Economy

HOSUR, India (Reuters) – At least 10 people received medical treatment, with two hospitalised, after a major fire on Saturday disrupted production at a key Tata Electronics plant in southern India which makes Apple (NASDAQ:AAPL) iPhone components.The incident is the latest to affect Apple’s iPhone supply chain just as the company is looking to diversify beyond China and sees India as a key growth market. It is also the latest in a string of incidents to affect Apple suppliers in India over the last few years.The fire occurred at the plant in the city of Hosur in Tamil Nadu state which makes some iPhone components. It broke out near another building inside the Tata complex which will in coming months turn out complete iPhones. The fire was contained to one building and has been extinguished fully, top district administrative official K.M. Sarayu said. No decision has been made on when manufacturing can restart, she said.”Fumes are still coming since it’s a chemical hazard. It will take time for the search and rescue team to go inside and do an assessment. We have to wait till tomorrow,” she added.Sarayu said that 523 workers were on shift when the fire broke out in the early morning and that all workers had been evacuated and accounted for.Savitri, an eyewitness who lives near the plant and only gave her first name, said she heard “loud sounds around 5.30 a.m. (midnight GMT) that sounded like crackers going off. After that we just saw plumes of smoke from the building, and there was thick smoke till at least 10 in the morning.”EMERGENCY PROTOCOLSTata Electronics is one of the major contract makers of iPhones in India, along with Foxconn. The company said it was investigating the cause of the fire and would take the necessary steps to safeguard employees and other stakeholders.”Our emergency protocols at the plant ensured that all employees are safe,” a Tata Electronics spokesperson said. J. Saravanan, a senior district official charged with handling industrial safety, said it was not yet possible to say when production at the facility will resume, as “we will need to go in to understand more, depending on the damage.”He said the injuries were all related to smoke inhalation but give no further detail.Production was halted and employees sent home for the day following the fire, a person with direct knowledge of the incident said earlier, describing the blaze as chemical-related.A second industry source said it was not yet clear if a neighbouring building where smartphone manufacturing was due to start by year-end had also been affected.With the facility inaccessible at the moment, the source said, an assessment of damage from the fire will have to be done later.Apple made no immediate comment on the incident. The fire began in an area used to store chemicals, a fire official said on condition of anonymity as he was not authorised to speak to the media.Last year, Apple supplier Foxlink halted production at its assembly facility in the southern Indian state of Andhra Pradesh after a massive fire led part of the building to collapse. More

Gen X is a critical segment of the U.S. economy that is often overlooked. Despite making up just 27% of households in 2022, they accounted for more than 33% of consumer expenditures, outpacing even Millennials.As of August 2024, Gen X’s discretionary spending fell by 2% year-over-year, indicating a marked shift in behavior.One of the primary reasons for this slowdown is the rising share of household spending on necessities. These include housing, utilities, and insurance, typically paid through non-card channels like ACH and bill pay. As necessity spending continues to increase, it squeezes the funds available for discretionary purchases. Another key factor is Gen X’s shift toward saving and investing as they age. BofA’s data indicates that investments per Gen X household are 40% higher than the average across all generations, suggesting that many in this cohort are prioritizing long-term financial security over short-term consumption. This trend is particularly strong among those approaching retirement, as over a third of Gen X plans to retire within the next 10 years, and many are increasing their contributions to 401(k) and other investment accounts.Additionally, Gen X faces unique financial pressures from both ends of the generational spectrum. Often referred to as the “sandwich generation,” they are frequently responsible for supporting not only their aging parents but also their adult children. A rising number of young adults aged 18 to 34 continue to live at home, and many rely on their parents for financial support. The U.S. Census Bureau reports that 23% of 18- to 24-year-olds live at home, while the number of 25- to 34-year-olds doing the same has doubled since 1960, reaching 10% in 2023. This adds to the financial burden on Gen X households, further limiting their ability to spend on non-essential items. While younger generations have seen robust wage growth in recent years, helping to boost their discretionary spending, Gen X has lagged behind. BofA Securities data shows that their wage growth has been slower compared to Millennials and Gen Z, making it harder for them to absorb rising costs of living while maintaining previous levels of discretionary spending. However, despite this slower wage growth, the expense-to-wage ratio for Gen X has remained relatively stable over the past few years, indicating that their reduced spending may be more a matter of choice than necessity.Going forward, while Gen X may eventually benefit from the “great wealth transfer” as Baby Boomers pass down trillions of dollars in assets, those financial windfalls are likely years away. In the meantime, the financial pressures of supporting both older and younger generations, combined with a focus on saving and investing for retirement, suggest that Gen X’s reduced spending may continue for the foreseeable future. More

