Aurelia Butler

(Reuters) – Euro zone government bond yields edged up on Wednesday as investors awaited inflation data from the U.S. and some members of the bloc on Friday, and the first round of a French legislative election during the weekend.The French debt risk premium remained within striking distance of its seven-year high, hit almost two weeks ago on fears of a budgetary crisis at the heart of Europe.A new French government led by Marine Le Pen’s far-right National Rally (RN) would end the decades-long practice of running high budget deficits and stick to the European Union’s fiscal rules, the party’s financial pointman told Reuters.German 10-year bond yield, the benchmark for the euro area, rose 2 basis points (bps) to 2.43%.France, Italy and Spain will release inflation data on Friday, while the German and euro area figures are due next week. Investors are also looking to Friday’s release of the U.S. personal consumption expenditures (PCE) price index – the Federal Reserve’s preferred gauge of inflation.Money markets priced in cumulative 68 bps of European Central Bank monetary easing this year, implying an additional 25 bps rate cut and a 70% chance of a third move in 2024.Data continues to suggest that price growth will settle at the European Central Bank’s 2% target, Finnish ECB policymaker Olli Rehn said on Wednesday. However, market concerns about inflation increased after data from Canada showed an unexpected turn creating some jitters among U.S. debt investors. Australian inflation accelerated to a six-month high in May, catching traders off-guard and prompting markets to raise the chances of another interest rate hike this year. The gap between French and German 10-year yields – a gauge of risk premium investors demand to hold French government bonds – was at 72 bps. It hit its highest level since February 2017 at around 82 bps the day after president Emanuel Macron called a snap election. “If National Rally wins a relative majority, we likely see tightening in French government bond (yield spreads),” said Gordon Shannon, partner and portfolio manager at TwentyFour Asset Management, arguing that Le Pen has made the right noises about working with Macron’s government “so the market won’t jump straight to pricing in a fiscal crisis”.”However, I also see a widening in the medium term as political leaders less committed to European integration would weaken the EU and the ECB’s ability to respond to external shocks,” he added.Market participants see as unlikely a new French government led by the far left New Popular Front (NFP), which they expect would trigger a further widening of French yield spreads.Italy’s 10-year government bond yield was up 0.5 bps at 3.94%, while the Italian-German yield gap stood at 150 bps. More

MUMBAI (Reuters) – India’s government bonds will gradually become a part of JPMorgan’s widely tracked emerging market debt index, beginning on Friday. The announcement of the change was made in September, setting the stage for billions of dollars to flow into the world’s fifth-largest economy.Here are five things to know as the South Asian nation draws more investment from global bond investors and its stock markets attract increased portfolio inflows.WHAT KIND OF INFLOWS? Indian bonds should receive $2 billion inflows from index-tracking funds around the June 28 inclusion date, followed by a similar quantum each month and total inflows of at least $20 billion over the next 10 months as the country slowly reaches maximum weight in the index. The market has received inflows from active fund managers and other investors totalling $10.5 billion since September’s announcement, nearly six times the inflows received from early 2021 to August 2023.About 32-40% of the expected $20-25 billion of index-related inflows to India may have already arrived, JPMorgan strategist wrote in a note on June 25.WHAT FACTORS ARE LURING FOREIGN INVESTORS?Global investors are keen on India’s high growth, the government’s commitment to fiscal prudence, the rupee’s low volatility and the central bank’s pledge to bring inflation down. Foreign holdings of India’s debt are around 2.4% of total outstanding debt and JPMorgan expects the level to nearly double by the end of 2025.India offers a positive real yield. Although lower than other big emerging markets, its appeal is increased by a backdrop of moderate and controlled inflation and that government’s commitment to fiscal prudence and low currency volatility.HOW WILL LARGE INFLOWS IMPACT THE RUPEE? Any dollar inflows should boost the local currency, but a large appreciation is not expected as the Reserve Bank of India (RBI) is likely to absorb dollars and accumulate forex reserves.At $652.9 billion, India’s currency reserves are the fourth largest in the world. This indirectly benefits the rupee as large buffers allow the central bank to intervene and smooth volatility.The rupee, largely because of India’s active central bank, has been the most stable among major emerging market currencies. “Lower volatility of the Indian rupee makes it an attractive carry story,” Sergei Strigo, co-head of emerging markets fixed income at Amundi Asset Management said. HOW WILL THE FLOWS IMPACT THE BOND MARKET? Large foreign flows have pushed government bond trading volumes to the highest in nearly five years. In recent months, foreigners have started buying longer tenor government bonds in the hope of better returns once the RBI starts cutting rates later this year.The larger long-end buying has led to further flattening of India’s yield curve with the 3-year to 40-year yield spread at only 11 basis points.Securities included in global bond indices do not have any foreign investment limits.WILL THE INCLUSION CHANGE MUCH FOR INDIAN ECONOMY?The increase in inflows related to the inclusion, alongside a moderate current account deficit, estimated at 1.1% to 1.3% of GDP, is expected to keep India’s balance of payments in surplus.A larger set of buyers for Indian debt and the heavy inflows will ensure yields are capped, but analysts say the government may lose some of its budget flexibility as there will be greater scrutiny of its finances.The government’s fiscal management will be watched closely, said Vivek Kumar, an economist with QuantEco Research. “Unwarranted indiscipline might involve higher cost for the government.” More

