Japan’s economy shrinks; geopolitics and global elections ‘threaten financial stability’; reality TV stars charged over FX scheme – business live

Introduction: Japan shrinks faster than expected

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Japan’s economy has made a weak start to 2024, shrinking faster than expected, and confirming the UK as the joint fastest-growing G7 country this year.

Japan’s GDP contracted at an annualised rate of 2% in January-March, compared to October-December, worse than the 1.5% drop in activity forecast. That works out as a 0.5% quarterly drop in activity, as households and companies cut back.

Weak consumer spending dragged on growth as did a fall in capital spending and net exports.

Japan’s Q1 GDP shrinks more than expected.
Japan’s GDP fell 0.5% in Q1 2024, compared to market expectations of a 0.4% drop. Private consumption fell for the fourth consecutive quarter, with consumers cutting spending due to high living costs, sluggish wages, and a quake.

— Kedia Advisory (@kediaadvisory) May 16, 2024

There are temporary factors to blame – including a New Year’s Day earthquake near Tokyo in which more than 200 people died, and a safety scandal at carmaker Daihatsu which disrupted production.

But in another blow for Tokyo, data for the fourth quarter of last year was revised down to show GDP was flat. That means nine months with no growth, since Japan’s economy slumped last summer.

This 0.5% contraction in January-March puts Japan at the bottom of the G7 growth league.

We already know that the UK expanded by 0.6% in Q1, ahead of the US with 0.4% growth and Italy with 0.3%, while Germany and France both expanded by 0.2%. Official Q1 data for Canada isn’t out yet, but it’s estimated to have expanded by 0.6%.

Japan’s weak growth is a headache for the Bank of Japan, as it tries to normalise monetary policy after running a massive stimulus programme. Predictions that the BoJ will struggle to raise interest rates have hurt the yen against the US dollar in recent weeks.

Fortunately for the BoJ, though, the dollar is weakening after yesterday’s drop in US inflation.

The agenda

  • 7am BST: Norway’s Q1 2024 GDP report

  • 9am BST: European Central Bank’s financial stability review

  • Noon BST: Bank of England policymaker Megan Greene gives speech on “The current state of Britain’s labour market”

  • 1.30pm BST: US weekly jobless figures

  • 2.15pm BST: US industrial production data

Key events

Bank of England to cut rates in August, predicts majority of economists

A majority of City economists believe the Bank of England will make its first cut to UK interest rates since 2020 in August, although a significant minority think it could act in June.

A poll of 71 City experts conducted this week by Reuters found that 38 predicted the BoE will lower Bank rate to 5%, from 5.25%. at its meeting in the first week of August.

But 31 opted for the BoE’s next meeting, in June, while two thought it would wait until September.

Bank rate is currently a 16-year high; last week, the BoE left borrowing costs unchanged, but governor Andrew Bailey hinted that rates could be cut faster than the markets expect.

Quick reminder of the Bank of England #MPC dates over the rest of the year… 👇

There are 5 meetings left, so a 1/4 point cut at each would take rates to 4%.

Even if they hold until August, still time for 3 cuts before (likely) election on 14 November.#BankofEngland pic.twitter.com/zlV0XZ9aNf

— Julian Jessop 🇬🇪 FRSA (@julianHjessop) May 16, 2024

Back in the City, BT’s shares are on track for their best day on record after the company announced a new cost-cutting drive and lifted its dividend.

BT’s shares are up 16% at 131p, which would be the biggest jump in at least 20 years.

That’s a blow to the speculators who have been short-selling BT in recent weeks, as it’s shares are now the highest since last December.

A number of short sellers took positions in the group after its shares plummeted by 45% over the last five years, from 208p in May 2019 to as low as 105p this year.

BT’s new chief executive Allison Kirkby has declared that: “I always love to squeeze the shorts . . . and prove them wrong” (the FT reports).

Social media influencers should take note of the charges brought against several reality TV stars by the FCA today, says Sushil Kuner, financial services regulatory lawyer at law firm Gowling WLG.

