By Andy Bruce

LONDON (Reuters) -British retail sales slid unexpectedly in November, despite the men’s soccer World Cup and the Black Friday sales promotions, showing the stress felt by many households as the cost-of-living crisis eats into their finances.

In the latest warning sign that Britain’s economy might have entered a recession, retail sales volumes dropped by a month-on-month 0.4% from October. A Reuters poll of economists had pointed to a 0.3% rise.

Sales had risen by 0.9% in October, a bounce from September when sales were hit by a one-off public holiday to mark the funeral of Queen Elizabeth.

“The fact that not even the World Cup and Black Friday Christmas shopping could produce an increase in sales will come as a major disappointment to retailers, especially considering the increase last month,” said Lynda Petherick, retail lead at consultancy group Accenture in the UK and Ireland.

The Office for National Statistics (ONS) said some of the drop could reflect how the data did not include “Cyber Monday” online sales which fell on Nov. 28, which will be included in December’s figures.

Still, Friday’s figures were consistent with other signs that consumers are struggling. Retail sales volumes fell to 1.5% below their pre-pandemic 2019 level.

Earlier, market research firm GfK said British consumer confidence crept up this month but was still close to all-time low levels.

“The EY ITEM Club expects the pressure on household budgets will remain severe in the near-term, with wage growth continuing to run well below inflation,” the consultancy’s economist Martin Beck said.

The latest readings of Britain’s economy came a day after the Bank of England raised interest rates for the ninth meeting in a row and indicated more hikes were likely.

But investors said the central bank might be getting close to the end of its increases in borrowing costs as inflation shows signs of having peaked and the economy appears to have entered a recession.

Olivia Cross, an economist with Capital Economics, said the dip in inflation from 11.1% in October to 10.7% in November was unlikely to provide much relief to consumers.

“We doubt there is a sustained recovery in retail sales volumes in the pipeline,” Cross said. “We expect that high inflation will drive further falls in real household disposable income of 1.1% in Q4 2022, which will keep sales volumes subdued in December.”

Samuel Tombs, an economist with consultancy Pantheon Macroeconomics, said retailers would also probably face a further drop in demand in December due to heavy snowfall this month.

Compared with a year earlier, retail sales in November were 5.9% lower, the ONS said, a slightly steeper fall than forecast in the Reuters poll.

An ONS survey published on Thursday showed one in six people in Britain were worried about running out of food and more cannot keep warm enough in their own homes.

(Reporting by Andy Bruce; editing by William Schomberg and Hugh Lawson)

By Farah Master

HONG KONG (Reuters) -Macau said on Friday six casino firms will invest around $15 billion as part of new 10-year contracts they signed to operate in the world’s biggest gambling hub, with the spending on non-gaming activities to exceed gaming spend by more than 10 times.

The signing of the contracts eases fears of investors and executives after a lengthy bidding process that had threatened to end one company’s run.

Macau’s leader Ho Iat Seng and officials including the city’s finance and economy secretary presided over the signing at Macau’s Government House together with top executives of the casino companies.

Incumbent operators Sands China, Wynn Macau, Galaxy Entertainment, MGM China, Melco Resorts and SJM Holdings beat off a surprise bid from Malaysia’s Genting to win the six licences on offer in the Chinese special administrative region.

The new contracts come into effect on Jan. 1, 2023.

Each casino head was invited to sit at a long red table alongside the government officials as they signed. The executives included Pansy Ho, the billionaire daughter of Macau’s gambling godfather Stanley Ho, and who heads MGM Resorts’ Macau company MGM China.

The operators are expected to focus on non-gaming activities in the new term, particularly as Beijing is keen for Macau to diversify away from gambling and attract foreign tourists.

The total investment committed by the gaming companies for the development of non-gaming projects is 108.7 billion patacas ($13.57 billion), with the total investment in gaming projects 10.1 billion patacas, the city’s government said.

“The development of Macau’s gaming and tourism industry will enter a new stage,” it said in a statement issued immediately after the signing.

The stakes could not have been higher for the six companies, who depend on Macau’s gambling industry for their profitability but have been bleeding billions of dollars for most of the past two years due to China’s strict COVID-19 rules.

