Economy

British business confidence was worse than expected in January, hitting a two-year low and amplifying fears that the UK economy is sliding into recession, according to a closely watched survey.The S&P/Cips global flash UK composite purchasing managers’ index, a measure of private sector activity, fell to 47.8, down from 49 in December — the fastest rate of decline since January 2021 when the country was in national lockdown.The reading remained below the 50 mark, which indicates the majority of businesses reported a contraction, for the sixth consecutive month and was lower than the 49.1 forecast by a Reuters poll of economists. “Weaker than expected PMI numbers in January underscore the risk of the UK slipping into recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.“The rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year,” he added.The services sector drove the downturn, with business activity falling to 48 in January from 49.9 in the previous month.Survey respondents cited higher interest rates and low consumer confidence as the main factors that impeded business activity. Factories, which account for less than 10 per cent of Britain’s economic output, fared better, as the manufacturing PMI rose to a four-month high of 46.7 in January, up from 45.3 in December.Jobs were lost as some companies tightened their belts in the face of economic headwinds, while others were constrained by a lack of available labour. Staffing cutbacks were most prevalent in the manufacturing sector, whereas service providers reported a slight rise in employment at the start of 2023. Meanwhile, the PMI data showed that business expectations for the year ahead improved considerably in January. Hopes of a better global economic backdrop and lower domestic inflation continued to boost business optimism after its October low-point.“Optimism among private sector firms was the best for eight months signalling the downturn may not be as long and protracted as feared,” said John Glen, Cips chief economist.Britain’s economy fared better than expected in November, according to official data this month, suggesting that the UK might have avoided recession at the end of 2022.But “despite some bright spots in the latest release, a shallow recession in 2023 remains a strong probability in light of January’s poor PMI”, said Daniel Mahoney UK economist at Handelsbanken. The PMI survey feeds into other indicators that suggest the British economy has been contracting despite price pressures easing back from historic highs.Separate data last Friday showed that retail sales dropped in December, while consumer confidence remained near an all-time low for the ninth month in a row in January, marking the longest period of pessimism in nearly 50 years.

The Bank of England raised interest rates to 3.5 per cent in December, indicating that more increases were likely despite the economy sliding into recession, as the central bank tries to tame inflation that hit a 41-year high in October.The PMI data stood in stark contrast to composite PMI readings from other European countries, also released on Tuesday, which showed that eurozone activity returned to growth in January for the first time since June 2022. The CBI, the employers’ organisation, reported that while manufacturing costs continued to rise in the three months to January, they did so at their slowest pace in nearly two years.The data, released on Tuesday, suggested that UK inflation may have peaked, according to some analysts. But Anna Leach, CBI deputy chief economist, noted a decline in new orders was also reflected in the data. “There are signs that demand is easing too,” she said. More

European stocks and US futures slipped on Tuesday as traders balanced an improving macroeconomic outlook for the global economy against lingering concerns that inflation might prove stickier than previously thought. The regional Stoxx Europe 600 and Germany’s Dax lost 0.3 per cent and 0.2 per cent, respectively. London’s FTSE 100 fell 0.2 per cent after UK public sector borrowing more than doubled year on year in December to £27.4bn. Contracts tracking Wall Street’s blue-chip S&P 500 and those tracking the tech-heavy Nasdaq 100 fell 0.3 per cent and 0.4 per cent, respectively, ahead of the New York open. “Better sentiment on [the] growth outlook” helped the S&P 500 rise to its highest level since early December on Monday, according to analysts at JPMorgan, with semiconductor and technology stocks in particular posting strong gains. The US bank does not expect January’s equity market rally to last, however. “The recent weakening of economic data and anticipated decline in earnings expectations and weak [full-year] guidance are pointing to markets that are likely to move lower,” it said.Others are more optimistic. China’s economic reopening, receding recession fears in Europe and cooling inflation in the US mean “investor concerns over a harder landing for the global economy” have eased, said Lee Hardman, currency analyst at MUFG. Traders have a “fresh confidence that central banks