Economy

European companies including Northvolt, Linde, Volkswagen, Enel have all expressed interest in profiting from the U.S. subsidies.
Experts have argued that the simplicity of the IRA is too attractive to pass up on.
But Europe cannot afford to lose key investments as it struggles with a cost-of-living crisis.

Elon Musk, Tesla CEO, on a stage at the Tesla Gigafactory in Grünheide, Germany.
Picture Alliance | Picture Alliance | Getty Images

Tesla recently announced a strategy shift away from Europe as it seeks to benefit from unprecedented subsidies in the United States. But it’s not the only company reviewing investment decisions vis-à-vis Europe.
Many multinationals are reconsidering plans to deploy new money into Europe. It comes after U.S. President Joe Biden last year presented the Inflation Reduction Act, or the IRA, which includes a record $369 billion in spending on climate and energy policies.

The landmark legislation, which features green subsidies for businesses, has raised competition issues for European companies — and upset politicians in the region. Brussels has been left considering how best to respond.
Northvolt, a Swedish battery maker; Linde, a chemical giant from Germany; Volkswagen, the carmaker; Enel, the Italian energy giant, have all expressed an interest in profiting from U.S. subsidies. And there could be more.

Europe needs to step up its game.

Miguel Stillwell D ‘Andrade
CEO of EDP

“European companies, they prefer to have the present of the U.S. government rather than the penalty of the European authorities,” Evangelos Mytilineos, CEO and chairman at the Greek industrial conglomerate Mytilineos, told CNBC’s “Squawk Box Europe” about the additional bureaucracy in Europe.
When asked if he would be taking his business to the U.S., Mytilineos replied, “It is a possibility. Unfortunately, it is not just a possibility for our company.”
It is still early to assess just how much investment could drift away from Europe as a result of Biden’s policy. But so far the message from European businesses is clear: they want officials in the region to do more to support them.

“Europe needs to step up its game,” Miguel Stillwell D ‘Andrade, CEO of energy giant EDP, told CNBC’s Squawk Box Europe Friday. He described the IRA as an “extremely powerful, simple pro-business investment tool.”
In a speech in February, European Commission President Ursula von der Leyen said it was time for a “simpler and faster framework.” Previously, her team had welcomed the efforts stateside for a cleaner economy, while intensifying talks with their counterparts to ensure European businesses would not flock to America.
But there are fears it could be too little, too late.

Peter Carlsson, the CEO of Northvolt, told CNBC in February that his company has been working on a North American plant. “And with the IRA that plan kind [of] got turbo boosted given the very strong incentives,” he added.
Northvolt is in the midst of deciding whether to press ahead with its expansion in North America before doing so in Germany.
Meanwhile, Ilham Kadri, CEO of Solvay, a chemicals company headquartered in Belgium, said in January: “The reality is that the Biden administration incentivizes when Europe regulates — to put it black in white.”

EU ‘aware that it needs to do more’

Tesla last month decided to scale back some investments in Germany and focus on the North American market instead to benefit from the IRA.
“The focus of Tesla’s cell production is currently in the United States due to the framework created by the United States Inflation Reduction Act (IRA),” the company said on Feb. 22, according to Reuters. A spokesperson for the company was not available when contacted by CNBC Thursday.
It comes as both businesses and analysts argue that the simplicity of the IRA is too attractive to pass up on.
“The IRA is constructed in a way that is first of all, very simple. And simplicity is always a winner. By contrast, the European Union machinery is a lot more complex,” said Maria Demertzis, senior fellow at the think tank Bruegel.

“Will firms in the European Union or anywhere else postpone investment that they wanted to make in the European Union and actually profit from the direct and very simple and immediate benefit that the IRA actually promises?”
It’s something European officials are worried about, she added, and comes at a particularly difficult time.
Economies across the EU cannot afford to lose key investments as they struggle with a cost-of-living crisis. The bloc also wants to be independent of China and others for critical materials like lithium.
“The EU is particularly aware that it needs to do more to compete internationally,” Demertzis said.
The European Commission, the executive arm of the EU, is still working on a Sovereignty Fund to provide financing for green projects, but the full details are not expected before June.