All EU members except for Denmark are required to adopt the common currency but non-compliance is not penalised, so only a few are actively working on joining, with most others preferring to retain the leverage yielded by independent monetary policy. “Reflecting challenging economic conditions, limited progress has been made as regards compliance with the convergence criteria,” the ECB said in a biennial progress report on Bulgaria, the Czech Republic, Hungary, Poland, Romania and Sweden.But the issues are far deeper than just meeting economic criteria, the ECB added.”The quality of institutions and governance is relatively weak in all the central and eastern European countries under review – especially in Bulgaria, Romania and Hungary,” it said.The divergence from euro criteria was due in great part to the economic fallout of Russia’s war in Ukraine, since most prospective euro members have long depended on Russia for their energy needs. Hungary appeared to be among the weakest performers. It did not meet rules on inflation, debt, the budget deficit and long-term borrowing costs, while its currency was highly volatile and it also failed to comply with rules on central bank independence and the prohibition on monetary financing, the ECB said. Poland and Romania were not much better either as they all missed the inflation, deficit and long-term borrowing costs criteria, even if their debt levels were well below the reference rates.Poland and Romania also do not comply with rules on central bank independence and the prohibition of monetary financing of the government, the ECB added.Bulgaria, which is actively trying to adapt the euro and still hopes to get in next year, failed on the inflation criteria and the ECB said it was worried about the outlook further out.”Over the longer term there are concerns about the sustainability of inflation convergence in Bulgaria,” the ECB said. “Sustainable convergence in Bulgaria requires stability-oriented economic policies and wide-ranging structural reforms.”(This story has been refiled to fix a typo in paragraph 2) More

