Aurelia Butler

BARI, Italy (Reuters) – Group of Seven (G7) leaders hold a final day of talks at their annual summit on Friday, with China topping the agenda before Pope Francis puts in a historic appearance to discuss artificial intelligence (AI).The pope will be joined by 10 other heads of state and government, including the prime minister of India and the king of Jordan, as the G7 throws open its doors to outsiders to show it isn’t an aloof, exclusive club. During the first day of their meeting in southern Italy, the G7 nations agreed on a deal to provide $50 billion of loans for Ukraine backed by interest from frozen Russian assets – hailing the accord as a powerful signal of Western resolve.Although many details still need to be worked out, G7 members – the United States, Canada, Japan, Germany, France, Italy and Britain – and the European Union (EU) are expected to contribute to the loan, with cash to reach Kyiv by the end of the year.”This is a very historic step we’re taking today,” said German Chancellor Olaf Scholz. “It is also a clear signal to the Russian President (Vladimir Putin), that he can’t just sit this out and hope that fiscal problems in a country that backs Ukraine will one day let him win this war,” he added.While Ukraine dominated the first day of talks, China will be the key issue on Friday morning. Leaders are expected to voice concern about China’s excess industrial capacity and its support for Russia.The U.S. this week imposed fresh sanctions on China-based firms supplying semiconductors to Russia, amid worries over Beijing’s increasingly aggressive stance against Taiwan and run-ins with the Philippines over rival maritime claims.”China is not supplying weapons (to Russia) but the ability to produce those weapons and the technology available to do it, so it is in fact helping Russia,” U.S. President Joe Biden told reporters at the summit after signing a bilateral security pact with Ukrainian President Volodymyr Zelenskiy.On Tuesday, the EU announced it would impose extra duties of up to 38.1% on imported Chinese electric cars from July, risking retaliation from Beijing, which vowed to take measures to safeguard its interests.However, there are differences within the G7 over how to counter Chinese state subsidies, with Europe anxious to avoid an all-out trade war with Beijing.PAPAL AUDIENCEBesides his speech on AI, the Pope will hold multiple bilateral meetings, including with Biden, Zelenskiy and Turkish President Tayyip Erdogan.”It is a historic day. We will welcome the Holy Father. It is the first time for a pontiff at a G7. I am proud it will happen under the Italian presidency,” Italian Prime Minister Giorgia Meloni told reporters on Thursday.Leaders will also discuss immigration, a crucial issue for Meloni who is pushing Europe to help her curb illegal flows from Africa and has launched a flagship plan to boost development in the continent to tackle the root cause of the departures.Many of the leaders will leave Italy late on Friday, including Biden, and Meloni said they had already agreed on the summit’s conclusions, to be approved at the end of the day.On Saturday, there will be room for bilateral meetings for those staying on, ahead of a final news conference from Meloni. More

BENGALURU (Reuters) – The Reserve Bank of Australia will hold its key policy rate for a fifth straight meeting on Tuesday over persistent price pressures, according to all economists polled by Reuters, a majority of whom expected the first cut to come in the last quarter of the year.With inflation remaining above the central bank’s 2%-3% target since late 2021 and the jobless rate easing to 4%, most say an early rate reduction seems unlikely. The central bank recently noted an interest rate hike might be needed if inflation stayed stubbornly high. That was despite the economy showing signs of a slowdown.All but one economist in a June 7-13 poll expect the RBA’s next move to be a cut.The RBA was forecast to keep its official cash rate unchanged at 4.35% at the conclusion of its two-day meeting on June 18, said all 43 economists polled.A near 90% majority, 38 of 43, predicted interest rates to remain unchanged next quarter, followed by a 25 basis point cut to 4.10% in the final quarter of this year.”The risk of a rate hike is very low, but the RBA’s response to high inflation data would be to keep current high rates for longer,” said Andrew Ticehurst, senior economist at Nomura.”Growth is soft, unemployment should rise over coming months and wage growth has likely peaked. As this happens, we think the RBA will become more confident inflation, including services inflation, will slow…(and) will allow a gentle easing cycle to commence around November.”A 63% majority of economists, 27 of 43, forecast interest rates to fall to 4.10% or lower by year-end. A 35% minority, 15 of 43, expect no change at 4.35%. One expects a hike to 4.85%.Among major local banks, CBA, NAB, and Westpac predict rates will stay unchanged through the third quarter. All three expected one 25 basis-point cut in the fourth quarter. ANZ predicted the first cut would not come until February.If median forecasts were realised, the RBA’s policy easing would be in line with the U.S. Federal Reserve’s latest dot-plot projections of a single quarter percentage-point cut this year.The RBA was expected to follow up next year with 25 basis-point cuts each in Q1 and Q2 and then a pause in Q3, according to median forecasts in the poll. The cash rate was forecast to drop to 3.35% in the last quarter of 2025.Australia’s economic growth slowed to 0.1% last quarter as higher prices weighed on household spending. A separate Reuters poll showed growth would average 1.4% this year.”If domestic demand recovers more than expected or labour cost growth remains higher than expected then domestic inflation pressures would remain elevated and the RBA would want to delay cutting rates,” said Ryan Wells at Westpac.”A particularly uncomfortable scenario for the RBA would be one where domestic demand, and especially consumption, remains soft but supply side issues keep aggregate inflation too high.”(For other stories from the Reuters global economic poll:) More