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KARACHI, Pakistan (Reuters) – The Pakistani rupee on Friday strengthened 2.38% in interbank closing at 278.46 rupees against the dollar, a day after the central bank raised its policy interest rate by 300 basis points (bps) to 20%, trading data showed.The rupee, which fell more than 6% on Thursday, was trading at 275.5 against the dollar during the day, up nearly 3.5%, after the opening session.”The rupee may have appreciated over the governors statement in the analyst meeting where he says the IMF has not asked to match the border rate,” says Mustafa Pasha, chief investment officer at Lakson Investments. Pasha added that expectations of reaching a staff level agreement soon have shot up now that the government has floated the currency, withdrawn farmer/export subsidies, and imposed electricity surcharges. He says, “On the other hand, it could be that the SBP has done a soft intervention or overseas Pakistanis decided to remit after seeing the rupee touch 286 against the dollar.”The value of the local currency has been depreciating amid delays in a funding deal with the International Monetary Fund (IMF), which is crucial for the South Asian’s broken economy faced with a balance-of-payment crisis.The sides have been negotiating a policy framework since the start of last month to agree on measures to bridge the fiscal deficit ahead of an annual budget around June.A staff-level agreement is yet to be signed, which finance minister Ishaq Dar said on Thursday should be done by next week.If negotiations succeed, the IMF will issue over $1 billion to Pakistan, which is critical to unlock other bilateral and multilateral funding.A market-based currency exchange is one of several conditions the IMF has made to approve the funding.Moody’s (NYSE:MCO) downgraded the crisis struck country unsecured debt ratings to ‘’Caa3’ from ‘Caa1’ on Wednesday. On Friday five Pakistani banks: Allied Bank Limited (ABL), Habib Bank Ltd. (HBL), MCB Bank Limited (MCB), National Bank of Pakistan (NBP) and United Bank Ltd. (UBL), were also downgraded to Caa3 from Caa1. (This story has been corrected to fix figure in headline to 2.38%) More

March futures on the S&P/TSX index were up 0.3% at 7:12 a.m. ET.The Toronto Stock Exchange’s S&P/TSX composite index closed at its highest in nearly two weeks on Thursday, underpinned by gains in technology and industrial shares.Canada’s independent budgetary watchdog forecast that the Bank of Canada will hold rates at the current level of 4.5% till the year-end and will start cutting rates in January 2024, making the first major central bank to say it would likely “pause” monetary tightening.Gold prices climbed to their highest in two weeks as a softer dollar made bullion cheaper for holders of other currencies. [GOL/]Among stocks, Equinor said it would acquire the British oil and gas business of Canada’s Suncor Energy (NYSE:SU) for $850 million.Meanwhile, data showed home prices in the Greater Toronto Area (GTA) rose in February from the previous month, but were down sharply on an annual basis, as borrowing costs climbed.Investors now await January monthly building permits data later in the day, which is expected to rise 1.5% from a decline of 7.3% in the previous month. Dow e-minis were up 95 points, or 0.29% at 7:12 a.m. ET, while S&P 500 e-minis were up 16.75 points, or 0.42%, and Nasdaq 100 e-minis were up 58.5 points, or 0.48%. [.N]COMMODITIES AT 7:00 a.m. ET Gold futures: $1,852.8; +0.7% [GOL/]US crude: $77.98; -0.2% [O/R]Brent crude: $84.53; -0.3% [O/R]U.S. ECONOMIC DATA DUE ON FRIDAYFeb S&P global composite final PMI data due 9:45 a.m. ETFeb ISM manufacturing PMI data due 10:00 a.m. ETFOR CANADIAN MARKETS NEWS, CLICK ON CODES:TSX market report (TO)Canadian dollar and bonds report [CAD/] [CA/]Reuters global stocks poll for CanadaCanadian markets directory($1 = 1.3566 Canadian dollars) More