WASHINGTON (Reuters) – Perhaps the most famous one-liner in a presidential debate, Ronald Reagan’s “Are you better off than you were four years ago?” question to voters in his match with Democratic incumbent Jimmy Carter in October 1980, came as high inflation pummeled consumers’ spending power and captured a general malaise about the economy.As President Joe Biden and former President Donald Trump head to the first of two debates ahead of their rematch this November, some version of that question may well come up or at least be on the minds of people taking stock of the past, very turbulent, four years.But comparison between now and the pandemic “before times” is difficult. Look at almost any economic data series and the pandemic is not just an obvious break in the trends, but poses the challenge of when to mark the end of the “normal” years for Trump and the resumption of a “normal” period for Biden.To some extent the problems likely to get attention in the debate are modest compared to the ones Reagan used to knock Carter. While prices surged in the wake of the health crisis, especially for groceries, inflation as measured by the Consumer Price Index was 3.3% in May compared with more than 12% at the time of the Reagan-Carter debate. The unemployment rate has, outside of the pandemic, been below 4% across much of both the Trump and Biden terms. It was 7.5% when Carter took office in 1977, was 7.5% when he debated Reagan in 1980, and barely fell below 6% in the years between.So the economy is healthier than when Reagan posed his question, but how does it compare with four years ago, when Trump and Biden last went head-to-head?We put the questions to analysts, experts and voters for some snapshot answers ahead of Thursday’s debate.MICHAEL STRAIN, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE:”I think the typical worker in the typical household was better off in February 2020 than they are now. It is all about inflation,” Strain said, noting that while wage growth has been fast, and fastest for lower-paid occupations, it has not fully kept pace with prices. Beyond that, Strain said the most striking thing in comparing Biden and Trump on economics may be the similarities – from deficit spending to the use of tariffs.”There is a lot more overlap than is widely realized,” he said. “I don’t think either is fiscally responsible. Trump wanted to shower special attention on domestic manufacturing and chose to do it through tariffs. Biden chose to do it through tariffs and subsidies.”KAREN DYNAN, HARVARD UNIVERSITY:Inflation hurts and the housing market has become hard to navigate, especially for younger people and particularly with high Federal Reserve interest rates being used to contain prices, Dynan said.But by very broad measures, “households’ financial positions are stronger across the distribution than they were prior to the pandemic,” she said. “We saw financial gains…among groups that struggle to build wealth. That is a victory for the aggressive policy responses to the pandemic.”The Fed’s latest data shows the share of household net worth held by the bottom 90% rose by 1.2 percentage points during Trump’s four years in office and 1.8 percentage points during Biden’s first three years. Looking outside the immediate impact of the pandemic, the share held by the bottom 90% rose 0.4 percentage point under Trump’s middle two years in office, 2018 and 2019, and by 1.2 percentage points during Biden’s middle two years, 2022 and 2023.DIANE SWONK, CHIEF ECONOMIST, KPMG:Swonk says the focus should be on the long term. The pandemic amplified trends that were already developing under Trump, towards less globalization and heightened geopolitical risk, and those have continued to intensify.”The walk away from the neoliberal ideas of trade and cooperative security, a backlash towards free trade and immigration, more regulation and more oversight – that gets lost in translation…”There is no question that the economy in the aggregate is better than it was,” she said. But “we are in a much more volatile world. Is the world better off given all the volatility and hot wars and ongoing misery? It is hard to turn around and say yea this is great.”ADAM OZIMEK, CHIEF ECONOMIST, ECONOMIC INNOVATION GROUP:”If we can avoid a recession I think we are in a really good place. That labor market has not been this tight in a long time and policymakers are learning that we can actually run the economy hotter than we thought,” he said. But “it was quite a rough path to get here…People are mad that prices have gone up a lot.”And while inflation has cooled, high interest rates “are causing a lot of pain in the housing market.” ANNA MATSON, 27, SMALL BUSINESS OWNER IN MICHIGAN:“I definitely feel like I’m worse off. Four years ago, me and my husband both had full time jobs, and we had a lot of extra money to spend on getting organic food and going on vacations, and just doing all the things we love to do together. And we’ve really had to cut back because of the price of everything. We’ve even started growing a ton of food so we don’t have to pay crazy prices at the grocery store for clean food.” Matson (NYSE:MATX), who supports independent candidate Robert F. Kennedy Jr, also said high interest rates are preventing them from upsizing from the starter home they bought with a 2.6% mortgage. “Just because the interest rates are so high, we are stuck. There’s no way we would be able to move unless we had a huge bump in our income.”EDDIE ROMAN, 56, UBER DRIVER IN FLORIDA:   “I think I’m about equal. I don’t think either one (Trump or Biden) did anything for me. I have been working two jobs for the last eight years of my life. Only last year did I now take on the one which is this (Uber (NYSE:UBER) driving) and this part time, and that’s only because I’ve been medically retired.”Roman said gas prices matter a lot to him, and they were lower under Trump. “Under Trump … you can obviously see the difference with gas prices going down. I don’t know about taxes, because I don’t really follow economics a whole lot. But I know that bread and milk and all these things weren’t super expensive. Now do I think a president controls all that? No.” More

Her prepared remarks Wednesday to the ISDA board of directors omitted any reference to how long rates may need to stay where they are, a slight departure from Tuesday when she said rates would need to stay in their current range “for some time.” Otherwise, the remarks were largely identical as she laid out a cautious approach and a willingness to raise borrowing costs further if inflation progress stalls. More

Standard DigitalWeekend Print + Standard Digitalwasnow $75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts10 monthly gift articles to shareGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionEverything in PrintWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisPlusEverything in Premium DigitalEverything in Standard DigitalGlobal news & analysisExpert opinionSpecial featuresFirstFT newsletterVideos & PodcastsFT App on Android & iOSFT Edit app10 gift articles per monthExclusive FT analysisPremium newslettersFT Digital Edition10 additional gift articles per monthMake and share highlightsFT WorkspaceMarkets data widgetSubscription ManagerWorkflow integrationsOccasional readers go freeVolume discountFT Weekend Print deliveryPlusEverything in Standard DigitalFT Weekend Print deliveryPlusEverything in Premium Digital More

