Economy

Roughly 260 billion euros ($254 bln) of euro zone government bonds carried negative yields as of end-September, Tradeweb said, down from around 542 billion euros at end-August. Negative-yielding bonds made up 3.2% of a total market worth around eight trillion euros on the Tradeweb platform, versus almost 7% in August. The September figure was the lowest since at least 2016, when Tradeweb started compiling the data for Reuters. More

Telecom Plus shares jumped 17 per cent on Monday after it said soaring energy prices had driven an influx of customers to its discount bundles of gas, electricity, mobile, broadband and insurance contracts.The FTSE 250 company, which trades as Utility Warehouse and offers customers bigger discounts the more services they sign up for, said cost-of-living pressures had helped it attract 86,000 new customers in the six months to September. That took its total customers to 814,684, in line with its aim of more than doubling its customer base over the next four to five years. It now expects full-year profits to be “materially ahead of market expectations”.“At a time when cost of living pressures continue to rise, we are uniquely positioned to offer households what they need now more than ever: savings on their essential bills and an extra income from recommending these savings to their friends and family,” said Andrew Lindsay, co-chief executive.Shares were up 370p at £20.96 in late-morning trading.The company has attracted new customers as the wider British energy retail market has fallen into crisis amid soaring wholesale prices.More than 30 energy suppliers have gone out of business since January 2021 as increasing wholesale gas and power prices exposed undercapitalised balance sheets and poor hedging strategies.Typical annual household energy bills rose to £2,500 this month, up from £1,971 previously, although the precise amount will depend on usage.Charities have warned that millions of Britons face a “public health crisis” this winter because of high energy bills, despite the government’s £150bn package to limit costs. About 6.7mn households, or more than a fifth of the total, are expected to be in fuel poverty this winter, up from 4.5mn a year earlier, charities including the Food Foundation have warned.A YouGov poll of more than 4,000 households published by the charity National Energy Action on Friday showed 24 per cent of parents had cut the amount of food they were buying. One in 10 said they were eating cold meals to reduce energy use.According to energy consultancy EnAppSys, electricity demand in Britain over the past few months has fallen 9 per cent compared with the same period last year and 8 per cent compared with 2019.Telecom Plus in March reported full-year pre-tax profits of £47.2mn on record revenues of £967.4mn. More

Turkey’s official inflation rate climbed to a new 24-year high last month as the country reeled from President Recep Tayyip Erdoğan’s unorthodox economic policy.The consumer price index rose 83.45 per cent in September, according to data from the Turkish Statistical Institute, the highest level since July 1998 and up from 80.21 per cent the previous month.Erdoğan rejects the established economic consensus that raising interest rates helps to curb inflation. He has ordered the central bank to cut borrowing costs twice in the past two months, bringing the benchmark interest rate down to 12 per cent.Last week he said he wanted the main rate to come down to single digits by the end of the year as he pushes for growth ahead of critical elections that are due to take place in June 2023. “My biggest battle is against interest. My biggest enemy is interest,” Erdoğan said in televised remarks. “We have now lowered the interest rate to 12 per cent. Is that enough? It is not enough. This needs to come down further.”Erdoğan has insisted that lowering rates — even at a time when other central banks around the world have been raising borrowing costs — will strengthen the lira and tackle inflation by boosting investment and creating jobs.Analysts, however, warn that the easing cycle is one of the main causes of the heavy pressure on the Turkish currency, which is down by about 27 per cent against the dollar since the start of this year. It has also caused rampant inflation and raised concerns about the stability of an economy that is heavily dependent on foreign funding, with $182bn in external debt payments coming due in the next 12 months.On Friday, the rating agency S&P downgraded the rating on Turkey’s government debt from B plus to B on account of what it called the country’s “heterodox” economics. S&P that “loose monetary and fiscal policy settings, and low net foreign currency reserve levels” underscored the vulnerability of the lira, with risks to financial stability and the health of the public finances. It warned that the risks would likely increase in the run-up to next year’s parliamentary and presidential elections, which are set to be the most difficult campaign Erdoğan has faced in his almost 20 years at the nation’s helm.The president has already indicated that he will try to offset the pain that inflation is inflicting on Turkish households with a barrage of voter giveaways and steps aimed at boosting growth.While the September data represent the worst level of price rises that Turkey has seen since Erdoğan’s ruling party came to power 20 years ago, opposition parties and some independent analysts say the real inflation rate is even higher. They accuse the Turkish Statistical Institute of manipulating the data. A separate index that measures inflation in Istanbul, compiled by the city’s chamber of commerce, showed that prices rose 107 per cent year on year in Turkey’s largest city last month. More

