Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is professor of global economics at the MIT-Sloan School of Management, former external member of the Bank of England’s monetary policy committee and member of the White House Council of Economic AdvisersThe Federal Reserve will discuss later this month whether to adjust its quantitative tightening programme that is unwinding the huge asset purchase operations it carried out to support the US economy and markets. At least this will be a more informed discussion than when the central bank launched this QT programme in early 2022 and Fed chair Jay Powell warned: “I would just stress how uncertain the effect is of shrinking the balance sheet . . . ”We finally have some international evidence on how QT works. Since the pandemic, seven central banks have made meaningful progress shrinking their balance sheets, in addition to the Fed’s QT from 2017-2019. A new study by myself with Wenxin Du and Matthew Luzzetti uses these experiences to assess the impact of announcing and implementing QT — as well as the advantages and disadvantages of different strategies.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.QT programmes have, so far, been working as central banks intended. They are “in the background” and not seen as an active tool for adjusting monetary policy. At the same time, they have provided a small degree of support for central banks’ efforts to tighten financial conditions, with minimal impact on market functioning and liquidity. QT has worked in the opposite direction to quantitative easing, but the effects are much, much more muted.More specifically, announcing the start of QT causes a modest increase in yields (of about 0.04 to 0.08 percentage points) of government bonds with maturities a year and longer. Other effects are even harder to pin down — albeit generally pointing in the direction of tighter financial conditions. These muted effects continue when central banks begin implementing the programmes and some even selling their bonds outright. There has been minimal impact on bond pricing and liquidity, to date.This is a big relief for central banks. Their large holdings of securities are generating political storms as higher interest rates translate into large losses that are passed on to Treasuries. Continuing to hold large parts of bond markets could raise difficult questions about the role of central banks.Despite these concerns, central banks had been hesitant to start unwinding their holdings as they had little idea of the impact. A body of research suggests that QE had meaningful effects on financial markets — lowering interest rates, boosting equity prices and easing liquidity pressures. If QT had similar effects in reverse, the resulting tightening in financial conditions could undermine any recovery and keep policy interest rates stuck around zero. It was no wonder central banks were reluctant to start QT in the 2010s when growth was anaemic and inflation too low.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The rapid recovery and inflation spike in 2021, however, emboldened them to take the leap. Central banks in Australia, Canada, the euro area and the US announced passive QT — allowing bonds to roll off their balance sheets when they matured. Central banks in New Zealand, Sweden and the UK started active QT — outright bond sales. By the end of 2023, most had made substantial progress, with aggregate securities holdings down by about 40 per cent in Canada and Sweden, 25 per cent in New Zealand and 15 per cent in the US and UK.So far, so good. We have also learnt about how different QT strategies work. Passive QT seems to provide a signal of the central bank’s commitment to tighter monetary policy, thereby increasing bond yields at the short end of the yield curve. Active QT mainly increases yields at longer maturities, steepening the curve.One factor contributing to these relatively smooth adjustments so far is the willingness of “domestic nonbanks” to step in as central banks reduce their securities holdings. In the US, these incremental buyers include leveraged funds. Foreign investors have also been incremental buyers in some countries, but played a smaller role than expected in the US. The path forward may be bumpier. Government debt issuance will be elevated for the foreseeable future, and the excess liquidity from emergency pandemic programmes has largely been absorbed. Nonetheless, now that we finally have some evidence on how QT works, central banks should be more comfortable shrinking their balance sheets in the future. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Super Tuesday, the day on which the largest number of US states hold presidential primaries, is almost upon us. The results are baked in — Donald Trump and Joe Biden will be the winners. But the primaries may give us insight into the divide between what data shows, particularly the economic variety, and the felt experience of the voting public.One of the biggest mysteries of this campaign season has been why Joe Biden has not been given more credit for America’s booming economy. Gross domestic product is up, inflation is down and the jobs market could hardly be better. And yet, consumer sentiment remains low and that will probably be reflected in Tuesday’s exit polls, which survey not only which candidates voters chose, but why.I suspect those polls will tell us that economic data and voters’ felt experience are in collision with each other, or, at the very least, not correlated in the ways that we might imagine.Take inflation. Yes, it’s been cooling, even as unemployment remains low and wages edge up. And yet, people