This action follows hot on the heels of the FCA’s recently published guidance on financial promotions on social media which warned influencers who promote financial products or services without having those promotions approved by an FCA authorised person that they may be committing a criminal offence. This action demonstrates the FCA’s commitment to protect consumers from potentially harmful promotions made by influencers who often have significant followers and reach.

Social media influencers should take note of this clear warning from the FCA that it will take action where it sees them unlawfully promoting financial products and services, with criminal prosecution being a real threat.

US jobless claims drop back

After jumping last week, the number of Americans seeking unemployment support has dropped back.

There were 222,000 fresh ‘initial claims’ for jobless help last week (to 11 May), the US Department of Labor has reported, down from 232,000 in the previous seven days.

The DOL reports that in the previous week:

The largest increases in initial claims for the week ending May 4 were in New York (+10,171), California (+3,595), Indiana (+2,367), Illinois (+1,836), and Texas (+1,253), while the largest decreases were in Iowa (-1,177), New Hampshire (-435), Connecticut (-334), Louisiana (-213), and Kentucky (-208).

It’s a sign that US firms are holding onto workers, despite efforts by the Federal Reserve to suppress demand and price rises by raising interest rates.

However, there is an increase in people receiving at least two week’s unemployment support.

The number of continuing claims jumped by 13,000 to 1,794,000, up from 1,781,000, which suggests it’s becoming harder to find a job…

Even though initial claims were lower than expected, continuing claims showing an increase would suggest those that are starting to receive unemployment benefits are not finding new work… https://t.co/oVUVQqk1sl

— Short The Vix (@ShortTheVix1) May 16, 2024

Greene: Inflation persistence has waned

Bank of England policymaker Megan Greene has said this lunchtime that the persistence of inflation has weakened since last summer.

In a speech to manufacturers body Make UK, Greene says the Bank’s “restrictive stance of policy” – raising interest rates to a 16-year high of 5.25% – is partly responsible for inflation persistence waning since she joined the Monetary Policy Committee last July.

Greene adds that there is uncertainty about how much inflation persistence indeed persists. For interest rates to start to fall, she adds, inflation persistence must continue to wane, so she wants to see evidence that this is happening before voting to cut rates.

UK CPI inflation is expected to fall to near the Bank’s 2% target next Wednesday, down from 3.2% last month.

Greene speech is mainly about “excess labour hoarding” – where companies hold onto workers even though they don’t have enough work for them.

Labour hoarding helps explain why unemployment has remained lower than expected given weak growth and why wage growth has remained stubbornly high, she tells Make UK.

And Greene fears it poses “a two-sided risk” to the Bank’s outlook.

One possibility is that companies decide they can’t pass on higher costs to consumers, so lay off some workers – pushing unemployment higher than forecasst.

Alternatively, if household consumption picks up, firms may decide they have pricing power again and pass through higher costs to consumers, buoying inflation more than the BoE is currently forecasting.


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The charges announced today against reality TV stars for allegedly promoting an unauthorised trading scheme show the dangers of researching financial products and investments online, says Laura Suter, director of personal finance at AJ Bell.

Too many people blindly trust anything they see on social media, but throw in a well-known celeb or a reality TV star endorsing a product and people are even more likely to trust a post. This isn’t a huge problem if you buy some dodgy beauty products or sign up to a duff subscription, but if you put your life savings into an investment because someone from the TV said they made impressive returns, that could be life changing.

The regulator had already fired the warning shot to so-called ‘finfluencers’, telling them that they were cracking down on misleading social media posts.

While the FCA didn’t introduce any new rules or penalties for those who post misleading content, it tweaked the guidance to give more examples of when social media posts will be compliant or not. But now it’s clearly ramping up its campaign to keep finfluencers in line – this high-profile case no doubt intended to send a message to other influencers.

With a maximum penalty of up to two years in prison and an unlimited fine for breaking the rules, there’s no doubt it will make people sit up and listen.


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Business minister to meet IDS over Royal Mail takeover offer

Britain’s secretary of state for business, Kemi Badenoch, will meet the CEO of Royal Mail’s parent company International Distributions Services today to discuss Czech billionaire Daniel Křetínský takeover offer.

