Economy

Today’s top storiesBritishvolt, the collapsed UK battery start-up, has five potential buyers, including Australian peer Recharge Industries. The core personal consumption expenditures index, the US Federal Reserve’s preferred measure of inflation, edged up from 0.2 per cent to 0.3 per cent, but the annual rate fell back from 4.7 per cent to 4.4 per cent. Consumer spending also fell. GDP figures yesterday showed economic growth slowed in the fourth quarter to 2.9 per cent from 3.2 per cent in the previous three months. The sell-off of shares in the Adani Group has now passed $50bn since Hindenburg Research alleged on Wednesday that the group, run by Indian tycoon Gautam Adani, had engaged in stock price manipulation and accounting fraud.For up-to-the-minute news updates, visit our live blogGood evening.UK chancellor Jeremy Hunt today defended the government’s handling of the economy after more signs that the mood was diverging from the sunnier outlook gaining ground in the EU and the US.In a wide-ranging speech ahead of his March 15 Budget, Hunt hosed down talk of tax cuts and outlined his dream of turning Britain into “one of Europe’s most exciting, most innovative and most prosperous economies” via the four Es of enterprise, education, employment and “everywhere” (aka levelling up). Business groups however were not impressed, with one suggesting the speech was “E for empty”. A run of FT stories this week highlight the scale of the challenge the government faces. S&P Global’s PMI survey showed business activity in the UK at a two-year low of 47.8, where 50 marks the line between contraction and expansion. The eurozone showed a return to growth with a score of 50.2, while the US hit a three-month high of 46.6. Businesses are also facing a growing risk of insolvency, while smaller companies fear a “brutal” year ahead as energy subsidies are scaled back. UK car manufacturing has fallen to its lowest level since 1956 and business confidence has hit a two-year low.The chancellor admitted that the country had not returned to pre-pandemic employment levels but pointed out that unemployment was still at its lowest level for half a century. He also acknowledged the need to address the UK’s productivity problem. New data yesterday showed that output per hour worked in the third quarter of 2022 was barely higher than in 2019 before the pandemic struck, meaning that despite huge changes to working practices there has been no change in the ultra-slow pace of growth since the global financial crisis.Hunt said Brexit could be a catalyst for more nimble regulation, but a growing number of critics have pointed out that the plan to ditch every piece of EU-derived law within a year means not only business but legal experts, civil servants, trade unions and conservation groups do not know what the regulatory environment will look like by the end of the exercise.The speech was also peppered with talk of the UK becoming a “technology superpower”, highlighting its prowess in industries such as offshore wind, yet recent signs are not good. Britishvolt (see above), which was meant to spearhead Britain’s electric vehicle push, collapsed last week. The CBI employers’ group has urged the government to create a green energy strategy to counter the risk of UK companies decamping to the US or the EU to take up the offer of subsidies. And the debate over where chip designer Arm — one of the UK’s few genuine tech leaders — should list its shares has raised questions about whether London is a credible alternative to New York for such companies looking to go public.FT economics editor Chris Giles this week called for new honesty about why the UK looked so sickly against its peers. He narrows it down to three essential factors. The first is Brexit. The second is the inability to finance acceptable public services. And thirdly — as illustrated by suggestions today that the HS2 high-speed rail line may be scaled back — the difficulty of getting anything built. And we, the people of Britain, he concludes, are ultimately to blame because we voted for it.Need to know: UK and Europe economyThe UK wasted nearly £15bn on PPE during the pandemic, according to the independent public spending watchdog. The taxpayer also faces losses from the state-backed Future Fund that was meant to protect promising tech and early-stage businesses at the height of the pandemic.A group of European Commission chiefs warned in the FT of the dangers of a