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 chief China economist at UBS Investment Research and author of ‘Making Sense of China’s Economy’In January, China reported official real gross domestic product growth of 5.2 per cent for 2023, but the Shanghai Composite index fell to its lowest level in five years. China’s property market has continued to fall and consumer spending is still lacklustre (notwithstanding record holiday travel and movie box office takings during the lunar new year holiday). Business confidence remains low and foreign direct investment has shrunk sharply. What can China do to boost confidence? While using national funds to buy blue-chip stocks might support equity markets in the short term, what is really needed are measures to revive the economy, raise corporate earnings and restore business and household spending. Next week’s National People’s Congress would be a good time to announce such measures.However, there is a lack of consensus in Beijing on the key factors behind the current weakness. Most think that China’s economy is in transition, moving from a growth model that relied heavily on property and debt-fuelled local government investment to one that will rely more on innovation and domestic consumption. This will be painful and slow, given the weight of the property sector, high local government debt, a falling population and the tech restrictions imposed by the US and its allies. There are also deeper causes of weak confidence: Chinese officials point to the decoupling pressures, while investors highlight earlier regulatory tightening and an uncertain policy environment.Market economists also point to shorter-term factors and the lack of macro stimulus. The property policy tightening in 2020-21 and Covid-19 helped trigger the property market downturn from its unsustainable levels of construction and debt. Fiscal policy tightened in most of 2023 as local governments cut general spending and were unable to increase debt to fund investment. Weak demand exacerbated excess capacity issues, leading to declines in price and earnings, which in turn weakened corporate investment.Both short-term macro policy support and medium-term structural policies are now needed to boost the economy and confidence. Stabilising the property market is key to restoring confidence and preventing more menacing spillover effects on the economy and financial system. Credit support to property developers will improve buyer confidence, as well as allaying defaults. A more co-ordinated, government-led property debt restructuring effort could also help limit the damage of the downturn. Further easing home purchase restrictions in mega cities, additional cuts in mortgage rates and minimum down payments, and further relaxation of the hukou system (household registration) in cities with more than 3mn people will help boost housing demand. To encourage domestic spending, the government may need to deploy a fiscal stimulus of 2 per cent of GDP or more to subsidise household consumption, increase social spending, and fund infrastructure investment. Further interest rate cuts and liquidity injections would help lower the mortgage and corporate debt service burden and, together with looser credit policies, drive credit demand. The Chinese authorities have been tentative in easing monetary policy due to the rise in US rates and depreciation pressures on the renminbi. But lowering rates together with a convincing economic support package would boost currency confidence. The benefit of rate cuts is likely to far outweigh the negative impact of modestly widening the US-China rate gap.  Given China’s transition away from its old growth model, the property market is unlikely to recover its past form and macro stimulus alone will not generate sustained growth. A successful transition to a new growth model will require structural reforms. Even if Beijing is hesitant to directly subsidise consumption, it could structurally increase healthcare spending to boost long-term confidence and household consumption. A deepening of hukou reform would increase labour mobility and rural migrants’ access to public services, increasing their spending power and housing demand. On the local government side, monetising state assets and finding sustainable financing for long-term spending, including on infrastructure, should be implemented together with debt restructuring. A more stable and transparent regulatory environment, lower barriers to entry and better legal protections for investors would also boost private sector involvement.China’s government has the tools at its disposal to overturn the current downturn, but its success will depend on timely action, policy co-ordination and political will.  More

The ECB has kept interest rates at record highs since September but talk has decisively shifted to cuts as price growth is now moving closer to target, even if some crucial areas like services and wage growth remain a concern.Inflation eased in France, Spain and many of Germany’s largest states, while labour market slack in Germany, the 20-nation euro zone’s biggest economy, increased a touch, potentially pointing to some easing wage pressures, national authorities said.The figures suggest that euro zone inflation, to be published on Friday, will show a slowdown to around 2.5% in February from 2.8% January, moving even closer to the ECB’s own 2% target.”Overall, today’s prints show that the disinflation process continues in the euro zone and suggest we will see a small decline in the February print,” Leo Barincou at Oxford Economics said in a