Economy

NEW YORK (Reuters) – U.S. stocks are extending their lead over global peers and some investors believe that dominance could grow if President-elect Donald Trump can implement his economic platform without becoming mired in a full-blown trade war or ballooning the federal deficit.The S&P 500 has gained over 24% in 2024, putting it well ahead of benchmarks in Europe, Asia and emerging markets. At 22 times expected future earnings, its premium to an MSCI index of stocks of more than 40 other countries stands at its highest in more than two decades, according to LSEG Datastream. Though U.S. stocks have outperformed their counterparts for more than a decade, the valuation gap has widened this year thanks to resilient economic growth and strong corporate earnings – particularly for the technology sector, where excitement over developments in artificial intelligence have boosted the shares of companies such as chipmaker Nvidia (NASDAQ:NVDA). Some market participants believe Trump’s agenda of tax cuts, deregulation and even tariffs can further fuel U.S. exceptionalism, outweighing worries over their potentially disruptive nature and inflationary potential. “Given the pro-growth tendencies of this new administration, I think it’s tough to fight the battle against U.S. equities, at least in 2025,” said Venu Krishna, head of U.S. equity strategy at Barclays (LON:BARC).Signs of a growing U.S. bias were evident immediately after the Nov. 5 election, when U.S. equity funds received more than $80 billion in the week following the vote while European and emerging market funds saw outflows, according to Deutsche Bank (ETR:DBKGn).Strategists at Morgan Stanley (NYSE:MS), UBS Global Wealth Management and the Wells Fargo (NYSE:WFC) Investment Institute are among those who recommend overweighting U.S. equities in portfolios or expect them to outperform next year.EARNINGS ENGINEA critical driver of U.S. strength is corporate America’s profit edge: S&P 500 company earnings are expected to rise 9.9% this year and 14.2% in 2025, according to LSEG Datastream. Companies in Europe’s Stoxx 600, by contrast, are expected to increase earnings by 1.8% this year and 8.1% in 2025.”The U.S. continues to be the geographic region of the world that generates the highest earnings growth and the most profitability,” said Michael Arone, chief investment strategist at State Street (NYSE:STT) Global Advisors. The dominant role of massive technology companies in the U.S. economy and their heavy weightings in indexes such as the S&P 500 are helping drive that growth. The five largest U.S. companies – Nvidia, Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) – have a combined market value of more than $14 trillion, compared with roughly $11 trillion for the entire STOXX 600, according to LSEG data.More broadly, the U.S. economy is expected to grow by 2.8% in 2024 and 2.2% in 2025, compared with 0.8% this year and 1.2% next year for a group of about 20 countries using the euro, according to forecasts from the International Monetary Fund.Trump’s plans to raise tariffs on imports could help the U.S. extend that advantage, despite the risk of some blowback, said Mike Mullaney, director of global markets research at Boston Partners, who favors U.S. stocks.”If Trump throws on a 10% to a 20% tariff on European goods, they’re going to get hurt more on a relative basis than we are,” Mullaney said.Republicans’ lock on power in Washington – which could make it easier for Trump to enforce his agenda – prompted Deutsche Bank’s economists to raise their 2025 U.S. growth forecasts to 2.5% from 2.2%.While tax cuts and deregulation are expected to boost growth, relatively tight margins in U.S. Congress and the administration’s sensitivity to market reactions could limit the scope of the most “extreme” policies, such as tariffs, the bank wrote on Thursday.Analysts at UBS Global Wealth Management, meanwhile, expect the S&P 500 to hit 6,600 next year, driven by advances in artificial intelligence, lower interest rates, tax cuts and deregulation. The index closed at 5,948.71 on Thursday.Still, an all-out trade war with China and other partners could hit U.S. growth and stoke inflation. A scenario in which countries retaliate against far-reaching U.S tariffs could send the S&P 500 to as low 5,100 – though global stocks would also decline, UBS said.Certain corners of the market could be particularly vulnerable to Trump’s policies: worries over plans for cutting bureaucratic excess bruised shares of government contractors last week, for example, while drugmakers fell when Trump picked vaccine skeptic Robert F. Kennedy Jr. to lead the Department of Health and Human Services.Broad tax cuts could also spark concerns about adding to U.S. debt. Deficit worries have helped drive a recent selloff in U.S. government bonds, taking the 10-year Treasury yield to a five-month high last week.At the same time, the valuation gap between the U.S. and the rest of the world could become so wide that U.S. stocks start looking expensive, or international equities become too cheap to ignore. For now, however, the long-term trend is in favor of the U.S., with the S&P 500 gaining more than 180% against a rise of nearly 50% for Europe’s STOXX over the past decade. “Momentum is a great thing,” said Colin Graham, head of multi-asset strategies at Robeco. “If you’ve got something that keeps outperforming, then investors will follow the money.” More