LONDON (Reuters) – The U.S. dollar eased from a 2-1/2-month high versus the yen on Friday and looked set for its first weekly loss against major peers since January as traders tried to gauge the path for Federal Reserve policy.The yen, which is particularly sensitive to U.S.-Japanese long-term interest rate differentials, looked set to halt its six-week losing streak as it gained strength on Friday with 10-year U.S. yields retreating from a nearly four-month high close to 4.1%.Cryptocurrencies took a beating as the crisis engulfing Silvergate worsened, with industry heavyweights including Coinbase (NASDAQ:COIN) Global and Galaxy Digital dropping the lender as their banking partner.The dollar index, which measures the currency against the yen, euro and four other major peers, eased 0.25% to 104.7, from as high as 105.36 at the start of the week, which was its strongest level since Jan. 6. Since last Friday, the index has slipped 0.5%.Taking some steam out of the dollar and the breathless advance in U.S. yields were comments from Fed policymakers, including Atlanta Fed President Raphael Bostic, who said that “slow and steady is going to be the appropriate course of action,” despite new labour figures adding to the run of strong data of late.”Yesterday’s Fed speakers – Collins, Waller and Bostic all seemed content with 25bp hikes for now,” said Mizuho senior economist Colin Asher in a note. “Most noted a possible need to push rates higher if the data continue to come in hot – suggesting data dependence,” Asher added.Analysts polled by Reuters said recent dollar strength was temporary, and the currency will weaken over the course of the year amid an improving global economy and expectations the Fed will stop hiking interest rates well ahead of the European Central Bank.”A lot of the dollar strength seen in February has probably run its course now,” said Michael Brown, market analyst at TraderX. “I wouldn’t be surprised to see some consolidation until (Fed Chair) Powell speaks next week and the jobs report on Friday, with the bar for significant further gains in the dollar quite high at this point,” Brown added. The Bank of Japan (BOJ), meanwhile, is expected to start dismantling extraordinary stimulus measures some time after Governor Haruhiko Kuroda retires next month.Tokyo inflation data for February exceeded the BOJ’s target for a ninth month, but the core measure did decelerate from a 42-year high.The dollar eased 0.54% to 136.02 yen, after climbing to 137.10 overnight, the highest since Dec. 20. For the week, the dollar is down 0.3% versus the yen, but any gain would preserve its win streak since mid-January.The euro rose 0.16% to $1.0614, after climbing off a nearly two-month low of $1.0533 at the start of the week. Since last Friday, it is up 0.7%.Sterling added 0.44% to $1.1998, on track for a 0.4% weekly rise, after Britain struck a post-Brexit Northern Ireland trade deal with the European Union, while a survey showed Britain’s services sector grew at the fastest pace in eight months in February. The Aussie strengthened 0.42% to $0.6758, putting it up 0.48% for the week.Bitcoin slid 4.8% to $22,348, and earlier touched a 2 1/2-week low at $22,000. Ether declined 5% to $1,565 after touching $1,543.60, also a first since mid-February. More

Refinitiv Lipper data showed investors offloaded a net $12.9 billion worth of U.S. equity funds, booking their biggest weekly disposal since Jan. 4. Fund flows: US equities, bonds and money market funds https://fingfx.thomsonreuters.com/gfx/mkt/gdvzqmbexpw/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg Meanwhile, money market funds drew a net $64.86 billion, the biggest weekly inflow in eight weeks, amid a risk-off mood among investors.U.S. large- and mid-cap equity funds faced $6.27 billion and $267 million worth of outflows, while investors drew $1.32 billion out of the small cap funds, snapping a four-week-long buying streak. Fund flows: US growth and value funds https://fingfx.thomsonreuters.com/gfx/mkt/zgpobnzdwvd/Fund%20flows%20US%20growth%20and%20value%20funds.jpg Healthcare, tech, and utilities lost $797 million, $581 million and $450 million, respectively in net selling, but industrials obtained about $542 million worth of inflows. Fund flows: US equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/jnvwyabzqvw/Fund%20flows%20US%20equity%20sector%20funds.jpg Meanwhile, U.S. bond funds obtained $2.79 billion in inflows after witnessing two weeks of net selling.Investors purchased U.S. short/intermediate government & treasury funds of $4.75 billion, while general domestic taxable fixed-income funds attracted $1.9 billion worth of inflows. Still, high-yield funds lost about $2 billion in a third straight week of outflows. Fund flows: US bond funds https://fingfx.thomsonreuters.com/gfx/mkt/byvrlqealve/Fund%20flows%20US%20bond%20funds.jpg More

