Economy

The ECB cut rates for the third time this year in October and made clear that further easing is coming given a weak economy and diminishing price pressures, even if the timing and size of policy moves remained open. “Acting now could provide insurance against downside risks that could lead to an undershooting of the target further ahead and would support a soft landing,” the ECB said, acknowledging that only limited new information was available.If these few indicators were a blip and misled expectations about weak inflation, the bank could then simply avoid a rate cut in December, the accounts suggested. “If the slowdown signalled by indicators of economic activity and the downside surprise to inflation proved to be temporary, a decision to cut rates now could, ex post, turn out as merely having brought forward a December cut,” the ECB added. However, the accounts also seemed to reveal disagreement over just how weak price pressures may be.Policymakers were in agreement that inflation would hit 2% earlier than previous projections for the end of 2025 but there were different views on what came after.One group seemed to argue that undershooting the target was not on the cards.”Such a scenario of undershooting probably required a combination of factors that were not yet present,” the accounts said. “These included disappointing economic growth that moved into recessionary territory, a weakening in the financial system, wage pressures fading away and a downward shift in inflation expectations.”But there was another group who thought the problem was deeper and the ECB was at risk of going below its target, an outcome the bank considers as undesirable as overshooting. “By contrast, it was also suggested that the change in the inflation outlook had been more significant,” the accounts said. They argued that downside inflation surprises and rapid changes in market expectations pointed to an increasing risk of undershooting the target, possibly in a sustained manner. “This could now be seen as a greater risk than overshooting the target,” they said. More

NEW YORK (Reuters) -Sotheby’s will pay $6.25 million and adopt reforms to settle New York Attorney General Letitia James’ lawsuit accusing the famed auction house of fraudulently helping clients avoid sales taxes on tens of millions of dollars of art purchases.Thursday’s settlement resolves claims that Sotheby’s let at least eight clients cheat New York state from 2010 to 2020 by using “resale certificates” that falsely portrayed them as art dealers entitled to tax exemptions, instead of art collectors.James said Sotheby’s accepted certificates from one client, a contemporary art enthusiast, who spent more than $27 million on works by artists like painter Jean-Michel Basquiat and sculptor Anish Kapoor, despite knowing he was a collector.She said some employees even helped the unnamed client display works at his home, or admired them on the walls. The $6.25 million includes damages, penalties and legal costs.”Sotheby’s intentionally broke the law,” James said in a statement. “Every person and company in New York knows they are required to pay taxes, and when people break the rules, we all lose out.”The New York-based auction house did not admit or deny wrongdoing, and said it settled to avoid the time, expense and distraction of litigation.Sotheby’s reforms include a new policy on resale certificates and improved employee training to determine whether art purchasers are planning resales.James had sued Sotheby’s in November 2020, seeking damages and civil penalties for violating the state’s False Claims Act.The unnamed client’s company, Porsal Equities, had agreed in 2018 to pay $10.75 million to resolve related New York claims over its use of resale certificates. In a statement, Sotheby’s said it “remains committed to full compliance with all applicable law.” It also said it provided much of the evidence that led to the Porsal settlement. More

The deal would have brought six brands under one roof: Tapestry (NYSE:TPR)’s Coach , Kate Spade and Stuart Weitzman; and Capri’s Versace, Jimmy Choo and Michael Kors. But regulators sued to block the deal earlier this year, citing anti-competition concerns.Capri shares were down nearly 6% in premarket trading on Thursday. They have lost nearly half of their value since a U.S. judge blocked the deal late last month. Tapestry’s stock, on the other hand, was up 6%, as the company also announced a $2 billion share buy back.The merger was blocked last month after the U.S. Federal Trade Commission (FTC) argued that it would eliminate head-to-head competition between the top two handbag makers and create a massive company with the power to unfairly raise prices.The companies said on Thursday they mutually agreed that ending the merger agreement was in their best interest, as the outcome of the legal process was uncertain and unlikely to be resolved by Feb. 10, the deal deadline.”We have always had multiple paths to growth and our decision today clarifies the forward strategy,” Tapestry CEO Joanne Crevoiserat said.The company said it does not expect any acquisitions in the near term and has agreed to reimburse Capri’s expenses of about $45 million, incurred in connection with the merger.Tapestry, which halted its merger plans last week as it appealed the U.S. judge’s decision, has raised its 2025 profit forecast after posting strong quarterly results.Capri, on the other hand, has reported several straight quarters of sales decline since the deal was announced in August last year. More

