Economy

Sales increased 4.2% last month from October 2021, well below September’s 7.9% growth, association Acotex said in a report released on Tuesday. While it only provided the year-on-year percentage change, it added that “certainly, sales are declining month to month”.It also said shop traffic was “much lower” last month in Spain – the home of brands such as Mango and Inditex-owned Zara – than in September.European fashion retailers are facing several headwinds that are slowing their clothing sales, including inflation and higher interest rates, according to industry representatives.”The situation is worrying, because people are looking for discounts, but retailers are seeing a general increase in their costs and are having to raise prices,” Acotex chief Eduardo Zamacola told Reuters.Retailers were only likely to offer slight discounts during Nov. 25 Black Friday promotions, the association said, as they do not have the margin for aggressive discounts due to the rising costs of electricity, raw materials and transport. More

Senior European Central Bank policymakers have said they expect interest rates to rise beyond the point at which they constrain demand and weaken growth to bring down inflation, rebuffing criticism from eurozone politicians of moves to tighten monetary policy.The comments from several members of the ECB’s rate-setting governing council push back against the idea it could do a “dovish pivot” and stop raising rates soon, echoing a similar message from the US Federal Reserve last week. German central bank boss Joachim Nagel said in a speech on Tuesday that he would do all he could to ensure that the ECB would “press ahead with monetary policy normalisation with determination — even if our measures dampen economic growth”. By normalising policies, central banks aim to reach a point whereby they are neither stimulating nor restraining growth. “In a situation where monetary policy lags behind the curve, the macroeconomic costs would be significantly higher,” said Nagel, predicting German inflation — which reached a 70-year high of 11.6 per cent in October — would remain above 7 per cent next year.ECB vice-president Luis de Guindos said tackling inflation required rates to keep rising to tighten financing conditions. The ECB has increased its deposit rate from minus 0.5 per cent to 1.5 per cent in the past four months and is expected to announce another rise to at least 2 per cent at its next meeting in December. “It will reduce aggregate demand, both consumption and investment,” de Guindos told Politico on Tuesday. “But it’s the only possible way forward that we have because doing nothing would be much worse.” Next month’s decision will hinge on whether inflation continues to set new eurozone records after reaching 10.7 per cent in October — far above the ECB’s 2 per cent target.However, European politicians have started warning the ECB not to go too far on raising rates. Last month Italy’s prime minister Giorgia Meloni said that tighter monetary policy was “considered by many to be a rash choice”, while French president Emmanuel Macron warned he worried about central banks “smashing demand” to tackle inflation.Also last month, the ECB said “substantial progress” had been made in “withdrawing monetary policy accommodation”. The move to withdraw some policies that stimulate growth has led some investors to bet it would soon stop rate rises.But recent data have shown eurozone inflation and growth to be stronger than expected. In the latest sign of resilience, the volume of retail sales in the bloc rose 0.4 per cent in September from the previous month, leaving them down 0.6 per cent from a year ago.ECB president Christine Lagarde said last week that a “mild recession” in the eurozone would not be enough to “tame inflation” on its own. A recession was not yet her baseline scenario for the 19-country bloc, she said, but if it happened it would not be sufficient for the ECB to “just let it roll out” to bring inflation down to its 2 per cent target. The ECB should stop raising rates only once underlying inflation, excluding more volatile energy and food prices, had “clearly peaked”, French central bank governor François Villeroy de Galhau told the Irish Times. This measure rose for the fourth consecutive month to 5 per cent in October.As well as lifting rates, the ECB plans to discuss at next month’s meeting how to start shrinking its €5tn bond portfolio through a process known as “quantitative tightening” that has started at the Fed and Bank of England.De Guindos said the ECB would start the process “sooner or later, for sure in 2023”. He added that quantitative tightening “must be implemented with a lot of prudence” and should start by “not fully reinvesting the maturing securities in our portfolio” — as the Fed is doing — rather than actively selling some bonds as the BoE has started to do. More