tit-for-tat war with the US over green energy subsidies. Here’s our explainer if you’re new to the debate.Spain’s economy grew by a greater than expected 0.2 per cent at the end of last year even as inflation and borrowing costs rose. The country is still however a laggard in Europe, with the size of its economy remaining below its pre-pandemic level.Need to know: Global economyNew data showed exports from Hong Kong shrank 29 per cent in December, the biggest fall since 1953. Senior trade writer Alan Beattie outlines the huge boost for world trade and globalisation that will flow from the end of Beijing’s zero-Covid policy, more than making up for any demand-led congestion.Investors are pouring money into emerging market stocks and bonds at a near-record rate, as falling inflation and China’s reopening help reverse last year’s slide. Many are betting that the Fed and other big central banks will soon stop increasing interest rates, removing one of the markets’ major sources of pain.The Philippines reported its strongest economic growth in 45 years in the fourth quarter after it lifted all pandemic restrictions. The country, which relies largely on remittances from overseas workers and outsourcing activities such as call centres, alongside farming and fishing, suffered one of Asia’s sharpest contractions during the crisis.Pakistan’s rupee dived as authorities gave up controls on exchange rates to revive an IMF bailout. The country’s economic crisis has worsened in recent days as foreign reserves run low, leaving businesses struggling to survive and unable to secure dollars to pay for imported goods piling up at ports.Need to know: businessNew Rolls-Royce chief Tufan Erginbilgic gave a bleak assessment of the UK engineering company’s future, warning it was a “burning platform”. A “transformation” programme for greater efficiency has been interpreted as another round of job cuts.H&M reported an 87 per cent collapse in earnings to SKr820mn ($80mn) in the quarter to the end of November from a year earlier. The world’s second-largest clothes retailer cited high prices, its exit from Russia and a cost-cutting programme.Oil company Chevron announced record earnings of $35.5bn for 2022 but a slip in the fourth quarter shows how the supermajors are being hit by fossil fuel prices falling from their highs after Russia’s invasion of Ukraine.In case you’ve missed him, Donald Trump is likely to be back soon on Facebook and Instagram after Meta reinstated his accounts. President of global affairs Nick Clegg said the platforms had put “new guardrails in place to deter repeat offences” after Trump, who has just started his 2024 presidential campaign, was kicked off after praising his supporters who stormed the US Capitol in 2021. Companies editor Tom Braithwaite says Big Tech — aside from Apple — got the pandemic wrong, as evidenced by the flurry of recent job cuts. Or in the words of Meta’s Mark Zuckerberg: “At the start of Covid, the world rapidly moved online and the surge of ecommerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended.” But, he concluded, “I got this wrong.”Science round upGovernment experts said the UK should prepare an autumn Covid-19 vaccination campaign, highlighting concerns that the virus will still pose a threat, especially if new variants emerge. In the meantime, the signs are positive: weekly Covid infections in England have fallen to a 7-week low of below 1mn.Kate Bingham, the former head of the UK vaccines task force, wrote in the FT that the country was losing its chance to become a life sciences superpower thanks to short-termism and suspicion. A lack of clinical academics is also threatening NHS research, a parliamentary report warned.New “generative” AI systems that can produce content to order are raising concerns about its effects, including the ability to produce large volumes of misinformation as well as making jobs disappear, as our Big Read explains. A landmark legal dispute marked the start of a battle between human artists and artificial intelligence companies over the value of human creativity. Commentator Anjana Ahuja uses the example of ExxonMobil’s downplaying of climate change problems to remind us that corporate science can often be truer to the profit motive than to science itself.Ahuja also presents our new video on how virologists are dealing with the latest H5N1 avian flu strain, a serious disease threatening farmed poultry and wild birds across the US and Europe.