Yardeni Research offers a pointed observation: the current environment resembles the conditions that led to a stock market “meltup” in the 1990s. A meltup refers to a sharp and unsustainable rise in asset prices driven more by a surge in investor sentiment than by improving fundamentals.Yardeni’s comparison to the 1990s is significant. During that period, the U.S. economy experienced low inflation and robust economic growth, creating an environment in which asset prices, particularly stocks, soared. A combination of factors, including aggressive monetary easing, low interest rates, and technological advancements, resulted in a prolonged bull market. However, this surge in stock prices, particularly in the tech sector, led to a bubble, which burst in the early 2000s.Yardeni suggests that the recent rate cuts, despite an already strong economy, set the stage for a similar trajectory. The stock market has already demonstrated signs of frothy valuations, and further easing could accelerate those trends. By removing recessionary risks, the Fed’s policy encourages more liquidity in the market, fueling a potential stock market rally driven by investor exuberance rather than solid economic fundamentals​.The decision to cut rates when unemployment is low and growth is solid carries inherent risks. According to Yardeni, the FOMC’s move could stimulate an economy that does not need further boosting. This policy could push asset prices into overvaluation territory, stretching valuations and increasing macroeconomic volatility. “Hence, we raised our subjective probability for a 1990s-style stock market meltup from 20% to 30% last week,” the analysts said. In the 1990s, the market’s meltup culminated in the dot-com bubble. Yardeni implies that a similar pattern could emerge if investors’ risk-taking is emboldened by low rates. The surge in liquidity could lead to excessive speculation, particularly in technology and growth stocks, where valuations are already stretched.FOMC Chair Jerome Powell’s decision to lower rates, Yardeni suggests, is likely motivated by a desire to prevent unemployment from rising significantly, especially after a period of high inflation. However, this choice to prioritize avoiding recession risks may increase the chances of overheating. Yardeni points out that Powell’s decision seems to avoid short-term economic pain at the cost of long-term stability, which could mirror the Fed’s approach in the 1990s.While Powell and other Fed officials argue that the current inflation outlook is benign and that further rate cuts will help steer inflation toward their 2% target, Yardeni expresses caution. Analysts flag the potential for higher long-term inflation and volatility as the market digests the consequences of easier monetary policy.Yardeni remains optimistic about the long-term prospects for productivity growth, which could allow the economy to grow without igniting runaway inflation. The analysts describes a “Roaring 2020s” scenario where technological advancements drive productivity and support sustained economic growth. Nevertheless, Yardeni warns that even if this optimistic scenario unfolds, a stock market meltup could lead to a subsequent correction or even a crash​. More

As per analysts at BCA Research, these measures were primarily designed to fuel a rally in Chinese equities and “China plays” on the global stage, which have been in an oversold condition. This policy shift has created excitement in financial circles, leading to a rebound in market sentiment. The short-term effects of these policies appear to provide an adrenaline boost to Chinese stocks, with investors seeing an opportunity to capitalize on this surge.However, the key question remains: will this policy bazooka extend its effects beyond financial markets and stimulate the broader Chinese economy? BCA Research analysts express skepticism on this front, suggesting that while Chinese equities might see a temporary period of outperformance, the real economy remains mired in structural issues. Despite the recent announcements, the measures are unlikely to be a game-changer for China’s business cycle, at least not within the next six months.The critical obstacles lie in China’s ongoing debt deflation, weak household sentiment, and low confidence in private businesses and local governments. “This subsidy makes up only 0.8% of GDP and thus might not be a game changer,” the analysts said.As per BCA Research, this is insufficient to prompt a meaningful recovery, especially when China’s property market struggles and the household income growth is weak.Moreover, BCA notes that without substantial intervention—such as a large-scale quantitative easing program targeting the property sector—the property market will likely remain a major drag on the economy. Previous efforts, including a financing initiative for property developers in 2022, failed to deliver meaningful results. As a result, further monetary stimulus is seen as necessary to encourage borrowing and spending, though the real lending rates in China remain high in deflationary conditions.“Businesspeople remain suspicious of current government policies toward large private enterprises,” the analysts said. Additionally, local governments, already strained by debt and anticorruption campaigns, may be slow to embrace policies aimed at promoting growth. More

