TheChek News Flow

Issuance comes days after departure of central bank chief who had taken hawkish approach to high inflation

Turkey’s sovereign wealth fund is pressing ahead with plans for a debut international bond deal in a test of investor appetite for the country’s assets after the departure last week of its market-friendly central bank chief.

Banks hired by the Turkey Wealth Fund began pitching a US dollar-denominated bond to investors this week and started taking orders on Wednesday, according to documents seen by the Financial Times. The fund is seeking to raise about $500mn.

The TWF’s fundraising plans come after central bank chief Hafize Gaye Erkan stepped down late on Friday just over seven months into her tenure, during which she increased interest rates from 8.5 per cent to 45 per cent.

Local and foreign analysts have so far largely shrugged off Turkey’s latest central bank upheaval, betting that Erkan’s successor, deputy governor Fatih Karahan, will stick with her policy of using high borrowing costs as the main tool to cool an inflation rate of nearly 65 per cent.

A person with direct knowledge of the TWF deal said Erkan’s resignation had helped to clear uncertainty about the central bank’s leadership, after allegations had swirled in local media for weeks that she had given her father an unofficial role at the bank and that he had sacked an employee. Erkan denied the claims.

Early indications suggested the deal was receiving robust demand, with orders of about $4.75bn. That has led bankers to reduce their guidance for the bond’s yield to 8.625 to 8.75 per cent, from more than 9 per cent initially, according to a term sheet. Turkish sovereign dollar bonds maturing in March 2029 are at present trading with a yield of about 7.6 per cent.

TWF, which was set up in 2016, holds stakes in a broad array of Turkish companies and infrastructure and real estate assets, including flag carrier Turkish Airlines, several major lenders and the country’s stock exchange Borsa Istanbul. The fund also retains full ownership of energy group Botaş, widely seen as one of Turkey’s crown jewel assets, national postal company PTT and a major port near the western city of Izmir.

TWF declined to comment on its fundraising plans.

The mooted TWF deal comes as foreign investors, who had largely abandoned Turkey’s local and international assets over the past decade, start to return, encouraged by a broad economic overhaul following President Recep Tayyip Erdoğan’s re-election in May. The central bank’s rate rises, which reversed Erdoğan’s long-held insistence on keeping borrowing costs low at all costs, have been a main pillar of the programme.

Analysts say they broadly expect Karahan will continue with the tighter monetary policy.

“Unlike previous leadership changes . . . [Erkan’s] resignation appears not to have been triggered by any disagreement between the political leadership of the country and the central bank,” said Clemens Grafe, economist at Goldman Sachs. That was a reference to previous incidents in which Erdoğan, who previously called high rates the “mother and father of all evil”, sacked governors for raising rates.

“We see no reason to doubt that [Karahan] will pursue a similar path to the one chosen by his predecessor,” added Grafe. JPMorgan economists similarly told clients that Karahan, a former New York Federal Reserve economist, was “likely to keep monetary policy tight for longer”.

Turkish asset prices have broadly reflected economists’ calm reaction to Karahan’s appointment, helping to bolster bankers’ confidence in going ahead with the TWF deal.

Turkey’s lira has fallen slightly against the dollar since Erkan’s resignation, while the benchmark Bist 100 stock index has advanced 3 per cent. The cost to protect against a Turkish debt default using five-year credit default swaps, a key measure of the perceived risk in holding Turkish assets, slipped about 10 basis points since last Thursday to 330bp, according to FactSet data.

BBVA, JPMorgan and Standard Chartered are joint global co-ordinators and bookrunners on the TWF deal, while Bank of America, Emirates NBD Capital, ICBC, ING, QNB Capital and Société Générale are bookrunners.

Apple is building prototypes of at least two iPhones that fold widthwise like a clamshell, according to a person with direct knowledge of the situation. If Apple ends up launching a foldable iPhone, it would be one of the biggest hardware design changes in the product’s history.

Foldable phones can be smaller and more portable than typical smartphones and take photos without the help of a stand when they are unfolded at a 90-degree angle. Such phones have become more common after Samsung Electronics released the Galaxy Fold in 2019. Motorola, Google and a number of Chinese brands have since released their own foldable devices, but they are relatively niche because of their high retail cost and fragility compared to traditional smartphones.

The Takeaway

• Apple is building prototypes of two foldable iPhones

• Engineers have struggled with display durability and crease

• Apple discussed first releasing a foldable iPad

The foldable iPhones are in early development and aren't on the company’s mass production plans for 2024 or 2025, the person said. Apple recently approached at least one manufacturer in Asia for components related to two foldable iPhones of different sizes, they said. The products could be canceled if they don’t meet Apple’s standards, they said.

An Apple spokesperson didn’t respond to a request for comment.