A spokesman for Prime Minister Rishi Sunak told reporters that:

[Badenoch] is meeting the chief executive officer of Royal Mail’s parent company to discuss this and other matters.”

The meeting comes a day after Křetínský increased his offer for IDS to £3.5bn – a proposal which IDS’s board said it was ‘minded to accept’ if Křetínský makes a formal bid.

Keith Williams, the IDS chair, yesterday called Křetínský’s new offer “fair”, adding that he had agreed to “protect employees’ current rights and continue to recognise the existing unions”.

The Guardian’s financial editor, Nils Pratley, wrote last night that almost every aspect of Křetínský’s fresh offer is unsatisfactory, from the price, to the identity of the bidder and the sketchy “undertakings” to protect the UK postal service.

Nils explained:

Williams is rolling over just as the government and Ofcom, the regulator, are conducting a review that could, possibly, deliver economic sustainability for Royal Mail in the form of a reduced second-class service. Nobody imagines regulatory nirvana, but £300m of cost-savings, as Royal Mail’s proposal has it, would clearly improve the medium-term financial profile. It is why the superficially huge 73% premium to the pre-offer share price of 214p is not quite as it seems.

Second, the bidder here is almost the definition of problematic. Křetínský is a billionaire whose approach to clear and open communication has earned him the nickname “the Czech Sphinx”. In his last UK newspaper interview, he seemed to indicate to the Sunday Times a year ago that he would not bid for IDS.

Nils adds that both the government and the opposition Labour party must take a position over the ownership of Royal Mail, from a national interest and foreign ownership point of view.

More here.

Another key question is whether GLS, IDS’s very profitable Amsterdam-based parcel business, could be formally separated under Křetínský’s ownership. That would leave Royal Mail, currently loss-making, without the financial support from GLS.


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Reuters: Activists disrupt Lloyds Bank shareholder meeting

Activists have disrupted Lloyds Banking Group’s annual shareholder meeting in Glasgow today, Reuters reports, protesting against its alleged provision of financial services to defence firms linked to violence in the Middle East.

Lloyds chairman Robin Budenberg requested the removal of at least two activists at the outset of the meeting, pleading with the protestors to reserve their questions until later in the proceedings.

Activists have in recent weeks targeted British banks including Barclays’ annual shareholder gatherings, to protest the lenders’ alleged indirect involvement in the Gaza conflict.

Barclays said it did not invest its own money in companies that supply weapons used by Israel in Gaza, and it only trades shares in such companies on behalf of clients

Press Association have more details:

A female protester could be heard referring to Lloyds “funding genocide in Gaza” and “funding climate catastrophe”.

“Everywhere you look, you can see it happening,” the protester added, referring to “wildfires and floods” before being removed by security guards.

Other attendees shouted: “Oh, shut up” and appeared to want to get involved, with Sir Robin asking them to leave the removal of the protesters to the stewards.


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FCA charges ‘finfluencers’ with promoting unauthorised trading scheme

Newsflash: Britain’s financial watchdog has brought charges against several reality TV star ‘finfluencers’ over an unauthorised foreign exchange trading scheme promoted on social media.

The Financial Conduct Authority says seven influencers promoted the unauthorised trading scheme on their Instagram accounts.

The list includes Lauren Goodger and Yazmin Oukhellou of The Only Way is Essex, Rebecca Gormley, Biggs Chris, Jamie Clayton and Eva Zapico of Love Island, and Scott Timlin of Geordie Shore.

The FCA has charged an individual named Emmanuel Nwanze with running an unauthorised investment scheme and issuing unauthorised financial promotions.

The FCA claims that between 19 May 2018 and 13 April 2021, Nwanze and Holly Thompson used an Instagram account (@holly_fxtrends) to provide advice on buying and selling contracts for difference (CFDs), which they were not authorised to do so.

CFDs are a kind of derivative contracts which allow people to trade in the price movement of securities and derivatives.

Goodger, Gormley, Chris, Clayton, Zapico, Oukhellou and Timlin are accused of promoting the @holly_fxtrends Instagram account to their Instagram followers. They, and Thompson, face one count of unauthorised communications of financial promotions under Section 21 of the Financial Services and Markets Act 2000.