don’t feel consumer price index numbers. They feel the cumulative hit from how prices of groceries, rent, gas, electricity, car insurance and other necessities have risen by more than 20 per cent in the past two or three years.For most Americans, particularly younger and more vulnerable ones, the felt experience of inflation isn’t, “Hey, things are expensive but prices rises are coming down and I have more money in my pocket.” It’s anger. As Democratic pollster Stan Greenberg puts it, “My key learning [during this campaign season] has been that even when you come out of an inflationary period, people stay angry for a long time.”That lingering pessimism is compounded by the fact that generational economic shifts (such as inflation moving above 5 per cent, which hadn’t happened since 2008) tend to imprint on people for the rest of their lives. Indeed, there is research to show that even one really tough year experienced in early adulthood is enough to change behaviour for a lifetime. I think of my British grandmother, a nurse in the second world war, who would use a tea bag multiple times. Or conversely, my boomer parents, who feel comfortable carrying a mortgage well into their retirement. Feelings drive our economic decisions, and our voting.I suspect that this truth will be reflected not only in perceptions of prices, but also around migration and border security, which loom large as an election issue. Immigrants have, of course, always been core to America’s economic success (their impact is a net positive at both the high and low ends of the socio-economic spectrum). There’s even new evidence that suggests foreign-born workers are a key reason why labour inflation hasn’t been higher.That includes legal as well as illegal immigrants. A recent Strategas Research Partners report on how “big immigration” is key to understanding US growth notes that: “To the extent US immigration has been tough to fully measure in recent years, the reported data [showing the disinflationary impact of migration] may be underestimating this boost.”It continues: “The policy enacted by some states to relocate migrants from the southern border to larger cities may have also had the (likely unintended) effect of matching individuals to regions where there was an ability to work, even if informally.”I certainly see that when I look around New York. Yes, we have major issues housing migrants, but we also have a huge pool of informal labourers keeping service costs down in areas such as restaurants and the care economy. I’d love to see fast-tracking of formal work permits for migrants who can fill gaps in tight labour markets. But I’m in the minority; 61 per cent of Americans — and 91 per cent of Republicans — consider illegal immigration a “very serious” problem.That divide reflects perhaps the most important way in which feelings rather than facts dictate political reality today — the growing partisan divide in economic perceptions. A study published in 2022 by Stanford and New York University scholars found that the gap in how Democrats and Republicans viewed the same economic data doubled between 1999 and 2020. Both parties have moved equally away from the baseline views of independent voters. We’re all partisans now.What’s more, the divide tends to increase during times of economic recovery, like the Obama years following the great financial crisis, or the Biden boom of today. The study’s authors posit that this may be “because ideologues of all stripes can find economic data or views that flatter their political beliefs”.That certainly rings true to me. Consider that economically distressed counties representing 8 per cent of US GDP have received 16 per cent of strategic sector investments in things such as clean energy and semiconductors since 2021, thanks to the Biden administration’s focus on place-based economics. Yet because these are long-term plays that take years to funnel through into a felt experience in these communities, many of the people who live in those places may still vote Trump.The facts of Super Tuesday are a known quantity. Instead watch the feelings, and what they might tell us about November. [email protected] More

Data from Australia and New Zealand Banking Group and employment website Indeed showed job ads fell 2.8% in February from January, when they gained by an upwardly revised 3.4%.Ads were down 12.4% from the same month a year earlier, but remained 37.8% higher than February 2020 before the first anti-pandemic lockdowns.The Reserve Bank of Australia has raised interest rates by 425 basis points since May 2022 to 4.35% to tame inflation, though signs of loosening in the labour market – including fewer hours worked and deeper underutilisation – have added to growing market conviction that rates have peaked.”The downward movement in Job Ads suggests there is scope for the unemployment rate to rise further, as do recent changes in labour market flows,” said ANZ economist Madeline Dunk.”That said, we think most of the near-term adjustment in the labour market will be via a fall in hours worked rather than employment.”The data showed the biggest contributors to February’s decline were from the technology, food preparation and personal care sectors. More

