Aurelia Butler

(Reuters) – A look at the day ahead in Asian markets. Attention turns to China on Monday and the release of November inflation data, with global investor sentiment broadly upbeat as the relentless rally on Wall Street continues but tempered by an increasingly volatile geopolitical backdrop.The toppling of Syrian President Bashar al-Assad and the uncertainty that unleashes on an already volatile Middle East, criminal charges against South Korean President Yoon Suk Yeol, and France’s political chaos are all potential reasons for investors to play it safe.If so, U.S. Treasuries and other government bonds, gold and the dollar may all see increased interest in early trading on Monday. The fast-moving events in South Korea could ripple across Asia, and the country’s finance ministry and central bank are expected to do all they can to ensure financial stability and protect the won.The currency has weakened around 10% since the end of September, hitting a two-year low last week. A move through 1,445 won per dollar, which is eminently possible, will mark its weakest level since the global financial crisis in early 2009.On the other hand, the prospect of further interest rate cuts from the U.S. Federal Reserve and falling Treasury bond yields, combined with solid U.S. employment figures on Friday, delivered yet another record high on Wall Street.Global FX volatility may be on the rise, but measures of U.S. equity and bond market volatility are the lowest in months. As long as that remains the case, Wall Street seems set to end a remarkable year on a firm footing.Investors in Asia on Monday have their first opportunity to react to Friday’s U.S. non-farm payrolls report which showed solid job growth but an uptick in the unemployment rate last month.Rates traders appeared to have put more weight on the unemployment rate – they now fully expect a quarter point rate cut from the Fed on Dec. 18, and priced in an extra 10 bps of easing over the course of next year.The main data focus on Monday in Asia will be consumer and producer price inflation from China. The pace of monthly consumer deflation is expected to have accelerated to -0.4% from -0.3%, and this would be the deepest rate of month-on-month price declines since March. Annual inflation is seen rising to 0.5% from 0.3%. Producer prices, however, are expected to remain deep in deflationary territory with factory gate prices falling at an annual rate of 2.8% in November, little changed from October’s 2.9% fall.Investors will also now be looking ahead to China’s upcoming Politburo meeting, where Beijing’s top policymakers will set out their priorities for the coming year. For investors, the government’s 2025 growth target and budget will be two of the most important. Here are key developments that could provide more direction to markets on Monday:- China producer, consumer inflation (November)- Japan GDP (Q3, revised)- Taiwan trade (November) More

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump said he would not seek to remove Federal Reserve chair Jay Powell before his term expires in May 2026, but promised to push ahead with sweeping tariffs, mass deportations and tax cuts in his first days in the White House.In an interview with NBC News’s Meet the Press, Trump spoke about his priorities for the world’s largest economy when his second administration begins in January, including curtailing aid to Ukraine and reducing bloat across the government. When asked if he had plans to replace Powell, who was tapped by Trump in 2017 and later renominated by President Joe Biden for a second term as head of the US central bank, the president-elect said he did not.“I think if I told him to, he would. But if I asked him to, he probably wouldn’t,” Trump added.Since winning the US presidential election last month, concern has grown across Wall Street and Washington that Trump would threaten the independence of the Fed, which is seen as crucial to the stability both of the global economy and financial markets.On the campaign trail, Trump seemed to suggest that he would continue the attacks of his first term, in which he called Powell an “enemy” for resisting his calls for lower interest rates. Trump has questioned whether he should have a more direct say in monetary policy decisions. Scott Bessent, his pick for Treasury secretary, has also floated the idea of announcing an heir apparent who would act as a “shadow” Fed chair, undermining the institution’s communications by issuing contradictory guidance on the policy outlook.Just after the election, Powell was adamant that he would not step down early from his post even if the president-elect asked him to. He also told reporters that there were no legal grounds for him to be removed early. Last week, he added that he was “not concerned” about the Fed’s independence during a second Trump administration, saying it was protected by “the law of the land”.Economists are bracing for tension however, given their expectation that Trump’s plans to enact tariffs on trading partners, deport immigrants in large numbers and boost growth via lower taxes and regulations will stoke price pressures, thereby limiting how much the Fed will be able to lower interest rates overall. The Fed has already cut its benchmark policy rate twice since September and is poised to do so again later this month, but officials have begun to hint that the pace will slow in 2025. Trump conceded that he “can’t guarantee anything” in terms of higher costs for Americans if his tariff proposals are enacted, although he denied that they would weaken the economy. He also again touted such levies as a negotiating tool, saying he had “stopped wars with tariffs”.The president-elect said he also had “no choice” but to deport all illegal immigrants in the US. But he said he would work with Democrats on a plan for undocumented people who entered the country as children. He also vowed to end birthright citizenship via executive action.On his efforts to reduce government spending, Trump said his administration would raise ages for entitlement programmes like Social Security or Medicare. “People are going to get what they’re getting,” he said.Those plans would probably be accompanied by a pullback in the US’s involvement oversees, including in its provision of aid to Ukraine as well as its involvement in Nato, the president-elect said. More