TOKYO (Reuters) -The Bank of Japan may offer guidance on how it plans to reduce its $5-trillion balance sheet at its policy meeting on Friday, in a slow but steady retreat from its massive monetary stimulus.Below are possible ways the BOJ could move to quantitative tightening (QT), and scale back a balance sheet that has ballooned to nearly 1.3 times the size of Japan’s economy after years of aggressive monetary easing.WHAT IS THE BOJ’S CURRENT PLAN AND COMMUNICATION?Since ending negative interest rates and bond yield control in March, the BOJ has pledged to keep buying roughly 6 trillion yen ($38 billion) of government bonds per month to avoid the policy shift from causing an abrupt spike in bond yields.BOJ Governor Kazuo Ueda has said the bank will eventually reduce bond purchases, but offered no clues on the timing.The topic was discussed by the board in April with some members calling for the need to reduce the bank’s balance sheet including by slowing monthly bond buying, or lay out a plan at some point in the future.WHAT COULD THE BOJ DECIDE ON FRIDAY?Sources have told Reuters the BOJ will discuss whether to taper, but that the decision would depend on market developments leading up to the meeting, including moves after the U.S. Federal Reserve’s policy meeting on Wednesday.With Japanese bond yields stable and the yen remaining on a weak note, the BOJ may decide to trim monthly purchases slightly from 6 trillion yen or lower the range at which it buys each month.But given some board members are opposed to an early taper, the central bank may instead decide to offer only vague language committing to reducing future bond buying. Such pledges may be included in the BOJ’s policy statement or made in comments from Ueda at his post-meeting briefing.WHAT’S AT STAKE?With inflation exceeding its 2% target, the BOJ plans to raise short-term interest rates steadily to levels that neither cool nor overheat the economy – seen by analysts as being anywhere between 1-2%. That means hiking rates several times in coming years from the current range of 0-0.1%.During the process, the BOJ must start reducing its huge balance sheet, which it estimates as pushing down long-term borrowing costs by around 1%, to ensure future rate hikes are effective in scaling back the degree of monetary support.The BOJ has a long way to go. At 125% times Japan’s gross domestic product (GDP), its balance sheet is five times the Fed’s in ratio-to-GDP terms. That means it needs to start tapering fairly soon, analysts say.WHAT ARE THE RISKS?Japan’s dire fiscal situation means the BOJ must avoid causing sharp yield spikes that would boost the cost of funding the country’s huge public debt.Years of heavy-handed intervention by the BOJ has made bond market participants accustomed to its huge presence, which means even slight signs of tapering could destabilise markets.As such, the BOJ won’t follow the Fed, which scaled back its balance sheet under a fixed, pre-determined schedule from a peak of nearly $9 trillion yen to $7.4 trillion as of March.Instead, the BOJ will keep indicating how much bonds it will buy on a monthly basis and reassure markets that any tapering will be gradual. It will also maintain a pledge to intervene in the market if yield rises are too sharp.($1 = 156.8400 yen) More