SYDNEY (Reuters) – Asian share markets firmed on Monday as the Nikkei reached another new high and investors braced for a week packed with central bank events and major data that will refine market wagers for when interest rates will start falling. All eyes will be on Federal Reserve Chair Jerome Powell when he testifies before lawmakers on Wednesday and Thursday, though analysts assume he will stay in wait-and-see mode on policy given recent upside surprises on inflation.The February payrolls report on Friday could also shift the calculus with forecasts favouring a still-solid rise of 200,000 after January’s barnstorming 353,000 jump.The European Central Bank meets Thursday and is considered certain to keep rates at 4.0%, but also lower its outlook for inflation in a nod to eventual cuts. “The focus will be on the changes to the macro projections and on the tone, which we expect to be dovish but cautious – in a risk-management posture that should point to June for the first move lower in rates,” wrote analysts at NatWest Markets in a note.”100 basis points still seems the right amount of cuts for this year,” they added. “While the ECB is not pressed to act with urgency and may prefer to start with a 25bp clip, instead of our central scenario of a first 50bp cut in June.” The Bank of Canada is likewise expected to stay on hold this week, with a first cut seen in June or later.Other events of note include President Joe Biden’s State of the Union address, the Super Tuesday U.S. primaries and China’s National People’s Congress (NPC) meeting which might flag new stimulus measures. NIKKEI HEADS NORTHMSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2%, after snapping a five-week winning streak with a slight drop last week.Japan’s Nikkei climbed 0.8% to break 40,000 for the first time, having risen for five weeks straight.S&P 500 futures and Nasdaq futures were trading near flat, having made record closing highs on Friday on upbeat earnings and enthusiasm for all things AI. [.N]BofA analyst Savita Subramanian now sees the S&P 500 pushing on to 5,400, thanks to solid earnings, though there is a risk of a correction given how far the market has come.”The era of lower quality growth where cheap capital and globalization contributed to margins is over,” says Subramanian. “Now it’s time for sustainable efficiency and productivity gains supported by automation and AI.”In currency markets, the dollar had been weighed by some soft U.S. economic data, while the Japanese yen firmed ahead of Tokyo consumer price data on Tuesday that is expected to show inflation sprang higher in February. The dollar stood at 150.08 yen, having peaked at 150.85 last week, while the euro steadied at $1.0842 after bouncing from a low of $1.0796 last week.The U.S. data surprise had helped gold to a two-month top and the metal was last trading steady at $2,083 an ounce. [GOL/]Oil prices were little changed as OPEC+ members led by Saudi Arabia and Russia agreed on Sunday to extend voluntary oil output cuts of 2.2 million barrels per day into the second quarter. [O/R]Brent rose 2 cents to $83.57 a barrel, while U.S. crude edged down 5 cents to $79.92 per barrel. [O/R] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Theft and violence against workers in convenience stores across Britain have soared to record levels, according to new data. About 5.6mn incidents of theft were recorded in 2023, more than a fivefold increase from the previous record of 1.1mn set in 2022, according to a report by the Association of Convenience Stores published on Monday. James Lowman, chief executive of ACS, which represents 49,000 small shops across the UK, said the problem “has got worse” and “cannot be allowed to continue”. The figures showed that there were about 76,000 incidents of violence reported in shops last year, up from 41,000 in 2022. Shoplifting was costing shop owners an average of £4,946 per store, the organisation estimated, with meat, alcohol and confectionery the most commonly stolen products. The report follows similar data released by the British Retail Consortium last month that laid bare the challenges faced by retailers during the cost of living crisis. The BRC, which represents more than 200 major companies in the UK, said violence and abuse against staff rose to 1,300 incidents a day in the 12 months to the end of August 2023 up from almost 870 a day during the same period a year earlier. The cost of theft also doubled to £1.8bn, from £953mn, with more than 45,000 incidents a day. Retailers including Primark and John Lewis have previously warned that crime is squeezing profits.Lowman acknowledged recent efforts involving retailers by the police and the government with the launch of measures, known as the Retail Crime Action Plan, in October. But he said “more [needed] to be done urgently” to tackle the problem, including more neighbourhood policing and better use of technology to catch criminals. Chief Superintendent Alex Goss, the National Police Chiefs’ Council lead for retail crime, said: “Retail crime can have a significant impact on victims which is why we are committed to doing all we can to reduce thefts and pursue offenders,”He added that the police forces were “already seeing positive results” from the implementation of the measures in the Retail Crime Action Plan.According to the ACS report, crimes rates were being fuelled by people with addiction problems were stealing to fund their drug habits. Higher-value shop items, such as meat and alcohol, can typically be sold on.More than three-quarters of retailers also reported a rise in gang-related criminal activity last year.Benedict Selvaratnam, who runs Freshfields Market in London, said he had witnessed first-hand the “escalating challenge of shop theft”. He added: “This issue not only affects our business’ already strained finances, but it also puts our staff and customers in distress.”The Home Office said: “The policing minister has been clear police must take a zero-tolerance approach to shoplifting. Violence against a retail worker is unacceptable, which is why we made it an aggravating offence to ensure tougher sentences for perpetrators. More

