Good morning. It is Thursday, December 1st.
Eurozone inflation has finally slowed for the first time in more than a year after reaching a record high last month, further fueling speculation on whether the European Central Bank will take a gentler path to curb surging prices or stick with another 75 basis point hike in interest rates at its next meeting. As a reminder, the better-than-expected news comes just days after ECB President Christine Lagarde warned that inflation has not peaked yet and risked rising even higher than predicted.
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—Can and Tanem
• Eurozone inflation slowed for the first time since June 2021, preliminary figures from Eurostat revealed on Wednesday, as the annual rate of change in the Harmonized Index of Consumer Prices (HICP) —the ECB's preferred gauge— fell to 10.0% year-on-year in November from the prior month’s 10.6%, on the back of slower advances in energy and services costs, even as food prices rose more quickly.
- GDP: In a separate post, Eurostat data showed that eurozone economic output expanded by 0.2% quarter-on-quarter in 2022-Q3.
• French inflation remained at a record high in November, defying a slowdown in other parts of the eurozone and casting doubt on calls for the ECB to slow the pace of interest rate hikes. Consumer prices in the bloc’s second-largest economy —harmonized to compare with other EU countries— rose 7.1% year-on-year, matching October’s increase, the statistics office INSEE said on Wednesday.
- GDP: French economic output rose by 0.2% in Q3 from the previous quarter despite a slight drop in household consumption as business investment in fixed assets (GFCF) —in particular in automotive and computer services— increased by 1.7% in the quarter.
• German unemployment rose more than expected as Europe’s largest economy braces for a recession driven by surging energy costs. Joblessness increased by 17,000 in November, according to provisional data by the Federal Statistical Office released on Wednesday, pushing the unemployment rate up to 5.6% from 5.5% in the previous month.
• US economic output increased at a 2.9% annualized rate in Q3, official figures showed Wednesday, compared with a previously reported 2.6% advance. The Commerce Department said the stronger than previously estimated growth reflected upward revisions to consumer spending and nonresidential fixed investment.
- On a related note: Fed chair Jerome Powell confirmed that smaller interest rate hikes are likely ahead even though there is still "a long way to go in restoring price stability." He also cautioned that monetary policy is likely to stay restrictive for some time until real signs of progress emerge on inflation.
• Bitcoin should not be legitimized by regulators or financial companies as it is more akin to gambling, the ECB said on Wednesday in a blog post with unusually scathing language. The post read bitcoin's recent stabilization was "an artificially induced last gasp before the road to irrelevance," and added that big investors "have the strongest incentives to keep the euphoria going."
• Swedish fashion giant H&M on Wednesday became the first big European retailer to start laying off staff despite a still-tight labor market, in a bid to save 2 billion Swedish kronor (€180mn) a year as part of a plan laid out in September.
- Big picture: The move by the world's second-largest fashion retailer —which employs roughly 155,000 people— to reduce mainly back-office staff, comes amid surging inflation and soaring energy costs as fashion retailers struggle to keep lights and heating on in vast stores.
• Italian utility Eni is in preliminary talks to buy private-equity backed gas and oil producer Neptune Energy for around €5-6 billion, a Reuters source said on Wednesday, adding that no official bid had been submitted. Neptune produces around 130,000 barrels of oil equivalent per day —three-quarters of which is gas— and has guided for its 2022 post-tax operating cash flow to reach about €2.5 billion.
• HSBC said on Wednesday it would shut a quarter of its UK branches from next April —114 out of 441 total— as customers move online and the bank comes under pressure from its biggest investor to cut costs. The closures reflect a longer-term, industry-wide retreat from expensive real estate portfolios, with HSBC’s UK network shrinking from almost 1,200 at the end of 2012.
- A step back: The announcement of the closures comes a day after the bank agreed to sell its Canadian business to Royal Bank of Canada for €9.7 billion after the pressures from its biggest shareholder Ping An Insurance.
• UBS chair Colm Kelleher ruled out further acquisitions in the US after walking away from a $1.4 billion deal to buy US digital advisory start-up Wealthfront two months ago, the Financial Times reported, saying that shareholders need a clear picture of how the Swiss bank will grow in a market it has earmarked as a top priority.
• The EU seeks to set up a specialized UN-backed court to investigate and prosecute Russia's possible war crimes in Ukraine while continuing to support the International Criminal Court's work, European Commission President Ursula von der Leyen said.
- Furthermore: President von der Leyen also proposed that Russia's frozen assets should be used to rebuild Ukraine, adding that the damage Russia caused to Ukraine is estimated at €600 billion.
• Russia said its forces were moving forward in eastern Ukraine and Kyiv said Moscow was "planning something" in the south, Reuters reported. Meanwhile, NATO Secretary-General Jens Stoltenberg offered to help neighboring Moldova, Georgia, and Bosnia, which he said were all under pressure from Russia. "If there is one lesson from Ukraine it is that we need to support them now," Stoltenberg said.
• The European Commission recommended delaying crucial funding to Hungary, arguing that PM Viktor Orban's government has failed to address its concerns over corruption and lack of rule of law. EU's executive branch said member states should approve Hungary's pandemic recovery plan "conditionally," which would oblige Budapest to first comply with a set of reforms before they can receive the €5.8 billion funding from the bloc.
• Two major Chinese cities —Guangzhou and Chongqing— eased their Covid-19 restrictions, a day after protestors clashed with police in Guangzhou in a show of public defiance to the world's toughest Covid-19 restrictions. City officials said Chongqing will now allow close contacts of people with Covid-19 that fulfill certain criteria to quarantine at home.
- In other news: China's former President Jiang Zemin, who guided the country's economic rise, died at the age of 96, state media reported.
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• Airbus announced a partnership with Renault to develop a new generation of electric batteries for cars and planes, and that they will collaborate to improve energy storage technologies, which is one of the main roadblocks to developing long-range electric vehicles. Renault said that the new partnership will be "complementary" to their alliance with Nissan, as both companies are holding talks on their future with EVs.
• Sweden's fintech company Klarna predicted that they will return to monthly profitability in the second half of next year after reporting a 22% jump in revenue and gross merchandise volume (GMV) in the first nine months of the year. However, the company's CEO Sebastian Siemiatkowski underscored that they still may post a loss for the full year of 2023, in an interview.
• Binance announced that it acquired Japan's Sakura Exchange BitCoin, to expand into a new Asian market. The crypto exchange operator will now be able to operate in the Japanese market as an entity regulated by the Japan Financial Services Agency (JFSA).
- In other news: US crypto broker Genesis said it was seeking to "resolve the current situation in the lending business" without filing for bankruptcy, following Bloomberg's reports that creditors were organizing with lawyers to prevent insolvency.
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