WASHINGTON (Reuters) -The International Monetary Fund (IMF) board on Thursday cleared the way for Argentina to draw $800 million to help drive its economic recovery, saying the lending program was “firmly on track”.Argentina has a $44 billion program with the IMF, which includes economic targets on growth, inflation and reserves. The IMF said in a statement its executive board had completed the eighth review of that extended fund facility arrangement. “In completing the review, the Executive Board assessed the program to be firmly on track, with all quantitative performance criteria through end-March 2024 met with margins,” the IMF said.Sustaining the progress will require improving the quality of fiscal adjustment, taking steps towards enhanced monetary and foreign exchange policy framework, and implementing reforms for growth, it said.Argentina’s government has said it will open talks with the IMF over a new program.The IMF’s approval comes after President Javier Milei, who took office in December, put in place sweeping fiscal reforms and sharply tightened government spending to tackle triple-digit inflation, a shrinking economy and reserves in the red. The changes under him have helped Argentina rebuild depleted foreign currency reserves, post fiscal surpluses at the start of the year and stabilize the peso currency. Argentina’s monthly inflation rate in May was the lowest since 2022, official data showed on Thursday, cooling for the fifth straight month to 4.2% amid the austerity drive by libertarian Milei.Still, the government faces a challenge with the economy stalling and poverty levels rising. Continued efforts to support the vulnerable, broaden political support and ensure “agile” policymaking will be necessary in Argentina going forward, the IMF said. More

(Reuters) – A look at the day ahead in Asian markets.Asia’s market spotlight on Friday shines brightly and almost exclusively on the Bank of Japan, notably the degree and pace at which it intends to continue normalizing monetary policy in the world’s third largest economy. The BOJ follows the European Central Bank last week and the U.S. Federal Reserve on Wednesday to complete the G3 central bank set, with investors keen to gauge policymakers’ appetite for accelerating the exit from decades of ultra-easy policy.All Japanese assets will be sensitive to the decision and guidance, but the broader ripple effects could be felt most in global currency markets if the yen moves significantly.Wholesale price inflation from India and New Zealand’s latest manufacturing purchasing managers index are released on Friday. Investors across the region are mostly in buoyant spirits following the surge in risk appetite after the Fed and perhaps more significantly, the latest U.S. inflation figures.But all eyes are on the BOJ. Sources have told Reuters the BOJ will discuss whether to taper its bond purchases, but that the decision would depend on market developments leading up to the meeting.There was a slight ‘risk off’ response to the Fed’s revised economic projections and Chair Powell’s press conference. But any caution was washed away by a huge wave of ‘risk on’ activity following the soft producer and consumer inflation data.Emerging market and Asia-ex Japan stock indexes are up, world stocks hit a new high on Wednesday, the S&P 500 and Nasdaq on Thursday posted their fourth consecutive daily closing highs, cross-asset volatility is lower and credit spreads are tighter.If BOJ policymakers are looking for a benign set of global conditions in which to begin tapering their bond purchases, this could be it.The domestic scenario may be a little murkier with bond yields elevated and the yen still anchored at historically weak levels. But yields are off their highs and stocks have flat-lined for two months, so why not start the taper now?Investors in China, meanwhile, will be looking forward to closing out a bruising week. Stocks are on for a fourth straight weekly loss, their worst run this year, while the yuan is anchored near its lows for the year and on Thursday registered its biggest fall on the spot market in three months.Trade war fears are growing, and this week it was Europe-China tariffs that grabbed the headlines after the European Union slapped new tariffs on electric vehicles imported from China. Auto stocks dragged European shares lower on Thursday, the pan-European STOXX 600 index sliding 1.3% for its biggest fall in two months. Beijing’s response, whenever it comes, could send negative shocks through Chinese stocks. Here are key developments that could provide more direction to markets on Friday:- Japan interest rate decision- India wholesale inflation (May)- New Zealand manufacturing PMI (May) More

TOKYO (Reuters) – The Bank of Japan is likely to keep interest rates ultra-low on Friday but consider whether to start reducing its huge balance sheet in a slow but steady retreat from its massive monetary stimulus.However, the normalisation of Japan’s still-loose monetary policy is clouded by weak consumption and doubts over the BOJ’s view that robust domestic demand will keep inflation on track to durably hit its 2% target.Receding prospects of steady U.S. interest rate cuts may also keep the yen weak against the dollar, complicating the BOJ’s policy deliberations.Japan’s battered currency has become a headache for policymakers by inflating import prices, which in turn boosts living costs and hurting consumption.”Underlying inflation remains short of 2%. Domestic demand is sluggish, so there’s little sign a positive wage-inflation cycle will strengthen ahead,” said Junichi Makino, chief economist at SMBC Nikko Securities.”But the BOJ may be compelled to tighten monetary policy as long as weak-yen risks remain,” he said.Markets are focusing on how Governor Kazuo Ueda, at his post-meeting briefing, reconciles recent weak signs in the economy with the bank’s current projection that Japan will make steady progress towards achieving its price target.At the two-day meeting ending on Friday, the BOJ is expected to keep its short-term policy rate target in a range of 0-0.1%.The central bank may trim its bond purchases or drop clues on its future taper plan to soothe market jitters, caused in part by a lack of detail on how it will scale back its $5 trillion balance sheet, sources have told Reuters.A Reuters poll showed nearly two-thirds of economists expect the BOJ to start tapering its monthly bond buying, now set at around 6 trillion yen ($38 billion), on Friday.The BOJ’s efforts to normalise monetary policy comes as other major central banks, having already tightening monetary policy aggressively to combat soaring inflation, look to cut rates.The Federal Reserve held interest rates steady on Wednesday and signalled the chance of a single cut this year. The European Central Bank slashed interest rates last week for the first time since 2019.The BOJ finally exited negative rates and bond yield control in March. It has also dropped signs that it will keep raising short-term rates to levels that neither cool nor overheat the economy – seen by analysts as being somewhere between 1-2%.In a sign of the BOJ’s resolve to keep hiking rates, Ueda stuck to his view that rising wages will underpin Japan’s recovery even after the economy contracted in the first quarter.The BOJ is also under pressure to embark on quantitative tightening (QT) and scale back its huge balance sheet to ensure the effect of future rate hikes smoothly feed into the economy.($1 = 157.0300 yen) More

