Aurelia Butler

Fedspeak remains a key force this week, in the wake of Friday’s red hot jobs report and ahead of Wednesday’s release of the latest data on U.S. consumer prices.Recent evidence of a healthy U.S. economy, despite the Fed’s prolonged rate-hiking cycle, has resulted in traders drastically reducing bets on how much the Federal Reserve will cut rates this year.Fed funds futures contracts for December on Monday reflected expectations of around 60 basis points in rate cuts this year, compared to some 150 basis points that had been priced at the start of 2024. This has occurred even with the Federal Reserve projecting it will cut rates by 75 basis points this year.Fed speakers have been sounding the alarm on cutting rates too early, with Minneapolis Federal Reserve Bank President Neel Kashkari even mentioning last week the potential for no reductions this year.However, the tone has seemingly turned more dovish this week, with  former Federal Reserve Bank of St. Louis President James Bullard stating he’s expecting three interest-rate cuts this year as inflation moves toward the central bank’s target.Chicago Federal Reserve President Austan Goolsbee also stated that the U.S. central bank must weigh how much longer it can maintain its current interest rate stance without it damaging the economy.U.S. stock futures were largely unchanged Tuesday, amid cautious trading ahead of the release of key consumer prices data.By 04:35 ET (08:35 GMT), the Dow futures contract was down 30 points, or 0.1%, S&P 500 futures climbed just 1 point, or 0.1%, and Nasdaq 100 futures rose by 14 points, or 0.1%.The main Wall Street indices closed near the flatline Monday, with traders wary of placing big bets ahead of Wednesday’s inflation print that could determine the outlook for interest rate cuts.The economic data slate is quiet Tuesday, with the focus on not only the inflation figures on Wednesday but also the minutes of its March meeting where officials continued to expect three cuts for this year albeit with less conviction relative to their forecast from the end of last year.The new quarterly earnings season is also set to start in earnest this week, with reports from major banks due on Friday.The only way appears to be up for Taiwan Semiconductor Manufacturing (NYSE:TSM), with the shares of the world’s largest contract chipmaker surging to a record high on Tuesday. This followed the news that the U.S. Commerce Department will award it a $6.6 billion subsidy for an advanced semiconductor plant in Phoenix, Arizona,  to produce the world’s most advanced 2 nanometer technology. The chipmaker was also eligible for up to $5 billion in low-cost loans. “These are the chips that underpin all artificial intelligence, and they are the chips that are necessary components for the technologies that we need to underpin our economy, but frankly, a 21st century military and national security apparatus,” Commerce Secretary Gina Raimondo said in a statement.Taiwan shares of TSMC jumped about 4% to a record high of T$817.0, while TSMC’s American Depository Receipts rose 1% in overnight trade – both are over 30% higher so far this year.TSMC is a key supplier to technology giants, including Nvidia (NASDAQ:NVDA) and Apple (NASDAQ:AAPL), and has been a major beneficiary of the seemingly insatiable global interest in artificial intelligence. HSBC (LON:HSBA) is set to depart Argentina, taking a hefty hit along the way as the lender sells its Latin American unit as part of efforts to streamline its business.The U.K.-based banking giant announced Tuesday that it had entered a binding agreement with private financial group Grupo Financiero Galicia to sell its Argentina business for $550 million, suffering a $1 billion pretax loss on the disposal. Along with the pretax loss, which the bank will report in the first quarter of 2024 after the disposal, HSBC will also recognize at least $4.9 billion of historical cumulative foreign currency translation reserve losses. The move comes as part of a massive restructuring, with HSBC recently completing the sale of its Canadian operations to RBC as it attempts to focus more on its key Asian and European markets. Oil prices edged higher Tuesday, regaining some of the previous session’s lost ground on raised uncertainty over a possible ceasefire in the Israel-Hamas conflict.By 04:35 ET, the U.S. crude futures traded 0.5% higher at $86.87 a barrel, while the Brent contract climbed 0.5% to $90.85 per barrel.A fresh round of Israel-Hamas ceasefire discussions in Cairo had ended a multi-session rally on Monday, but the prospect of an immediate ceasefire remains fleeting, given that the two parties have failed to reach an agreement despite repeated efforts to broker peace. Oil prices remained close to five-month highs, supported by the notion that any cuts to production from the oil-rich region would likely further tighten global oil markets. Still, gains are minor Tuesday ahead of the release of key inflation data from both the U.S. and China later in the week, as well as industry data on U.S. crude stockpiles later in the session.  More

TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda said the central bank must consider whittling down stimulus further if inflation continues to accelerate, signalling the chance of another interest rate hike later this year in line with market bets.Speaking in parliament, Ueda said the central bank must maintain ultra-loose monetary policy for the time being since trend inflation has yet to reach its 2% target.But he said solid pay hikes seen so far in this year’s wage negotiations will likely boost household income and consumption, offering an upbeat view on Japan’s economic outlook.Under the BOJ’s baseline scenario, trend inflation will converge towards 2% in the next 1-1/2 to two years, Ueda said.”If economic and price conditions move in line with our current projections, trend inflation will gradually accelerate. If so, we must consider reducing the degree of stimulus,” Ueda said on Tuesday.In current forecasts made in January, the BOJ expects inflation, as measured by an index excluding fresh food and fuel, to hit 1.9% in both fiscal 2024 and 2025. The central bank will review these forecasts at its next meeting on April 25-26.In March, the BOJ ended eight years of negative interest rates and other remnants of its unorthodox policy, making a historic shift away from its focus on reviving growth and quashing deflation with decades of massive monetary stimulus.Markets are on the lookout for clues on from Ueda how soon the central bank will next raise interest rates.A Reuters poll taken shortly after the March move showed more than half of economists expect another rate hike this year, with October-December the most popular bet on the timing.If wages do not rise much or external shocks hit Japan’s economy, the BOJ may scale back stimulus at a slower pace or hold off on reducing monetary support, Ueda said.By contrast, the BOJ may scale down stimulus faster than expected if wages and inflation overshoot forecasts, he said.”One factor we’ll look at is whether pay hikes offered by firms in annual wage negotiations would appear in actual data,” Ueda said. “We’ll also check at each policy meeting whether rising wages will be reflected in services prices.” More