can pause their rate hike cycles” later this year, he added, even as officials at the US Federal Reserve and European Central Bank insist their fight against inflation is far from won.The eurozone “edged back into growth” at the start of 2023, according to a flash purchasing managers’ index released by S&P Global on Tuesday morning, with business activity in January rising after six successive months of decline. The data “adds to evidence that the region might escape recession”, said Chris Williamson, chief business economist at S&P Global Market Intelligence. Capital Economics’ chief Europe economist Andrew Kenningham said the region’s PMI was consistent with the economy “roughly stagnating”, adding that “there is nothing here” to stop the ECB raising rates by 1 percentage point over the next two months, “and perhaps further beyond that”.Manufacturing and services PMIs for the US, published later in the day, are expected to decline. Shares in pharmaceutical group Johnson & Johnson and General Electric inched higher in pre-market trading after the groups posted their fourth-quarter results. The dollar came under pressure on Tuesday, with a measure of the currency’s strength against a basket of six peers down 0.1 per cent. US government bonds rallied, with the yield on the benchmark 10-year Treasury falling 0.02 percentage points to 3.5 per cent. Bond yields move inversely to prices. In Asia, Hong Kong’s Hang Seng index gained 1.8 per cent and China’s CSI 300 rose 0.6 per cent. Japan’s Nikkei 225 added 1.5 per cent, having all but recovered from a sell-off triggered by the Bank of Japan’s surprise adjustment to its longstanding yield curve control measures in late December. More

Activity in the eurozone unexpectedly returned to growth for the first time since June, according to a survey that is likely to bolster the European Central Bank’s resolve to raise rates. S&P Global’s flash eurozone composite purchasing managers’ index, a measure of activity in manufacturing and services, rose to 50.2 in January from 49.3 in the previous month, figures on Tuesday showed.The rise, the third consecutive monthly increase from the low reached in October, was higher than the 49.8 forecast by economists polled by Reuters. It was also above the 50 mark, which indicates a majority of businesses reporting an expansion compared with the previous month. “A steadying of the eurozone economy at the start of the year adds to evidence that the region might escape recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.Fears over energy had eased since October as prices fell, helped by generous government assistance, he added. Supply chain stress has also waned, while the reopening of the Chinese economy has helped restore confidence in the broader global economic outlook for 2023.The rise in the composite eurozone PMI index contrasts with an unexpected deterioration in the UK, where the corresponding index signalled the sharpest drop in activity in two years. The resilience of the eurozone economy, coupled with high underlying price pressures and renewed momentum in the labour market, reinforces ECB signals of further monetary tightening. Christine Lagarde, ECB president, said on Monday: “ECB interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive, and stay at those levels for as long as necessary.” Andrew Kenningham, chief Europe economist at Capital Economics, said: “With employment intentions and price pressures still high, there is nothing here to stop the ECB from raising rates by a further 100 basis points over the next two months, and perhaps further beyond that,” With the US Federal Reserve expected to slow the pace of rate increases to 25 basis points at its policy meeting next week, “the ECB went from one of the most dovish central banks last year to one of the most hawkish . . . in just a year”, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. The S&P PMI survey, based on data collected between January 12 and 20, showed employment growth picked up momentum as businesses prepared for a better than expected year.Input cost inflation cooled further thanks to reduced supply chain stress. However, average selling price inflation ticked higher, reflecting continuing growth in costs and rising wage pressures.Business expectations rose by the largest monthly increase since June 2020, pushing confidence to its highest level since last May.“Sometimes you just need a bit of luck,” said Bert Colijn, senior economist at ING. The eurozone economy had avoided “dramatic scenarios” for the winter thanks to a mild December in which the depletion of gas stores was much lower than feared, he saidThe report showed activity in the eurozone services sector expanded for the first time since last July, with consumer-facing industries such as bars and restaurants showing signs of stabilising after months of decline.Eurozone manufacturing output contracted only modestly, registering the smallest fall in factory production since last June. More

