TheChek News Flow

New law cuts time that applicants must live in the country and lifts ban on dual nationality for those from outside EU

The German parliament has passed a law that will make it easier for foreigners to acquire citizenship, as Berlin looks to immigration to solve a dire shortage of skilled workers.

Under the law, passed by 382 votes to 234, people will be able to apply for citizenship after living in Germany for five years, rather than eight as at present. Those who have made a particular effort to integrate — for example by becoming proficient in German or doing voluntary work — can apply after three years.

It also lifts a ban on dual nationality for people from non-EU countries.

“We have to make an offer to skilled people from all over the world, just like the US and Canada do,” said Nancy Faeser, interior minister. “We must show our appreciation for the people who come to this country and contribute to keeping our society going.”

Reem Alabali-Radovan, the government’s integration commissioner, said the law would enfranchise millions who were not yet full members of society. Official statistics show that about 10mn people living in Germany do not have a German passport, and 5.7mn of them have lived in the country for at least 10 years.

“Anyone who is an integral part of our society should be able to vote and be elected,” Alabali-Radovan said. 

The measure sets Germany apart from other countries in Europe that are tightening naturalisation criteria. Under an immigration law passed by the French parliament last month, children born in France to immigrant parents will no longer automatically acquire citizenship but will have to request it between the ages of 16 and 18.

Alexander Throm, domestic policy spokesman for the opposition Christian Democrats, said the new law “devalues citizenship” and “goes in completely the wrong direction”, adding: “While other countries such as France, after painful experience, are toughening their rules for naturalisation, we are massively reducing the requirements.”

The legislation came a day after parliament passed a law making it much easier to deport foreigners.

The combination of the two measures underscores the delicate balancing act western governments are being forced to tread: on one hand trying to attract more foreign workers to solve demographic deficits while on the other taking a tougher line on illegal immigration — one of the drivers of surging support for rightwing populist parties such as the Alternative for Germany (AfD).

The AfD has been under pressure after it emerged that politicians from the party met rightwing radicals in November to discuss plans to deport from Germany millions of people with an immigrant background, including those with German citizenship.

The deportation law passed on Thursday simplifies procedures for removing people who have no official leave to remain. People facing deportation often go into hiding in Germany, and the new law gives the authorities the power to detain individuals before their expulsion for up to 28 days, compared with 10 days before.

“Anyone who has no leave to remain in Germany must leave Germany,” Faeser said on Thursday. “That is a precondition for ensuring that immigration is accepted by society and integration works.”

Under the new law, police looking for deportees will be able to enter the rooms of third persons in migrant hostels, which was previously illegal. The law also stipulates that the timing of repatriations must no longer be announced to deportees in advance. In addition, it creates more grounds for deportation, including entering the country with forged papers or committing antisemitic acts.

French group is still sending some vessels through Suez Canal when accompanied by French navy

CMA CGM, the world’s third-biggest container shipping group, said some of its vessels were continuing to go through the Suez Canal but warned of scheduling chaos and worried clients as attacks by Houthi rebels disrupt navigation in the Red Sea.

Rodolphe Saadé, owner and chair of the Marseille-based company, said ships that could be accompanied by a French warship were still being sent through the canal, while the rest were being rerouted around southern Africa.

“France is helping us a lot,” he told the Financial Times.

The disruption hitting the maritime shipping industry is starting to trickle through supply chains and slowing up production lines, including those of car manufacturers such as Volvo, which has halted some production in Europe because of a shortage of parts.

Attacks by Yemen’s Houthi militants on ships in the Red Sea have shrunk traffic on the route and forced many transporters to take the long detour around the Cape of Good Hope, adding two weeks to deliveries on key Asia-Europe routes.

Some rival shipping groups including AP Møller-Maersk have suspended the Red Sea route linking Europe and Asia. Hapag-Lloyd, Germany’s biggest container line, said on Friday it was not looking at the possibility of using military escorts to return to the Red Sea route.

Lasse Kristoffersen, chief executive of Wallenius Wilhelmsen, an Oslo-based company that is one of the world’s biggest operators of car-carrying ships, said he did not believe military protection would provide sufficient security to allow companies like his to return to the Red Sea route.

“The principle is that we will not go back [until] we believe there’s a safe transit and we do not think that, with the current threat in Yemen, that any military protection will be sufficient,” Kristoffersen said. “For this situation to become safe, the threat situation needs to be substantially different.”

However, CMA CGM said it was handling the matter on a case-by-case basis. It is holding daily meetings to chart the routes and plan.

“Our schedules are in complete disarray and we’re not able to stick to our timings because sometimes we’re passing around Good Hope and sometimes we’re having to wait to pass” the Red Sea, Saadé said.

He acknowledged some clients were fretting, adding: “I understand them, we’re worried too. But what we’re trying to do is to reassure them, saying it’s going to take so many days to arrive . . . so that they can organise their supply chains.”

Disruption is expected to spread even as the US and allies including the UK carry out strikes on targets linked to the Houthi groups.

“There appears to be no solution for now. We’re bracing for this to last several months,” Saadé said. That projection is shared by Maersk, which has warned that the upheaval may cause a big hit to global growth.

The shipping industry is heavily exposed to geopolitical ructions and swings in freight rates, which soared at the height of the Covid-19 pandemic when aeroplanes were grounded and ports jammed.

