Economy

In France, a Marine Le Pen presidency looks unlikely. Then again, what seemed impossible in January may come to pass soon — a Russian sovereign debt default.Here’s a look at the week ahead in markets from Kevin Buckland in Tokyo, Saqib Ahmed in New York, Danilo Masoni in Milan, and Dhara Ranasinghe and Karin Strohecker in London.1/ VIVE LA FRANCEUnlike in 2017, investors haven’t had to fret this year that French presidential elections would result in “Frexit”. If opinion polls are right, they don’t need to worry either that far-right candidate Marine Le Pen may win Sunday’s runoff vote. Incumbent Emmanuel Macron, who has led the euro area’s second-biggest economy for five years, enjoys a 12-point lead over Le Pen, and emerged the stronger candidate after a key TV debate. French bond yield premia over top-rated Germany are stable as is the euro, unlike in 2017 when Le Pen espoused ditching the single currency.Still, a Le Pen presidency, which would trigger a constitutional crisis, has never been closer. And even if Macron wins, he cannot count on a majority in June’s parliament election. So, the real test for markets may be yet to come. And history shows opinion polls can get election outcomes wrong. GRAPHIC: French bond spreads tighter compared to 2017 election (https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoykeovr/FRANCE2104.PNG) 2/ TRUE DOVEAhead of Thursday’s policy meeting, the Bank of Japan has left no doubt about its commitment to supercharged stimulus, leaping into markets to defend its 0% bond yield target — even at the expense of a plunging currency.The contrast between the BOJ and the hawkish Federal Reserve is at the heart of the yen’s tumble to a two-decade trough near 130 per dollar.The yen’s 11% fall in the course of a month has prompted warnings from finance minister Shunichi Suzuki against rapid depreciation, putting markets on alert for an intervention. But BOJ Governor Haruhiko Kuroda has stuck to the view that yen weakness overall is a positive for Japan.The IMF seems to agree. A senior official said yen moves were down to fundamentals and there was no need to change policy, including the BOJ’s ultra-low rate stance. GRAPHIC: Dollar-yen chases U.S. yields higher (https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnygjxvq/Pasted%20image%201650521218750.png)     3/ TECH TROUBLEIt’s been a gloomy year so far for U.S. stocks and for tech firms, and the ongoing results season could make it worse. Netflix (NASDAQ:NFLX)’s share rout after reporting falling subscriber numbers has sparked trepidation about upcoming earnings from Facebook-parent Meta, Google-parent Alphabet (NASDAQ:GOOGL). Apple and Amazon (NASDAQ:AMZN).This so-called FAANG grouping benefited hugely from the low-rate, work-from-home environment. But with interest rates on the rise, their shares have cumulatively lost some $2.5 trillion in market value this year.Overall S&P 500 earnings are projected to expand 6.3%. But Apple quarterly adjusted earnings-per-share are seen growing by just 2% versus the year-ago period, while a 0.7% dip is expected at Alphabet. And EPS declines at Amazon and Meta could be as much as 49% and 24% respectively, Refinitiv data shows. GRAPHIC: All FAANG, no bite (https://graphics.reuters.com/USA-STOCKS/gdvzyayaepw/chart.png) 4/ EUROPE INC: EARNINGS AND INFLATIONAs the Ukraine war rages, European companies’ full-year earnings revisions — the number of upgrades minus downgrades — have turned negative the first time since October 2020. Q1 earnings growth will still be 25%, Refinitiv projects, possibly enough to lift a bearishly positioned market. Yet, with more than 140 companies unveiling earnings during the April 25-29 week, there are questions over cost pressures and whether these can be passed to consumers.Giants such as Nestle and Danone managed to grow Q1 earnings while raising prices, but smaller peers may struggle to do so.Leading banks, including UBS, Deutsche, HSBC and Barclays (LON:BARC) also report; after a disappointing Q1 share performance, the prospect of higher rates is now lifting the sector. GRAPHIC: European earnings (https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnynyqpq/European%20earnings.PNG) 5/ OLD JOB, NEW PROBLEMS Russian central bank governor Elvira Nabiullina starts her new five-year term in charge of monetary policy with a big to-do list: dealing with a full-scale crisis caused by unprecedented and ever widening Western sanctions.The economy is expected to suffer its steepest contraction since the years following the 1991 fall of the Soviet Union, Russia is on the cusp of debt default and annual inflation has soared past 20%.Still, Nabiullina may cut interest rates on Friday, possibly by 200 basis points, from the current 17%. That will partly reverse the emergency rate hike the central bank was forced into after the Kremlin’s February 24 invasion of Ukraine.Rate-setters are also expected to discuss lifting capital controls, and the need to recapitalise some banks. GRAPHIC: Russia inflation (https://fingfx.thomsonreuters.com/gfx/mkt/zgvomlbqnvd/Pasted%20image%201650568920953.png) More