(Reuters) – Northvolt, the Swedish maker of battery cells for electric vehicles, said on Thursday it has filed for Chapter 11 bankruptcy protection in the U.S., dealing a blow to Europe’s hopes that its most developed battery player would reduce Western car makers’ reliance on Chinese rivals.Northvolt said it has only enough cash to support operations for about a week and said it has secured $100 million in new financing for the bankruptcy process. It said operations will continue as normal during the bankruptcy.”Northvolt’s liquidity picture has become dire,” the company said in its Chapter 11 petition, filed in U.S. Bankruptcy Court in Houston. The company, which has operations in California, has about $30 million of cash, which can support its operations for only about a week. It has $5.8 billion in debts.Northvolt, which employs around 6,600 staff across seven countries, said it expects to complete the restructuring by the first quarter of 2025.Northvolt transformed in a matter of months from Europe’s best shot at a homegrown electric-vehicle battery champion to a company struggling to stay afloat by slimming down, hobbled by production problems, the loss of a major customer and a lack of funding.Europe has been hoping that Northvolt would reduce Western car makers’ reliance on Chinese rivals such as battery maker CATL and EV and battery maker BYD (SZ:002594).Northvolt said the $100 million in a new loan is part of $245 million in financing support for the bankruptcy. Swedish truck maker Scania, a shareholder and its biggest customer, said on Thursday that it was loaning $100 million to Northvolt to support the manufacturing of electric vehicle battery cells in Skellefteå, northern Sweden.”This decisive step will allow Northvolt to continue its mission to establish a homegrown, European industrial base for battery production,” Tom Johnstone, interim chairman of Northvolt’s board, said in a statement, noting the support Northvolt has received from existing lenders and customers.As part of the restructuring, Northvolt will evaluate proposals for new money investment from strategic and financial investors, as well as existing lenders, shareholders and customers, he said.Volkswagen (ETR:VOWG_p), Northvolt’s top shareholder with a 21% stake, said it had taken note of the filing and was in close contact with the Swedish firm. It declined to comment on potential repercussions on its own business.STIFF COMPETITIONInvestment group Vargas, a co-founder of Northvolt and one of its largest shareholders, said the bankruptcy would allow the company to address financial challenges and maintain its competitive edge in producing high-performance battery cells. Handelsbanken analyst Hampus Engellau said the bankruptcy filing would give the company some short-term breathing space. Even so, he said, “This tells us that they haven’t found investors and raised the capital needed to restructure their business.”Northvolt had been discussing the possibility of filing for Chapter 11 bankruptcy protection in the United States as one of several options for survival, two sources familiar with the matter told Reuters last week.Northvolt has led a wave of European startups investing tens of billions of dollars in battery production to serve the continent’s automakers as they switch from internal-combustion engines to EVs. But EV demand is growing at a slower pace than some in the industry had projected, and competition remains stiff from China, which controls 85% of global battery-cell production, according to International Energy Agency data.At a court hearing late Thursday, U.S. Bankruptcy Judge Alfredo Perez approved some routine initial steps in Northvolt’s bankruptcy, including allowing the company to pay wages owed to employees and draw the first $51 million of the Scania loan.On Monday, Reuters reported that Northvolt had missed some in-house targets and curtailed production at its battery-cell plant in Skellefteå, underscoring the challenge of ramping up output.The company’s court filing on Thursday said it had capacity to produce 300,000 batteries a year.In October, Northvolt struck a deal that gave access to a small amount of money while talks on a bigger financing package continued, business daily DI reported.Those talks had become more difficult in recent weeks, one of the sources familiar with the Chapter 11 plan said.In recent years several Swedish companies have opted for Chapter 11 bankruptcy protection filings, such as Scandinavian airline SAS and debt collector Intrum, a process that allows management to retain control over the company and run operations.Swedish Deputy Prime Minister Ebba Busch said on social media platform X that the government continues to support the EV battery industry and hopes that the restructuring will help turn around Northvolt’s fortunes. Busch told Reuters on Tuesday that the Swedish government had no plans to take a stake in Northvolt. More

Speaking with journalists in Brasilia, minister Fernando Haddad said this year revenues have been performing as expected, but government will need to block or freeze some 5 billion reais ($859.9 million) in spending.Brazilian government has until Friday to release a bi-monthly revenue and expenditure report with updates on its budget outlook for this year.Haddad said the government will not change its primary deficit target for this year, which mandates zero deficit excluding interest payments, with a tolerance margin of 0.25 percentage points of GDP in either direction.The minister also said that government would be ready to announce a fiscal package with broad spending cut measures for the next years as of Monday, when he will attend an internal meeting to finalize the plan. Expectations for more details on the fiscal package impact have been driving Brazil’s assets in recent weeks, as investors await to see if the measures would be enough to end their worries on government’s ability to comply with its fiscal framework. ($1 = 5.8144 reais) More