Armed with billions in windfall profits from that period, CMA CGM has accelerated its diversification strategy in the less volatile logistics business via multiple acquisitions.

Its latest came on Friday via its CEVA Logistics unit, which has agreed to buy Wincanton in a deal that values the British delivery and warehousing company at £765mn. The company, also focused on Ireland, has clients including Ikea and Asda.

Wincanton’s board has recommended shareholders accept the offer, which marks a 52 per cent premium to the last closing price.

The deal has been backed by roughly 7 per cent of investors in letters of intent so far, according to a London Stock Exchange filing.

CMA CGM was advised by Morgan Stanley on the deal, and Wincanton by HSBC.

Logistics accounted for roughly 45 per cent of CMA CGM’s revenues, Saadé said, although the group is yet to close its €5bn acquisition of the logistics business of French billionaire Vincent Bolloré. CMA CGM had annual sales of €74.5bn in 2022, although shipping rates came off their highs last year and revenues in recent quarters have dropped.

It has yet to publish full results for 2023.

The pivot towards logistics, a segment that is less profitable but operates with more reliable contracts with fixed prices, is aimed at bringing stability to the group. Shipping rates, meanwhile, are being pushed up again by turmoil in the Middle East.

“The Red Sea crisis — even in the worst Hollywood movies we would never have imagined this,” Saadé said.

Gapping down
In reaction to earnings/guidance:

Other news:

Analyst comments:

Gapping up
In reaction to earnings/guidance:

Other news:

Analyst comments:

DAX:

MDAX:

SDAX:

Market prices can change expectations, as well as reflect them

Financial market data is endlessly fascinating. In describing collective expectations, it holds a mirror to our hopes and fears. At the moment, however, the picture is confused. It’s hard to immediately square what’s going on in corporate bonds with the prospects priced into other markets.

The overarching market story of the past year has been the rise and fall of expectations around central bank interest rates. While speculation over what happens next continues, growth is expected to slow in major economies, if not stall. And, despite persistent strength in jobs and wage data, some leading economic indicators are flashing recessionary signals.

Equity markets, which depict the anticipated and varied futures of thousands of companies, have been upbeat in the face of this. Investor confidence in upcoming rate cuts may have boosted overall valuations. And the rise and rise of the so-called Magnificent Seven tech stocks is also driving the US market higher on the back of hopes over the artificial intelligence boom. But predictions about the impact of AI have created real winners and losers, foretelling an environment littered with the remnants of creative destruction.

Meanwhile, corporate markets tell another story. Corporate bondholders tend to be a sceptical bunch focused on downside risks. The joke that corporate bonds are like equities, just without the upside, contains a germ of truth. Both can lose everything in the event of default. But while stockholder returns are uncapped, the best case for corporate bondholders is timely payment of interest and a return of principal.

As a result, corporate bondholders tend to be more cautious. So it is difficult to immediately reconcile what’s going on in this market with the prospects priced into the other ones. Today’s corporate credit pricing might more typically be associated with the sunlit uplands of buoyant growth and corporate stability than the dark clouds factored into other markets.

In compensation for credit risk and inferior liquidity, corporate bondholders demand higher yields than those on offer from government bonds of comparable term. The quantum of additional yield — the credit spread — tends to increase in anticipation of rockier economic and corporate environments, leading to poor relative returns. Today, spreads are nearing their skimpiest levels in 20 years.

Structurally, diversified corporate bonds tend to overcompensate owners for credit losses. Schroders estimates holders of US investment-grade and high-yield credit need only 0.3 per cent and 2.2 per cent of spread respectively to compensate them for their expected costs over the cycle. Spreads clear these hurdles easily. But they have consistently cleared them for at least the past 25 years (which does explain why it’s hard for investors to bet against corporate bonds over long periods).

Expectations for inflation to recede have delivered a boon to equity and bondholders of late. But inflation itself has been a boon to credit metrics. US debt service ratios are at their strongest for more than 40 years. However, the factors driving improved creditworthiness have recently flipped. As old low-coupon debt is refinanced at progressively greater yields, the rate of change in debt service costs now substantially eclipses fast-fading revenue growth.

Despite this deteriorating outlook, it’s not hard to find asset allocators who are still keen to hold corporate bonds. The valuation measure they first cite, however, is overall yield rather than spread. Compared with the past three decades, corporate yields are substantial, buoyed almost entirely by higher government rates. Investors see, at last, a realistic possibility of locking in total returns that meet their targets.

Theory dictates that investors price corporate bonds so that they get paid for their expectations of credit losses and liquidity cost vis-à-vis government bonds. Practice suggests that they just want to get paid. Although history suggests that this will happen, expectations of supercharged creative destruction and recession-level rate cuts factored into other markets are perhaps too incongruous with today’s meagre credit spreads for them to be sustained.

As well as reflecting our expectations of the future, financial market prices can change it. Tighter spreads made possible by investors’ allocations have reduced the cost of credit. In turn, that has eased financial conditions and stimulated the economy. Paradoxically, this makes it harder for central banks to swiftly cut rates, undermining valuations across markets and ultimately threatening the very returns that investors are so keen to lock in.

Event details and information

Brazil Summit