. Third, markets could be pricing in a credit spread on long Treasuries [suggesting US sovereign bonds carry some default risk]. I do not think this is the case. Maybe investors should ask for a spread, but I don’t think they do today.Then there’s the notion that maybe we’re going to have stronger private demand. It could be due to consumers consuming more; I’m sceptical, because I think they are consuming more because they have higher savings, and this will go away. But it’s conceivable that we’re going to be serious about green investment. And that could increase the investment rate by, say, 1 per cent of world GDP. This could do something to the long rate, but I think that, for the time being, it’s a marginal effect.The next one is higher potential growth — that a higher r comes with a higher g. Maybe artificial intelligence is going to create an enormous productivity boom. It’s not crazy . . . 1 per cent a year more is not inconceivable. This would explain why long rates have gone up. If this is the case, then the increase in r is not such bad news, as it comes with an increase in g.Finally, we get to the factor which is probably most relevant, which is what finance people call the term premium. You can think of it in two ways. The first one is in terms of [Treasury bond] flow supply and flow demand. At this stage, there is a lot of supply and for various reasons there is less demand. There is QT [quantitative tightening], which is increasing supply from the Fed. It’s conceivable that that’s part of it. And the fact that long rates vary so much on news about the US Treasury changing the maturity of its issuance makes me think that it is probably relevant. It may not last.The second one is to think of the term premium as a risk premium. One hypothesis is that we may be worrying more about the variance of inflation. I don’t think that’s it, because in that case we would see the nominal rates go up, but not rates on inflation-indexed bonds. But these rates have gone up as well. So this leaves uncertainty about real rates — with uncertainty about future real rates leading to higher long real rates today. This is not a crazy hypothesis. There are many reasons to think that there’s more uncertainty.Of all these factors, flow supply/flow demand would be first on my list. Uncertainty about real rates might be next. And then the others marginally so. Then you have to decide, okay, so is the increase going to be transitory or permanent? My own guess is a good part of this will go away. But not all of it . . . so the message of my blog was, please have plans for a steady reduction of primary deficits to close to zero. Slow, steady, convincing, credible.Unhedged: What would be the economic consequences if, in the US, debt ratios did explode? How should central bankers respond? Will there be a temptation to monetise the debt?Blanchard: My sense is investors are not yet worried about being repaid if they hold Treasury bonds. For something to happen, it’s going to have to be more and more evident that nothing is being done. And then what happens? As hard as it is to imagine, there might be an emerging credit spread on T-bonds or a failed auction. And then Congress and the president would have to sit down and decide to do the right thing. A scary alternative scenario is that Donald Trump is elected, that he puts a lackey at the Fed, who monetises some of the debt, and we get high inflation. We know that high unexpected inflation does great things for the debt ratio.My sense is it’s going to boil slowly. I don’t know how it ends; not smoothly, is my guess. There is a happier outcome in which somehow the president and Congress get scared early enough to actually be willing to act, taking up entitlements and so on. Let’s hope it happens. One good readOur heads hurt from trying to make sense of this story about private credit.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, hosted by Ethan Wu and Katie Martin, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youSwamp Notes — Expert insight on the intersection of money and power in US politics. Sign up hereChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up here More