Video: Battling the avian flu epidemic | FT Food Revolution

Some good newsUS researchers have developed a wearable ultrasonic device that can provide continuous, real time information on how the heart is pumping, even during exercise. The technology could ultimately also be utilised to image other deep tissues such as the spine and liver.Something for the weekendThe FT Weekend interactive crossword will be published here on Saturday, but in the meantime why not try today’s cryptic crossword? More

Core PCE inflation, the Fed’s preferred measure, rose 4.4% from a year ago, its smallest annual increase since October 2021.
Consumer spending, however, dropped 0.2%, pointing to an economy that was grinding to a halt as 2022 closed.
Personal income increased 0.2% for the month, as expected.

Consumers spent less in December even as an inflation measure considered key by the Federal Reserve showed the pace of price increases easing, the Commerce Department reported Friday.
Personal consumption expenditures excluding food and energy increased 4.4% from a year ago, down from the 4.7% reading in November and in line with the Dow Jones estimate. That was the slowest annual rate of increase since October 2021.

On a monthly basis, so-called core PCE increased 0.3%, also meeting estimates.
At the same time, consumer spending was even less than already modest estimates, indicating that the economy slowed at the end of 2022 and contributing to expectations for a 2023 recession.
Spending adjusted for inflation declined 0.2% on the month, worse than the 0.1% drop that Wall Street had been anticipating.
Personal income increased 0.2% for the month, as expected.
The numbers come with Fed officials closely watching to measure the impact their rate increases have had on the economy. In line with other recent economic data, they show inflation persisting but at a slower pace than the level that had driven price increases in mid-2022 to their fastest pace in more than 40 years.

However, the data also shows that consumer spending, which drives more than two-thirds of all U.S. economic activity, is waning. Adjusted for inflation, real consumer spending declined 0.3%.
“Even if real consumption returns to growth over the first few months of this year, the disastrous end to the previous quarter means that first-quarter real consumption growth will be close to zero,” said Paul Ashworth, chief North America economist for Capital Economics. Ashworth now expects first-quarter GDP growth to decline at a 1.5% annualized pace.
Consumers could get some help from the slowing pace of price increases.
Headline inflation rose 0.1% on a monthly basis and 5% from a year ago. That number, which includes the volatile food and energy components, was the lowest annual rate since September 2021.
“The overall decrease in consumer spending wasn’t dramatic, and at the same time incomes rose and inflation fell,” said Robert Frick, corporate economist with Navy Federal Credit Union. “Especially if inflation continues to fall at a steady rate, Americans should start feeling some financial relief this year.”
The Fed watches core PCE closely as the measure takes into accounts changing consumer behavior, such as substituting lower price goods for higher-priced items, and strips out volatile food and energy prices. Officially, the Fed says that it watches the headline number. But officials have said repeatedly that core PCE usually provides a better long-term indicator on where inflation is headed because it strips out prices that can be volatile over shorter time periods.
Friday’s report shows the continued shifting of inflation pressures from goods, which were in high demand in the earlier days of the pandemic, to services, where U.S. economic activity is traditionally focused.
On an annual basis, goods inflation rose 4.6%, down sharply from 6.1% in November, while services inflation held steady at 5.2%. Goods inflation peaked in June 2022 at 10.6%, while services inflation bottomed at 4.7% in July.
In an effort to bring down runaway inflation, the central bank in 2022 raised its benchmark borrowing rate from near-zero in March to a target range that’s now 4.25%-4.5%.
Markets are nearly certain of another quarter percentage point increase at next week’s Federal Open Market Committee policy meeting, followed by the likelihood of a similar-sized hike in March.
The Fed is then expected to pause while it surveys the impact that the series of aggressive hikes has had on the economy. Officials hope to cool a red-hot labor market and reduce supply-demand imbalances that have led to the inflation surge.

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The Personal Consumption Expenditures price index climbed 5 percent from a year earlier, slower than the reading last month.The Federal Reserve’s preferred inflation index climbed 5 percent in the year through December, a notable slowdown from November and a continuation of a six-month downward trend.After stripping out food and fuel, the price index climbed 4.4 percent compared with a year earlier, in line with what economists in a Bloomberg survey had expected and a slowdown from 4.7 percent in November.The overall picture is one of moderating inflation — providing some long-awaited relief for consumers — but which remains unusually rapid at more than twice the 2 percent rate the Fed aims for on average over time.Central bankers are raising interest rates to make it more expensive to borrow money to make a major investment or finance a business expansion, hoping to cool demand enough that it drives price increases lower. Policymakers lifted their main policy rate from near-zero to more than 4.25 percent last year, and they are widely expected to raise it another quarter point in their decision on Feb. 1.The Fed is deciding when to stop its rate increases and how long to leave them high — decisions that it has said will be influenced by incoming data on inflation and the broader economy. That focuses attention on figures like the one released on Friday.“It will take time for supply and demand to come back into proper alignment and balance, so we must keep moving,” John C. Williams, the president of the Federal Reserve Bank of New York, said last week.The Fed is also keeping an eye on measures of economic activity, including consumer spending and the labor market. While layoffs at big technology companies have been grabbing headlines in recent weeks, jobless claims remain very low and the unemployment rate is at the lowest level in half a century.That is expected to change this year. As the Fed’s interest rate increases kick in fully, economists at the central bank and on Wall Street expect the U.S. economy to slow and for unemployment to tick higher. Officials are hoping that they can pull off the slowdown without tipping the economy into an outright recession, but there is no guarantee. More