A broader crackdown by Beijing on capital outflows from the mainland in recent years, including arresting well known gambling executives in the former Portuguese colony, has also decimated the once dominant and lucrative VIP sector.

Genting, with its strong non-gaming track record and mass market appeal, was a credible threat for the Macau operators, many executives and analysts have said.

UNSUCCESSFUL ATTEMPTS

Previous attempts by Macau to diversify have been unsuccessful, with casino operators shying away from investing in non-gaming due to the high costs, particularly as the gambling industry was far more lucrative. Macau’s gambling industry currently accounts for more than 80% of government revenues.

But Macau’s government laid out conditions in the bidding that it wants the new license holders to prioritise safeguarding local employment, develop the city’s overseas tourism market and boost investment in non-gaming areas, including conferences and Chinese medicine.

While the government’s awarding of licenses to incumbents signals stability and continuity for the tens of thousands of local residents employed by them, the companies will face far greater accountability on non-gaming initiatives than in the last 20 years, executives and analysts said.

Operators are expected to invest a total of 100 billion-120 billion Macau patacas in non-gaming over the next decade, with Sands and Galaxy each committing around 25 billion patacas, and the rest putting up 15 billion patacas, DS Kim, analyst at J.P. Morgan in Hong Kong, said earlier in December.

“These projects will bring new players and tourists into the city, who in turn will spend sizable dollars on gambling,” he said.

Macau is heavily reliant on Chinese visitors. Tourists from greater China, including Hong Kong and Taiwan, account for more than 90% of total visitation.

($1 = 8.0130 patacas)

(Additional reporting by Twinnie Siu; Editing by Muralikumar Anantharaman)

By Tom Sims and Marta Orosz

FRANKFURT (Reuters) – In 2019, Deutsche Bank set out on a journey to cut dependence on its volatile investment bank and rely instead on more stable businesses that serve companies and retail customers as a way to restore profitability.

It didn’t quite turn out that way.

Germany’s biggest bank is back in profit and on course to meet some key targets pledged to shareholders, but that is thanks to the investment bank.

Deutsche’s bottom line has benefited from a surge in securities trading and dealmaking – the very businesses that the bank was trying to rely less on after years of scandals and fines.

A long period of low interest rates and the pandemic complicated Deutsche’s plan of making more money from the bread and butter business of lending to companies and individuals.

But the tide, buoyed by rising interest rates, is turning. 

Higher interest rates are fattening profits from regular banking, while there has been a decline in M&A deals.

The bank said it is starting to see a rebalancing away from the investment bank to its other businesses.

“We do not expect that the majority of the bank’s growth between now and 2025 will come from investment banking,” board member Fabrizio Campelli said in an interview. He previously managed Deutsche’s overhaul process and now oversees the corporate division and investment bank.

The bet in 2019 was for the investment bank to make up 30% of revenues at Deutsche’s key divisions, as the company exited equities trading, with the focus more on corporate and retail banking.

Deutsche Bank shares https://www.reuters.com/graphics/DEUTSCHEBANK-STRATEGY/jnpwyearwpw/chart.png

But when the pandemic hit in 2020, this created volatile markets that favoured the bank’s bond trading business, where it is one of the world’s biggest players. This made the investment bank the group’s biggest profit engine. In 2021, a wave of global dealmaking gave it another boost.

In both those years, the investment bank made close to 40% of revenue and more than 75% of pre-tax profit.

The bank’s corporate and retail businesses, meanwhile, stagnated under ultra-low interest rates that lasted longer than expected.

“It would have been better if the stable areas had grown more than the investment bank,” said Andreas Thomae, a portfolio manager at Deka, a big Deutsche investor.

“Overall, however, the bank is on track to earn good money on a sustainable basis. Now the stable areas have to take on a greater role again in the future,” he said.

A collapse in dealmaking this year and central banks’ moves to raise rates to combat inflation have helped Deutsche’s other divisions.

Investment bank revenues https://www.reuters.com/graphics/DEUTSCHEBANK-STRATEGY/myvmonabevr/chart.png

Deutsche’s businesses outside the investment bank show “good momentum”, UBS said in a report this week that noted “upside potential” for the shares, which are down nearly 10% this year.