note.In France, EU harmonised inflation dipped to 3.1% from 3.4% while in Spain, it slowed to 2.9% from 3.5%. In Germany, most states reported big dips, suggesting that a fall to 2.7% from 3.1% as expected by economists, was realistic.Still, ECB policymakers are likely to argue that lower energy prices are dragging down overall inflation and that is masking less favourable trends for underlying prices. In France, services inflation slowed to just 3.1% from 3.2% while core inflation in Spain was still 3.4%, uncomfortable readings that could point to a rebound in overall price growth further down the road. The ECB will next meet on March 7 and while no policy change is expected, the bank is likely to acknowledge the improved inflation outlook, which will eventually open the door to rate cuts, perhaps around mid-year.Thursday’s national data also offered some mild good news on the labour market, the single biggest risk factor for prices because wage growth is too rapid.The number of people out of work in Germany increased more than expected in February with the number of unemployed growing by 11,000 to 2.713 million.The change is minor, however, and the jobless rate remained stable at 5.9%, doing little to lift the euro zone’s own rate from a record low 6.4%. The tight labour market is an anomaly. The euro zone economy has stagnated for the past six quarters and unemployment would normally rise sharply in such an environment. But firms are hanging onto labour, thanks to healthy margins and because firms fear that finding labour will be difficult once the upswing starts. “Despite some mixed aspects, the (German) labour market data continue to be very resilient, given the weakness in overall growth,” JPMorgan economic Greg Fuzesi said. “High levels of labour shortages, weakness in the workweek and decent corporate positions may be contributing to this.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Clare Lombardelli, OECD chief economist, has been appointed a deputy governor at the Bank of England, putting her in charge of reforming its monetary policy when it is seeking to quell an inflationary outbreak it was slow to anticipate. The former Treasury official will succeed Ben Broadbent at the end of his term on July 1, the government said on Thursday. She will join the central bank at a key turning point, as it seeks to suppress the inflationary episode that took headline price growth to double-digits after Covid-19 lockdowns were lifted. Economists widely expect the BoE to start cutting rates this year, but it is still grappling with persistent elements of inflation, particularly domestically generated services price growth. Earlier this month, Lombardelli told the Financial Times that while inflation now appeared to be receding in big economies, “we are not out of the woods yet, and there is a fair way to go”. The UK inflation rate stayed steady at 4 per cent in January.Lombardelli took over her OECD role in May 2023. Before she joined the Paris-based organisation, Lombardelli was chief economic adviser to the Treasury and joint head of the Government Economic Service. “The challenge she faces is trying to shift the BoE’s approach to its core job of steering monetary policy,” said Neville Hill, co-founder of Hybrid Economics, a consultancy. “They need a fresh pair of eyes of thinking about how BoE thinks about inflation risks, how it expresses them, how it manages the difficulties of hitting its inflation target. We are in a world where inflation is likely to be more volatile than in the past,” he added. The appointment extends a trend of former top Treasury civil servants gaining senior posts at the BoE. Last year, the House of Lords economic affairs committee called for a review of the way senior BoE appointments are made, pointing out that three of the bank’s deputy governors previously worked at the Treasury, as did the recently retired Sir Jon Cunliffe.“While they are undoubtedly able, this does not strengthen the perception of independence,” the Lords said at the time. Lombardelli’s tasks on arriving at the bank will include implementing reforms following former Fed chair Ben Bernanke’s review of the BoE’s forecasting technique, which is expected to be published in April. The bank said in a statement that she will also be responsible for the BoE’s research agenda as well as a new data and analytics strategy. The appointment was made by chancellor Jeremy Hunt, who said: “Clare brings significant experience to the role tackling financial and economic issues both domestically and internationally.”Andrew Bailey, BoE governor, said: “Clare’s impressive career means she brings a huge amount of relevant experience and expertise to the Monetary Policy Committee, and the bank more broadly, at a time of great importance for the UK economy.”Lombardelli started her career at the BoE and has also worked at the IMF. She also served as an economic adviser to David Cameron when he was prime minister. Her appointment is for a term of five years. Broadbent, the current deputy governor for monetary policy, has served at the BoE since 2014. More