LONDON (Reuters) – Britain’s economy is losing steam as households face a tightening cost-of-living squeeze, according to data published on Friday which showed sliding retail sales and consumer confidence approaching all-time lows.The pound slid by more than a cent to fall below $1.29 for the first time since November 2020 after official data and surveys of consumers and businesses pointed a sharp growth slowdown, or worse, in the coming months.A closely watched gauge of business activity from S&P Global (NYSE:SPGI) showed growth slowed by more than expected this month as companies grappled with surging costs and became much gloomier about the outlook.Official data showed retail sales volumes slid by 1.4% in March from February, a worse reading than any economist forecast in a Reuters poll.Earlier on Friday, market research firm GfK said consumer confidence slumped this month to close to its lowest level since records began nearly 50 years ago. (Graphic: UK consumer confidence nears all-time low in April: GfK, https://fingfx.thomsonreuters.com/gfx/polling/lgpdwgkbevo/Pasted%20image%201650549064224.png) Overall, the data underscored growing concern at the Bank of England about the opposing challenges of weakening demand and inflation at a 30-year high of 7% and likely to rise further beyond the central bank’s 2% target.Governor Andrew Bailey said on Thursday the BoE was walking a tight line between tackling inflation and avoiding recession, a challenge facing other major central banks around the world.”Whether the UK heads into a recession is still an open question,” said ING economist James Smith, who highlighted the potential for savings that many households built up during the coronavirus pandemic to continue driving growth.”The jury’s out, but we think the Bank of England is more likely to hike interest rates once or twice more, before pressing the pause button over the summer.”RETAIL SALES FALLThe S&P Global Composite Purchasing Managers’ Index fell in April 57.6 from 60.9. While still comfortably above the 50 threshold for growth, economists polled by Reuters had mostly expected a smaller fall to 59.0.Consumer-facing businesses will likely face a tough time in the months ahead, with GfK’s gauge of households’ confidence about their finances in the future slumping to a record low.The Office for National Statistics said food and petrol sales fell sharply last month and it cited rising prices as possible explanations for the falls. Online retail sales also declined.Retail sales volumes are 2.2% above their level in February 2020 but they are a long way behind where they would have been if growth had continued along its pre-pandemic trend, Keith Church, an economist from risk consultancy 4most, said.Earlier this month, Tesco (OTC:TSCDY), Britain’s biggest retailer, warned of a drop in profits as high inflation squeezes the supermarket group and its customers. More

The contracts, for licence areas in the northeast, are for 35 years and give De Beers the rights to explore and mine, through two new joint ventures with Angola’s state diamond company Endiama. De Beers will hold 90% of the new joint ventures and Endiama will hold 10% initially but can increase its equity share over time, Angola’s oil and natural resources minister Diamantino Azevedo said at a ceremony in the capital, Luanda. “De Beers’ return to Angola marks an important moment for the country and for the global mining sector,” Azevedo said. De Beers previously explored for diamonds in Angola between 2005 and 2012 but concluded that a stand-alone deposit in the area was not economic and relinquished its concession.Angola was the seventh biggest producer of rough diamonds in the world in 2020, according to Kimberley Process statistics. Western sanctions on the world’s biggest diamond producer, Russia, could boost demand for alternative sources of diamonds.De Beers expects to start exploration activities in the licences this year, pending regulatory approvals. The company announced in December last year that it had applied to conduct exploration activities in the country.”Angola has worked hard in recent years to create a stable and attractive investment environment and we are pleased to be returning to active exploration in the country,” De Beers CEO Bruce Cleaver said in a statement. In a sign of commitment to greater transparency, earlier this month Angola applied to join the Extractive Industries Transparency Initiative, a body through which countries report publicly on government revenues from mining and oil. More