Members of the Kenya Airline Pilots Association (KALPA) — a union that represents about 400 pilots at the carrier – went on strike on Saturday after failing to resolve a dispute over their pensions contributions and settlement of deferred pay.The walkout led to the cancellation of dozens of flights and stranded thousands of passengers.The carrier, which is one of the biggest in Africa, wants to withdraw from its collective bargaining agreement with the union, a letter by signed by its CEO Allan Kilavuka showed on Tuesday.”We hereby give notice by KQ (Kenya Airways) of its immediate withdrawal from the existing recognition agreement and the collective bargaining agreement with KALPA,” the company said in the letter.The union did not respond when Reuters sought comment, saying its leadership was in court. On Monday, a judge of the employment and labour court ordered 11 union officials to appear before her on Tuesday to explain why they disobeyed the court’s orders, which restrained the pilots from starting the industrial action.During a court session in the morning on Tuesday, the judge ordered the airline and the union to go back to the court by 2:30 p.m. (1130 GMT) with an agreement resolving the dispute.The airline has warned the striking pilots they could be dismissed if they do not return to work immediately. It also started recruiting new pilots and to institute disciplinary action against those on strike. More

Readers of this newsletter will know that I am a fan of Joe Biden’s White House and believe that most of its policies, particularly in the economic realm, have been correct. This administration has fought through partisan politics, not to mention battles within its own party (which is still divided about whether to move away from neoliberalism as an economic philosophy), to pass a major climate bill, the Chips act, infrastructure spending, support union labour, prop up vulnerable families and workers in the midst of a pandemic (which has kept consumer spending strong), and has done it all while the Federal Reserve is orchestrating a 40-year turn in monetary policy — and there’s a war in Ukraine that could turn nuclear.So why the heck are Democrats having such a hard time selling their record economically?One word: inflation. The job market is still hot, even with the Fed raising rates. But inflation in housing, food and fuel is outpacing wage growth, and that’s what people feel on a daily basis. Never mind that US inflation has very little to do with anything the Biden administration itself has done, but is rather the result of a paradigm shift in the global economy that has come with the end of the “cheaper is better” model.The past 40 years have been predicated on cheap money, cheap labour, and cheap energy. Now, with the Fed (quite rightly) increasing rates, and with the end of quantitative easing, cheap money is gone. Cheap energy went the minute Russia invaded Ukraine. Cheap labour is going too, and again, quite rightly, since wages hadn’t risen for most Americans since the early 1990s before this latest bout of (still relatively moderate) wage inflation. On that note, I am amazed that people are still writing about wage inflation as though it’s entirely a bad thing. It’s only a bad thing for corporate C-suites, which are doing everything they can to keep profit margins near record highs: from cutting workers (in the case of overstaffed and oversized tech groups) to cutting product sizes and service quality.The problem is that in 70 per cent consumer economies like the US, if you don’t pay people more at some point, the maths stops working. As the thoughtful conservative Oren Cass argued recently in the FT, it’s time to end the global race to the bottom in wages and for companies to start caring more about the communities in which they operate.Inflation was always going to go up for a certain period of time after nearly half a century of easy money and outsourcing came to an end. Biden’s fiscal spending has little to do with the larger paradigm shift we are going through. And yet, Democrats are taking the heat for inflation, which is making it difficult for them to message all their gains. So, what do to? I’d suggest Democrats focus more on how they, not Republicans, are trying to rein in corporations. Josh Bivens, director of research for the left-leaning Economic Policy Institute, posted a blog that everyone should have a look at. As he puts it:The price of just about everything in the US economy can be broken down into the three main components of cost. These include labour costs, non-labour inputs, and the “mark-up” of profits over the first two components. Good data on these separate cost components exist for the non-financial corporate sector — those companies that produce goods and services — of the economy, which makes up roughly 75% of the entire private sector.Since the trough of the Covid-19 recession in the second quarter of 2020, overall prices in the NFC sector have risen at an annualised rate of 6.1% — a pronounced acceleration over the 1.8% price growth that characterised the pre-pandemic business cycle of 2007–2019. Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labour costs contributing less than 8% of this increase. Biden and the Democrats talked a bit about corporate price gouging about a year ago, but there’s increasing data to back up the fact that companies are, as always, using their disproportionate power to keep their profit margins constant rather than sharing the pain that the rest of us are feeling. And since the Republican party is increasingly split between being beholden to Donald Trump and Peter Thiel, it’s unlikely they’ll do anything about it.Ed, you used to be a speech writer — is there a smarter way to message the Democratic economic record than what we’ve seen thus far? And even if there were, would it matter to voters?Final word — if you live in the US and are eligible to vote but haven’t yet, go do it now!PS Join Edward Luce, Rana Foroohar, James Politi, and veteran commentator Norm Ornstein on November 10 for a subscriber-exclusive webinar staged with the Swamp Notes newsletter to discuss the US midterm results. Register free today here and submit your questions in advance for our panel.Recommended readingPerhaps there is reason to hope that inflation will come down soon, according to the always smart John Authers.My colleague Martin Sandbu got it right on the politics of subsidies and trade in the EU. I also think Ruchir Sharma is right that economic consensus can often be a counter-indicator of reality.Need to catch up quickly this election day? Check out this special episode of the FT News Briefing podcast, which provides a crash course on the top issues of the US midterm elections.Edward Luce responds Rana, yes there’s a far smarter way for Democrats to market their record — take their cue from Barack Obama’s recent stump speech. For those who have missed the new, far less professorial, Obama, here is a recent clip. His message is powerful because it focuses on economic justice in light of the jeopardy facing everyone who has paid throughout their working lives into Social Security. The latter is not some “Ponzi scheme” as many Republicans have called it. Obama then brackets that warning with an attack on a party that votes for tax breaks for private jets and does the bidding of billionaires. The framing of Obama’s message about the consequences to ordinary people of the Republican party’s economic plans — to the extent they can be described as plans — is fair game and emotionally motivating. Democrats have not been spending nearly enough time spelling out the meaning of Maganomics.The benefit of Democratic economic populism is that it can appeal to everyone and is grounded in a fair diagnosis of what motivates their Republican opponents. America’s three richest people have wealth that exceeds its bottom 160mn. Republicans only have two concrete economic plans. The first is to make Trump’s regressive 2017 tax cuts permanent. The second is to hold the US sovereign debt ceiling hostage to spending cuts on all the rest. The first is inflationary. The second would undercut whatever real wage growth American employees have been enjoying. I wish Biden had developed his oil company windfall tax proposal sooner. Net profits for the oil majors is running at something like quadruple the rate of this time last year. Again, most people can get behind such an intuitive proposal. As it stands, I am not sure even these powerful messages would have been enough to save the Democrats since so many Americans are no longer reachable with unrefracted messaging.Your feedback And now a word from our Swampians . . . In response to “Elon Musk’s coming out election party”:“Democracy is being Musked, mugged. [Shoshana] Zuboff is right. I want the laws, the rules, made by the people I and others vote for, not some (now disbanded!) private sector Truth Council. There is no ‘one real truth’. We imperfect humans need to adopt the scientific method to truth discernment. In science, we are very careful of the funders. In surveillance capitalism, they are in plain sight yet we just don’t seem to care. But we must learn to care. My bet is that the upcoming climate Minsky Moment might be — ever so slightly — pivotal.” — Mike Clark, Oxfordshire, England More

LONDON (Reuters) -European Union member states have backed a temporary watering down and two-year delay to 2025 for the final leg of the globally agreed Basel III bank capital rules, the Czech EU presidency said on Tuesday.EU states will now negotiate a final deal with the European Parliament in early 2023.”One of our main goals was to avoid impacts on European banks that could reduce their ability to finance the European economy,” Czech finance minister Zbynek Stanjura told a meeting of EU finance ministers.”It shows once again our commitment to international standards and multilateral cooperation,” added Valdis Dombrovskis, executive vice president of the European Commission, which drafted the proposals eased by EU states.Finance ministers for Germany and France said the package struck the “right balance”, with Spain adding that it reflected “idiosyncrasies” in Europe’s banking sector.”This flexibility gives banks enough time to adjust to these new rules,” German finance minister Christian Lindner said.Most of the Basel III rules, a set of tougher capital rules for banks after the global financial crisis more than a