BEIJING (Reuters) -China’s parliament is expected to unveil moderate stimulus plans to stabilise growth at an annual meeting beginning on Tuesday, but may disappoint those calling for a detailed roadmap of bold policies to fix the country’s deep structural imbalances.Premier Li Qiang will lay out economic targets for this year and deliver his first work report to the National People’s Congress (NPC), China’s rubber-stamp legislature, in the giant Great Hall of the People on the west side of Tiananmen Square.A property crisis, deepening deflation, a stock market rout, and mounting local government debt woes are putting enormous pressure on China’s leaders to take momentous policy decisions that will put the economy on solid footing for the long-term.But analysts and policy advisers expect the NPC agenda to focus more on near-term support for the sputtering economy after a post-pandemic rebound quickly floundered.Li may nod to measures to improve the business environment and changes to promote technological innovation, but is unlikely to roll out big reforms that would need the Chinese Communist Party’s green light, they said. “The top priority is to stabilise the economy,” said Zong Liang, chief of research at state-owned Bank of China.Li is expected to set a growth target of around 5% for 2024 — the same as last year — to keep China on a path towards President Xi Jinping’s goal of roughly doubling the economy by 2035 and achieve “Chinese-style modernisation.”That will require more fiscal stimulus, as last year’s 5.2% growth rate was likely much flattered by a comparison with a COVID-hit 2022.”We face more pressure to hit a 5% target this year,” said a policy adviser who spoke on condition of anonymity. China is expected to set a budget deficit target of 3% of economic output, but, crucially, announce plans for issuing 1 trillion yuan ($139 billion) in off-budget special sovereign bonds that could be used for funding strategically important sectors such as food and energy.Citi analysts said the expected special bonds — together with the 3% deficit and a flat issuance quota for local governments at 3.8 trillion yuan — would contribute about 1 percentage point to GDP growth.In late 2023, China issued 1 trillion yuan in sovereign bonds to spur growth, which was included in the annual budget.With spending on roads, rail and bridges yielding increasingly lower returns, investment spending might lean more on “new infrastructure” such as 5G telecommunications, artificial intelligence and big data, policy advisers say.China will continue to pour resources into tech innovation and advanced manufacturing, in line with Xi’s push for “new productive forces”. Some analysts have criticised this policy, however, saying it exacerbates industrial overcapacity, deepens deflation and heightens trade tensions with the West.The People’s Bank of China, which on Feb. 20 announced its biggest-ever cut to a key mortgage reference rate, is expected to continue to ease policy gradually, amid worries that more aggressive moves could spur further capital outflows and put more pressure on the yuan currency.But the central bank is expected to expand its pledged supplementary lending (PSL) scheme to support the property sector, which will be vital for stabilising the economy.In all, the extra stimulus would still pale in comparison with measures taken after a previous episode of market turmoil in 2015 and during the 2008-09 global financial crisis, which eventually righted the economy but left a mountain of debt. Bigger moves could pose a threat to financial stability.”Fiscal policy will no doubt be more proactive, but there is still limited appetite for bazooka-like stimulus,” analysts at Societe Generale (OTC:SCGLY) said in a note.REFORM DEBATEReform advocates, worried about record low consumer confidence and plunging investor and business sentiment, want China to return to a path of pro-market policies and find ways to boost household demand.Proposals include relaxing urban residency permits to unleash the spending power of rural migrant workers; clipping the wings of big state firms to help the struggling private sector compete; and redesigning the tax system to tackle the root cause of surging municipal debt.”Stimulus may only help resolve short-term problems. We need to accelerate reforms. The economic situation may force the authorities to push reforms,” said the policy adviser.The NPC is not the traditional venue for sharp policy shifts, which are usually reserved for events known as plenums, held by the Communist Party between its once-every-five-year congresses.One such plenum was initially expected in the final months of 2023. The fact that it has not yet been scheduled has fuelled investor concerns over policy inaction.Two policy sources said it could still take place later this year, if top leaders reach consensus on what steps to take.Last week, a meeting of the party’s Central Commission for Comprehensively Deepening Reforms, chaired by Xi, pledged to “use the key tactic of reform and opening up to solve problems in development.”Still, Beijing’s national security and social stability concerns, as well as renewed uncertainty over what a potential Donald Trump return to the White House might mean for China, weighs against bold moves. “Reforms are very pressing but we need to reach a consensus,” said a second policy adviser.($1 = 7.1949 Chinese yuan renminbi) More

