Economy

This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Oil prices fell sharply yesterday because Israel did not bomb Iranian oil facilities over the weekend. If Americans’ last trip to the petrol station before the election is surprisingly inexpensive, might that change the outcome? Email me your electoral college projections: robert.armstrong@ft.com.The Magnificent 7: place your betsAlphabet reports this afternoon, Microsoft and Meta follow tomorrow, and Apple and Amazon report on Thursday. Tesla’s (better than expected) numbers came out last week, and we have to wait a month to hear from Nvidia. So today is a good day to revisit one of Unhedged’s favourite questions: if you had to own just one of the Mag 7, which would it be? For the sake of argument, let’s specify two holding periods: one year and 20 years. To help you make your decision, here is a table comparing them on recent stock performance, valuation, and historical and estimated growth in sales and earnings.This is not an idle question. There were moments this year and last when it looked as if the market might be broadening and the dependence on the Mag 7 was declining. They didn’t last. The Mag 7 still makes up a third of the market capitalisation of the S&P 500 and accounts for half of the index’s capital appreciation in 2024 (a quarter of the capital appreciation comes from Nvidia alone). A bet on the S&P 500 remains a bet on the Mag 7 continuing to perform, a proposition that should make everyone nervous. So having a close look at the stocks and the expectations their prices encode is worthwhile.Regular readers of this newsletter will know, just by looking at the table above, which stock I will pick for the one-year timeframe. As a hopeless, recidivist-value person, it has to be Google. Now that Meta has more than recovered from its 2021-2022 misadventure in the metaverse, Google has the lowest price/earnings valuation in the group and its sales and earnings growth, retrospective and prospective, compares well enough to the others except Nvidia and Tesla. It can meet consensus expectations without accelerating sales or earnings growth; the same can’t be said for Amazon or Apple.I don’t have the stomach to speculate about the longevity of the artificial intelligence gold rush that is supporting Nvidia, to say nothing of Tesla’s robotaxis. And I don’t see AI ending Google’s search advertising dominance, or the government breaking the company up. Of course, caring about valuation has been a terrible way to invest for, say, 15 years, but if it starts working again in the next 12 months I want to be there, basking in glory.Now suppose we choose one of the seven today, and then fall asleep for 20 years. One of Unhedged’s bedrock assumptions is that very few companies can maintain high growth for a long time and it is hard to predict which companies they will be. But over 20 years, current valuation will hardly matter at all; growth will be decisive. So I’m going with Amazon. In both online retail and cloud computing, it seems to be building flexible, enduring, low-cost infrastructure that will give it the ability to churn out above-average returns over time, returns that can be reinvested or paid out. Amazon just looks like the one of the seven that requires me to prognosticate the least. I actually think it highly unlikely that the company will be the best 20-year performer in the group. I just think it has the lowest chance of disappointing me wickedly when I wake up in late 2044.I’m keen to hear readers’ picks.Is weak global growth a threat to strong US growth? Should this chart spook US investors?At first, the chart seems to show that the US is one among a handful of large and mid-sized countries that are growing robustly in real terms. Look closer, and it looks like the US’s growth is exceptional.China’s economy, while growing at almost the government’s official 5 per cent target, is slowing and its structural problems are well known. The EU, the UK and Australia are growing at 1 per cent or less. So are both of the US’s immediate neighbours. Japan has been stagnant (though it grew in the most recent quarters). Brazil is growing fast but the fiscal situation looks unstable. That leaves India and South Korea as the only other relatively bright lights among large economies.Does the soft growth in the rest of the world — particularly the developed markets — threaten the strong growth in the US, which underpins an expensive-looking stock market? I asked several economists about this.Adam Posen of the Peterson Institute wrote:For an extended period (as in up to a few years), the US can maintain higher growth divergent from the EU and China. This is primarily a net story — slowdowns in China and EU do drag on US growth, which offsets the domestic drivers of US growth, but not enough to outweigh them.There is also a secondary effect, that relative weakness of those zones vs US (more than expected) drives capital flows into the US at the margin. That drives down interest rates and drives up asset prices by some measure. So it offsets the offset…Over a longer period, the lack of innovation, competition, demand, and investment in China and EU is a drag on the US economy, and will lower trend growth. But it has to persist for it to matter.Dario Perkins of TS Lombard pointed out to me that what usually prevents extreme economic divergence between countries is currency appreciation. As a country’s currency rises, that should slow its growth relative to the rest of the world. “But that doesn’t work with the dollar, as the world’s reserve currency. Dollar strength hurts the rest of the world more than it hurts the US. So there is no automatic stabiliser.”“The US is a relatively closed service-based economy,” added Paul Ashworth, chief North America economist at Capital Economics. “Goods exports to the rest of the world account for only 7 per cent of GDP and exports to China are worth only 0.5 per cent of GDP. It’s also worth noting that, to the extent China’s demise is driving down non-energy commodity prices, it’s a positive for the US.”Ashworth also noted that as the US outpaces other economies, the current account deficit will probably rise, driven by capital flows and the strong dollar. At some point, that deficit will become unsustainable. But for now, the world’s appetite for funding the US seems as robust as ever. That leaves but one limiting factor on US outperformance, as my colleague Martin Wolf suggested to me: resurgent inflation that forces the Federal Reserve to increase rates and damp growth. One good readSanctions are hard to enforce.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. Sign up here More