decade ago, have already been implemented.European banks have lobbied hard for a temporary watering down of some of the remaining Basel III features, arguing they already hold enough capital and that higher requirements would crimp lending to the economy.EU ministers backed a two-year delay to the start date for rolling out the final rules, pushing it back to January, 2025.The revised rules would give relief until 2032 to largely neutralise capital increases for some banks holding low-risk mortgages.Based on a new “output floor” for determining capital levels, EU states which host banks headquartered elsewhere in the bloc can insist that a certain amount of group capital is held locally.Smaller banks would benefit from simpler disclosure, and EU states pushed back against attempts at stricter EU harmonisation in checking whether top bank staff are ‘fit and proper’.Markus Ferber, a German centre-right member of the European Parliament, said the member state position is a “pragmatic step in the right direction” to tailor global rules that are a poor fit for Europe’s banks.EU states also watered down proposals from the European Commission to toughen up requirements on branches of foreign banks in the bloc, meaning less pressure on them to open a subsidiary with the extra capital and EU supervision that brings.Luxembourg said the more “rationalised” approach to third country branches ensures an “open economy” with more diversified sources of funding for EU economies.’CRACKING THE DYKE’The watering down comes despite warnings last week from the European Central Bank, which regulates top euro zone lenders, and the bloc’s banking watchdog EBA, saying the bloc could fall foul of global rules.EBA said in September that banks in the EU collectively need only a further 1.2 billion euros to meet Basel III in full by 2028.But on Tuesday, ECB Vice President Luis de Guindos told ministers he was concerned about deviations from Basel III at a time when the EU economy faces downside risks.”Each deviation may only appear as an isolated crack in the dyke protecting the banking system, but together these numerous cracks erode soundness and stability,” de Guindos said.The Netherlands cautioned that the temporary deviations must stay temporary.The EU is ahead of Britain and the United States in setting out how it wants to implement the final leg of Basel III.The Bank of England has said it will also begin rolling out the rules from 2025, but that it won’t match some of the easing being approved in the EU.The BoE is likely to keep a close eye on what the Federal Reserve decides given the big presence of U.S. investment banks in London. More

TOKYO (Reuters) -Japanese Prime Minister Fumio Kishida’s cabinet approved on Tuesday a second extra budget spending of 29.1 trillion yen ($198.54 billion) for an economic stimulus package this fiscal year, much of which will be funded by additional new debt.The latest stimulus spending underscored the struggle Kishida’s government faces in achieving economic growth alongside fiscal reform, leaving Japan as an outlier in a global trend towards dialling back crisis-mode stimulus policy.”There’s no doubt our response is making the fiscal situation more severe. While exiting exceptional response to coronavirus in a shift towards normalisation, we must conduct responsible economic and fiscal management,” Finance Minister Shunichi Suzuki told reporters after the extra budget was approved.”We cannot afford to continue such large fiscal spending. We must also be mindful of risk of national wealth outflow through trade deficit,” he said.The Ministry of Finance (MOF) said an additional 22.8 trillion yen of new debt would be issued to help cover the latest supplementary budget, resulting in total planned new borrowing of 62.5 trillion yen this fiscal year.The extra budget featured steps to help households cope with surging costs of electricity, gas and gasoline. It also aimed to help various regions take advantage of the weak yen to lure tourists.It also set aside money for an emergency budget reserve.The government will quickly prepare to present the extra budget to parliament for approval, Suzuki said.TAX REVENUE REVISED UPThe government has revised up its estimated tax revenues by 3.1 trillion yen to a record 68.4 trillion yen. Unspent funds from the previous year would help bridge some of the budget gap.While Japan has opted to inject stimulus, most other major economies are pursuing anti-inflationary policies.The latest measures bring the total budgeted spending for this fiscal year to more than 139.2 trillion yen.Several rounds of heavy fiscal stimulus to cope with the impact of COVID on the economy resulted in the government spending around 1.4 times the size of its initial estimates for each of the past three years.As a result, Japan’s outstanding government debt has topped 1,250 trillion yen as of the end of June.($1 = 146.3300 yen) More