Industry is back. For the last several decades, the sector has been overlooked and underinvested in, as Wall Street embraced Silicon Valley, services and all things technology-related. Manufacturing, particularly in rich countries like the US, was regarded as a “has been” business. Fewer and fewer wanted to invest or work in it. The inevitable decline of factory jobs became an economic truism.Now, in our post-neoliberal, deglobalising world, things are changing. As resilience replaces efficiency as a business mantra, countries and companies are bolstering industrial capacity in strategic sectors such as semiconductors, electric vehicles, clean technology and agriculture, even as a changing global wage landscape and energy arbitrage are bringing the production of lower margin goods such as textiles or furniture closer to home.But in the US, an even broader post-Covid resurgence in manufacturing is under way. While American manufacturers cut 1.36mn jobs during the pandemic, August data shows that they’ve now added back 1.43mn, an increase of 67,000 workers. And the gains are spread widely across geographies and sectors.Part of this is about a federal push for domestic purchasing. Part of it is about supply chain delays that favour more domestic production. And some of it is also about continued decoupling from China, as well as the current inflation in transport costs. But beyond this, there is something overlooked and under-reported: the hidden strength of private, middle-market, often family-owned US manufacturers.As someone familiar with the factory floor — my father ran auto components production lines for several companies in the Midwest, and eventually started his own business — I’ve always thought that the “decline of industry in the US” story was overblown. Beyond the headlines of disaster in Detroit or the hollowing out of the rustbelt, there have always been plenty of smaller, community-based industrial firms, far from the pressures of Wall Street, that were able to stay competitive by investing more in technology and making an effort to upskill local labour.Now many business leaders are starting to agree. Asutosh Padhi, the managing partner for McKinsey North America, recently co-wrote a book with colleagues entitled The Titanium Economy, about these undervalued, over-performing middle market manufacturing businesses, 80 per cent of which are private. The authors believe they will be the darlings of the future. They typically have sales ranging from $1bn to $10bn, from 2,000 to 20,000 employees and posted a compound annual revenue growth rate (CAGR) of 4.2 per cent between 2013-2018, outpacing the S&P 500 by 1.3 per cent.These are the companies that make what’s “around us everywhere we look — in our cars, our mobile phones, our jewellery, sports equipment, surgical tools and more.” These companies receive less than 1 per cent of venture capital funding, and yet, as Padhi tells me, “if you want strong, year on year growth, they are the place to be”. Why are these often overlooked companies so successful? In part because they take the long view, something that’s easier to do when you are private. Research shows that private companies invest double the amount of money into things like R&D, training, and other forms of long-term productive capital expenditure than similar public companies, which often see their share prices fall when they invest in the future rather than paying back dividends or buying back shares. As Padhi rightly puts it, “there’s a difference between a good stock and a good company”.But it’s also about being best in class. That means investing in the latest industrial technology, following the edicts of “lean manufacturing” to increase quality and productivity, and using local supply chains to innovate more quickly and better manage risk. Businesses that operate this way know what German and Japanese world-beaters do: getting tight teams of engineers, scientists, labourers and managers working in proximity yields the best results. I’ve spent the past week in the Carolinas, looking at companies in the textile supply chain that are working in exactly this way. Not only are they bolstering their business at home, but in some cases they are grabbing more global market share as companies in Europe move business to the US to benefit from lower energy prices. Some German automakers, for example, are moving more production to North America to avoid disruption from the war in Ukraine. The McKinsey partners conclude that “as more advanced tech becomes prevalent in industrial products and processes”, more jobs will return to the US. That’s great news for the American economy, since titanium economy companies pay on average more than double the salary paid to workers in the service sector ($63,000 as opposed to $30,000 annually). There are also the highest number of open jobs at every level in these companies, which are spread across communities throughout the country. Those of us that grew up in such places always knew this. Investors are now learning it too. As the tech bubble deflates, I predict market interest in industrials will [email protected] More