LUSAKA (Reuters) -The head of the International Monetary Fund said on Tuesday that it had reached an understanding in principle with China about plans to restructure Zambia’s debt, urging creditors to “do their part” to strike a deal.Kristalina Georgieva made the comments during a visit to Zambia, which has been implementing an IMF reform programme put in place after it defaulted on its sovereign debt in 2020, the first African country to do so during the pandemic.”Zambia has done its part under the IMF programme and the country has performed really strongly, and now it’s time for creditors to do their part,” Georgieva said during a public discussion at the University of Zambia.She added that the outline of a plan had been agreed with China, which is owed almost $6 billion by Zambia and is one of its main creditors. Zambia’s total external debt stood at $17 billion as of June last year, government data shows. “We have reached an understanding in principle that China will de facto accept NPV (net present value) reduction on the basis of significant stretching of the maturities and reduction of interest,” Georgieva said.She said that, in general, there was not a consensus in China to accept upfront haircuts on debt it owned because China thought of itself as having significant development challenges.On Monday, Georgieva met Zambian President Hakainde Hichilema and praised his government for moving away from wasteful expenditure, saying the IMF would like to work with Zambia to boost its economic growth.U.S. Treasury Secretary Janet Yellen, who was also visiting Zambia, said on Monday it was critically important to restructure Zambian debt and she believed progress could be made after her frank talks last week with China.Yellen said Zambia’s debt overhang was a drag on its whole economy and China had been a barrier to resolving the problem.In response, the Chinese embassy in Zambia said “the biggest contribution that the U.S. can make to the debt issues outside the country is to act on responsible monetary policies, cope with its own debt problem, and stop sabotaging other sovereign countries’ active efforts to solve their debt issues.” More

Investing.com — Microsoft (NASDAQ:MSFT) is the first of the Big Tech megacaps to report earnings for the final quarter of 2022, and it’s expected to show profit falling. There’s a flood of other earnings to digest in the meantime, with General Electric (NYSE:GE) suffering after giving a weak outlook and Johnson & Johnson (NYSE:JNJ) coming in just ahead of expectations. Europe appears to have returned to growth, but at a price – the cost of energy subsidies and interest payments on inflation-linked debt sent U.K. government borrowing sharply higher in December. Poland puts Germany on the spot with a request to send tanks to Ukraine, while crude oil is drifting ahead of the latest U.S. inventory data. Here’s what you need to know in financial markets on Tuesday, 24th January. 1. Microsoft leads earnings floodMicrosoft heads a long list of companies reporting earnings for the last quarter of 2022, on a day that’s likely to illustrate how widespread the effects of the U.S. economic slowdown are.The software giant is expected to show a modest drop in profits despite a rise of around 8% in revenue, with the dollar’s strength eating into the profitability of its global operations.The company will be hoping that its investment in OpenAI, the creator of the viral AI-tool ChatGPT, will sustain faith in its future growth, after signs that growth at its Azure Cloud-hosting business, the star performer of recent years, was slowing.  2. Eurozone returns to growth in January; U.K. borrowing soarsA key gauge of the Eurozone economy signaled growth for the first time in seven months, as the collapse of European natural gas prices underpinned consumer sentiment and averted a meltdown in industrial output.S&P Global’s composite purchasing managers’ index for the Eurozone rose by more than expected to 50.2 in January, from 49.3 in December. While that may not be enough to avert a recession in itself, it adds to a growing body of evidence suggesting that any recession will be brief and shallow – thus allowing the European Central Bank to keep raising interest rates to bring inflation down more quickly.Elsewhere in Europe, German consumer confidence rose for the fourth straight month, albeit by less than expected, while the U.K. counted the cost of its runaway inflation as the interest payments on its inflation-linked debt drove government borrowing sharply higher in December.3. Stocks consolidate after solid gains on Monday; GE outlook dampens moodU.S. stock futures consolidated moderately in premarket, hunkering down ahead of an incoming barrage of earnings from across the economy. That follows a day of solid gains driven by the hope of slower interest rate increases from the Federal Reserve, which holds its policy-making meeting next week.By 06:30 ET (11:30 GMT), Dow Jones futures were down 85 points, or 0.2%, after the main cash index gained 0.8% on Monday. The picture with S&P 500 futures and Nasdaq 100 futures was similar, down by 0.3% and 0.4% respectively