ISTANBUL (Reuters) – Turkish banks, now enjoying record profits, face a painful reversal of fortune next year as tough regulations loosen their grip on balance sheets.Bank executives have become so concerned at government policy that some have launched a rare revolt in recent weeks.Yet despite soaring inflation, bankers say President Tayyip Erdogan’s government is likely to continue its unorthodox policies of monetary and fiscal stimulus at least through mid-2023 elections, which polls show he risks losing.Bankers forecast a very tough 2023 and beyond for earnings and lending, several of them told Reuters. To keep the central bank’s aggressive interest rate cuts on track over the last year, the lenders have had to absorb a series of new rules meant to discourage hard currency deposits and to redirect credit to government-preferred sectors. Several insiders said that financial executives, wary of future prospects, reached a breaking point last month and took the rare step of publicly calling for changes. Hakan Aran, CEO of the largest private lender Isbank, urged authorities to ease or lift measures, including a mandate to hold government bonds, on grounds they prevented banks from using resources effectively. While it is difficult to predict how much earnings are set to drop, bankers say the new requirements to hold more treasury debt with yields fixed well below both lending rates and inflation will have an impact. Such public criticism from Aran and other CEOs is rare from a sector adept at flexibly and stoically dealing with abrupt rule changes, and at avoiding politics. One senior banker who requested anonymity said executives finally spoke out because the raft of new rules “raised the heat in the banking sector so much that it started to burn the system”.Despite the bankers’ calls, Ankara is unlikely to reverse course, including on a scheme that has ballooned in value in which the state protects lira deposits from depreciation. “No one wants to create a foreign exchange demand of $70 billion before the elections,” the banker said.Authorities say they will stay the course. On Oct. 31, the day Isbank’s chief spoke out, the central bank sent a letter telling lenders to make maximum effort abiding by regulations and warned against forex transactions during off hours. The central bank and bank regulator BDDK declined to comment on fallout for bank profits and lending next year. Erdogan adopted the economic programme last year in which rate cuts and targeted lending to exporters and smaller businesses are intended to boost economic growth, investment and to reverse chronic current account deficits. He says cutting rates lowers inflation, despite his programme having largely sent inflation to 85%. It also set off a historic currency crisis late last year that prompted many of the regulations now pressing banks to boost lira holdings. ‘UNABLE TO PRICE RISKS’One recent rule mandated lenders to ramp up government bond holdings to backstop foreign exchange deposits. These purchases were made at a premium, sometimes replaced inflation-indexed bonds, and drove treasury yields down well below inflation to 10%, leaving lenders exposed to losses.The treasury-purchase rule “completely changed the industry’s view. Banks became unable to price their risks… hamstringing their most fundamental right and capability,” said Arda Tunca, an economist and columnist at PolitikYol. (Graphics: Turkish banks flush with treasuries – https://graphics.reuters.com/TURKEY-DEBT/BANKS/znvnbdorgvl/chart.png) Net profits for Turkish banks jumped by more than 400% to 286.2 billion lira ($15.38 billion) in the first nine months of 2022, thanks largely to their CPI-linked bond holdings. But the regulations are set to bite in next year’s results, especially for private lenders. Their share of outstanding loans has fallen to 29%, compared to 46% for state lenders that have increased their dominance in recent years. Adding to costs, some banks are offering deposit rates of nearly 30% to corporate clients, even as they lend at near 17%. Other bankers said the regulations and rising costs have interfered with basic credit extension and could lead banks to cut operational costs. They could even strain relationships with foreign companies, raising funding costs of syndications or letters of credit, two of the insiders told Reuters. Authorities “tied the fate of the banking sector to state lenders with the recent regulations. This creates a balance sheet risk,” said another banker who requested anonymity. Still, other sources close to the state lenders said these concerns are exaggerated given exporters, the focus of Erdogan’s programme, are easily getting credit.”It will take time to get used to this change,” one of them said. Yet the banks, now flush with fixed-rate bonds, are also vulnerable to a policy reversal that would test their resiliency. Erdogan’s opponents in the spring 2023 elections say they will hike interest rates to contain inflation. ($1 = 18.6054 liras) More

