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Will US retail sales reach further heights?

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Will US retail sales reach further heights?

US retail spending has rebounded to set record highs since June, after plunging during the early months of the year as the coronavirus pandemic swept through the country. On Friday, investors will find out whether figures for September show a continued upswing.

The data is an important gauge for the strength of the American consumer, whose spending accounts for about two-thirds of US economic activity.

June’s record for retail sales was followed by another in July and again in August, when $537.5bn was spent — an all-time high in data compiled by the US Census Bureau since 1992.

“Retail sales in the US, the UK and in the Europe area are already running above pre-Covid levels,” said Chetan Ahya, chief economist and global head of economics for Morgan Stanley. “This continues to confirm our V-shaped recovery call.”

Economists polled by Bloomberg expect spending to rise 0.7 per cent in September from the previous month, on a seasonally adjusted basis. In August, spending rose 0.6 per cent, falling short of expectations of a 1 per cent rise.

But an increase in coronavirus infections, further lockdowns or slowing spending through the winter could weigh on the outlook for the remainder of the year.

Sustained growth in US consumer spending has also been challenged by the expiry in July of the extra $600 in weekly unemployment benefits under the stimulus package provided by the Cares Act. Richard Henderson

Line chart of Monthly retail sales ($bn)* showing US retail spending has rebounded above pre-pandemic levels

Will slowing consumer inflation test the PBoC’s restraint?

The People’s Bank of China has stood out among central banks this year for how little monetary stimulus it has introduced to cushion the pandemic’s economic impact. But that caution could be tested on Thursday with the release of consumer price index data for September.

While China’s economy is tipped to grow this year, in contrast to many of its peers, consumption remains subdued. Early indicators, however, suggest the domestic tourist rush during the seven-day Golden Week national holiday, which concluded last Thursday, was better than expected.

Analysts at Bank of America expect China’s consumer inflation to ease further in September to a year-on-year rise of 1.7 per cent. In January, it was running at 5.4 per cent.

Pork prices have played a key role. Official inflation readings on the sector have trended lower in recent months. However, experts have estimated that China’s frozen pork reserves are close to exhaustion after the government sold meat to dampen prices in a market suffering continued disruption from outbreaks of African swine fever.

Jingyang Chen, an economist at HSBC, said China’s consumer price growth “is likely to see a downward trend in the rest of the year” on the back of weak domestic demand and a sluggish recovery for the private sector.

“All this means is that the PBoC will have ample policy space to keep its policy stance accommodative in the coming months to support a continued recovery in domestic demand,” Ms Chen said. Hudson Lockett

Will palladium’s rally continue?

Palladium has been one of the best-performing precious metals this year, up in price by more than a quarter. But the pandemic has sped up the global decline in car sales, putting the outlook for the metal in jeopardy — given its common usage in catalytic converters to reduce harmful exhaust emissions.

The metal’s price doubled between 2017 and 2019, as carmakers in China installed palladium-rich catalysts to meet stricter emissions regulations. In Europe, the advent of “real driving” tests, which measure pollutants released while cars are driving on a road rather than in a lab, has also boosted demand.

Palladium, up about 3 per cent on Friday at $2,450 an ounce, is now almost three times more expensive than platinum, a precious metal with similar chemical properties that is also used in catalysts — mostly for diesel cars.

Prices for palladium will continue to be supported as the supply from mines in Russia and South Africa struggle to keep up with demand, predicts James Steel, an analyst at HSBC in New York. A bigger question for the market, however, is how the Covid-19 crisis will affect the path of new-car sales.

“We believe the Covid-19 pandemic will continue to weigh on the global economy and negatively impact consumer behaviour,” said analysts at Renaissance Capital. Citing the decline over the past two years, they added that vehicle sales are “unlikely to even reach 2019 (pre-pandemic) levels by 2022.” Henry Sanderson



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Emerging Markets

NYSE to suspend trading of China’s Cnooc next month

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The New York Stock Exchange is to start delisting proceedings against China National Offshore Oil Corporation to comply with an executive order from Donald Trump that bans Americans from investing in companies with ties to the Chinese military.

The NYSE on Friday said it would suspend trading in Cnooc’s American depository shares on March 9, after determining that the company was “no longer suitable for listing” following the order that the former US president signed in November.