after gains of 1.2% and 2.0% by the cash indexes to start the week.While Microsoft will report after the close, the early session will be dominated by updates from – among others – Johnson & Johnson, Verizon (NYSE:VZ), Danaher (NYSE:DHR), General Electric, Union Pacific (NYSE:UNP), Raytheon (NYSE:RTX), 3M and DR Horton (NYSE:DHI).GE’s numbers were largely in line with expectations but the stock still fell 2.7% in premarket on the back of a weak outlook.Also in focus later will be Amazon (NASDAQ:AMZN), after it launched a new discounted drugs service, and Alphabet (NASDAQ:GOOGL), which is reportedly facing U.S. antitrust action over its dominance of online advertising.4. Europe closer to sending tanks to UkrainePoland formally requested permission from Germany to send its modern Leopard 2 battle tanks to Ukraine, pushing on a door that was opened at the weekend by Foreign Minister Annalena Baerbock.After months of German blocking of any initiative to dispatch tanks to Kyiv, Baerbock had said Germany wouldn’t stop other countries sending their own German-build Leopards if they wanted to.Elsewhere, NATO Secretary-General Jens Stoltenberg said he was “confident” of a broader agreement on dispatching heavy armor as aid to Ukraine “very soon.”In Ukraine itself, President Volodymyr Zelensky dismissed a handful of regional governors amid growing signs of pressure on the government as Russia prepares for a new offensive in the spring.5. Oil drifts ahead of API dataCrude oil prices trod water after newswire reports that the Organization of Petroleum Exporting Countries is likely to keep production quotas unchanged at its next meeting at the start of February.OPEC and its allies have been caught between obvious signs of a rebound in Chinese demand combined with a slowdown in much of the rest of the world, notably in the U.S., where inventories have risen sharply in recent weeks. The American Petroleum Institute releases its latest weekly numbers on crude and distillate stocks at 4:30 PM ET.By 06:25 ET, U.S. crude futures were up less than 0.1% at $81.66 a barrel, while Brent was down less than 0.1% at $88.20 a barrel. More

LONDON (Reuters) – If the U.S. Congress becomes mired in an argument on whether to raise the debt ceiling, this will hurt the U.S. economy and rattle financial markets, a top executive at private equity firm Bain Capital said on Tuesday.     “The debt ceiling is a real risk that will come to a point where it will terrify markets, because it is a wild game of chicken,” Jonathan Lavine, co-managing partner at Bain Capital, which manages $160 billion in assets globally, told an event. The U.S. government on Jan. 19 came close to its statutory borrowing limit. The Treasury Department warned that its extraordinary cash management measures could only allow the government to pay all its bills through early June, at which point the world’s biggest economy could be at risk of failing to meet its obligations, including on its debt securities.House Republicans want to use that critical deadline to force spending cuts, while the White House has said there should be no negotiations over lifting the debt limit. Republicans’ narrow House majority has given outsized influence to the party’s most hardline voices.Expectation of a recession has made markets more sensitive to unanticipated risks, Lavine told attendees at a London School of Economics (LSE) conference.At Bain Capital – which as a private equity firm is involved in taking companies private or buying large parts of firms in mergers and acquisitions deals – Lavine said he had seen instances this year where distressed companies looking for a buy-out solution had pro-actively approached Bain Capital in order to avoid the more costly option of bankruptcy. More

WASHINGTON (Reuters) – Partisan brinksmanship in the U.S. Congress has made government shutdowns seem a routine part of governing in the past decade, but the current standoff in Washington over raising the $31.4 trillion federal debt ceiling is significantly riskier.WHAT IS A GOVERNMENT SHUTDOWN?Congress is supposed to pass detailed spending legislation for each fiscal year, which begins on Oct. 1, or temporary extensions to keep the government operating. If these bills don’t get passed, agencies like the Defense Department and the Internal Revenue Service don’t get the money they need to operate and must shut down or scale back their work.That has happened three times in the past 10 years. A battle over healthcare spending led to a 16-day shutdown in October 2013, while disputes over immigration led to a three-day shutdown in January 2018 and a 35-day shutdown between December 2018 and January 2019.According to the Congressional Budget Office, the 2018-2019 shutdown reduced economic activity by about $11 billion while it was underway, but much of that lost growth was recovered when government activity resumed. Overall, the shutdown cost the economy about $3 billion, equal to 0.02% of GDP, CBO found.WHAT IS THE DEBT CEILING?Congress has another important fiscal function: ensuring that the