The move comes after regulated entities supported proposals by the Reserve Bank of New Zealand (RBNZ) on the importance of having access from the central bank to information on cyber resilience.Having accurate, timely information is key, RBNZ Director of Prudential Policy Kate Le Quesne said in a statement.RBNZ collaborated closely with New Zealand’s financial markets regulator, the Financial Markets Authority (FMA), to develop shared reporting requirements that can be used for both agencies, Le Quesne said.”We received useful feedback on ways to simplify and coordinate our processes with other agencies,” Le Quesne said, adding that it was critical that RBNZ adequately understood the nature of risks facing entities and their ability to respond to incidents.Under the proposed rules, banks must inform RBNZ of all cyber incidents, with large entities required to report all cyber incidents every six months and other entities annually. Self-assessment measures put in place must also be reported.New Zealand has seen a rise in online break-ins, prompting the government last year to boost its cyber defence by setting up a lead agency to make it easier for the public and businesses to seek help during network intrusions.RBNZ in 2021 said a cyberattack had breached its data systems and affected a file-sharing service used by the bank to share information with external stakeholders. More

LONDON/HONG KONG (Reuters) -A liquidation petition filed against China’s Country Garden will ramp up pressure on the embattled developer to come to the negotiating table for debt restructuring talks, some of its offshore creditors, advisers, and analysts said.The liquidation order against peer China Evergrande (HK:3333) in January will also inject urgency into Country Garden to start formal discussions with creditors, they said.Country Garden said on Wednesday a liquidation petition had been filed against it in a Hong Kong court for non-payment of a $205 million loan by a creditor, Ever Credit Limited, a unit of Hong Kong-listed Kingboard Holdings. The court hearing has been set for May 17.”These winding up petitions are often used as a tactic (by the bondholders and their advisers) to get the chairman back to the negotiating table,” said Omotunde Lawal, head of emerging markets corporate debt at Barings in London.She added that “no one wants to go through the winding up process” because it has knock-on effects for the property developers’ onshore businesses and causes everything “to grind to a halt”.Foshan, Guangdong-based Country Garden, China’s biggest private property company by sales, got entangled in the country’s spiralling real estate liquidity crisis that began in 2021. The developer’s $11 billion worth of offshore bonds is now deemed to be in default. Its total liabilities are close to $200 billion.China’s property sector, which accounts for a quarter of the world’s second-largest economy, has lurched from one crisis to another since 2021 after a regulatory crackdown on debt-fuelled construction triggered a liquidity squeeze.A string of developers have defaulted on their repayment obligations since then, and they have either launched or are in the process of starting debt restructuring processes to avoid facing bankruptcy or liquidation proceedings.Evergrande, the world’s most indebted developer with $300 billion in liabilities, was ordered to be liquidated by a Hong Kong court.The long-drawn, and in some cases, financially unviable restructuring processes have frustrated offshore creditors, many of whom are looking at the prospects of massive haircuts on their investments. “It is a good thing that some creditors are taking actions and putting more pressure on Country Garden to get them to the negotiating table … the sooner creditors can lock some terms, the better,” said a Hong Kong-based Country Garden bondholder.The bondholder could not be named as they were not permitted to speak to media.Country Garden and Kingboard did not respond to requests for comment from Reuters.COUNTRY GARDEN VS EVERGRANDECountry Garden said this week it would oppose ‘vigorously’ the petition filed by the Kingboard unit, and that it was working on its debt restructuring program and hoped to update the market on the terms as soon as ‘practicable’.Its debt restructuring process kicked off in recent weeks with the appointment of financial and legal advisers.At least 20 Hong Kong-listed Chinese real estate developers have defaulted on dollar bonds, according to a Reuters tally, which has required them to enter into restructuring talks with creditors or face liquidation.While the talks are becoming increasingly common, only Sunac has completed its $9 billion debt restructuring deal last year.”In general, it is still in creditors’ best interest to negotiate a restructuring deal than push for liquidation,” said KT (NYSE:KT) Capital Group senior researcher Fern Wang, who publishes on Smartkarma.Industry observers expect Country Garden’s restructuring process and proposal to be more favourable for creditors than Evergrande’s, which failed to get approval from its bondholders before its liquidation was ordered.Country Garden’s total liabilities are only two-thirds of Evergrande’s. And it has more equity options to leverage and offer to creditors, given it still has a market value of HK$18 billion ($2.30 billion) and owns a property management unit worth HK$20 billion, analysts said. Country Garden founder Yeung Kwok Keung, whose company built its scale by acquiring cheaper and vast amounts of land from local government, and was seen as a top philanthropist in China, is also said to have strong ties with the authorities.In comparison, Evergrande chairman Hui Kai Yan is now under investigation for suspected crime, a move that also put roadblocks in its restructuring process. More