Blockades often rely on the co-operation of allies. The US has every reason to want Japan and the Netherlands to join its ban on exporting advanced semiconductor machinery to China. But governments are reluctant to undermine their tech champions. Expect close scrutiny of the fine print once an agreement is concluded.The Netherlands is expected to expand restrictions on ASML, its largest chip equipment maker, which would prevent it from selling some of its advanced machines with extreme lithography technology — crucial to making the latest chips. Japan could set similar limits on local makers Nikon and Tokyo Electron.For ASML, the damage would be shortlived. It has no competitors and a long waiting list for deliveries. Any sales lost to China would quickly be made up elsewhere, to companies such as Intel and TSMC, which are building capacity. This year, ASML’s net sales are expected to grow more than 25 per cent, even faster than last year’s 13 per cent. China accounts for only about 15 per cent of total sales.But China is much more important to lower-tech chip equipment makers such as Nikon and Tokyo Electron, accounting for more than a quarter of total sales for the latter. Local chipmakers use gear running on older standards that Japanese makers provide. Tokyo Electron has already downgraded its full-year earnings forecast. In November, it said that consolidated net profit for the year to March was expected to drop 8 per cent. That was a sharp reversal from the previous guidance of a 20 per cent increase.ASML’s shares are up a quarter this year and trade at 33 times forward earnings, a more than 40 per cent premium to its Japanese peers. That gap should widen further this year. A slump in the chip industry looms, as demand for consumer products drops. Meanwhile, raw materials prices and spending on research and development — which companies must maintain to keep up with rapidly changing technology — remain high. Expect lower dividends and share price upside. More

KARACHI, Pakistan (Reuters) -The Pakistani rupee’s two-day decline slowed on Friday on news that an IMF team was visiting Islamabad next week to discuss unlocking a suspended bailout package, though the currency still closed at a record low against the U.S. dollar.The rupee closed at 262.6 per dollar in the interbank market, down 2.7%, on Friday, after a 9.61% slump on Thursday, which was its the biggest single-day dip, according to the central bank.The rupee has been dropping to adjust to a market based exchange rate after an artificial upper cap on the local currency was lifted in line with IMF reforms.Left with only $3.68 billion in foreign exchange reserves, Pakistan barely has enough to cover three weeks of imports, and desperately needs the IMF to release the next $1 billion tranche of its bailout programme to head off a potential default.The IMF said on Thursday that its delegation would visit Pakistan from Jan. 31 to Feb.9, leaving Prime Minister Shehbaz Sharif optimistic that the disbursements would start flowing again.”An agreement with the IMF, God willing, will be done… We will soon be out of difficult times,” Sharif said at an event in Islamabad.A $6 billion IMF package was agreed in 2019, and topped up to $7 billion after last year’s devastating floods, but disbursements were suspended in November due to the government’s failure to do more to reduce its fiscal deficit.The IMF wants the government to commit to more substantial fiscal measures, and once it decides to resume lending, other multilateral and bilateral lenders are expected to offer more funding to the politically unstable, nuclear-armed South Asian nation.Former finance minister Miftah Ismail told Geo TV that the unlocked funding from the IMF would help head off the risk of Pakistan defaulting on its external obligations.This week’s plunge in the rupee’s value will pile pressure onto Pakistan’s population who are already facing high prices of imported food and fuel.On Friday, the rupee fell 1.1% on the open market to trade between 263-265 per dollar, the Exchange Currency Association of Pakistan said. The closing rates of the open market – which are different to the official rate – are yet to be finalised for the day. The removal of the cap has resulted in the two markets aligning more closely, and exchange companies expected a black market in dollars to eventually dry up. The Pakistan Stock Exchange’s benchmark index weakened 0.31% on Friday, having gained 2% on Thursday in anticipation of encouraging news from the IMF.”Meetings with IMF mission are expected to start from 31 January, the currency may consolidate with the expectations of fresh inflows,” Tahir Abbas, head of research at local brokerage house Arif Habib Limited, told Reuters. More

