Business

Eurozone Inflation Rises Slightly as Germany Faces Retail Slump

Published

5 days ago

November 29, 2024

RTX

Annual inflation in the eurozone increased slightly to 2.3% in November, up from 2% in October, according to preliminary data from Eurostat released on Friday. The rise aligns with market expectations and reflects diminishing deflationary pressure from energy prices.

Despite the uptick in annual inflation, monthly data revealed a 0.3% decline in consumer prices compared to October — the steepest drop since January 2024. This decline signals potential easing of underlying price pressures, bolstering hopes that the eurozone’s disinflationary trend is intact and could pave the way for the European Central Bank (ECB) to lower interest rates in December.

Energy prices, a key inflation driver, were down 1.9% year-on-year in November, although the rate of decline has moderated compared to 4.6% in October and 6.1% in September. On a monthly basis, energy prices edged up by 0.6%.

Core inflation, which excludes energy and food prices, rose slightly to 2.8% year-on-year, up from 2.7% in October. However, monthly core inflation fell by 0.4%, hinting at easing underlying price pressures. Services prices, a historically “sticky” component, rose 3.9% annually but recorded a significant 0.9% monthly decline, offering a positive outlook for inflation.

Economic Outlook and ECB Policy

The November inflation figures align with expectations that disinflation remains a dominant force. This trend strengthens the case for the ECB to lower interest rates during its December meeting, particularly as economic activity across the eurozone continues to weaken.

Recent Purchasing Managers’ Index (PMI) data underscores the region’s economic struggles. The Eurozone Composite PMI dropped to 48.1 in November, down from 50.0 in October, marking the sharpest contraction since January. While the manufacturing sector remains in decline, the services sector has also slipped into contraction for the first time in 10 months, with its PMI falling to 49.2 from 51.6.

Kyle Chapman, a forex market analyst at Ballinger Group, remarked, “The market expects a 25-basis-point cut in December. While the economy isn’t collapsing, the ECB has room to cautiously adjust rates without frontloading aggressive cuts.”

German Retail Sales Plunge

Germany, the eurozone’s largest economy, reported its steepest retail sales drop in two years. Retail sales fell by 1.5% month-on-month in October, far exceeding market expectations of a 0.3% decline. This drop follows a 1.6% rise in September and highlights the ongoing challenges in consumer spending.

The weak retail performance reflects deteriorating consumer confidence, adding to concerns about the region’s economic fragility.

Market Reactions

Financial markets remained stable following the data. The euro traded at $1.0560 against the US dollar, while Germany’s 10-year Bund yield held at 2.12%, its lowest level in nearly two months.

Equity markets were flat, with the Euro STOXX 50 index unchanged. Gains from Airbus SE and Schneider Electric SE balanced declines in Telefonica and Banco Santander.

As the ECB prepares for its next policy decision, the region’s economic and inflation dynamics remain in sharp focus.

Business

GM Faces $5 Billion Restructuring Hit Amid Struggles in Chinese Market

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5 hours ago

December 4, 2024

RTX

General Motors (GM) announced a significant restructuring charge exceeding $5 billion, citing challenges in its Chinese operations as domestic carmakers like BYD increase competition through improved quality and lower costs. The Detroit-based automaker revealed the restructuring costs in a regulatory filing on Wednesday, highlighting a struggling joint venture market in China exacerbated by government subsidies favoring local manufacturers.

The charges include a $2.6 billion write-down of GM’s equity stake in its ventures with SAIC General Motors Corp and other partnerships, reducing their valuation to $2.9 billion. Additionally, GM will incur $2.7 billion in restructuring expenses, primarily recorded in the fourth quarter of 2024. These non-cash charges will impact GM’s net income but not its adjusted pre-tax earnings, according to the filing submitted to the US Securities and Exchange Commission.

The joint ventures, once a dependable source of equity income for GM, have faced significant losses recently. Between January and September 2024, the ventures posted a $347 million loss, in stark contrast to a $353 million profit during the same period in 2023. Despite these setbacks, GM forecasts a full-year net profit between $10.4 billion and $11.1 billion.

Market Dynamics Challenge Foreign Automakers

China’s automotive market, the world’s largest, has grown increasingly competitive for foreign carmakers. Domestic manufacturers, bolstered by subsidies and a focus on cost-efficient production, have gained a substantial edge. BYD and others have raised quality standards while undercutting prices, intensifying pressure on international players.

GM’s CEO, Mary Barra, described the Chinese market as challenging, noting that many local brands prioritize production volumes over profitability. However, Barra emphasized that GM is shifting its strategy to target profitability through new initiatives, including launching a pickup truck and importing premium vehicles.

Ongoing Restructuring Efforts

The main joint venture, SAIC General Motors (SGM), is nearing the completion of restructuring actions aimed at addressing market challenges. During a third-quarter earnings call, CFO Paul Jacobson noted signs of improvement, including rising sales and reduced inventory levels.