Apple has explored foldable products for more than a decade but its leaders’ interest in them has fluctuated, according to interviews with multiple former Apple employees and a review of its patent filings. Apple CEO Tim Cook began asking the company’s designers and engineers about the possibility of a foldable iPhone as early as 2018. Also that year, he reacted positively to a demonstration by Apple’s designers and engineers of a 7-inch foldable display, that person said.

Two problems may stand in the way of a foldable iPhone. Apple’s engineers have struggled for years to overcome the technical challenges of building such a device, and its designers haven’t come up with enough compelling features that would make consumers want one, especially given its high retail cost compared to non-foldable phones, according to three people with direct knowledge of the effort.

Former Apple employees said Apple’s first foldable product would likely be the iPad, a lower-profile device that would test consumer appetite for a foldable iPhone. Apple has been working with South Korea’s LG and Samsung, both of which have been involved for several years in making foldable displays for the foldable iPad prototypes, they said. Some details of a foldable iPad were first reported by Chinese, Taiwanese and South Korean media.

Apple’s industrial design team has wanted to develop a foldable iPhone whose displays face the outside when the phone is shut, the person said. However, Apple hardware engineers struggled with the design because the devices are prone to breaking when dropped, they said. The industrial design team also wanted a foldable iPhone that was half as thin as current iPhone models so it wouldn’t be too thick when shut. But limitations on battery sizes and display components made it difficult for hardware engineers to meet these requirements, they said

Apple paused its work on foldable iPhones around 2020 and turned its attention to an inward folding iPad similar to the size of an iPad Mini. Such a device, with a roughly 8-inch screen, could be thicker than a foldable iPhone because people wouldn’t carry it in their pockets, and wouldn’t need to pass the stringent drop tests required of the iPhone, said a former Apple employee. Engineers working on the foldable iPad are trying to eliminate the crease in the middle of the display that forms after repeated folds, and they want to design a hinge that will allow the display to lie completely flat as opposed to having a small bump or dip in the middle. Those issues would make it difficult for the iPad owners to use an Apple Pencil.

Foldable phones haven’t exactly been hot sellers, partly because they cost significantly more than traditional phones. Owners of foldable devices from Samsung, Motorola, Google and others have complained that some of the screens and hinges can break or become deformed over time. Samsung has improved the quality of its foldable devices over time, according to display analysts. Google last year also faced similar complaints over broken screens in its first foldable phone, the Pixel Fold. It slashed the price by more than 20% to $1,400 less than six months after its release in June.

Apple has repeatedly shown the ability to succeed where others have failed, however. Last week it launched a mixed-reality headset, the Vision Pro, after spending nearly a decade trying to solve issues related to the lag between a user’s movements and what they see on their screen, along with fitting its advanced components into a small form factor. Such features had tripped up other companies in the past.

The world’s biggest luxury group is promoting its “You and ME” roadshow with outdoor ads and influencer partnerships.

PARIS — LVMH Moët Hennessy Louis Vuitton is casting its net ever wider in the search for young talents.

Faced with a chronic shortage of skilled workers, the world’s biggest luxury group on Wednesday kicked off the third edition of its “You and ME” recruitment roadshow, drawing a record 3,000 people to the opening day event at the Carreau du Temple in Paris.

In a bid to reach more potential candidates, LVMH advertised the initiative with a poster campaign in the Paris subway and enlisted the help of more than a dozen influencers to drum up engagement.

LVMH, which owns brands including Louis Vuitton, Dior, Sephora and Tiffany & Co., aims to recruit 22,000 people by the end of 2025. More than 3,500 positions, ranging from block release apprenticeships to permanent contracts, are available to be filled via the job fair, which will make four additional stops in France and three in Italy.

There are 280 skilled trades represented across the group’s 75 brands, many of which are not well known or understood. Some sectors, like retail and hospitality, have struggled to recruit since the COVID-19 pandemic.

“The skills gaps have never been as important globally,” Chantal Gaemperle, group executive vice president of human resources and synergies at LVMH, told WWD.

“It is truly a strategic priority for us to have the best people,” she added, noting that the group posted strong results in the fourth quarter. “We have needs, and these needs can be met by people who perhaps haven’t considered working for us.”

The campaign displayed in outdoor advertising and newspaper ads underlines the notion of handover, portraying experienced staffers alongside an apprentice.

Alexandre Boquel, head of development for LVMH’s Métiers d’Excellence division, said the feedback has been positive. “People understand that ultimately, learning a skilled profession at LVMH also means being supported by a tutor who will complete theoretical learning through transmission in a very human, very personal way,” he said.

As usual, the fair featured stands where skilled craftspeople offered demonstrations on everything from leatherworking to cosmetics formulation. Human resources representatives were also on hand to guide potential applicants through the process.