LONDON (Reuters) -World stocks nudged at 5-1/2 month highs and the dollar held close to an eight-month low on Friday, as reassuring U.S. economic and inflation data kept the bulls largely in charge ahead of next week’s slate of top central bank meetings. Asia-Pacific shares maintained their best start to a year overnight with a 9-month high despite ongoing drama in India, where shares of Adani Enterprises sank 20% as the fallout continued from a scathing report by a U.S. short seller Hindenburg Research.MSCI’s all-country index held onto modest gains and headed for 6-day winning streak. The global index is heading for a gain of 7.2% this month, which would mark its strongest performance for January since 2019.The tug-of-war over how central banks will respond to news that major economies are holding up and inflation is coming down was playing out everywhere.Currency traders who had pushed the dollar up after news the U.S. economy grew faster than expected at the end of last year were offloading it again. At the same time, dealers were nudging the benchmark government bond yields that reflect borrowing costs back up. [GVD/EUR]Add in a rise in oil prices but also a near 16-month low in European gas prices – and the recent huge shifts in the Japanese yen and China’s COVID restrictions – and it was a mixed picture to say the least. “The data at the moment is kind of telling you what you thought you knew – that inflation is slowing but that the labour market remains tight,” said Societe Generale (OTC:SCGLY) strategist Kit Juckes “Everyone is now saying perhaps we have gone too far in January,” he added, pointing to the big dollar, yen and euro move. “So now we are sat back on our haunches a bit trying to get positions out of our feet.” European shares rose 0.13%, led by gains in the energy sector, which got a boost from a stronger crude oil price, while retailers such as H&M and luxury goods company LVMH were on the backfoot, after reporting earnings. “In the short-run the rally (in markets) is over extended and there is a need for consolidation, especially on the equities side,” Francois Savary, chief investment officer at Prime Partners, said. One the most explosive stories of the week continued in India where shares of Adani Enterprises sank another 20% in the wake of Hindenburg Research’s report about the firms debt levels and use of tax havens.Seven listed companies of the Adani conglomerate – controlled by one of the world’s richest men Gautam Adani – have lost a combined $45 billion in market capitalisation since Wednesday, casting serious doubt on the company’s record $2.45 billion share sale plan.Adani Group has dismissed the Hindenburg report as baseless.”There were heavy positions in Adani group (shares), the way they have risen in the last couple of years,” said Neeraj Dewan, director at Quantum (NASDAQ:QMCO) Securities in New Delhi.”This is a classic case of panic selling,” he said, noting the concerns were also spreading to Indian banks with exposure to Adani Group’s debt. Thursday U.S. data had shown consumers boosting Q4 spending on goods, but it could be the last quarter of solid GDP growth before the lagged effects of the Federal Reserve’s jumbo interest rate hikes are fully felt. A separate report showed that labour market remains tight and could lead the Fed to keep interest rates higher for longer. Futures markets are now pricing in a 94.7% probability of a 25-basis-point hike next Wednesday and see the Fed’s overnight rate at 4.45% by next December, or lower than the 5.1% rate Fed officials have projected into next year.Data on U.S. personal consumption expenditures (PCE) due at 1330 GMT will provide further clues on inflation.CENTRAL FOCUSNext week will also feature Bank of England and European Central Bank meetings, both of which are expected to keep pushing up their rates in the coming months.Japan’s potential move away from borrowing cost suppression is also key. Data there overnight showed core consumer prices in Tokyo, a leading indicator of nationwide trends, rose 4.3% in January from a year earlier, marking the fastest annual gain in nearly 42 years.The Japanese yen rose 0.3% to 129.86 per dollar as the data reinforced market expectations that quickening inflation could nudge the Bank of Japan to move away from its ultra-easy policy. “We still think the policy change is a long way off,” ING regional head of research Robert Carnell said. “The spring salary negotiations are key to watch as wage growth is a prerequisite for sustainable inflation.”The dollar index, which measures the U.S. currency against six other peers, was last up 0.1% against the euro at $1.0877 and up 0.4% at $1.2366 against sterling.Oil rose on expectations of a boost to demand from China’s reopening and after the strong U.S. data. Brent crude futures rose 1.5% to $88.78 a barrel, while U.S. West Texas Intermediate crude rose 1.6% to $82.26 per barrel. [O/R] More