Barra reaffirmed the company’s commitment to adapting to the evolving market dynamics. “We see potential for profitability in China through differentiated strategies,” she said, emphasizing the importance of restructuring to remain competitive in the rapidly evolving landscape.

The announced measures highlight the broader difficulties faced by foreign automakers in maintaining a foothold in a market increasingly dominated by domestic brands and shifting regulatory landscapes. As GM adjusts its operations, the industry watches closely to see how global players can adapt to China’s fast-changing auto sector.

Business

Euro’s December Rally Faces Headwinds Amid Political and Economic Challenges

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5 hours ago

December 4, 2024

RTX

December has historically been a strong month for the euro, with the currency averaging gains of 1.6% against the US dollar over the past 24 years. This trend has been underpinned by seasonal US dollar weakness, driven largely by year-end tax practices of American corporations. However, political instability in Europe, renewed US tariff threats, and global geopolitical tensions could threaten this established pattern in 2024.

The euro’s December strength is remarkable among global currencies, with a 71% likelihood of ending the month in positive territory. The euro has consistently outperformed in December over the past seven years, with gains attributed more to US economic factors than eurozone-specific dynamics. US corporations traditionally reduce dollar holdings at year-end, shifting funds overseas to manage tax liabilities, which weakens the dollar and boosts the euro.

In contrast, the US Dollar Index typically rebounds in January, gaining an average of 0.88% as funds return stateside. This seasonal fluctuation highlights December as a unique opportunity for currencies like the euro to shine.

Currency Trends Beyond the Euro

The seasonal pattern extends to other currencies, with many also benefiting from December’s dollar softness. The British pound and Australian dollar typically gain 0.4% on average, while the Japanese yen strengthens by 0.3%. Lesser-known European currencies, such as the Hungarian forint, Polish zloty, and Czech koruna, often perform well, with the koruna leading at an average December gain of 1.4%.

Risks Clouding 2024’s December Performance

Despite this favorable historical backdrop, the euro and other currencies face heightened challenges this December. In the US, potential policy uncertainty, including the threat of sudden tariff announcements, could disrupt the typical flow of corporate funds abroad. A similar dynamic was seen in 2016, when unexpected political developments led to a 0.67% drop for the euro in December.

On the European front, domestic political instability adds further pressure. Germany, the eurozone’s largest economy, is navigating a fragmented political environment, while France grapples with escalating labor strikes and social unrest. These uncertainties risk dampening investor confidence in the eurozone, weakening demand for the single currency.

Global geopolitical tensions also weigh heavily on the euro’s outlook. The ongoing Israel-Hamas conflict, Russia-Ukraine war, and concerns about China’s economic recovery are likely to bolster the US dollar’s safe-haven appeal, countering its usual December weakness.

With these combined risks, the euro’s December rally, a longstanding tradition in global currency markets, faces one of its most uncertain years in 2024. Whether the euro can overcome these obstacles remains to be seen as markets brace for a volatile month ahead.

Business

El Salvador’s Church Urges President to Maintain Ban on Gold Mining Amid Environmental Concerns

Published

2 days ago

December 2, 2024

RTX

The Roman Catholic Church in El Salvador has joined growing calls for President Nayib Bukele to uphold the country’s ban on gold mining, a policy that has been in place since 2017. Archbishop José Luis Escobar Alas urged the president to retain the ban, warning that lifting it would cause irreversible damage to the nation’s environment.

In a statement on Sunday, Escobar Alas stated, “It will damage this country forever,” adding his voice to concerns raised by various civic and environmental groups. His remarks came after President Bukele expressed opposition to the seven-year-old ban, calling it “absurd” in a post on X (formerly Twitter) on Wednesday. Bukele suggested that unmined gold represents untapped wealth that could transform the country, triggering further debate on the issue.

El Salvador’s ban on metal mining, which applies both above and below ground, was implemented in 2017 to protect the country’s precious water resources from contamination. A broad coalition, including environmental groups and the Catholic Church, supported the measure at the time, citing the risks posed by mining operations to the country’s water supply.

While gold and silver deposits had been discovered in the country, no large-scale mining had begun by the time the ban was enacted. However, it is unclear what El Salvador’s full gold reserves may be. Bukele’s recent comments, however, mark a shift from his stance during his 2019 presidential campaign, when he supported the mining ban.

The president has since suggested that “modern and sustainable” mining could be introduced, with a focus on environmental responsibility. However, environmental advocates have rejected this notion, asserting that such mining practices are not as environmentally friendly as claimed.

Amalia López of the Alliance Against the Privatisation of Water emphasized the dangers of mining, saying, “It’s not true that there’s green mining; it’s paid for with lives, kidney problems, respiratory issues, and leukemia that aren’t immediate.” Critics are particularly concerned about the significant water consumption required for mining operations and the challenges of safely storing water contaminated with heavy metals.

Given Bukele’s political dominance, with his party controlling a majority in the legislature and the opposition weakened, the potential for a formal proposal to lift the mining ban could face little resistance. However, the strong opposition from environmental groups and the Catholic Church signals that the debate over the future of gold mining in El Salvador is far from over.