The trend shows exporters are preparing for a long-term shift in trade towards Asia, Latin America and Africa, and safeguarding against potential currency fluctuations like those seen during U.S. President-elect Donald Trump’s first term.Knife-edge margins are also adding to companies’ anxieties, with spot markets already pushing the dollar about 2% higher on the yuan in the weeks since the U.S. election on Nov. 5.”There’s an obvious spike in willingness to hold dollars offshore,” said David Jiang, founder of risk management consultancy Qian Jing.    A business in eastern Jiangsu province, which earns $300 million in annual exports, wants help to protect 5% margins from currency risks as it must also navigate Trump’s threat of imposing 60% tariffs on Chinese goods, he said. For now, most firms are holding on to their dollar earnings from exports and keeping them offshore, if possible. Onshore foreign-currency deposits swelled 6.6% to $836.5 billion over the 12 months to end-October, central bank data showed.Analysts’ average forecast is for the yuan to fall to 7.3 per dollar by the end of next year from around 7.24 per dollar currently.”The interest rate differential between the United States and China is wide and that will continue to persist for a prolonged period … holding dollar assets is natural for Chinese exporters,” said Liu Yang, general manager of the financial market business department at minerals exporter Zheshang Development Group.High U.S. interest rates have pressured forwards such that it is un-economic for exporters to lock in future rates, though Liu said it was favourable for importers to do so and for exporters to sell call options at around 7.5.CHANGING TRADEOwning dollars has been a winning strategy. The currency has been kept strong by high U.S. rates and falling Chinese ones.However, with the trade turmoil of Trump’s first presidency, Chinese businesses are preparing for future disruptions. The yuan rallied 10% through the first 18 months before sliding about 12% through his imposition of tariffs and the pandemic.That experience has China more prepared this time and has already begun a re-shaping of global trade that is flowing through into financial markets, especially foreign exchange. “A heavy tariff regime could also change the constitution of currency hedging flows in the long run,” said Nathan Swami, Asia-Pacific head of currency trading at Citi in Singapore.”The renminbi’s share of global payments and trade has been growing over the years and it is possible that some of that new trade could be non-USD denominated, thus changing the need for underlying currency hedging.”The yuan’s share in global trade finance stood at 5.77% at the end of October – ranking it second behind the dollar – compared with about 2% in 2020, according to data from the global bank messaging network SWIFT. The share of Chinese exports sent to the U.S. has steadily decreased in recent years, while increasing to Southeast Asia, India and Mexico, customs data shows.Some exporters are already making their own attempts to cut out currency risks by quoting prices in yuan or taking positions in two-way trade flows. Jacky Wang, a businessman based in southern Guangdong, who sells LED lights in South America and Africa, is setting his own FX deals with customers and says companies should reduce risks by striking up bilateral trades.”That means using export proceeds to buy local products for imports into China, while converting profits into the U.S. dollar,” he said. “This is a simple, and basic way to manage currency risks,” he said, without using complex hedging tools.The view was echoed by Han Changming, a car importer in southern Fujian province, who also exports commodities. “The two-way trade provides a natural hedge,” Han said.While most businesses are not agile enough to lessen risks effectively, exporters are benefiting from a weakening currency as it increases global competitiveness and boosts profits when converted to yuan.Still, advisers say the backdrop is putting hedging front of mind.”When Chinese companies venture into new markets, they need to think seriously if they are at the table or on the menu,” said Joseph Liu, chief operating officer of consultancy FX Expert, noting companies were entering volatile FX countries.    “While Trump … stirs short-term anxiety, the trend of going overseas is a long-term positive to my business.” More

Musk, the billionaire CEO of Tesla (NASDAQ:TSLA) and SpaceX, and Ramaswamy, a former Republican presidential candidate and biotech executive, were tasked by President-elect Donald Trump with creating a panel of outside advisers to make recommendations on how to reduce the size of federal workforce and slash regulations.Greene’s government efficiency subcommittee was created by House Oversight Committee chair James Comer to work with Musk and Ramaswamy. “I’m thrilled to announce I’ll be chairing a brand new subcommittee to work hand-in-hand with @ElonMusk and @VivekGRamaswamy,” Greene wrote on X.Trump, Musk and Ramaswamy have touted ambitious claims about the panel’s ability to transform the U.S. government and the effort has received widespread publicity and interest in how it will operate.But details have been sparse. On Wednesday, Musk and Ramaswamy wrote an opinion piece saying they will use recent U.S. Supreme Court rulings to take power away from federal agencies and reduce regulations.Trump has said the two will issue reports, and the new panel said it wants to bring on “high IQ” staff and hold weekly livestreams. More