Investing.com — Central bank watchers get more than they bargain for as they tune in to Federal Reserve Governor Chris Waller’s latest warnings on inflation. Two-year bond yields are set for their highest weekly close since 2007. The ISM releases its non-manufacturing survey. Broadcom and Marvell offer starkly diverging views of the outlook for chipmakers, but VMWare and C3.AI surprise positively. Rajiv Jain rides to the rescue of Gautam Adani, and Russia’s armed forces claim they’re close to capturing the town of Bakhmut, the focal point of fighting in Ukraine for the last four months. Here’s what you need to know in financial markets on Friday, 4th March.1. Fed’s Waller, Bostic warn on rate pathBenchmark 2-year U.S. bond yields are set for their highest weekly close in over 15 years, at the end of a week stamped by fears that inflation isn’t coming down as quickly as hoped.Two Federal Reserve officials – Governor Chris Waller and Atlanta Fed President Raphael Bostic – said on Thursday that they’re open to raising rates by more than they previously thought would be necessary, pushing market expectations of the ‘terminal’ fed funds rate in this cycle ever closer to 5.5%.Bostic stressed that he’s still in favor of “slow, steady” increases rather than reverting to hikes of 50 basis points. Waller’s prepared remarks indicated he still sees a terminal rate of between 5.1% and 5.4%, but would revise that higher if economic data continue to come in hotter than expected.“Hotter than expected” was one way of describing Waller’s comments in general. The speech, which was due to be delivered remotely – ended up being canceled after one user’s device was hacked and used to broadcast pornography to the rest of the participants.2. Mixed fortunes for chipmakersChipmakers Broadcom (NASDAQ:AVGO) and Marvell (NASDAQ:MRVL) offered starkly contrasting outlooks for the year ahead as the semiconductor industry grapples with a looming glut.Broadcom stock edged up in premarket after it forecast a “soft landing” in the second half, cushioned by an order book that still looks amply stocked and by strong demand for chips powering the rapid expansion in artificial intelligence applications. That echoed with a strong outlook from C3.AI (NYSE:AI), which rose over 16% in premarket.By contrast, Marvell Technologies stock fell nearly 9%, putting it on course to test a five-week low when it opens later, after the company forecast earnings in a range around 29c a share in the current quarter, around 30% below consensus. 3. Stocks set to extend rebound; ISM Non-manufacturing survey dueU.S. stock markets are set to extend their gains after rebounding on Thursday, putting them on course for a weekly gain that looked unlikely a couple of days ago.By 06:45 ET (11:45 GMT), Dow Jones futures were up 62 points, or 0.2%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.4%, with Broadcom’s outlook giving support to most of the rest of the chipmaking sector. Solid reports from VMware (NYSE:VMW) and Hewlett Packard Enterprise (NYSE:HPE) also reassured as to the strength of business investment, although Dell (NYSE:DELL) and Zscaler (NASDAQ:ZS) both slumped after giving weak outlooks.Early attention is likely to focus on the ISM’s non-manufacturing survey due at 10:00 ET, with the market on the lookout for any further evidence of ‘sticky’ inflation.4. Rajiv Jain gives Adani some breathing spaceEmbattled Indian tycoon Gautam Adani got a shot in the arm, as GQG – a U.S.-based investment firm founded by Indian-born Rajiv Jain – injected $1.9 billion into various parts of his struggling empire.The move was the biggest external vote of confidence in Adani’s group since it was hit by a short-selling report from Hindenburg Research, which accused it of using excessive debt and shell companies to inflate the value of its portfolio companies’ stocks. Adani Enterprises (NS:ADEL), the group’s flagship holding company, rose nearly 17%, although it’s still down more than 50% year-to-date. Adani Ports and Special Economic Zone (NS:APSE) stock rose 10% and Adani Transmission (NS:ADAI) rose 5%.5. Russians close in on BakhmutThe battle for Bakhmut appeared to be nearing its end, as Russian forces claimed they had all but surrounded the town that has been the focal point of fighting in Ukraine for the last four months. Ukrainian authorities acknowledged that a bridge on the last serviceable road out of Bakhmut had been destroyed, further undermining the position of the remaining defenders.The fall of Bakhmut would in theory allow Russia to resupply its forces further south in Ukraine more easily, making it harder for Ukraine to recapture the provinces that the Kremlin annexed last year. That in turn could provide a fresh test of U.S. and European resolve to continue supporting Kyiv.Recent reports have suggested that France and Germany, in particular, have urged President Volodymyr Zelensky to consider peace talks – something that Zelensky and (at least in public) all of Ukraine’s western allies reject. More

COLOMBO (Reuters) -Sri Lanka’s central bank raised interest rates in an unexpected move on Friday in a bid to help the country secure a bailout package from the International Monetary Fund (IMF) to stabilise its crisis-hit economy.The bank raised its standing deposit facility rate and standing lending facility rate by 100 basis points each to 15.50% and 16.50%, respectively, it said in a statement.The country is awaiting approval of a $2.9 billion IMF bailout package.Central bank Governor P. Nandalal Weerasinghe said with the rate increase all “prior actions” have been fulfilled and he was hopeful of the IMF bailout being approved within this month.Despite the increase in rates, the central bank expects market rates will continue to reduce, while on the currency front the country will gradually move towards a market-driven exchange rate regime, Weerasinghe added.The island nation’s economy has been squeezed by its worst financial crisis since independence from Britain in 1948, with growth contracting by an estimated 9.2% last year amid soaring inflation that hit 50% in February.”There have been some differences between the CBSL and IMF staff on the inflation outlook,” the Central Bank of Sri Lanka (CBSL) said in its statement.”Given the necessity of fulfilling all the ‘prior actions’ in order to move forward with the finalisation of the IMF Extended Fund Facility (EFF) arrangement, the Monetary Board and the IMF staff reached consensus to raise the policy interest rates,” it added.Sri Lanka has to restructure its debt before IMF disbursements can begin.”It indicates that the IMF staff are pushing to complete any and all possible domestic actions, hoping they can convince IMF board for approval of the program,” Thilina Panduwawala, head of research at Colombo-based Frontier Research, said.”It will probably leave the market confused in the near term than confident. But depends on whether the market reads this as positive for getting IMF (bailout) in March.”Sri Lanka is seeking IMF approval under a special Lending Into Official Arrears policy, which allows the global lender to green-light the program without formal prior financing assurances from China, Weerasinghe said.India and the Paris Club of creditors, the island nation’s other major lenders have already given their support.Recent tax increases are in line with international comparisons and are needed to help creditors regain confidence, the IMF said on Thursday, backing Sri Lanka’s efforts to lock down a programme. More