ABUJA (Reuters) – The World Bank has approved a total of $2.25 billion loan for Nigeria to help stabilise its economy following reforms and scale up support for the poor, it said in a statement on Thursday.In April, Finance Minister Wale Edun said Nigeria was seeking up to $2.25 billion in World Bank loans and expects the bank’s board to approve the request in June.Nigeria President Bola Tinubu last year in May initiated the country’s boldest reforms in decades, scrapping a popular but costly petrol subsidy and sharply devaluing the currency twice to try to kick-start growth. But the moves stoked inflation and worsened a cost of living crisis.With the devaluation, the International Monetary Fund forecast that fuel subsidies could cost up to 3% of GDP this year as the increases in pump prices have not kept up with their dollar cost.Labour unions also have been pressuring Tinubu to roll back reforms. The World Bank said it approved a $1.5 billion loan to back Nigeria’s reforms and another $750 million to accelerate revenue mobilisation.It added that Nigeria has embarked on critical reforms to address economic distortions and strengthen its fiscal outlook, saying that the country has taken “initial critical steps to restore macroeconomic stability, boost revenues, and create the conditions to reignite growth and poverty reduction have been taken.”The loan will support Nigeria’s effort to raise non-oil revenues and promote fiscal sustainability, which will help the West African nation deliver quality public services, the World Bank said. More

LONDON/BUENOS AIRES (Reuters) -Argentina’s markets rallied on Thursday as investors breathed a sigh of relief after the Senate passed a sprawling bill that is key to libertarian President Javier Milei’s economic reform plans and renewed a currency swap loan agreement with China.The Senate win was a major boost for Milei, who won a shock election last year pledging to overhaul the embattled South American country’s economy. He wants to privatize public firms, strengthen executive powers and boost incentives for investment.”Without a doubt it was the best day economically for the government,” said Argentine analyst Christian Buteler, citing the approval of the bill, a twin fiscal package also being green-lit and the extension until 2026 of a currency swap line with China.A currency swap line is a loan agreement between central banks that gives the receiving country access to an agreed amount of funds in foreign currency such as dollars, Chinese yuan or euros. “The approval of the laws in the Senate, beyond the tightness of the votes or the changes made, underscores the government’s ability to govern despite coming into power with a (legislative) minority. That is very positive,” he said.Sovereign bonds in the local over-the-counter market were up an average 2.4%, a sovereign risk index fell sharply, while the black market peso strengthened over 3% to 1,245 per dollar after hitting a record low in the past week. The local S&P Merval stock index seesawed throughout the day, but ended up 2.4% after a bout of profit taking.The narrow overnight Senate wins came as protesters set fires and clashed with police in the streets outside Congress, with some citizens fearing it would leave them further exposed to rising unemployment and consumer prices.Thys Louw, portfolio manager at asset manager Ninety One, said the bill’s passage was the first step in a “very tight, very noisy, very long process” ahead.”It wasn’t perfect, but I do think it was a step forward in views around governance and for the ability to govern,” he said.Even so, Argentina is far from out of the woods, analysts cautioned. The lower house still needs to approve individual measures before Milei can officially pass his first law. “We could see a sustained rebound in the Merval (main stock index) if Mr. Milei’s objectives are met and lead to a decline in country risk and a recovery in sovereign bonds,” said Andres Abadia, chief Latam economist at Pantheon Macroeconomics. “For now, though, uncertainty remains elevated, so caution is warranted.” More