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BENGALURU (Reuters) – The euro zone economy will be hit with tariffs from the incoming U.S. Trump administration early next year, according to a majority of economists polled by Reuters, all but ensuring a series of interest rate cuts from the European Central Bank. President-elect Donald Trump’s proposed across-the-board tariffs will have a significant effect on the euro zone economy over the coming two to three years, according to a strong majority of economists polled. They have also raised the risks of reflation in the U.S.”Many questions are unresolved, but for now the signs are for weaker growth, more likely disinflation and lower ECB policy rates,” said Greg Fuzesi, euro area economist at J.P. Morgan.”The threatened tariffs would be much bigger this time round and could come at any time,” he said. Nearly 85% of economists surveyed Nov. 8-14, 37 of 44, expected Trump’s proposed tariffs – a 10% universal levy on imports from all foreign countries and 60% on Chinese imports – to be implemented early next year.About the same proportion, 34 of 39, said the tariffs would significantly impact the euro zone economy in the coming years.Since Trump’s U.S. election victory last week, market pricing has swiftly changed towards fewer U.S. Federal Reserve rate cuts and more ECB reductions.Some ECB officials have shared similar concerns. Bundesbank President Joachim Nagel recently said the tariffs, if implemented, could cost Germany 1% in economic output and it “could even slip into negative territory.”Markets are now pricing around 150bps of ECB rate cuts between now and end-2025 against only around 75bps of Fed reductions, suggesting further challenges for the euro, which has dropped nearly 4% against the dollar since the election.Most economists in the Reuters poll predicted a total of at least 125bps in reductions from the ECB by end-2025, only a bit shallower than market pricing.Over 90% of economists, 69 of 75, forecast the ECB would lower its deposit rate by 25bps for the third consecutive meeting in December, with nearly 70%, 51, predicting two more cuts next quarter, bringing it to 2.50%.While many downgraded their 2025 forecast, poll medians still expect the economy will grow 1.2% in 2025 and 1.4% in 2026, unchanged from last month. That suggests there are further downside risks to those numbers. “There are a wide range of sub-scenarios which include a global rise in tariffs between the U.S., EU and China and a sharp increase in uncertainty around global protectionism is certainly significant,” said Henry Cook, senior economist at MUFG, who estimates a 0.4 percentage point hit to euro zone growth next year.Inflation, at the 2.0% ECB target last month, will average 2.2% this quarter but return to target next quarter. It is forecast to be around there through 2027.Nearly 70% of economists, 43 of 63, expected the deposit rate to be 2.00% or lower by the end of next year, a bigger majority than the 60% who said this in October. Among 44 common contributors in the two polls, 43% of economists, 19, downgraded their end-2025 rate forecasts.The ECB doesn’t have an estimate for the neutral rate, which neither restrains nor stimulates the economy, but a staff-published paper earlier this year showed a real rate of around zero – or about 2% in nominal terms – when adjusted for inflation.”Rather than the ECB policy rate returning to neutral in mid-2025 we now see the rate falling moderately below neutral by end-2025,” said Mark Wall, chief Europe economist at Deutsche Bank (ETR:DBKGn).”The rationale in part relates to the prospect of U.S. tariffs under a new Trump administration and in part a weaker underlying macro performance and the emerging threat of below-target inflation.”(Other stories from the Reuters global economic poll) More

The deal allows Merck (NS:PROR) to take over development of LaNova’s LM-299, a drug candidate targeting a protein called PD-1, which prevents the immune system from killing cancerous cells. It also curbs levels of another protein called VEGF, which can encourage tumor growth if found in excess.Under the agreement, Merck will pay $588 million upfront to LaNova. The Chinese company is also eligible to receive up to $2.7 billion in milestone payments. More