1) ‘How Should We Think About the Post-COVID Economy?:’ According to the note, fiscal support played a significant role in sustaining consumer demand during the pandemic, with excess savings boosting spending in the years that followed. However, the policy mix in many advanced economies is currently unbalanced.”Budget deficits are too large and interest rates are too high,” the note highlights. A rebalancing towards tighter fiscal policy and looser monetary policy is considered necessary to restore stability.On the supply side, the pandemic caused significant dislocations, shifting the aggregate supply curve inward.At the same time, monetary and fiscal expansion shifted the demand curve outward, leading to the inflation seen in 2021-22.As these dislocations have faded, economies like the US have benefited from increased immigration, which boosted labor supply. That shift has allowed for higher output with lower inflation, raising the possibility of a soft landing, where inflation can be controlled without tipping economies into recession.2) ‘Why Has Europe Lagged the US?:’In the report, Capital Economics points out a clear underperformance of Europe compared to the US.Since the pre-COVID period, the US economy has grown by nearly 10%, while the eurozone has expanded by only 3.9%.One common explanation is the prevalence of fixed-rate mortgages in the US, which have shielded households from rising interest rates more effectively than in Europe. However, Capital Economics argues that the data doesn’t fully support this, pointing instead to smaller fiscal support and the energy shock following Russia’s invasion of Ukraine as the key reasons for Europe’s struggles.In addition, the structural weaknesses in key industries, particularly in Germany, are expected to persist.“Accordingly, we expect that the euro-zone economy will continue to experience extremely low rates of growth and our GDP forecasts remain below that of the consensus,” the note writes.The European Central Bank is anticipated to gradually ease rates, but this may not be enough to significantly stimulate growth in the region.3) ‘What Are the Key Risks to the Outlook?:’Capital Economics identifies several risks that could disrupt the global economic outlook. The biggest concern is a potential hard landing or recession in the US, though the firm still believes a soft landing is the most likely scenario.Political risks also loom large, with the US election posing uncertainty. Measures floated by Donald Trump during his campaign could “reduce US GDP and raise inflation,” although the note suggests that these proposals may be diluted in practice.China’s economic struggles also present a potential risk, but Capital Economics emphasizes that these problems are structural, and a sudden collapse in China’s economy is not anticipated. Moreover, the threat of geopolitical shocks, such as a conflict between China and Taiwan or disruptions in the Middle East, cannot be ignored.Finally, rising public debt in advanced economies is viewed as a significant long-term risk.”Budget deficits have ballooned, and public debt burdens are high and rising,” the note warns, particularly in light of upcoming elections in the US and Germany. Any perception of fiscal drift could cause turmoil in global bond markets.“Sometimes the biggest risks are hiding in plain sight,” the report concludes. More

While tariffs are often seen as one-off price increases akin to specialized sales taxes, their influence on inflation is far more complex and pervasive. Analysts at UBS warn that the impact of tariffs extends beyond the immediate price hike at the consumer level, creating ripple effects that can exacerbate inflation through multiple channels.At their core, tariffs function as taxes on imported goods, with the cost typically passed on to consumers. This leads to an initial spike in prices, which might seem to be a temporary shift in the price level rather than the kind of sustained inflation that economists fear. However, the real inflationary impact of tariffs is not so straightforward. A deeper look reveals how tariffs can foster profit-led inflation, drive up wages, reduce market competition, and destabilize supply chains—all contributing to a longer-term inflationary cycle.One of the effects of tariffs is their ability to facilitate profit-led inflation. When a tariff is introduced, consumers often expect a proportional increase in prices, believing a 10% tariff should result in a corresponding 10% rise in the cost of goods. However, tariffs are levied on the import price rather than the final consumer price, meaning that the actual impact on retail prices should be far lower. For instance, a 10% tariff applied to the import price—often much less than half the consumer price—should translate to an increase of less than 5% at the retail level. In reality, businesses frequently use the imposition of tariffs as an opportunity to raise prices beyond what is justified by the cost increase, padding their profit margins. UBS analysts point out that this mechanism allows companies to obscure