government can pay its bills, including for spending that lawmakers have already agreed to.Unlike most other countries, the United States sets a hard limit on the amount of money it can borrow. As a result, Congress must periodically raise that cap because the government typically spends more money than it collects each year, adding to the national debt.This is never a pleasant task for lawmakers who do not want to sign off on even more borrowing but also do not want to trigger a default. Sometimes Congress raises the debt ceiling quietly, as it did in August 2019, during Republican President Donald Trump’s administration, and sometimes it uses the occasion to engage in a noisy debate over fiscal policy before raising the cap at the last possible moment, as it did in 2011.This year could see a repeat of 2011, as Republicans who control the House of Representatives say they will not raise the debt ceiling unless Democratic President Joe Biden agrees to limit spending. The White House has said the borrowing limit must be raised without conditions.WHAT HAPPENS IF THE DEBT CEILING IS NOT RAISED?Treasury Secretary Janet Yellen said on Jan. 19 that the United States has reached its current $31.4 trillion borrowing cap, but can continue paying its bills until June by shuffling money between various accounts. At that point, when the so-called extraordinary measures are exhausted, Treasury would not have enough money coming in from tax receipts to cover bond payments, workers’ salaries, Social Security checks and other bills. HOW WOULD THAT AFFECT THE ECONOMY?Unlike a government shutdown, experts say it could be catastrophic if the U.S. government was unable to pay its bills.Some Republicans have suggested that Treasury could choose to cover some obligations, like Pentagon salaries and debt payments, and postpone others. Yellen has said that’s not possible.A missed debt payment would likely send shockwaves through global financial markets, as investors would lose confidence in Treasury’s ability to pay its bonds, which are seen as among the safest investments and serve as building blocks for the world’s financial system.Treasury was unable to make timely payments to some small investors in 1979 due to computer problems, but analysts say that did not have a broader effect on financial markets.A 2011 budget battle that took Washington to the brink of default prompted a stock sell-off and a first-ever downgrade of the United States’ top-tier credit rating. Other economic indicators, like consumer confidence and small business optimism, fell during that period as well. The U.S. economy could face a severe contraction if the 69 million people enrolled in Social Security don’t get their monthly retirement and disability benefits, or hospitals and doctors don’t get paid for treating patients through government programs like Medicare.Signs of worry are already showing up in financial markets, as investors are demanding higher yields on some Treasury bills.Sources: Congressional Budget Office (CBO), Government Accountability Office, Congressional Research Service, Office of Management and Budget, Social Security Administration More

Good morning. The row between EU and US politicians over subsidies linked to Joe Biden’s Inflation Reduction Act is deepening as governors across America try to lure European clean energy businesses to their states.Governors of Michigan, Georgia and Illinois, as well as West Virginia senator Joe Manchin, one of the IRA’s architects, were at the World Economic Forum in Davos last week extolling the virtues of the act, which will provide $370bn worth of subsidies for clean energy on everything from solar panels to electric cars.“I have been astonished by the many activities from state governments, from business development agencies, state-owned business development agencies, which have been trying hard to lure us in,” said Gunter Erfurt, chief executive of Meyer Burger, a Switzerland-based solar modules manufacturer.But European politicians have been less impressed. Germany and France have expressed unease with the IRA. Belgian prime minister Alexander De Croo complained recently about the “very aggressive way” the US had pitched the subsidies to EU businesses.In a recent editorial the FT said the US and EU need to work together and “not engage in a wasteful battle to draw business and investment away from each other”. It went on to say avoiding distortionary subsidies, and having clear rules on the boundaries of what support is acceptable, is key.Valdis Dombrovskis, Europe’s trade commissioner, said last week that the fight against climate change should be done by “building transatlantic value chains, not breaking them apart”.Five more stories in the news1. Former FBI agent charged with violating sanctions by working for Oleg Deripaska Charles McGonigal, who previously served as special agent in charge of counter-intelligence at the FBI’s New York office and investigated the Russian oligarch, has been arrested. 