STOCKHOLM (Reuters) -Fashion retailer H&M’s profits were almost wiped out in the September-November quarter by soaring costs, which the Swedish company held back from passing on in full to cash-strapped customers.The world’s second biggest fashion chain, which raised some prices, will continue with this pricing strategy even though it will not fully compensate for the higher costs, such as for energy, transport and raw materials.Chief Executive Helena Helmersson said: “Rather than passing on the full cost to our customers, we chose to strengthen our market position further.” Helmersson, speaking at a news conference on Friday, said the group would keep raising prices in some categories to a varying extent in different markets to partially make up for continued high costs. “It’s a very dynamic pricing strategy,” she told Reuters in an interview. “It will still be very challenging in the first quarter of 2023. And then of course we need to increase prices, but not to cover the whole.” The retailer said its exit from Russia and the financial impact of a cost-cutting drive announced last year also contributed to the fall in profit. The world’s second-biggest fashion retailer reported a profit before tax for the period of 463 million Swedish crowns ($44.94 million), against a year-earlier 6.0 billion. Analyst polled by Refinitiv had forecast a fall to 3.5 billion crowns. H&M’s shares were down by 6% at 1222 GMT, capping a year-to-date rise to 10%. Having already reported that sales in the quarter were flat measured in local currencies, H&M said on Friday the sales from Dec. 1 to Jan. 25 – the start of its fiscal first quarter – were up 5%. Helmersson told the news conference chances were good that sales and profitability would improve in 2023, primarily towards the end of the year. The group in September launched a drive to cut costs by 2 billion crowns annually, with savings expected to start showing from the second half of 2023. It flagged in November it would cut around 1,500 jobs as part of the programme. H&M gradually closed its stores across Russia last year, and decided to exit the market. The hit to fourth-quarter profit from winding down in Russia, higher costs for energy, freight and raw materials, currency translation effects and the previously flagged restructuring charge totalled 5 billion crowns. “Gross margins were weaker than expected,” analysts at Credit Suisse said in a note to clients. “The company has clearly decided not to pass on the full increase in input costs,” they said, adding that sales so far in the current quarter were strong – as expected given colder December weather across Europe. H&M has struggled to keep up with bigger rival Inditex (BME:ITX), the owner of Zara. Inditex in December reported a jump in profit for the nine months through October but said sales growth slowed in the final three months of that period due to the weakening consumer environment. It will report its next quarterly results in March. Britain’s Superdry on Friday cut its profit forecast for this year as its wholesale business underperformed. H&M proposed an unchanged dividend of 6.50 crowns per share. ($1 = 10.3029 Swedish crowns) More

LONDON (Reuters) -The dollar edged up on Friday to pull away from multi-month lows against the euro and sterling, as investors began to train their sights on a slew of major central bank meetings next week.The U.S. Federal Reserve, European Central Bank and Bank of England are all due to make rate decisions next week as they judge what policy adjustments may be required in their battle with rampant inflation against a tough global economic backdrop.Currency analysts said they did not expect big moves to end the week, with a key U.S. jobs report also in sight next Friday.The dollar index, which measures it against six major currencies, gained 0.2% to 101.930, as the dollar moved away from near a nine-month low to the euro and a seven-month trough to sterling. The euro was last down 0.1% versus the dollar at $1.08760, while sterling was down 0.4% at $1.23670.”The failure of the dollar to break lower … suggests from a technical perspective that some turnaround is possible,” currency analysts at MUFG said in a note.The yen, meanwhile, rose against the dollar as heated Tokyo inflation readings spurred bets that a hawkish pivot from the Bank of Japan (BOJ) could be in the offing. The dollar lost 0.3% to 129.900 yen after data showed consumer price inflation in Japan’s capital accelerated to a nearly 42-year peak this month, piling pressure on the BOJ to step away from stimulus.”Market expectations for changes at any time, including the next meeting in March, will remain high, and that will keep the yen bid,” said Shinichiro Kadota, a strategist at Barclays (LON:BARC) in Tokyo, who saw a possibility of the dollar-yen pair breaking below 125.Traders broadly expect the Federal Reserve to increase interest rates by 25 basis points (bps) on Wednesday, a step down from a 50 bps increase in December. Meanwhile, the ECB has all but committed to raising its key rate by half a percentage point the following day.The Bank of England faces a challenge in controlling inflation without damaging an economy already in recession. The bank will make its next policy decision on Thursday, and is seen increasing by a half point. More