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$1 for 4 weeksThen $75 per month. Complete digital access to quality FT journalism. Cancel anytime during your trial.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

$1 for 4 weeksThen $75 per month. Complete digital access to quality FT journalism. Cancel anytime during your trial.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

CALI, Colombia (Reuters) -Countries were at an impasse over how to fund conservation and other key decisions as the U.N. COP16 biodiversity summit entered its second week on Monday, with nations pledging millions of dollars rather than the billions needed. Seven countries and one provincial government pledged an additional $163 million to the Global Biodiversity Framework Fund on Monday, dubbed the summit’s “finance day.” The fund was established to help realize the goals laid out in the landmark 2022 Kunming-Montreal Global Biodiversity Framework, aimed at ending nature loss by 2030. COP16 in the Colombian mountain town of Cali is tasked with implementing that agreement.Advocacy groups said the pledges – which brings the total raised by the fund to about $400 million – fell far short of the billions of dollars envisioned for the fund.”It’s very little. We are talking about millions that have been pledged. But what we are expecting are billions,” said Irene Wabiwa, a biodiversity advocate at Greenpeace.”When looking at the increased rate of biodiversity loss, the way money is flowing is very, very slow. And we are very scared.”With nature in unprecedented decline and species going extinct faster than ever, scientists warned the world’s governments that there is no time to waste.Currently about 38% of the world’s tree species – totaling 16,425 species – are at risk of extinction thanks to timber logging and clear-cutting to make way for farming, mining, road-building and other development efforts, according to the International Union for Conservation of Nature and Natural Resources (IUCN).”We need to take urgent action … if we really want to keep these tree (species) alive,” IUCN Director Grethel Aguilar told a news briefing in Cali.The summit, which marks the 16th meeting of parties to the U.N. Convention on Biological Diversity (CBD), is debating how to implement 23 goals outlined in the 2022 Kunming-Montreal agreement.Chief among those goals is having each country set aside 30% of its land and sea territory for conservation by 2030 – a target known as the 30-by-30 goal.As of Monday, only 17.6% of the world’s land area and inland waters were under some form of protection, according to the U.N. Environment Programme (UNEP). Many countries have yet to submit pledges despite this month’s deadline.Commitments for protecting the open ocean were even lower – with only 8.4% of maritime and coastal areas now protected, the UNEP report said.The UNEP chief urged countries to not only meet the 30% conservation goal, but also to target high-value lands and waterways for protection rather than favoring wastelands or other areas that already have little wildlife and small human populations.”We cannot be seduced by just these numbers,” UNEP Executive Director Inger Andersen said on the sidelines of the summit. “Nature cannot be put in a museum.”By the summit’s end on Friday, negotiators and observers hope to achieve progress on a raft of issues touching on financing, genetic material, Indigenous representation and conservation policy.”The discussions are going well, but it’s a heavy agenda,” said David Ainsworth, a spokesperson for the secretariat.While the intensity of these discussions shows countries’ engagement, it is also in some cases a sign “of a relatively low level of trust” between countries, Ainsworth said. “They have a lot of work to do this week.”So far, delegates are close to agreeing on a measure to recognize and include Indigenous groups in biodiversity decision-making, including with a new permanent presence for these groups within the official U.N. CBD process.But many are watching for COP16 to deliver strong options for funding conservation as a measure of the summit’s success.Summit talks on how to mobilize the billions of dollars needed to halt biodiversity loss this decade were stuck on Monday, as country delegates debated whether there should be an additional fund created to handle this financing. More