Wang Chunying, spokesperson of the State Administration of Foreign Exchange (SAFE), cited a range of factors for her upbeat assessment, including the strength in the Chinese economy, an expected current account surplus, continued foreign investment and an optimized foreign debt structure. “Of course, the foreign exchange regulator will also… closely monitor the pace of the monetary policy changes by the U.S. Fed and their spillover impact, evaluate the operations of our country’s foreign exchange market in real time and effectively maintain market stability,” said Wang. A more hawkish U.S. Federal Reserve, the vanishing Chinese yield advantage and rising concerns over domestic economic growth have dragged the yuan, or renminbi, to seven-month lows, with analysts expecting more downward pressure on the currency in coming months.However, Wang expects the yuan to stay basically stable at reasonably balanced levels, adding that the recent volatility was mostly due to impact from global market fluctuations and changes in supply and demand.”China has been able to implement a normal monetary policy and its financial system is relatively stable and independent. Uncertainties from abroad would have a smaller impact on the yuan exchange rate,” Wang added.She also expects foreign investment in Chinese securities to stabilize. Chinese stocks have been hovering at their lowest level in two years, as strict COVID-19 lockdowns paralysed economic activity in many big cities, even as authorities vowed to provide more help to hard-hit firms. More

Dozens of cities in China are in full or partial lockdown in response to the spread of Covid-19 cases, meaning that a population roughly the size of the US has been stuck at home for several weeks, often with limited access to food and medical care.Among those cities in lockdown, Shanghai has received the most attention. Deservedly so. Although the city relaxed quarantine rules somewhat this week, about 4.5mn people remain confined to their homes and roughly 7.9mn are permitted to leave their homes but must remain within their neighbourhoods.Food distribution has broken down in some parts of the city, leaving some residents to go hungry as piles of rotting produce are left in the street. The anguish of many people cooped up in their apartments and getting by on scant rations has been caught in videos shared widely on social media.But the crisis in Shanghai and other cities is not only humanitarian. It is most starkly an economic problem and, to an extent, a political issue too. The IMF has cut its GDP growth forecast from 4.8 per cent to 4.4 per cent for the full year — a particularly sharp contraction from the 8.1 per cent posted last year, hurting both China and the global economy.The crunch looks set to be particularly pronounced in April. Ting Lu, China chief economist at Nomura, predicts that GDP growth in the second quarter of this year will slump to 1.8 per cent, down from the actual 4.8 per cent seen in the first quarter.The reasons behind the slump reveal deeper faultlines. One source of weakness is the severe contraction in the country’s huge property market, which has relinquished a longstanding role as a dynamo for broader prosperity. Enough real estate to house an estimated 90mn people now stands empty.Nevertheless, the biggest drag on GDP growth is political. Beijing is steadfastly sticking to its zero-Covid policy. The full and partial lockdowns in cities across the country are playing havoc with demand for housing, durable consumer items and capital goods as incomes fall and uncertainties rise. The sheer logistical challenge of getting goods from A to B is acting as a big drag.As China’s population of 1.4bn people contends with their third year of Covid, many have drained their savings to a level at which they are obliged to reduce spending.All of this throws an unsparing light on to Beijing’s Covid strategy. National pride has prevented China from approving foreign mRNA vaccines for use among its people, leaving them to take the less effective vaccines developed by domestic companies. This has meant that despite an impressive vaccination rate (88 per cent of people have had two jabs), the elderly in particular are still thought to be at real risk from coronavirus.It is true that Beijing has been urging the development of homegrown mRNA vaccines — two of which have now entered clinical trials — but China needs to act now with dispatch. It should swallow its pride and approve mass imports of foreign mRNA vaccines immediately, thus allowing it to chart a way out of its draconian zero-Covid policy and relax lockdowns that are imposing an enormous economic and psychological toll.The urgency of this task cannot be underestimated. China’s zero-Covid policy had largely kept the virus’s spread in check until the highly infectious Omicron variant emerged. Beijing now has a stark choice: start a mass vaccination programme using foreign mRNA vaccines or sustain the ruinous economic and social costs of continued lockdowns. More

The unions, which included the likes of the CGT, CFDT and FO (Force Ouvriere), added they would not hesitate to use “all means necessary” to exert pressure on company executives to come up with a better pay offer.Rising inflation has eroded wage increases for many workers across the world. More

British consumer confidence has fallen to a near all-time low driven by concerns over the soaring cost of living, according to a closely watched survey, fuelling fears of a renewed economic downturn in the second quarter.The UK consumer confidence index, a measure of how people view the state of their personal finances and wider economic prospects, crashed seven points to minus 38 in April, its lowest level since 2008 when it was minus 39, according to research company GfK.Joe Staton, client strategy director GfK, said “the cost crunch is really hitting the pockets of UK consumers”. UK inflation rose to 7 per cent in March, reaching a 30-year high. The pressure on household budgets is expected to grow following a sharp jump in energy bills this month and the knock-on effects of Russia’s invasion of Ukraine.The consumer confidence score, based on interviews conducted in the first half of April, was close to the lowest level since records began in 1974 and worse than the minus 33 forecast by economists polled by Reuters. People’s confidence in their personal financial situation, which is closely linked to household spending habits, also fell. “There’s clear evidence that Brits are thinking twice about shopping,” said Staton, who attributed the trend to concerns over rising inflation and interest rates combined with low growth and declining incomes.Those factors coupled with an increase in national insurance contributions from this month have led many analysts to forecast that the economy will contract in the second quarter. The fall in consumer confidence bodes ill for future spending appetite. This matters because “how households respond to the fall in real incomes will go a long way to determining whether or not there is a recession”, said Ruth Gregory, an economist at Capital Economics.