2. Ford plans to slash jobs in Europe The US carmaker wants to cut thousands of jobs in Europe and move more product development roles to the US, according to Germany’s largest union. IG Metall said Ford had internally announced plans to slash up to 3,200 jobs in Germany, with more cuts expected elsewhere in Europe.3. Elon Musk says he believed he had funding to take Tesla private On his second day of testimony in a San Francisco federal court, Musk said he believed it was “a done deal” that Saudi Arabia’s Public Investment Fund would support a possible attempt to take Tesla private at $420 a share, a 20 per cent premium to the share price at the time. But Musk acknowledged there was no contract and that many details had not been worked out.4. Lazard expands venture banking unit The boutique investment bank is set to advise a greater number of fast-growing start-ups in the US as part of a broader push to expand its private-capital offering. Lazard is assembling a team of six specialist bankers to be based in Los Angeles and Austin, according to a memo seen by the Financial Times.5. China is ‘barrier’ to ending Zambian debt crisis, says Janet Yellen The US Treasury secretary called on China to agree to a rapid restructuring of loans to Zambia, saying Beijing was a “barrier” to ending the debt crisis in the southern African nation. Africa’s second-largest copper producer defaulted on $17bn of debt in 2020.The day ahead Markets latest US stocks are taking a pause after Monday’s rally and ahead of a busy day for earnings announcements. Contracts tracking Wall Street’s blue-chip S&P 500 and those following the tech-heavy Nasdaq 100 traded in a tight range ahead of the New York open. Read the latest market report.Debt ceiling: US president Joe Biden will meet the congressional Democratic leadership to chart their united front on the country’s debt limit. The US last week hit the legal maximum amount the federal government is allowed to borrow, leading the Treasury to say it is now taking “extraordinary measures” to meet its debt obligations. Earnings Microsoft reports earnings having announced plans to cut 10,000 jobs and pour billions of dollars into the company behind the ChatGPT artificial intelligence platform in recent days. US defence contractors Lockheed Martin and Raytheon also report earnings as demand for their products surges. 3M, Johnson & Johnson and General Electric also report.Ticketmaster: The Senate judiciary committee will hold an antitrust hearing focusing on the meltdown during the sale of tickets for Taylor Swift’s upcoming Eras tour. Joe Berchtold, chief financial officer of Live Nation, the company that owns Ticketmaster, is due to testify.To coincide with the publication of Martin Wolf’s new book, ‘The Crisis of Democratic Capitalism’, join him and other thought leaders online for a subscriber-exclusive event on January 31. Register for free here.What else we’re readingWagner Inc: a Russian warlord and his lawyers As founder of the private mercenary operation known as the Wagner Group, which offers muscle to dictators and has waged war in the Middle East and Africa as an unofficial foreign policy tool of the Kremlin, Russian entrepreneur Yevgeny Prigozhin is one of the most sanctioned individuals on the planet. An FT investigation shows how he has used leading corporate lawyers around the world to try to keep western governments at bay.Opinion: Gideon Rachman explains why it is getting harder for the world’s democracies to maintain a united front on Ukraine.The rise of Esther Crawford in Musk’s ‘hardcore’ Twitter The social media giant’s director of product management has become one of the few women at the company to join Elon Musk’s trusted lieutenants. Some insiders believe the 39-year-old has the charismatic energy needed to transform Twitter’s flailing business, while also having the ear of its impulsive owner. Others revile her as a sycophant and opportunist.Trawler case tests Norwegian control over Arctic Archipelago In a case starting today, Norway’s supreme court will assess whether a Latvian trawler needs a Norwegian licence to fish for snow crab in an extended area around the Arctic Archipelago of Svalbard. The case will test Oslo’s interpretation of territorial waters and control of the region’s resources.

Why passive investing makes less sense in the current environment Passive portfolio management is attractive in a world where investment outcomes are heavily influenced by a common global factor — as in the decade of artificially floored interest rates and massive central bank injections of liquidity. But in a world where the macro outlook is murky dynamic asset allocation trumps low fees, writes Mohamed El-Erian.What to do if you hate your job Whatever your reason for being unhappy at work, hating your job is not viable long term. Grace Lordan of the London School of Economics shares eight proactive strategies to identify the source of the problem — and to do something about it.Take a break from the newsEleven across is simply “nonsense, twaddle”, while the down clues are more cryptic. Try your hand at the FT’s latest crossword puzzle. More