SINGAPORE (Reuters) – The yen languished near a three-month trough on Tuesday as the loss of a parliamentary majority for Japan’s ruling coalition in weekend elections raised uncertainty about the nation’s political and monetary outlook.Elsewhere, the dollar eased a touch, though remained not too far from its recent high ahead of major U.S. data releases later in the week that could determine the path for Federal Reserve policy.The yen was last 0.1% higher at 153.12 per dollar, after having slumped to a low of 153.885 on Monday – its weakest level since July – following Japan’s national election on Sunday that left the make-up of the country’s future government in flux.A period of wrangling to secure a coalition is likely after Japan’s Liberal Democratic Party and its junior partner Komeito won 215 lower house seats to fall short of the 233 needed for a majority.”All up, the risks appear skewed to looser fiscal policy than otherwise under the new government,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY).”Together with solid U.S. economic data and stronger prospects of a Trump win, political uncertainty in Japan can pressure dollar/yen higher in coming weeks.”Heightened financial market volatility might also encourage the Bank of Japan (BOJ) to keep its policy interest rate unchanged for longer than we currently expect.”Against the euro and sterling, the yen similarly struggled near a three-month low and last stood at 165.73 and 198.72, respectively.The BOJ announces its monetary policy decision on Thursday, where expectations are for the central bank to keep rates on hold.DOLLAR STRENGTHThe dollar was headed for its best month in 2-1/2-years on Tuesday, as it eyed a 3.5% gain against a basket of currencies.A raft of economic data underscoring the resilience of the U.S. economy has bolstered the greenback over the past month, as has increasing market bets of a win by Republican candidate Donald Trump at next week’s U.S. presidential election.Trump’s policies on tariffs, tax and immigration are seen as inflationary, thus negative for bonds and positive for the dollar.Ahead of that, a reading on September’s U.S. core personal consumption expenditures price index – the Fed’s preferred measure of inflation – is due on Thursday followed by the closely watched nonfarm payrolls report on Friday.”Friday’s employment numbers and whether PCE prints at 0.2% or 0.3% are going to be pretty important, so although the election is probably the biggest single factor for next week, we could still have a price adjustment… depending on what those numbers show at the end of the week,” said Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY).The greenback dipped slightly in the early Asian session, though it traded in a tight range as investors were hesitant to take on new positions ahead of the data releases.The euro rose 0.05% to $1.0816, while sterling ticked up 0.03% to $1.2976.The dollar index was little changed at 104.28.In other currencies, the New Zealand dollar fell 0.08% to $0.5976, while the Australian dollar slid to its weakest level in over two months at $0.6572.”In terms of G10, the Aussie probably is the standout currency that could suffer if we did see a broader EM (emerging market) gut negative reaction next week if we do see news that Trump has won,” said Attrill.China’s yuan last stood at 7.1447 per dollar in the offshore market. More

“It isn’t appropriate to assess the level but as for forex liquidity conditions, I’m not so worried,” Lee Soo-hyung told reporters in Washington DC on Oct. 24, according to Yonhap.The won has weakened nearly 8% against the dollar this year. It last touched the psychological threshold of 1,400 in mid-April.Lee said she was also “surprised” by South Korea’s weaker-than-expected third quarter economic growth, but explained there could be temporary factors behind the figures.South Korea’s economy barely grew in the third quarter as consumer spending showed signs of recovery but exports declined, raising the chances for more stimulus to support growth. More

Prime Minister Keir Starmer has said tax rises will be necessary to rebuild Britain’s public services, pledging no return to austerity despite a difficult fiscal inheritance after Labour won a July election.”I am putting an end to the neglect and under investment (the NHS) has seen for over a decade now,” Reeves said on Monday.”We will be known as the government that took the NHS from its worst crisis in its history, got it back on its feet again and made it fit for the bright future ahead of it.”The finance ministry said there would be 1.5 billion pounds ($1.95 billion) for new surgical hubs and scanners, and 70 million pounds for radiotherapy machines.It said there would be enough funding to deliver an extra 40,000 elective appointments a week, including 1.8 billion pounds invested by the government since July. Reeves will announce the final figure on Wednesday. The state-run NHS has endured some of its hardest winters recently as it struggled to cope with backlogs in elective procedures delayed by COVID and industrial action.Starmer has promised to deliver a 10-year plan to fix the NHS in England, after an independent report said it was in critical condition.He has agreed pay deals with health workers, ending a series of strikes the previous Conservative government blamed for extending waiting lists.The finance ministry said the extra funding would help the NHS meet a commitment that 92% of people wait less than 18 weeks to start treatment.The British government runs the health service in England, and it is a devolved area of policy in Scotland, Wales and Northern Ireland.($1 = 0.7705 pounds) More