‘DIRE STRAITS’

Deutsche, which ranks as one of the world’s most systemically important banks, had embarked on its four-year, nearly 9 billion euro ($9.59 billion) turnaround plan in 2019 after years of losses.

CEO Christian Sewing recalled the scale of Deutsche’s crisis at a conference last month in Berlin. “When I took over in 2018, we knew that we were in dire straits,” he said. “We knew that things had to change.”

Deutsche has hit or exceeded some of the targets in its turnaround plan as the deadline for its completion approaches with the end of 2022.

Report card https://www.reuters.com/graphics/DEUTSCHEBANK-STRATEGY/movaknqdxva/chart.png

Deutsche, which lost about six billion euros over the past decade, has chalked up nine consecutive quarters of profit.

Deutsche Bank results https://www.reuters.com/graphics/DEUTSCHEBANK-STRATEGY/egpbykolbvq/chart.png

Regulators say the bank is on firmer footing than in 2016, when it became public that Deutsche would have to pay a multibillion dollar fine for its role in the U.S. mortgage crisis.

Bankers at Deutsche are relieved that for once the bank is mostly out of the headlines. They privately say they feel the pain of Swiss rival Credit Suisse, which is facing its own crisis after losses and scandals.

Olivier Panis, analyst with Moody’s, said bank restructurings take time.

Deutsche’s management “took the right decisions, probably at the right time, benefiting also from favourable market conditions,” he said.

Ratings agencies, including Moody’s, have been upgrading Deutsche’s ratings in a sign of confidence that earnings are sustainable.

REGULATORS AND COSTS

Regulatory issues have not entirely gone away. Deutsche Bank is under scrutiny for its controls to prevent money laundering, said a person with direct knowledge of the matter.

In November, Germany’s banking regulator BaFin said it had told Deutsche it would face fines if it did not meet specific measures to improve safeguards.

Deutsche said at the time that it has and will continue to invest the resources and management attention necessary to improve its controls and to meet regulatory expectations.

Deutsche’s asset management division, DWS, is under investigation by U.S. and German authorities for alleged “greenwashing”, allegations DWS has denied.

And the bank has said it would defend itself “vigorously” against allegations that it may have mis-sold risky investment bank products to customers in Spain and elsewhere, a matter the bank has investigated internally.

Deutsche Bank has also been under pressure from regulators to rein in its leveraged finance business, where credit is extended to already indebted borrowers.

Looking ahead, Deutsche has set new targets for 2025, including a cost-to-income ratio of less than 62.5%, meaning 62.5 euros spent for every euro earned.

With soaring inflation and high regulatory costs, analysts believe Deutsche will miss the goal. They predict a ratio of 69% in 2025, down from 73% this year.

Deutsche executives have said they see room for further cost savings.

For rivals JPMorgan and Goldman Sachs, analysts forecast a cost-to-income ratio of around 62% this year, based on Refinitiv data.

“Execution risk remains high…on the bank’s 2025 cost cutting plan,” Fitch analyst Marco Diamantini said, citing high inflation and a strong dollar.

Deutsche Bank costs https://www.reuters.com/graphics/DEUTSCHEBANK-STRATEGY/dwvkdrzzbpm/chart.png

The next phase of Deutsche’s plan comes as inflation and high energy prices take their toll on the German economy, raising questions over how its corporate and retail businesses will fare if loans turn sour.

($1 = 0.9382 euros)

(Reporting by Tom Sims, Marta Orosz; editing by John O’Donnell, Elisa Martinuzzi and Jane Merriman)

BERLIN (Reuters) – A downturn in German economic activity eased for the second month running in December, a preliminary survey showed on Friday, as retreating price` pressures added to hopes that an expected recession could be milder than first feared.

S&P Global’s flash composite Purchasing Managers’ Index (PMI), which tracks both the manufacturing and services sectors that together account for more than two-thirds of Germany’s economy, rose to 48.9 in December from 46.3 in November.

A Reuters poll of analysts had pointed to a reading of 46.5.

December marks the sixth month in a row that the reading has been below the 50 mark that separates growth from contraction.

“The latest flash PMI survey paints a somewhat less gloomy picture of Germany’s economy as we head towards the end of the year,” said Phil Smith, economics associate director at S&P Global Market Intelligence.