NEW YORK (Reuters) – Federal Reserve governor Adriana Kugler said Thursday the central bank has made considerable progress in working to achieve its job and inflation goals, while stopping short of offering firm guidance over what that means for the near-term monetary policy outlook.“The United States has seen considerable disinflation while experiencing a cooling but still resilient labor market,” Kugler said in the text of a speech prepared for delivery before the 2024 Annual Meeting of the Latin American and Caribbean Economic Association and the Latin American and Caribbean Chapter of the Econometric Society, in Montevideo, Uruguay. But while there’s been progress on getting inflation back to the 2% target, Kugler noted there are likely to be ongoing challenges to further ease price pressures from housing factors and other factors. Meanwhile, Kugler said the job market has rebalanced itself and cooled.As for the monetary policy implications of the current landscape, Kugler said it would come down how the data performs. She did not say in her formal remarks whether she expected the Fed to cut rates again next month. The combination “of a continued but slowing trend in disinflation and cooling labor markets means that we need to continue paying attention to both sides of our mandate,” the official said. If inflation doesn’t retreat further “it would be appropriate to pause our policy rate cuts. But if the labor market slows down suddenly, it would be appropriate to continue to gradually reduce the policy rate.” More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldNow where have we heard these words before? Peter Mandelson, the former cabinet minister and EU commissioner now widely touted in Labour circles as the next ambassador to Washington, has pronounced that in navigating its relationship between the EU and a Trump-led America, Britain needs to “have our cake and eat it”.Mandelson is no Boris Johnson, so his adoption of the former prime minister’s cakeist Brexit mantra offers a hint of the government’s early thinking on how to respond to the new reality. The first days since Donald Trump’s victory have provoked strong opinions, most of which argue the UK must now do whatever the commentator already wanted to see happen.Left Remainers see a chance for closer ties with the EU in the horror of Trump 2. The free-trade Brexit dream is over and, with an unreliable Atlantic ally and looming trade war, the UK cannot risk being squashed between two blocs. On the environment, European security and maintaining multilateral order, the UK aligns with the EU. Keir Starmer may have ruled out rejoining its structures this parliament but policy can tilt faster towards regulatory realignment and security pacts. Brexiters are similarly excited. Here at last is that coveted UK-US free-trade deal, which could further push Britain out of the EU’s regulatory orbit. The UK has too many defence and trade interests to abandon the Atlantic alliance, so the only option is to double down on it. Throw in hawkishness on China and doubts over the stability of European leadership and the play is obvious.It is possible that Trump’s second term is so shocking that judgments change but choosing sides is not in Britain’s interest. Both alliances must be sustained. There is no benefit to being pulled further from an EU with which Britain has just begun to rebuild ties and no prospect of the UK walking away from the Atlantic alliance. In any case, all the grand strategies assume a degree of agency the UK may not have. So, in the words of one diplomatic source with an eye for a happy phrase, Britain must “relearn the art of the deal”. The nation’s diplomatic and economic stance needs to be more transactional. Realpolitik will rule. That means minimising unwanted choices and advancing UK interests through ad hoc alliances built around specific goals. Tying America to a shared agenda will not be easy. Trump will be even less biddable second time around and the value of his anglophilia is overstated.With the US, Britain will lean on intelligence and defence ties as it seeks to keep America engaged in Europe. US demands for higher defence spending are a necessary and fair price for maintaining Nato and some of that can be spent in America. While arguing for free trade, the UK will also seek to minimise direct tariff disruption, and since its exports are services-led, its small goods surplus should push it lower down Trump’s targets. A full trade deal will not be the primary focus, but if a politically sellable agreement that does not limit opportunities with the EU is on offer, then of course Britain will take it. Some point to last year’s Atlantic Declaration between Rishi Sunak and Joe Biden as a template. Security — including the Aukus defence pact — defence technology, life sciences and artificial intelligence will be the overlapping areas of interest, and ones where the UK is closer to American regulatory instincts. With the EU, the focus will be on defence and energy security, data sharing, easing obstacles to market access and some form of youth mobility scheme. Starmer and David Lammy, foreign secretary, are working to reinsert the UK into EU structures, primarily via a new security pact. The UK is going to be buffeted by big power politics. It can neither afford to repel nor cosy up to China but it is already putting more diplomatic effort into Beijing while emphasising alliances with Japan and Australia.Relearning the art of the deal also means acting with more humility, coaxing rather than demanding, and avoiding jingoistic stances that win temporary cheers in the press but alienate potential allies. The UK must act as a middle power, outside of rival economic blocs, weaving between the EU and US, being a strong voice and building alliances for causes it supports, as it has with Ukraine and climate change.Recent Foreign Office reviews demanded by Lammy, who anticipated Trump’s win, have focused on economic diplomacy and on working with the global south (where the west has lost ground to China), while the Budget found more funding for the soft power of the BBC World Service.This then is a vision of Britain on its mettle. And if that all sounds a little familiar, there is a reason. For this is an updated vision of the freewheeling Global Britain that Johnson and the Brexiters championed. As then, such statecraft is easier to articulate than achieve but for now at least it may be the best available model.Before the US election, most in Labour saw a future in which they drew closer to the EU with the blessing of the White House and all worked together on shared security and climate goals.  The new president has changed that calculation. Labour remains too pro-EU to be pushed from its orbit. But in forcing the UK to adjust to a new and unwelcome world order, it may well be that Trump becomes the man who delivers the original diplomatic vision of Brexit.robert.shrimsley@ft.com More