Data from Deloitte, KPMG and Bank of America have shown similar sharp declines in consumer confidence. In a BoA survey, more than half of consumers said they had cut back on spending because of rising utility bills this month. Most households were seeking to save costs by reducing clothes shopping and eating out, found BoA and KPMG, while a third of consumers were dipping into their savings to offset living costs.Deloitte noted that saving patterns varied among income brackets. Its research showed that just 5 per cent of households with an income of £10,000 and under were able to save in the first quarter, compared with 38 per cent of households with an overall income of £100,000. Céline Fenech, consumer insight lead at Deloitte, said that “consumers are clearly feeling the pinch of rising living costs”, with inflation “affecting the lowest-income households the most”. More

(Reuters) -Elon Musk on Thursday said he has lined up $46.5 billion in debt and equity financing to buy Twitter Inc (NYSE:TWTR) and is considering taking his offer directly to shareholders, a filing with U.S. regulators showed.Musk himself has committed to put up $33.5 billion, which will include $21 billion of equity and $12.5 billion of margin loans against some of his Tesla (NASDAQ:TSLA) Inc shares to finance the transaction. He is chief executive officer of electric vehicle maker Tesla.Musk, the world’s richest person according to a tally by Forbes, on April 14 presented a “best and final” cash offer of $43 billion to Twitter’s board of directors, saying the social media company needs to be taken private to grow and become a platform for free speech.But Twitter failed to respond to his offer and adopted a “poison pill” to thwart him. Musk also is considering a tender offer to buy all company stock from shareholders but has not decided whether to do so, according to the filing on Thursday. Musk, Twitter’s second-largest shareholder with a 9.1% stake, has said he could make big changes at the micro-blogging company, where he has a following of more than 80 million users. Shares of Twitter rose less than 1% on news of the funding, indicating that the market is still skeptical about the deal.Shares of Tesla climbed more than 3% and the value of Musk’s 172.6 million Tesla shares rose by over $5 billion on Thursday following a strong quarterly report. On Wednesday, he qualified for compensation in the form of stock options now worth about $24 billion after Tesla hit profit and revenue performance targets.It is unclear whether Musk would sell shares in Tesla to cover the $21 billion equity financing. Musk “may sell, dispose of or transfer” unpledged Tesla stocks at any time, according to a margin loan commitment letter.Banks, including Morgan Stanley (NYSE:MS), have agreed to provide another $13 billion in debt secured against Twitter itself, according to the filing. A spokesperson for Twitter acknowledged receipt of Musk’s proposal.”As previously announced and communicated to Mr. Musk directly, the board is committed to conducting a careful, comprehensive and deliberate review to determine the course of action that it believes is in the best interest of the company and all Twitter stockholders,” the Twitter representative said in a statement.Ryan Jacob, chief investment officer at Jacob Asset Management, which holds Twitter shares, said Musk’s latest filing would push Twitter’s board to respond.”They had to consider the seriousness of the offer, and this filing may do that,” he said. “It’s going to be hard for them to ignore it.”Josh White, assistant professor of finance at Vanderbilt University and a former financial economist for the Securities and Exchange Commission, said the funding would likely “put pressure on Twitter’s board to either find a White Knight, which is unlikely, or negotiate with Musk to obtain a higher value and remove the poison pill.”The offer from Musk has drawn private equity interest in participating in a deal for Twitter, Reuters reported this week, citing people familiar with the matter. Apollo Global Management (NYSE:APO) Inc is considering ways it can provide financing to any deal and is open to working with Musk or any other bidder, while Thoma Bravo has informed Twitter that it is exploring the possibility of putting together a bid.The New York Post said on Thursday that Thoma Bravo was in talks with Musk for a joint deal. Thoma Bravo did not respond to a request for comment.Musk has made a number of announcements on the platform, including some that have landed him in hot water with U.S. regulators.In 2018, Musk tweeted that he had “funding secured” to take Tesla private for $420 per share – a move that led to millions of dollars in fines and him being forced to step down as chairman of the car company to resolve claims from the U.S. securities regulator that he defrauded investors. More