He added that “nerves have settled somewhat compared to the situation three months ago, when concerns about the energy crisis were at their peak, in a further sign that the expected recession could be shallower than first feared.”

Separately, the manufacturing index rose to 47.4 from a final reading of 46.2 in November. The consensus forecast was for 46.3.

The services index rose to 49.0 from a final reading of 46.1 in November. The consensus forecast was for 46.3.

(Writing by Paul Carrel; Editing by Hugh Lawson)

(This Dec. 15 story has been corrected to change Robert Dishner’s location to London from Chicago in paragraph 33)

LONDON (Reuters) – The Bank of England on Thursday raised interest rates by a widely expected 50 basis points (bps) to 3.50%, in its ninth straight increase – and its eighth this year.

The BoE, which is battling double-digit inflation that has unleashed a cost-of-living crisis that is pushing the economy deeper into recession, has raised rates by a combined 325 bps in 2022 alone to their highest since late 2008.

UK rates began rising in December 2021, making the BoE the first of the world’s major central banks to kick off a monetary policy-tightening cycle.

BoE Governor Andrew Bailey, in a letter to finance minister Jeremy Hunt accompanying the decision, said the BoE forecasts suggested British inflation, which dropped below October’s 41-year highs to 10.7% last month, had reached its peak.

Furthermore, a breakdown of votes by Monetary Policy Committee members showed policymakers divided.

Some voted for an outsized 75-bps rise, while others said now was the time to stop tightening monetary policy altogether.

The pound fell, while benchmark British government bond yields declined, falling 6 basis points to 3.24%.

MARKET REACTION:

STOCKS: London’s blue-chip FTSE 100 index briefly losses and was last down 0.5%, while the FTSE 250, a more domestic-focused index of mid-cap stocks, was down 0.4%.

FOREX: Sterling fell against the dollar, to last trade down 0.8% at $1.2332, little changed from where it was prior to the central bank’s decision.

MONEY MARKETS: Interest rate swaps showed investors expected rates to peak at 4.46% by next August, compared with an anticipated terminal rate of 4.53% just before the decision.

COMMENTS:

VIVEK PAUL, UK CHIEF INVESTMENT STRATEGIST, BLACKROCK INVESTMENT INSTITUTE, LONDON:

“There are going to be more rate hikes. They’re not done. There’s an element that the bank will stop a little bit before what markets are currently anticipating them to get to. Their own numbers have been pointing to a recession for a little while, and they’ve still materially hiked interest rates. Despite that, so I don’t think that’s going to stop them.”

EDWARD HUTCHINGS, HEAD OF RATES, AVIVA INVESTORS, LONDON:

“The Bank of England duly delivered on financial markets expectations of a 0.50% hike. With a 3-way split vote, it seems there is still much uncertainty amongst MPC members.

However, the Minutes state that the BoE do expect a recession for a ‘prolonged period’! After its recent bullish run, sterling strength could be somewhat more questionable from here and with further Quantitative Tightening to come plus a staggering amount of gilt issuance, 2023 will continue to be volatile for the UK gilt market”

KAREN WARD, CHIEF MARKET STRATEGIST EMEA, JP MORGAN ASSET MANAGEMENT, LONDON:

“We are not convinced that the UK’s inflation troubles are clearly behind us, and therefore suspect the BoE is still some way away from ‘peak rates’.

“Inflation may be coming down but it would be premature for the BoE to claim victory in the fight over inflation. The BoE may be able to moderate the pace and speed of interest rate hikes, but we believe we are at least 100 bps from the peak.”

JAN VON GERICH, CHIEF ANALYST, NORDEA, HELSINKI:

“I wouldn’t say it was a dovish move but it does show that central banks are getting uncomfortable with signalling rates are on a one-way path higher.

“There is a division at the BoE with some members voting for no change and some voting for big hikes, that tells you that there is uncertainty about the outlook.

“For sure the door is open to pausing at the next meeting but also open for continuing more hikes.”

STUART COLE, HEAD MACRO ECONOMIST, EQUITI CAPITAL, LONDON:

“For an investor though, given the turmoil we saw in UK markets in September/October, and in a year that has delivered 3 prime ministers, 4 chancellors and 2 mini-budgets, this lack of coherence from the MPC likely does nothing to begin installing a sense of confidence back into the UK as a safe destination for investment.”