The order banned investing in several dozen Chinese groups that were last year put on a Pentagon blacklist of companies that are accused of working with the People’s Liberation Army and threatening US security. Trump set a January 28 deadline for the ban to take effect, but President Joe Biden pushed the deadline back to May 27.

The NYSE move comes as Biden evaluates a number of assertive actions that Trump took against China during his last year in office. The commerce department last year put Cnooc on a separate blacklist — called the “entity list” — that makes it hard for US companies to sell products and technology to the Chinese oil group.

The Biden administration has not made clear whether it intends to keep Trump’s executive order in place. But the new president and his officials have so far adopted a tough stance towards China over everything from its economic “coercion” to concerns about its clampdown on the pro-democracy movement in Hong Kong to the repression of more than 1m Uighur Muslims in the northwestern Chinese province of Xinjiang.

Earlier this month, Biden used his first conversation with Chinese president Xi Jinping since assuming office to raise concerns about Hong Kong and Xinjiang, and aggressive Chinese actions towards Taiwan. Antony Blinken, secretary of state, also described the detention of Uighurs in labour camps as “genocide”.

Jen Psaki, White House press secretary, has said the administration was conducting a number of “complex reviews” of the China actions that Trump took. The former president put dozens of other Chinese companies on the Pentagon and commerce department blacklists, including Huawei, the Chinese telecoms equipment group.



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Bond sell-off roils markets, ex-Petrobras chief hits back, Ghana’s first Covax vaccines

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The yield on the benchmark 10-year Treasury exceeded 1.5 per cent for the first time in a year and the outgoing head of Petrobras warns Brazil’s President Jair Bolsonaro against state controlled fuel prices. Plus, the FT’s Africa editor, David Pilling, discusses the Covax vaccine rollout in low-income countries. 

Wall Street stocks sell off as government bond rout accelerates

https://www.ft.com/content/ea46ee81-89a2-4f23-aeff-2a099c02432c

Ousted Petrobras chief hits back at Bolsonaro 

https://www.ft.com/content/1cd6c9fb-3201-4815-9f4f-61a4f0881856?

Africa will pay more for Russian Covid vaccine than ‘western’ jabs

https://www.ft.com/content/ffe40c7d-c418-4a93-a202-5ee996434de7


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Petrobras/Bolsonaro: bossa boots | Financial Times

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“Brazil is not for beginners.” Composer Tom Jobim’s remark about his homeland stands as a warning to gung-ho foreign investors. Shares in Petrobras have fallen almost a fifth since President Jair Bolsonaro said he would replace the widely respected chief executive of the oil giant.

Firebrand Bolsonaro campaigned on a free-market platform. Now he is reverting to the interventionism of leftist predecessors. It is the latest reminder that a country with huge potential has big political and social problems.

Bolsonaro reacted to fuel protests by pushing for a retired army general to supplant chief executive Roberto Castello Branco, who had refused to lower prices. This is politically advantageous but economically short-sighted.

Fourth-quarter ebitda beat expectations at R$60bn (US$11bn), announced late on Wednesday, a 47 per cent increase on the previous quarter. This partly reflected the reversal of a R$13bn charge for healthcare costs. Investors now have to factor the cost of possible fuel subsidies into forecasts. The last time Petrobras was leaned on, it set the company back about R$60bn (US$24bn at the time). That equates to 40 per cent of forecast ebitda for 2021.

At just over 8 times forward earnings, shares trade at a sharp discount to global peers. Forcing Petrobras to cut fuel prices will make sales of underperforming assets harder to pull off and debt reduction less certain. Bidders may fear the obligation to cap prices will apply to them too.

A booming local stock market, rock bottom interest rates and low levels of foreign debt are giving Bolsonaro scope to spend his way out of the Covid-19 crisis. But the economy remains precarious. Public debt stands at 90 per cent of gross domestic product. The real — at R$5.40 per US dollar — remains near record lows. Brazil’s credit is rated junk by big agencies.

Rising developed market yields will make financings costlier for developing nations such as Brazil. So will high-handed treatment of minority investors. It sends a dire signal when a government with an economic stake of just over a third uses its voting majority to deliver a boardroom coup.

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