RABAT (Reuters) – U.S. pharmaceutical giant Viatris Inc (NASDAQ:VTRS) has been fined 7.58 million dirhams ($760,000) by Morocco’s competition regulator for failing to notify it regarding its merger, two official sources said on Thursday.Viatris was formed by the merger of Mylan, which has a subsidiary in Morocco, and Pfizer (NYSE:PFE)’s Upjohn business in 2020.The fine, equivalent to 2.5% Viatris’ revenue in Morocco last year, has already been paid to the Moroccan treasury, the sources said, requesting anonymity. Viatris also declined to appeal the decision, the sources said. Viatris did not immediately respond to a Reuters emailed request for comment. The regulator is also planning to look into other mergers in which the companies failed to notify the regulator. These could include a joint venture between the phosphates and fertilizers giant OCP and Fertinagro Biotech and the takeover of Whirlpool (NYSE:WHR) Middle East and North Africa operations by Turkey’s appliances maker Arcelik (IS:ARCLK), one of the two sources said.Answering a Reuters question on whether it has informed the regulator of its joint venture, OCP said it undertook “all necessary diligences” and that it “always ensures to adhere to all applicapble legal and regulatory requirements, including those concerning antitrust and competition law.” Arcelik did not immediately respond to Reuters’ requests for comment. More

“[i]f we look out over the next year or so, it feels to me like rates will end up a fair bit lower than where they are today,” Goolsbee said in prepared remarks for an event at the Central Indiana Corporate Partnership in Indianapolis, Ind., on Thursday.While the road lower to a neutral rate is paved with uncertainty amid ongoing debate about where rates will ultimately settle, Goolsbee said he sees rates over the next ending up “fair bit lower than where they are today.” The Fed cut rates in November to a range of 4.5% to 4.75% and is widely expected to deliver another 25bps cut in December.The Chicago Fed chief also said that a longer view on the economy was needed following recent concerns about upside inflation and stronger labor market.   “My view is that the long arc over the last year and a half shows inflation is way down and on its way to 2 percent. Labor markets have cooled to something close to stable full employment,” Goolsbee said. As the Fed inches closer toward its dual mandate goals of 2% inflation and maximum employment, Goolsbee believes it would appropriate for the central bank to “move rates to where we think they should settle, too.” More

(Reuters) – A look at the day ahead in Asian markets. Risk assets in Asia are set to open positively on Friday after a show of fortitude on Wall Street saw U.S. stocks end a choppy session in the green, as local attention turns to the latest inflation figures from Japan.Japanese consumer prices top the regional calendar, and investors also will be looking out for purchasing managers index data from Japan, Australia and India for the first glimpse into how these economies performed in November.Annual core consumer price inflation in Japan is expected to have slowed to 2.2% in October from 2.4% in September, cooling for a second consecutive month on slower growth in energy prices, according to a Reuters poll.The release comes a day after Bank of Japan Governor Kazuo Ueda said the central bank will “seriously” take into account the yen’s impact on growth and prices, remarks investors took as a sign the BOJ could soon raise interest rates.The ultra low-yielding yen is one of the world’s worst-performing currencies against the dollar this year, putting upward pressure on the price of imports.The dollar has risen 10% against the yen since the Fed cut rates in September, a counter-intuitive move explained by the surprising – and surprisingly steep – rise in U.S. bond yields. But the yen is ripe for a rebound. It has been sold off heavily, speculators are holding their biggest short position in four months, and the BOJ could be taking a more hawkish turn.The Japanese currency rose on Thursday for only the second time in nine days, and another rise of around 0.3% on Friday would seal its best week in two months. Asian stocks are also consolidating, after getting slammed last week. On the whole, the global backdrop as Asia opens on Friday is still reasonably positive. The upward momentum behind the so-called ‘Trump trades’ that gathered steam before and immediately after the Nov. 5 U.S. presidential election has fizzled, but most of these bets still appear to be in play. Some more than others. Tesla (NASDAQ:TSLA) shares are up 7% this week and bitcoin is up 9%, within reach of breaking above $100,000 for the first time.This could easily happen in Asia on Friday, after U.S. Securities and Exchange Commission Chair Gary Gensler confirmed he will leave his post in January. Gensler is widely seen as a hard-liner on cryptocurrency regulation.Indian assets, meanwhile, are under heavy pressure on the news that Indian billionaire Gautam Adani has been indicted for fraud by U.S. prosecutors and arrest warrants issued for him for his alleged role in a $265 million scheme to bribe Indian officials.Stocks are the lowest in five months, and the rupee has never been weaker. Here are key developments that could provide more direction to markets on Friday:- Japan inflation (October)- Malaysia inflation (October)- Japan, Australia, India PMIs (November) More