NAEEM ASLAM, CHIEF MARKET ANALYST, AVATRADE, LONDON:

“Sterling is highly volatile after the Bank of England’s monetary policy (decision), which increased the interest rate as per the market expectations of 50 basis points. The fact that BOE members are not on the same page with respect to the bank’s monetary policy has created more confusion for traders.

“With rates moving higher, the cost of living crisis is going to cripple further, and it would have a further adverse influence on the UK economy. This is another reason that the sterling moved lower on the back of the bank’s decision.”

LEE HARDMAN, CURRENCY ANALYST, MUFG, LONDON:

“Initially, the market’s taken it as less hawkish than expected. So we’ve been highlighting comments referring to the 50 bps hike as being ‘forceful’, which is another indication that they’re stepping down the pace of hikes going forward, and that’s provided some relief for UK rates markets.”

“Other than that there doesn’t seem to be a great deal there in terms of a change in the outlook for policy. They still expect to do further rate hikes.”

ROBERT DISHNER, SENIOR PORTFOLIO MANAGER – MULTI SECTOR FIXED INCOME, NEUBERGER BERMAN, LONDON:

“Initial reaction is a dovish outcome with two members voting to keep the rate unchanged. However, the bank appears to be keeping its options open here citing improvement in growth forecasts from November and still strong labour markets. The overriding take away pre-press conference though is that two members think the hiking cycle should be over for now.”

MIKE COOP, CHIEF INVESTMENT OFFICER UK, MORNINGSTAR INVESTMENT MANAGEMENT, LONDON:

“The central bank ‘Super Thursday’ ends a year many will be glad to see the back of. However, with another 50-basis point rate increase from the Bank of England and inflation continuing to rise, 2023 looks set to be as rough if not rougher than 2022.”

PHILIP SHAW, CHIEF ECONOMIST, INVESTEC, LONDON:

“While the 50bp increase in the Bank rate was as expected, the extent of the divisions across the committee is an eyeopener. While it is normal to see policymakers disagree towards the end of a rate cycle, the split makes it more difficult to predict the extent to which interest rates will rise.

Our view is still that the Bank rate will peak at 4.0% and that cuts will arrive towards the end of 2023, but clearly the labour market data and the inflation numbers themselves have the capacity to force us alter our view at any point.”

(Reporting by London Markets Team; Editing by Alun John)

(Reuters) -Rio Tinto Ltd said on Friday it had completed its long drawn-out acquisition of remaining 49% stake in Turquoise Hill Resources, giving the Anglo-Australian firm a 66% stake in Mongolia’s Oyu Tolgoi, the world’s largest known copper and gold deposit.

Turquoise Hill shareholders last week voted in favour of Rio Tinto’s $3.3 billion bid to take the Canadian company private after months of back and forth.

Minority shareholders were against the deal over valuation, and no. 2 shareholder Pentwater Capital Management accused Rio of concealing delays and huge cost overruns at Oyu Tolgoi.

The larger stake in Oyu Tolgoi will help Rio Tinto compete better with BHP Group over battery metals production as the world speeds up the shift towards green economy. BHP Group last month made a renewed $6.5 bln play for copper miner OZ Minerals, potentially allowing the miner to consolidate its copper assets in South Australia if the deal goes through.

“We now have a simpler and more efficient ownership and governance structure with our partner the Government of Mongolia, as we proceed together towards sustainable production from the underground mine,” Rio Tinto’s copper chief executive Bold Baatar said.

Shares of Rio Tinto finished 0.8% higher on the Australian Stock Exchange.

(Reporting by Sameer Manekar in Bengaluru; Editing by Rashmi Aich and Subhranshu Sahu)

By Naomi Rovnick and Dhara Ranasinghe

LONDON (Reuters) -Forget a year-end rally in financial markets. The message from major central banks is loud and clear: the battle to tame inflation is far from over.

Central banks in the United States, euro zone, Britain and Switzerland met on Wednesday and Thursday and all slowed the pace of aggressive rate moves.

But their signalling was not what markets, which have rallied hard in recent weeks on the notion of peak inflation and peak interest rates, wanted to hear.