“We really made a point of developing this support, precisely because we realize that many people are attracted to these professions but sometimes struggle with a lack of information on how to train for these jobs,” Boquel said.

“Each of our craftspeople is flanked by someone from human resources from the house who is there to explain what training programs are required, but also to help people write a CV and ace their job interviews. We even offer coaching workshops,” he said, noting that there is a dedicated app for follow-up advice.

Gaemperle put the accent on the regional initiatives, which will see the fair make stops in Orléans, a hub for leather goods manufacturing; Reims, a center for wines and spirits production; Lyon, the traditional home of the French silk industry, and Clichy-sous-Bois, an economically disadvantaged suburb of Paris that is a long-term partner of the initiative.

“Paris is home to many of our houses, but we have a lot of economic activity across the country and I think that is a strong message to put across,” Gaemperle said, noting that 64 percent of jobs generated by LVMH in France are based outside the Paris region.

“You and ME” will also alight in the Italian cities of Florence, Padua and Naples. The latter is a new addition to the circuit, and a hub for Dior’s leather goods division, as well as an important recruitment area for LVMH’s Belmond hospitality division.

Gaemperle said the message that LVMH wants to send, via influencers like vintage fashion enthusiast Zoé Hotuqui, or Emmanuelle Sits, a luxury expert known for her signature green nails, is that everyone is welcome.

“Our priority is to be able to attract, retain and grow the best talent. It’s what fuels the performance of the group and sustains our leadership position,” she said.

The 25-piece line inspired by a George Sand poem will bow for fall 2024 at the Sphere showroom during Paris Fashion Week.

PARIS — Charles de Vilmorin is ready for his next act: a ready-to-wear line.

His eponymous label will make its debut for fall 2024 at the upcoming Sphère showroom, the emerging designer showcase run by the Fédération de la Haute Couture et de la Mode.

“I may give the impression of preferring couture and crazy silhouettes but ready-to-wear is something that’s always spoken to me and inspired me a lot,” he told WWD exclusively. “They’re really complementary and when I look at brands I like, they’re often older labels that had both.”

The French designer, a graduate of the Ecole de la Chambre Syndicale de la Couture Parisienne, emerged during the pandemic thanks to an eye-catching line of patchwork quilted bomber jackets inspired by artist Niki de Saint Phalle.

A slew of accolades followed: a spot among the 2021 finalists of the LVMH Prize for Young Designers, another on the ANDAM’s shortlist, and participation in the GucciFest online festival. Rochas tapped him as creative director shortly after the launch of his brand, with his first collection for the house bowing in September 2021.

He credits his two-year tenure at Rochas for giving him a deeper understanding of how to develop a rtw lineup, while his recent experience as the guest designer for the Galeries Lafayette’s 2023 festive season helped develop his sense of product.

“Since all these little capsules worked really well, it was time I gave it a go,” he said.

Although de Vilmorin is best known for eye-catching couture creations with surreal touches, he leaned toward a cleaner silhouette here.

“Those are shapes I know I would reach for all my life,” he said. “I want to lay the foundation of my wardrobe for this first time, then have things evolve around that, step by step.”

Cue a 25-piece lineup that will include three dresses, denim shorts, shirting, a trenchcoat and, of course, new takes on his bomber jackets. “I think they still have a bit of life in them,” he joked.

There will also be a handful of printed scarves, which will further develop the season’s narrative, inspired by a poem by French author George Sand that hides a secret: the love letter turns into something much more risqué when skipping every other line when reading.

The Paris-based designer wanted to favor “beautiful, natural, noble materials rather than add ruffles and volumes,” so the fall collection will be centered around silk, silk taffeta and cottons, including poplins and denims sourced through Supima. The designer has been a regular of the Supima Design Lab for the past three years.

Entirely made in Paris, the line is expected to retail around 500 euros for a printed shirt in cotton poplin and under 2,000 euros for a voluminous trench with a silk taffeta lining.

In coming seasons he’ll be introducing knitwear and is already weighing his options for further categories, such as footwear.

If anything, de Vilmorin intends his first collection to read as an open invitation. “People can be part of my universe without wearing a horse on their head or having a six-meter train,” he said. “What allows me to be this creative can be accessible.”

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Tariffs haven’t reduced U.S. trade links with China much. Would a 60% rate do it?

The U.S. trade deficit with China is on track to fall to its lowest in a decade. This looks, at first glance, like a decoupling of the two economies thanks to the steep tariffs President Donald Trump slapped on Chinese imports in 2018.

Trump is spoiling to finish the job, floating a 60%, or higher, tariff on all Chinese imports if he’s re-elected this fall.