The writer is head of emerging markets economics at Citi“US recession now!” doesn’t really seem like the most obvious rallying cry for emerging economies. Yet the fact is that a US recession may well be what’s needed to make room for a reliable decline in real US interest rates, and a reliable weakening of the dollar. And that loosening of US monetary conditions would certainly do some good for emerging economies now. The recent tightening of those conditions has had some pretty awful consequences for them. It has eroded their access to international capital markets; increased the risk of debt default, especially for low-income countries; and destabilised their currencies, pushing price stability even further from the grasp of even the most adept central bank.The idea that capital flows will return to emerging markets in the wake of a US recession has some history to back it up. Two episodes are especially worth considering: the early 1990s and the aftermath of the global financial crisis in 2008. The US experienced recessions from 1990 and from 2007 that lasted eight months and 18 months respectively. Both these episodes allowed a meaningful loosening of US monetary conditions, which helped trigger capital inflows to emerging economies after a period of risk aversion that was not unlike what we’ve been through recently. By 1992, for example, international capital markets supplied net lending to emerging economies to the tune of about 1 per cent of GDP after nearly 10 years of taking money away from them. By 2010, that flow had risen to 2 per cent of GDP after two barren years when the Lehman crisis and its aftermath unfolded.It has to be said that both these episodes ended badly: the rise in capital flows in the early 1990s came to an abrupt halt with Mexico’s Tequila Crisis in late 1994. And the post-financial crisis boom in capital inflows ended in a series of bumps: a hefty sell-off in asset prices towards the end of 2011, and the “taper tantrum” starting in spring 2013 when the Federal Reserve triggered market turmoil by tightening monetary policy.It is also true that these two “boom episodes” in capital flows to developing countries were not entirely the result of a loosening in US financial conditions, since there were other factors at play.Such a loosening is best understood as a “push” factor for capital flows: investors want to seek higher yields from developing countries when US rates are low and when the dollar’s value is declining.But “pull” factors are also relevant. You can think of these as the growth potential of emerging economies, the effort that their policymakers put into encouraging inflows of long-term investment capital and the overall confidence that market participants have that “things are looking OK” for the developing world.Looking back at those two historical episodes mentioned above, it is worth pointing out that on both occasions the “pull” factors were pretty strong.In the early 1990s, EMs benefited from investors’ excitement about the proposed benefits of globalisation and the effort that countries — Mexico, Turkey, Thailand and the like — were making to reduce trade barriers, integrate themselves in the global economy, cut budget deficits and reduce inflation.In addition, since the early 1990s, a number of countries had benefited from debt reduction under the Brady initiative. So EMs’ balance sheets were perceived to be cleaner than they had been in the crisis period of the 1980s. Equally, the post-financial crisis environment also saw a substantial EM “pull” factor. Emerging economies were relatively unscathed by the crisis, while growth expectations were supported by the late-2008 decision by China to launch a huge programme of stimulus, which reinjected life into global commodity prices and global trade growth.Strong EM “pull” factors are difficult to point to these days. Global trade growth is weak, which harms developing countries disproportionately. Protectionism is rising while geopolitical tensions threaten globalisation. And there is little evidence of growth-enhancing domestic economic reforms — with exceptions such as Indonesia or Vietnam. So it likely that “push” factors will be important in determining capital flows to EMs. The trick will be to make sure that any post-US recession boom in such flows doesn’t, as in the past, turn to bust. More

TOKYO (Reuters) – Japanese manufacturers’ business mood worsened in the three months to September, a central bank survey showed on Monday, bolstering views that the weakening yen and its inflationary impact on business costs undermined a fragile economic recovery.Adding to the gloom, fears of a global economic slowdown cloud the outlook for the export-reliant economy, which is still just emerging from the coronavirus pandemic.Service-sector sentiment brightened a tad from three months ago, the Bank of Japan’s “tankan” survey showed, although retailers were less optimistic due to the rising cost of living blamed on higher commodity prices and the boost to import prices from the yen’s declines.The headline index for big manufacturers worsened to plus 8 in September from plus 9 in June, the quarterly survey showed, compared with a median market forecast for plus 11.Big non-manufacturers’ index stood at plus 14 in September, up from plus 13. It compared with a median market forecast for plus 13.The country’s big manufacturers expect business conditions to improve three months ahead, while big non-manufacturers’ sentiment is seen worsening, the survey showed.Japan’s economy expanded an annualised 3.5% in the second quarter as the lifting of COVID-19 restrictions boosted consumption. But many analysts expect growth to have slowed in the third quarter, as slowing global demand and rising raw material prices weigh on exports and consumption. More

TOKYO (Reuters) – Some Bank of Japan policymakers said inflation may overshoot initial expectations, with one member saying it was important to communicate an exit strategy from ultra-easy policy when the “right timing comes,” a summary of opinions at the BOJ’s September meeting showed on Monday.”There’s a risk consumer inflation may deviate significantly upward from our baseline scenario, partly due to the impact of exchange-rate moves. This needs to be examined humbly and without any preconceptions,” one board member was quoted as saying.”Companies continue to announce plans of price hikes against the background of higher raw material costs. Price rises are likely to continue for a wide range of products,” according to another opinion shown in the summary.While many board members saw wage developments as key to the outlook for monetary policy, one member said there was a chance Japan can achieve “high wage growth” due to a tightening job market, the summary showed.Many opinions, however, called for the need to maintain ultra-loose policy due to Japan’s still weak economy and an expected slowdown in inflation next fiscal year, when the impact of soaring fuel costs dissipate, the summary showed.But one member pointed to concern held among some market participants over distortions in bond market functioning, driven in part by the BOJ’s huge bond buying.”With a view to ensuring financial market stability, it is important for the BOJ to continue to monitor and examine market conditions and, at some point in the future when the timing is considered appropriate, to make proper communication with the markets, such as regarding exit strategies,” the member was quoted as saying.At the Sept. 21-22 meeting, the BOJ maintained ultra-low interest rates and its guidance pledging to keep monetary policy ultra-loose until inflation stably achieves its 2% target. More