Collectively, the nine have 4.5 million Instagram followers.

The defendants will appear before Westminster Magistrates’ Court on 13 June 2024.

The FCA are encouraging anyone who believes they have suffered loss in relation to this matter to contact its consumer contact centre on 0800 111 6768.


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EU investigating Facebook owner Meta over child safety and mental health concerns

Jennifer Rankin

Jennifer Rankin

Newsflash: The European Commission has launched an investigation into the owner of Facebook and Instagram over concerns the platforms are creating addictive behaviour among children and damaging mental health.

The EU executive said Meta may have breached the Digital Services Act, a landmark law that makes digital companies large and small liable for disinformation, shopping scams and child abuse.

“Today we open formal proceedings against Meta,” the EU commissioner for the internal market, Thierry Breton, said in a statement.

“We are not convinced that it has done enough to comply with the DSA obligations to mitigate the risks of negative effects to the physical and mental health of young Europeans on its platforms Facebook and Instagram.”

The Commission’s investigation will explore potential addictive effects of the platforms, so-called rabbit hole effects where an algorithm feeds young people negative content, such as on body image. It will also look at the effectiveness of Meta’ age verification tools and privacy for minors.

Breton added:

“We are sparing no effort to protect our children.”

Last month, the European Commission opened formal investigation proceedings into Meta over its handling of political content, including a suspected Russian influence campaign.

Denmark raises growth forecast as Novo Nordisk expands output

Denmark has hiked its growth forecasts for 2024, thanks to the strong demand for pharmaceutical company Novo Nordisk’s weight loss drugs, Ozempic and Wegovy.

Bloomberg has the details:

Denmark’s government now predicts the economy will expand 2.7% this year, almost double the rate it previously estimated, accelerated by the Scandinavian country’s flourishing .

The economy ministry raised its 2024 gross domestic product growth forecast from a December estimate of 1.4%. In 2025, GDP is forecast to rise 1.8%, up from 1% seen previously.


— Capital Hungry (@Capital_Hungry) May 16, 2024

Pharmaceuticals and raw material extraction, including the reopening of the Tyra North Sea gas field, will be key drivers of economic growth, the ministry said in its spring economic review. Without these two industries, Denmark’s GDP would grow just 1.6% this year, and 1% in 2025.

Denmark’s government almost doubles its growth forecast, boosted by the Scandinavian country’s flourishing pharmaceutical company Novo Nordisk https://t.co/mAB2T9b8Lp

— Bloomberg Economics (@economics) May 16, 2024

Earlier this month Novo Nordisk raised its profit forecast for this year, and is spending billions to expand its manufacturing capacity.

The ECB have three concerns about the large number of elections this year.

  1. They create uncertainty around global economic policies

  2. They also create increased uncertainty around future borrowing needs, given different tax and spend policies between rival parties.

  3. They increase the risk of fiscal targets being missed, as incumbent governments try to woo voters with sweeteners such as tax cuts

ECB warns of stability risks from geopolitics and global elections

Geopolitical tensions and a busy slate of elections around the world pose risks to financial stability, the European Central Bank has warned.

In its latest Financial Stability Review, the ECB cautions that financial markets are vulnerable to sudden shifts in sentiment. And while risks of a deep recession have declined, geopolitical risks are on the rise, it says.

Luis de Guindos, vice-president of the ECB, explains that geopolitical tensions are a “significant source of risk” for both euro area and global financial stability.

De Guindos says:

Policy uncertainty remains high around the world in a year featuring so many major elections. In such an environment, the scope for adverse economic and financial surprises is elevated, and the risk outlook for euro area financial stability remains fragile accordingly.

2024 is certainly a bumper year for elections, with more than 40% of the world’s population heading to polling stations this year, including in the US, India and (probably) the UK.

But, De Guindos also points out that financial stability conditions have improved since the last edition of the Financial Stability Review was published six months ago.

The near-term risk of a deep recession accompanied by rising unemployment – a major source of concern six months ago – is much lower from today’s perspective, and disinflation has proceeded in parallel.

The Review points out that financial markets – currenty at record highs – are priced for perfection, creating a risk of an outsized reaction to any shocks.


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