European Central Bank President Christine Lagarde said to expect more 50-basis-point rate increases for a period of time and that the ECB was not “pivoting” yet.

It hiked rates by 50 bps on Thursday after delivering two back-to-back 75 bps moves to tame double-digit inflation.

Government bond markets took a beating. As prices slid, the yields on interest rate-sensitive two-year German bonds surged 24 bps, their biggest one-day jump since 2008.

Italian borrowing costs were last up almost 30 bps at 4.13%, while European shares slid nearly 3% and stocks on Wall Street tumbled 2%.

“The reaction in European bond markets has been brutal,” said Antoine Lesne, head of EMEA strategy and research for State Street’s SPDR ETF business.

A slight drop in euro area inflation in November, to an annual rate of 10%, had sparked market speculation that the ECB might pivot away from its fight against soaring prices.

“The market had been getting ahead of itself about the euro area in the past few weeks … they’re now repricing the fact that the ECB is going to have to remain hawkish,” Lesne said.

Ed Hutchings, head of rates at Aviva Investors, said he expected peripheral European bonds to “struggle” from here and European bonds in general to be somewhat less supported.

TOO COMPLACENT?

Federal Reserve chief Jerome Powell meanwhile warned on Wednesday that recent signs U.S. inflation may be slowing have not brought any confidence yet that the fight has been won.

“Forget the Santa rally … the Fed looks more like the Grinch this Christmas,” said John Leiper, CIO of Titan Asset Management.

On Thursday, the S&P 500 fell to its lowest level in a month. On Tuesday, the index had jumped as much as 2.76% to a three-month high as an unexpectedly small rise in consumer price inflation buoyed hopes that the Fed could soon dial back its rate hikes. The S&P has lost more than 16% this year.

Switzerland’s central bank chief Thomas Jordan also weighed in after a 50 bps hike, saying it was too early to “sound the all-clear” on inflation.

“It does feel like the major central banks, including the Fed, are having to fight a market narrative of relief that we’ve hit peak rates,” said Hetal Mehta, senior European economist at Legal & General Investment Management.

Recent data showing inflation in the United States and Europe easing slightly caused bond yields to come off multi-year highs and the S&P 500 to rally over 10% from a low in October.

While U.S. 10-year Treasury yields are still set to end the year up 200 bps, they are down 32 bps in Q4, in what is set to be their biggest quarterly drop since early 2020. German benchmark Bund yields are also up 200 bps over 2022 but stand almost 50 bps lower than a multi-year high of 2.5% reached in October.

Such sharp moves loosen the very financial conditions that central banks are trying to tighten in order to contain inflation.

Speaking at Thursday’s post-decision news conference, the ECB’s Lagarde referenced financing conditions and said further tightening was needed.

“A market rally would be an easing of financial conditions that jars with the idea that they (policymakers) need to get interest rates into restrictive territory,” said Mehta.

(Reporting by Dhara Ranasinghe and Naomi Rovnick; Editing by Catherine Evans)

TOKYO (Reuters) – Sony Group Corp is considering an investment of about 800 billion yen ($5.83 billion) to build a factory to make smartphone image sensors in western Japan, the Nikkan Kogyo newspaper said on Friday.

The plant would be located in Kumamoto prefecture and Sony plans to bring it online in 2025 at the earliest, the report said. The news was first reported by the Nikkei business daily, although it didn’t mention a specific investment amount.

The Nikkei said the Japanese electronics and entertainment conglomerate would carefully consider the timing of the construction and the size of the investment given concerns about a slowdown in the global economy.

A spokesman at Sony’s semiconductor division declined to comment on the Nikkei report.

Major economies, including the United States and Japan, have scrambled to boost domestic chip production after the COVID-19 pandemic disrupted global supply chains.

Taiwan Semiconductor Manufacturing Co (TSMC) is building a major chip plant in Kumamoto. Sony and auto parts maker Denso Corp are each taking a minority stake in the $8.6 billion project.

Sony plans to source logic chips for image sensors from the TSMC plant, the Nikkei said. ($1=137.31 yen)

(Reporting by Chavi Mehta in Bengaluru, Kiyoshi Takenaka in Tokyo; Editing by Shinjini Ganguli, Gerry Doyle and Neil Fullick)