(Reuters) -U.S. President-elect Donald Trump said in an interview aired on Sunday he will not try to replace Federal Reserve Chair Jerome Powell upon taking office in January.”No, I don’t think so. I don’t see it,” Trump said on NBC News’ “Meet the Press with Kristen Welker” when asked if he would seek to remove Powell, whose term ends in 2026.Trump added that he didn’t think Powell, who he has sparred with in the past over interest rate levels, would go quietly.”I think if I told him to (go), he would. But if I asked him to, he probably wouldn’t,” Trump told Welker.Trump campaigned on a promise to lower mortgage rates and other borrowing costs for U.S. households, raising the prospect that he could clash with Powell – as he did in his first term – over interest rate policy. Trump’s vow to implement across-the-board tariffs could also complicate the Fed’s efforts to keep inflation in check.Last month, Powell said he would refuse to leave office early if Trump tried to oust him, arguing that removing him, or any of the other Fed governors, ahead of the end of their terms is “not permitted under the law.”Trump named Powell, a former private equity executive and a Republican, to Fed chair in early 2018 to replace Janet Yellen, who later became President Joe Biden’s Treasury Secretary. Biden reappointed Powell to his current term.But the relationship between Trump and Powell turned sour, with Trump frequently attacking the Fed and its chief during his first term in office. Trump privately discussed trying to dismiss Powell in late 2018, upset over the Fed’s move to raise interest rates, and publicly argued against rate hikes.Trump also criticized Powell in early 2020 at the start of the COVID-19 pandemic, saying Powell had made several bad decisions and arguing he had a right to remove him.Trump’s attacks on the Fed during his first term broke from decades of presidents steering clear of direct criticism of the central bank, which operates with legal independence subject to the oversight of Congress.Earlier this year, Trump said he felt he should have a say in the Fed’s decisions, an indication of his interest in infringing on its independence.Traders are expecting the Fed to cut interest rates at its upcoming Dec. 17-18 policy meeting, after recent data showed the U.S. labor market was continuing to cool. A quarter-percentage-point reduction would bring the Fed’s policy rate to the 4.25%-4.50% range, a full percentage point below where it was in September when the central bank began its easing cycle. More

An analyst at the firm said that while a smaller labor supply is a likely outcome, this will also reduce labor demand.“Immigrants’ contribution to aggregate demand goes beyond their spending on goods and services,” the firm states.“It also includes spending that takes place on their behalf. For example, while illegal immigrants are ineligible for most government welfare programs, they have access to emergency Medicaid services. They can also collect benefits on behalf of US-born children,” BCA adds.They explain that the construction of multifamily housing to accommodate displaced housing demand can generate $40,000–$80,000 in additional construction per immigrant.They also believe the pace of policy implementation will also matter. BCA acknowledges that a swift deportation campaign could indeed tighten the labor market, but they consider such an outcome unlikely. “The infrastructure to deport millions of workers simply does not exist,” and any slower-paced reduction in immigration growth would likely reduce labor demand more than supply.BCA also argues that the historical relationship between immigration and interest rates supports this view. The U.S., with the highest immigration rates among G3 economies, has historically maintained the highest interest rates, whereas Japan, with minimal immigration, has seen the lowest rates. They believe a reduced immigration rate could, therefore, lead to a lower equilibrium interest rate in the U.S.BCA concludes that the economic implications of Trump’s immigration policies are more complex than a simple tightening of the labor market, with broader impacts on demand and interest rates shaping the outcomes. More

“Even if the EU retaliates like-for-like with reciprocal tariffs, the HICP impact is likely negligible,” Citi economists said in a recent note.  Imports from the U.S. make up just over 10% of euro area goods imports, a quarter of which is energy but this is unlikely to be taxed, the economists said. With consumption goods accounting for just about 6% of total imported U.S. goods in the Eurozone, the import price-to-HICP passthrough is “usually low,” they added.The potential of a 10% blanket US tariff on EU goods and additional measures against China, the biggest source of EU imports, is likely to further weigh on Eurozone economic growth at a time when the single economy is already facing an uphill task to revive growth, the economists said after downgrading Eurozone GDP growth by 0.3%.”This shock to the already-struggling European manufacturing sector could weigh on employment and wages in the tradeable sector and beyond,” the economists added.On the export front, meanwhile, tariffs are likely to hurt US and Chinese demand for Eurozone exports, Citi said, though added that they have previously benefited from trade diversion as US reliance on China has collapsed.A quick look at the impact of tariffs from the prior Trump administration offers clues about the road ahead for the Eurozone. The most significant consequence for Europe from Trump’s previous trade disputes has likely been the surge in Chinese import penetration, which has had “likely sizable disinflationary implications,” the economists said. More