Investing.com — The U.S. holds midterm elections, with the Republican Party tipped by opinion polls to regain control of the House of Representatives. The lockdown around the world’s biggest iPhone factory is set to be extended after the Chinese city of Zhengzhou reports a jump in COVID-19 cases. Walt Disney leads a veritable deluge of earnings reports, while Lyft and Take-Two Interactive are set to open sharply lower after disappointing with their reports late on Monday. The house token of crypto exchange FTX crumbles another 20%, pulling Bitcoin and Ether down with it, and the U.S. government will publish its latest Short-Term Energy Outlook. Here’s what you need to know in financial markets on Tuesday, 8th November.1. Midterm elections hold fate of Biden’s presidency, may trigger Trump’s run in 2024The U.S. holds midterm elections that may consign the rest of Joe Biden’s presidency to lame-duck status, as voters punish the Democrats for presiding over the highest inflation in 40 years.Opinion polls give the Republican Party a good chance of regaining control of the House of Representatives. Control of the Senate – split 50-50 since the 2020 elections – may also tip back to the GOP and various state Governorships are also up for contention.The biggest subplot around the polls will be whether the GOP candidates most closely associated with former President Donald Trump perform more or less well than the norm. Trump again hinted heavily at announcing a presidential run in 2024 on Monday, and success by his acolytes may be the catalyst for such a move.Republican control of Congress would significantly restrict the administration’s ability to enact any more radical fiscal measures until 2024. Internationally, its biggest consequence may be to reduce U.S. military and economic support for Ukraine, an issue that some Trumpist GOP candidates, in particular, have actively campaigned on.2. Zhengzhou lockdown set to continueThe city of Zhengzhou said the number of COVID cases more than doubled on Monday, dashing hopes for an early end of the lockdown that is affecting the world’s largest iPhone assembly plant.The seven-day lockdown of the Airport Economy Zone is due to end on Wednesday but is now almost certain to be extended, causing further disruption to shipments of Apple’s most important product in its most important quarter of the year.Apple (NASDAQ:AAPL) stock, which has lost over 10% since the outbreak started, edged up 0.2% in premarket. Separately, the Zhengzhou plant’s owner Foxconn said it will invest $170 million in U.S.-based electric truck maker Lordstown Motors (NASDAQ:RIDE).3. Stocks set to open flat; Take-Two, Lyft under pressure; Disney earnings lead a cast of thousandsU.S. stock markets are set to open largely flat, as the post-payrolls rally since Friday takes a breather ahead of the midterm election results.By 06:05 ET (11:05 GMT), Dow Jones futures were up 30 points or 0.1%, while S&P 500 futures were also up 0.1%, and Nasdaq 100 futures were up 0.3%, helped by consolidation in chipmaking stocks and Big Tech names that suffered after their third quarter reports.Stocks likely to be in focus later include Take-Two Interactive (NASDAQ:TTWO), after the publisher of Grand Theft Auto cut its revenue forecasts for the current quarter late on Monday, and Lyft (NASDAQ:LYFT), which slumped 20% in premarket after reporting numbers that confirmed loss of market share to Uber (NYSE:UBER) in the last quarter.Walt Disney (NYSE:DIS) heads an earnings roster that stretches out to the crack of doom. It will report after the close, alongside Occidental Petroleum (NYSE:OXY), NortonLifeLock (NASDAQ:NLOK), and News Corp (NASDAQ:NWSA). Early updates are due from DuPont de Nemours (NYSE:DD), Norwegian Cruise Line (NYSE:NCLH), Coty (NYSE:COTY), Workhorse (NASDAQ:WKHS) and GlobalFoundries (NASDAQ:GFS), as well as mortgage institutions Freddie Mac (OTC:FMCC) and Fannie Mae.4. Binance-FTX bust-up keeps the pressure on cryptoThe pressure on crypto exchange FTX intensified as heavy selling pushed its native token FTT down as much as 30% overnight. Bitcoin and Ether were also dragged down by over 5%.Blockchain analytics indicate large-scale redemptions of funds from FTX are continuing, triggered by rival Binance’s decision at the weekend to liquidate its holdings of FTT, amid concerns over the underlying soundness of FTT. More and more commentators are casting the developments as an expression of deeper divisions between the owners of the two exchanges over the future regulation of crypto, especially in the U.S. where FTX’s Sam Bankman-Fried has lobbied for draft legislation to take a stricter line on decentralized finance than many crypto enthusiasts would like.Binance founder Changpeng Zhao has played down this version of events, saying the move is just a risk management strategy. Bankman-Fried, however, tweeted on Monday that “A competitor is trying to go after us with false rumors.”5. Oil takes a breather; API, STEO dueCrude oil prices corrected downward after days of healthy gains, as developments in China dented hopes for a quick end to the Zero-COVID policy.By 06:25 ET, U.S. crude futures were down 1.3% at $90.64 a barrel, while Brent futures were down 1.0% at $96.98 a barrel.The American Petroleum Institute releases weekly inventory data at 16:30 ET as usual, while the U.S. government will publish its latest Short-Term Energy Outlook at 12:00 ET. More