their motives behind the tariff story, leading to inflation that is driven not by higher costs but by inflated profits.This rise in prices, whether directly from tariffs or opportunistically inflated by companies, often has a second-order effect on the labor market, triggering higher wage demands. Workers, seeing their purchasing power eroded by higher prices on goods affected by tariffs, are likely to push for wage increases to compensate for the rising cost of living. When tariffs are broad-based, affecting a wide array of products and sectors, these wage demands can become widespread, influencing both traded and non-traded sectors of the economy. As businesses respond to higher labor costs by raising prices further, the economy risks entering a wage-price spiral, where rising wages and prices continuously feed off each other. UBS notes that this dynamic can become deeply entrenched, making it harder for inflation to subside once the cycle has begun.Beyond the immediate impact on prices and wages, tariffs also have a more insidious effect on market competition, which in turn fuels inflation. By imposing barriers to imported goods, tariffs reduce the competitive pressures that normally help to keep prices in check. When foreign companies face punitive tariffs, they may be discouraged from entering or maintaining a presence in a market where they face a prejudicial sales tax. Even after the tariffs are lifted, the damage to competition may be lasting, as companies are hesitant to reinvest in markets where they once faced protectionist measures. This reduced competition gives domestic companies more leeway to raise prices without fear of being undercut by cheaper foreign alternatives. UBS analysts argue that this long-term reduction in competition can create a more inflationary environment, as firms enjoy greater pricing power in the absence of external pressures to keep costs down.In addition to these demand-side factors, tariffs also exert inflationary pressure on the supply side by disrupting global supply chains. Modern economies rely on deeply integrated supply networks, with raw materials and components crossing multiple borders before they are assembled into finished goods. When tariffs increase the cost of imports, they raise the input costs for manufacturers, which are then passed on to consumers. This effect can be particularly pronounced in industries where the supply chain is complex and global, such as electronics and automobiles. According to UBS analysts, supply-side inflation caused by tariffs can be especially damaging because it not only raises prices for individual products but also disrupts the efficient flow of goods across borders, leading to further bottlenecks and cost increases throughout the economy.Taken together, these dynamics illustrate how tariffs can do far more than create a one-time bump in prices. They interact with broader economic forces, amplifying inflationary pressures in ways that are both direct and indirect. By enabling profit-led price hikes, driving wage demands, stifling competition, and disrupting supply chains, tariffs contribute to a sustained rise in prices that goes beyond their immediate effect. As policymakers weigh the potential benefits of protectionist measures against the risk of inflation, they must be mindful of these complex interactions.UBS analysts underscore the importance of considering these inflationary risks, especially in a global economy still recovering from recent bouts of inflation. While tariffs may serve as a tool to protect domestic industries or raise government revenues, their broader economic impact can reignite inflation just as it appears to be stabilizing.For governments and central banks, managing these risks will be essential to maintaining economic stability and avoiding a return to the high-inflation environment that so many are eager to leave behind. More

They note that while the Fed’s move was designed to show its commitment to staying ahead of inflation risks, the general expectation remains a series of 25bp cuts going forward. According to Powell, the Fed is still confident in the economy’s health and labor market, with further cuts depending on upcoming data like payrolls and consumer spending.The Morgan Stanley note emphasizes that the global central banking response will continue to be influenced by domestic conditions.For example, Brazil’s central bank recently hiked rates due to strong growth and a weaker currency, both signaling inflationary pressures. Conversely, Morgan Stanley says Indonesia’s central bank cut rates after its currency appreciated, reducing inflation risks. These examples are said to show how emerging markets balance global financial conditions with local economic factors.In developed markets, Morgan Stanley analysts expect little immediate reaction to the Fed’s move. In Europe, the European Central Bank (ECB) is expected to continue its cautious approach, with another cut likely in December. The Bank of England (BoE), which paused rate cuts in September due to inflation concerns, is projected to resume cuts in November. The Bank of Japan (BoJ), meanwhile, is likely to hold steady until early 2024.While the Fed’s 50bp cut hints at potential large shifts in the future, Morgan Stanley stresses that it does not indicate a fundamental strategy change.The easing cycle is still viewed as positive for risk assets, but uncertainties remain, particularly around the upcoming U.S. election and its potential effects on 2025 forecasts. More