BUDAPEST/WARSAW (Reuters) – Double-digit wage rises far outpacing average growth rates in the European Union have raised alarm among central Europe’s monetary policymakers wary of a rebound in inflation as the region’s economic recovery gains traction.The Czech National Bank is likely to slow the pace of rate cuts when it meets on Thursday as wage growth and consumer demand raise inflation risks, following a shift down in the pace of easing by Hungary’s central bank last week.Inflation across central Europe, where prices rocketed after Russia’s 2022 invasion of neighbouring Ukraine and slammed the brakes on economic growth, slumped at the start of the year, allowing central banks to normalise monetary policy.But now, strong wage growth in some of the EU’s tightest labour markets poses a key upside risk to inflation levels, with central banks tempering expectations for further rate cuts and borrowing costs still far exceeding levels before the pandemic.Growth in first-quarter hourly wage costs ranged from an annual 16.4% in Romania to 5.9% in the Czech Republic based on Eurostat data released last week, exceeding an average 5.5% in the EU and 5.1% in the euro zone.Polish wage costs jumped 14.1% in the first quarter, among the highest in the EU, amid steep hikes in the minimum wage, which lifted it above levels in euro zone members Portugal and Greece in January.Large public sector wage hikes by Prime Minister Donald Tusk’s ruling coalition have also fuelled wage growth in central Europe’s largest economy as Tusk’s pro-EU cabinet seeks to deliver on campaign pledges.”What is happening with wages is very alarming,” Polish rate-setter Ludwik Kotecki said earlier this month, reflecting policy makers’ wider concerns over wage growth, which the bank has said is a major risk to the inflation outlook.Kotecki said he had proposed that the central bank tightens monetary policy without raising interest rates, which he said could harm the bank’s credibility after 100 bps worth of cuts ahead of a national election last year.He did not give any details on the proposal.The European Commission forecasts Polish inflation to be little changed at 4.2% next year, the EU’s highest level and a fifth year of price growth exceeding the National Bank of Poland’s policy target of 2.5% plus or minus one percentage point.Even in the Czech Republic, which is set to run inflation on par with euro zone levels just above 2% this year and next, the European Commission has said wage growth was the main risk to the inflation outlook amid a recovery in real wages.Czech central bank vice governor Eva Zamrazilova told Reuters last week she was not overly concerned by first-quarter wage growth, while high services prices posed a risk, and that she would decide between a 25-bp and a 50-bp cut this week.”Still-elevated headline inflation and rising momentum in it, combined with the stronger-than-projected final consumption and wage growth, are the main arguments for a more cautious 25bp rate cut,” Morgan Stanley economist Georgi Deyanov said.The National Bank of Hungary, which lowered its main rate by just 25 bps to 7% last week, the smallest cut in a 14-month easing cycle totalling 1,100 bps, has also cited wage rises as an upside threat to inflation.In Romania, the EU’s fastest rise in wage costs and the government’s loose fiscal stance have prevented cuts from its 7% key rate, which alongside Hungary’s is the highest benchmark in the bloc.Romania’s minimum wage, among the EU’s lowest, has posted the steepest average increase in the bloc over the past ten years based on Eurostat data, with another 12.1% hike taking effect from July. More

Standard DigitalWeekend Print + Standard Digitalwasnow $39 per monthEssential digital access to quality FT journalism on any device. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts10 monthly gift articles to shareGlobal news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print editionEverything in PrintWeekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysisPlusEverything in Premium DigitalEverything in Standard DigitalGlobal news & analysisExpert opinionSpecial featuresFirstFT newsletterVideos & PodcastsFT App on Android & iOSFT Edit app10 gift articles per monthExclusive FT analysisPremium newslettersFT Digital Edition10 additional gift articles per monthMake and share highlightsFT WorkspaceMarkets data widgetSubscription ManagerWorkflow integrationsOccasional readers go freeVolume discountFT Weekend Print deliveryPlusEverything in Standard DigitalFT Weekend Print deliveryPlusEverything in Premium Digital More