HONG KONG (Reuters) -Tencent is resetting its M&A strategy to put more focus on buying majority stakes mainly in overseas gaming companies, as the tech giant eyes global expansion to offset slowing growth at home in China, people with direct knowledge of the matter said.Tencent Holding Ltd has for years invested in hundreds of up-and-coming businesses, mainly in the onshore market. It has typically acquired minority stakes and stayed invested as a passive financial investor.However, it is now aggressively seeking to own majority or even controlling stakes in overseas targets, notably in gaming assets in Europe, the four people with direct knowledge of the matter told Reuters.The shift comes as the world’s number one gaming firm by revenue is counting on global markets for its future growth, which requires a strong portfolio of chart-topping games, the sources aid.Tencent’s new strategy indicates how China’s tech titans are looking to emerge from the regulatory shadows after two years of crackdown and uncertainty that weighed on their sales at home and triggered a massive selloff in their stocks.Apart from the core gaming sector, Tencent is also looking to snap up global assets, in particular in Europe, related to the so-called metaverse, said one of the sources and another source with direct knowledge of the matter.The people declined to be identified as the information was private.Tencent told Reuters the company had been investing abroad for a long time – “long before any new regulations” in China. It looks for “innovative companies with talented management teams” and gives them room to grow independently, the company added, without elaborating. Tencent’s pursuit for bigger stakes in gaming firms comes as other tech giants such as Microsoft (NASDAQ:MSFT), Sony (NYSE:SONY) and Amazon (NASDAQ:AMZN) are snapping up gaming assets and related intellectual properties, said three of the sources.Tencent’s chief strategy officer, James Mitchell, said on a post-earnings call in August the company would remain active in acquiring new game studios overseas.”In terms of the game business, our strategy is … to focus on developing our capabilities especially in the international market,” he said. “We will continue to be very active in terms of acquiring new game studios outside China.”PURSUIT OF BIGGER STAKES Tencent’s growing focus on overseas assets and markets is in sharp contrast to its much slower dealmaking pace at home since the regulatory clampdowns intensified, and the divestment of a clutch of domestic portfolio companies.From 2015 to 2020, the owner of China’s number one messaging app WeChat 150 investments at home totalling $75 billion, compared to 102 deals worth $33 billion in overseas markets, according to Refinitiv data. Tencent in August reported its first ever quarterly top-line fall, partially hurt by a lack of game approvals in China and regulations that limit playing time. Revenue from online games decreased both at home and abroad by 1%.Its Hong Kong-listed shares have sunk some 60% in the last two years.Against that backdrop, Tencent has barely made investments in China this year versus 27 deals worth $3 billion offshore, Refinitiv data show. It has been reducing its portfolio partly to placate regulators and also to book some hefty profits, sources have told Reuters.”We believe Tencent will continue to make reasonable investments to acquire quality gaming content and talents and deepen partnerships with top-tier studios worldwide in order to step up its investments and presence in overseas markets,” said Citi analysts in a report in early September.Tencent’s pursuit of bigger stakes in its existing gaming portfolio or new targets would give the company a bigger say in such firms’ businesses and also help it secure the intellectual property rights of popular games, said the four sources.Also, with Beijing strictly restricting game approvals at home and still suspending approvals for games of foreign IPs, Tencent is forced to move towards gaining control of foreign game companies and their IPs, said the four sources.Tencent in September raised its stake in Ubisoft in a deal that made the Chinese firm the single biggest shareholder of the top French games developer, with a stake of 11% which can be further increased to as much as 17%. REGIONAL HUB The Ubisoft deal comes just after deep-pocketed Tencent in June acquired Copenhagen-based Sybo Games, the developer of hit mobile game Subway Surfer, and in August took a 16.25% stake in Japan’s “Elden Ring” developer FromSoftware.Last year, Tencent said it would take over British videogame developer Sumo in a $1.3 billion deal – one of its largest foreign transactions since the regulatory crackdown in late 2020.In Europe, except for its purchase of majority stake in “Clash of Clans” mobile game maker Supercell for $8.6 billion in 2016, Tencent has for years mostly cut minority deals including its purchase of 9% of British gaming firm Frontier Developments.Elsewhere, Tencent also seeks to increase its investment in and make deeper forays into Southeast Asia as it sees the region – home to 650 million people – as having potential to replicate the success of China’s internet boom, said two of the sources.China’s largest social network firm already has a regional hub for Southeast Asia in Singapore that houses its international game publishing business.Since last year, the company has repeatedly emphasized that it is aiming to have half of its gaming revenue coming from outside China, from about 25% now. In doing so, it in December launched a new publishing brand called Level Infinite in Singapore. More