In spite of calls for bold reform from figures like Mario Draghi, the European region seems destined to continue declining relative to its global competitors, particularly the United States, unless radical change is achieved.At the heart of Europe’s troubles is a major productivity gap. Since the adoption of the euro, the continent has steadily fallen behind the U.S., with a 47% GDP per capita deficit (adjusted for purchasing power parity) as of 2023. The core issue is low productivity, which accounts for 72% of this gap, while reduced labor contributions make up the remaining 28%. This echoes the concerns laid out in Draghi’s report, which frames Europe as too rigid, overly regulated, and fragmented across national borders. It is this fragmentation, along with insufficient investment in research and development, that leaves Europe trailing at the economic frontier.Europe is a currency union without a fiscal union, which is at the root of these problems. The euro binds together economies that are politically and economically divergent, which results in inconsistent policies, inefficient markets, and low levels of investment. BCA Research remains skeptical about Europe’s ability to adopt Draghi’s reforms, such as simpler regulation, greater market integration, and a coherent industrial policy. Afraid of losing their sovereignty, national capitals are hesitant to make the necessary changes. While Europe’s sickness is evident, it may not feel compelled to act until the pain is unbearable.A critical manifestation of this fragmentation is the disparity in investment between Europe and the U.S. On both the private and public fronts, Europe consistently invests less, whether it’s in infrastructure, innovation, or capital expenditures. Compared to the U.S., where higher returns on investment encourage more robust spending, Europe lags behind. The continent’s capital intensity, a key driver of productivity, trails that of the U.S., reflecting the lower rate of investment that characterizes European economies. As BCA Research notes, this trend is particularly worrying when examining sectors like telecommunications, where fragmentation across national markets prevents the emergence of economies of scale, diminishing profitability and stifling investment.While the region remains a leader in green technologies, it has fallen behind in digital technologies like artificial intelligence, cybersecurity, and quantum computing. These are crucial for maintaining competitiveness on the global stage, but Europe’s fragmented markets and insufficient investment in R&D leave it playing catch-up. According to BCA Research, venture capital deals in Europe lag by 80% compared to those in the U.S., underlining the continent’s lack of high-risk funding for technological advancements and new business ventures.Draghi’s proposed reforms would require Europe to boost its investment by €750-800 billion annually by 2030, focusing on energy transition, digital technologies, defense, and R&D. Yet, as BCA Research points out, this goal is unlikely to be met. The continent’s political landscape is fraught with resistance to deeper integration. National interests prevail, and countries like Sweden have already expressed opposition to key aspects of Draghi’s plan, such as the issuance of common bonds. Even France and Germany, the two largest economies in the EU, are paralyzed by political indecision, with little hope for meaningful progress until at least the next round of elections.The lack of a unified fiscal policy further exacerbates Europe’s challenges. The European Commission’s budget is significantly smaller than that of the U.S. federal government, leaving it unable to effectively smooth out economic shocks or direct large-scale investments. This is compounded by the absence of a capital market union, which prevents Europe from raising funds efficiently. As a result, countries like France, Spain, and Italy pay higher premiums on their borrowing than Germany, leading to further fragmentation and financial instability during periods of crisis. Without a more integrated fiscal policy, the continent remains vulnerable to these shocks.BCA Research warns that, structurally, European equities will continue to underperform relative to U.S. equities. The eurozone’s productivity issues and fragmented markets make it difficult for European companies to compete on the same level as their American counterparts. This trend is unlikely to reverse without significant reforms, which seem politically unfeasible in the near term. Moreover, Europe’s long-term economic prospects are hindered by stagflation—a toxic combination of weak productivity growth and declining labor force, alongside large entitlement programs that will drive demand far beyond what the supply side of the economy can meet. This mismatch will fuel inflation, which the European Central Bank may struggle to control, leading to more frequent financial crises and a structurally weaker euro.However, BCA Research does see some potential for Europe in the short to medium term. Over the next five years, Europe may see a period of cyclical outperformance. Global capital expenditure is expected to strengthen, benefiting European equities, particularly as tech stocks in the U.S. face a potential de-rating in the coming years. However, these gains would likely be temporary within a broader structural decline. More