(Reuters) – The reward for holding U.S. stocks over Treasury bonds has not been this unattractive since 2004, possibly setting the stage for the sought-after 60/40 portfolio diversification to make a comeback after one of its worst years on record.A 60/40 portfolio, which typically has 60% of its holdings in stocks and the remaining 40% in fixed income, counts on moves in the two asset classes to offset one another, with stocks strengthening amid economic optimism and bonds rising during turbulent times.The strategy took a backseat in 2022 as the Federal Reserve raised interest rates aggressively to rein in inflation. However, signals from the stock and bond markets this year are pointing to a return of the popular asset allocation strategy.At the end of February, the S&P 500 returned 5.41% in earnings yield, the reciprocal of price-to-earnings ratio, while the yield on the benchmark U.S. 10-year bond surged to 3.94%, according to data from Refinitiv. The 1.47 percentage-point difference is the lowest upside stocks have held over bonds in nearly two decades.Earnings yield here refers to the S&P 500 earnings per share estimate for the next 12 moths divided by the index price. Graphic: Stock snag https://www.reuters.com/graphics/STOCK-SPREADS/CHART/byprlqxyepe/chart.png “The relative shine of equities is definitely dulled by rising yields across the Treasury curve,” said Eric Leve, chief investment officer of wealth and investment management firm Bailard.With estimates for earnings in 2023 implying essentially no growth over 2022, rates above 5% on short-term bonds and 10-year yields on the verge of 4% represent credible alternatives to stocks, according to Leve. The thinning spread between returns from stocks and bonds is set to bring the 60/40 portfolio strategy back in favor.”This strategy does provide excellent hedging in current environment,” said Glenn Yin, Head of Research and Analysis at AETOS Capital Group.The 60/40 portfolio has already had the best start to the year since 1991, according to Bank of America (NYSE:BAC).The Fed’s move to tighten monetary policy at the fastest pace in decades pumped up bond yields after nearly two years of near-zero interest rates.But a rise in yields poses headwinds for equities, especially growth stocks, and by extension, a large index like the S&P 500. Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) and Amazon.com Inc (NASDAQ:AMZN) are among the tech heavyweights that make up nearly a fifth of the index and bore the brunt of a sell-off last year.”Equity yields will continue to struggle this year as both prices and earnings decline” amid an economic slowdown, said Lance Roberts, Chief Investment Strategist at RIA Advisors.On the other hand, “during a recession, yields will fall and Treasury bond prices will rise,” said Roberts. He prefers bonds over stocks today, he added.Recent results and guidance from companies have bolstered the case for investors who believe the stock market’s early-year rally is unlikely to last.As of Feb. 24, results from 465 of the S&P 500 companies showed fourth-quarter earnings are estimated to have fallen 3.2% from the year-ago quarter while Wall Street’s expectation for S&P earnings growth for 2023 fell to 1.7% from an expected 4.4% on Jan. 1, according to Refinitiv.Expectations for U.S. earnings to decline in the first two quarters if the year come amid weaker-than-expected fourth-quarter results for 2022, which Credit Suisse estimates will be the worst earnings season outside of a recession in 24 years.Investors are hoping that in case of a severe recession, the Fed would be forced to slash interest rates. While the economic downturn would hit stock returns, drop in bond yields should provide some relief in such a scenario, according to analysts.”For me, the best risk-reward portfolio in this environment for now is long duration Treasury bonds, and deep value, dividend equities,” Roberts said. Deep value refers to stocks that are trading at a huge discount to their intrinsic values.”When the recession arrives, and the Fed cuts rates to zero, I will sell my bond portfolio to lock in the capital appreciation, and buy distressed equities with high yields and companies with strong balance sheets and earnings growth,” he added. More