The ECB has pushed interest rates to record highs to rein in inflation, bringing bank credit growth in the 20 countries that share the euro to a standstill.While banks were slowly turning less cautious — at least about extending home loans — households and companies showed little appetite for taking on fresh debt, the ECB’s quarterly Bank Lending Survey showed.Banks eased their standards for approving loans to households for house purchases in the three months to March and tightened access to corporate credit less than they had expected. But they still reported a “substantial decline” in demand for credit from companies — which they did not expect three months earlier — and a “small decline” for housing loans. “Higher interest rates, as well as lower fixed investment for firms and lower consumer confidence for households, exerted dampening pressure on loan demand,” the ECB said. Yet banks expected an improvement in the three months to June, with only a “moderate net decrease in demand” for corporate loans and even an increase in demand for loans to households.Interest rates on new mortgages fell as banks anticipated rate cuts from the ECB. This was also seen putting an end to banks’ record profits.”The dampening impact of the ECB’s interest rate decisions expected over the next six months also extends to overall bank profitability, with a moderately negative contribution from provisioning and impairments,” the ECB said. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Several large Taiwanese manufacturers are considering setting up a second headquarters overseas to ensure they can keep operating in the event of a Chinese attack on their country.The plans, which remain preliminary in most cases, highlight how global efforts to secure supply chains are forcing companies that play a vital role in manufacturing networks, especially for tech products, to make extensive changes.“We have clients who are looking into or planning for setting up a second headquarters,” said Rauniei Kuo, a partner and head of the family office business at KPMG in Taiwan. The groups are “in manufacturing [and] currently looking for a location for a second headquarters in south-east Asia, just in case an emergency happens in Taiwan, to give them an alternative command system abroad that they can immediately activate”.Taiwanese contract manufacturers have for decades formed the backbone of global supply chains for electronic devices and their components, including personal computers, smartphones, servers and telecom networking gear. They are also increasingly penetrating markets for industrial automation, medical devices and electric vehicles.According to several people involved in the deliberations, companies exploring options for a second headquarters abroad include Lite-On and Qisda, which make electronic components and devices for consumer, telecoms, automotive and medical applications.China claims Taiwan as part of its territory and threatens to annex it if Taipei resists unification indefinitely. Although Taiwanese experts consider a Chinese attack unlikely in the near term, increased pressure from Beijing and military intimidation tactics have led many foreign companies and customers of Taiwanese groups to initiate some contingency planning.Driven by rising costs in China, the US-China trade war and customers’ demands to “de-risk” from China, groups such as Apple suppliers Foxconn and Pegatron are expanding in south-east Asia, India, Mexico, the US and Europe instead of China, where much of their production capacity has traditionally been concentrated.The country head of a global consultancy in Taiwan, who did not want his name published, said many companies were still mostly focused on geographically diversifying production, and other changes such as building contingency structures would follow. “But discussions about back-up headquarters have started at the top in the largest groups,” he said.The country head said he was urging clients to at least replicate some headquarter functions in a second location. “You have to ask yourselves, if a conflict forces us to cease operations in Taiwan for six months or a year, can we survive? You don’t need investor relations there, but you can’t survive without finance, payroll and receivables.”The chief financial officer of one company said his group was looking at putting a second headquarters in Singapore because the group was expanding production in two south-east Asian countries.Other people involved in similar discussions said Singapore, Japan, Switzerland or the Netherlands were options for establishing second headquarters. They ruled out the US. Although it is a major market for Taiwan technology companies, the country was not a suitable location for a second headquarters for tax reasons, they said.The heightened contingency planning is part of broader structural change in Taiwanese groups as they learn to operate in many new jurisdictions.Topco, a chemicals and parts supplier for semiconductor plants, has put together a 10-year plan for setting up additional units in various regions and for hiring and training mid-level executives to be rotated through different countries, co-chief executive Charles Lee told the Financial Times. “These mid-level managers will be senior executives 10 years from now,” he said.But executives, lawyers and consultants said many companies were still moving slowly.“While their agility has helped Taiwanese companies survive and evolve well, they are not good at planning,” said one consultant.Chaney Ho, founder of industrial computer maker Advantech, said China’s military exercises around Taiwan in August 2022 in response to a visit to Taipei by then-US House Speaker Nancy Pelosi had triggered discussions about second headquarters. But he argued there was no urgent need for such structures. “You can do almost all of that virtually,” he said.Qisda and Lite-On declined requests for interviews with top executives. A Qisda spokesperson said the group was not considering setting up a second headquarters abroad. Lite-On did not respond to a request for comment. More