The U.S., though, hasn’t kicked the Chinese import habit as much as the data suggest. Chinese and Western manufacturers have found numerous ways around tariffs; they are likely to redouble those efforts if the levies go higher.

Last year, the overall U.S. trade deficit shrank to $1.1 trillion from $1.2 trillion in 2022, according to preliminary data from the Commerce Department. As a share of gross domestic product, it fell to 4%, the lowest in a decade.

Most of the reduction came via the gap with China. This dropped by more than $100 billion to $281 billion in the 12 months through November from the same period a year earlier. December data will be released Wednesday morning.

One reason the deficit shrank is that U.S. importers might have overordered in 2022, leading to swollen inventories and less imports in 2023 even as consumption stayed strong.

More fundamentally, the shrinking trade deficit overstates how much the U.S. has reduced its consumption of Chinese-made products. As the trade war heated up, many manufacturers began moving production to other countries to avoid U.S. tariffs. So the U.S. trade deficit with Mexico leapt to $151 billion in the 12 months through November, more than double the 2017 figure. The deficit with Vietnam ran at $104 billion, almost triple the level of 2017.

A lot of the value of those increased imports from Vietnam and Mexico actually consisted of inputs originally sourced in China. It’s hard to say how much because of gaps in the data. Still, the McKinsey Global Institute recently reported that even as China’s share of U.S. manufactured imports declined from 2017 to 2020, its share of the value added in goods consumed in the U.S. actually rose.

Furthermore, Chinese companies have been exploiting a decades-old provision in U.S. trade law that allows packages worth less than $800 to enter the U.S. duty-free.

Federal data compiled by the Yale University economist Amit Khandelwal and a co-author show the number of packages entering the U.S. under that “de minimis” exception has tripled since 2017 to a billion last year.

This doesn’t mean the tariffs had no effect. Khandelwal and others found the tariffs reduced imports of the affected products by 30%; some of that was made up for by purchases of other Chinese, foreign or American-made products. The authors estimate the total cost to the U.S. economy at 0.04% of GDP, as losses to consumers slightly offset gains to U.S. producers and the U.S. Treasury.

A separate study by David Autor of the Massachusetts Institute of Technology and co-authors found that counties whose companies were meant to benefit from tariffs marginally gained employment. But, on average, those gains were more than offset by losses when China retaliated. (Nonetheless, it found those counties rewarded Trump politically, the study found.)

The fundamental obstacle to decoupling is that China’s dominant position in world manufacturing makes it hard to find substitutes. Its economy is hard-wired to manufacture more than it can consume, dictating that it export the surplus. As collapsing property investment undercuts growth, the ruling Communist Party has leaned even more on manufacturing, though many companies are already unprofitable.

“2024 will be the year of overcapacity, and pressure on exporters in China will be sky-high,” said Joerg Wuttke, president emeritus of the European Union Chamber of Commerce in China. “In wind turbines, solar panels, everyone is losing money. In cars, one company makes money, the other 100 lose money.”

So, if tariffs of 25% barely reduced the U.S.’s dependence on China, would 60% do more? Probably. Khandelwal ran the numbers for a 35% tariff. He estimates a much larger effect on imports and resulting cost, equal to 0.8% of GDP.

Still, Brad Setser of the Council on Foreign Relations predicts China would double down on efforts to evade or neutralize higher tariffs. “The incentive to disassemble the product, take out a few screws, find an alternative screw supplier, ship them to a third party so it’s not 100% Chinese content, and package it as an export from the third party is just overwhelming,” he said. Its companies would make even greater use of the de minimis exception, he added.

This doesn’t mean the U.S. and China are destined to stay coupled. Historically, supply chains move gradually. Often, just one step or component goes offshore before an ecosystem of suppliers develops. Over time, the Chinese component in U.S. imports from third countries seems destined to drop.

“Greenfield foreign direct investment into developing countries has remained constant, but the share that’s going to countries that are not China and not Russia has gone way, way up,” said Olivia White, one of the authors of the McKinsey report. “That’s consistent with that investment helping those countries’ capacity to do more and more.”

To make India a base for mobile-phone production, Apple is moving more suppliers there. Samsung has done the same in Vietnam.

The catch is that Chinese companies are playing that game too. To get around American tariffs, their electric-vehicle and battery companies are building or contemplating new factories in countries that have trade agreements with the U.S., such as Mexico, South Korea and Morocco.

Setser predicts that China, to make up for lost exports to the U.S., would drive down its currency to boost exports to countries that haven’t raised tariffs—expanding Chinese companies’ presence in those economies.

Of course, the U.S. could try to keep those imports out by hitting other trading partners with tariffs. Trump has proposed a 10% levy on all imports, not just from China.

This, though, is a recipe for the decoupling of the U.S. not just from China, but the whole world.