BENGALURU (Reuters) – The European Central Bank will first cut interest rates in June, according to a near two-thirds majority of economists in a Reuters poll, though they were split on the chances of the cut coming earlier or later than they expected.Inflation, which the ECB targets at 2.0%, moderated to 2.8% in January from a peak of 10.6% in October 2022 and is expected to drop further. But policymakers have made clear they are not yet ready to consider cutting rates, even as growth falters. Most members of the Governing Council, including President Christine Lagarde, are aligned with the view that more data, especially on the labour market, will be required before cutting the deposit rate from a record high 4.00%.Last week, Lagarde said negotiated wage data from Q1, due in May, will be especially important for the ECB. That makes June the most likely month to consider a first rate cut, an expectation shared by markets and economists.A near two-thirds majority of forecasters, 46 of 73, said the central bank will first reduce the deposit rate by 25 basis points to 3.75% in June. That consensus view has grown considerably stronger from around 45% in a January poll. “Why June? Because by then actual inflation will have come down a little bit more, we will also have the first quarter wage growth which should also show at least no new acceleration … So it more or less looks like a good moment to do the first rate cut,” Carsten Brzeski, global head of macro at ING, said.Only 17 expected an April cut and 10 said the ECB would wait until the second half of this year. None of the 73 economists in the Feb. 26-29 poll expected a rate cut at the March 7 meeting.Still, economists said it would not be the start of a substantial easing cycle. Medians showed 100 basis points of cuts this year, taking the deposit rate to 3.00% by end-2024, broadly in line with market pricing. While 32 of 73 economists saw the rate higher than that, 23 predicted it would be lower.”There is always a risk that as soon as the economy recovers just a tiny bit, inflation will come back so that argues against aggressive rate cuts,” added ING’s Brzeski.Despite a strong consensus around the first rate cut, economists were divided on the risks around their forecasts. When asked what was more likely around the timing of the first reduction, a roughly 55% majority of respondents, 17 of 31, said earlier than they expect. The rest said later.An early cut by the ECB could mean a weaker euro and risks of additional imported inflation as a similar Reuters poll found the U.S. Federal Reserve is also expected to reduce rates in June, with a significant risk of a later move.But unlike in the euro zone, growth in the world’s No. 1 economy remains resilient and U.S. recession fears are fast fading.”One of the transmission channels is the impact on EUR/USD when policies diverge,” Bas van Geffen, senior macro strategist at Rabobank, said.”That does not necessarily prevent the ECB from making the first cut before their U.S. peers do. However, if the ECB is the first to cut, we would expect them to be a bit more cautious with their next steps.”Inflation will average 2.3% in 2024 and 2.1% in 2025, according to the poll. Official preliminary data due Friday is expected to show prices rose 2.5% this month.Economic growth in the 20-country bloc was seen at 0.1% and 0.2% in Q1 and Q2, respectively, and average 0.5% this year and 1.3% next.(For other stories from the Reuters global economic poll:) More

NEW YORK (Reuters) – If you want a better financial situation for yourself, here is a surprisingly simple piece of advice: Ask for it.Want a lower interest rate on your credit card? Ask. Want bank fees waived? Ask. Want a lower medical bill? Ask.That is the advice of LendingTree chief credit analyst Matt Schulz in his new book, “Ask Questions, Save Money, Make More.”For a lot of different reasons – culture, habit, anxiety – we do not like asking people for things. And it is costing us money.“The worst thing that can happen is that somebody tells you no,” says Schulz. “But if they say yes, great things can happen.”Consumers tend to think that all the costs we encounter in life are forever fixed, but, in reality, very few of them are. Just one example: 76% of those who asked for a lower credit card rate got one, according to a LendingTree survey.Getting better deals every day requires negotiation – and that is a skill few have developed. Here are a few tips to give yourself a financial makeover by asking the right questions.NOTCH SOME BIG WINSAs satisfying as it is to get a small bank fee waived, what is really going to transform your financial life is most people’s biggest monthly expense – housing.Getting a big win here could mean tens of thousands of dollars, so be thorough, disciplined and creative about saving money on a mortgage. That could mean anything from consulting multiple lenders and playing offers against each other, to “buying points” (paying a fee up-front for a lower rate), to reducing closing costs, to getting a shorter-term loan, to considering adjustable-rate products.NEGOTIATE EVERYTHINGSome things are obviously negotiable (like used cars), while others are not. One area people do not normally think of as ripe for haggling: Medical bills. Since a doctor’s office is such an intimidating environment, we assume that everything on the bill is 100% correct, when “in truth it’s often not,” Schulz says.Review the bill and make sure it is accurate, he advises. The difference between one code and another on a medical bill can be a huge amount of money.Another avenue for negotiating medical discounts is simply paying cash – it saves healthcare providers from the challenge of dealing with insurance companies.USE SCRIPTSIn many cultures around the world, haggling is an art form. In American society, not so much – which is why we are so nervous and clumsy about it.To get you past that anxiety, Schulz has included pre-written scripts for almost every financial encounter you can imagine: What to say, how to react to their response, and so on.With that kind of cheat sheet, you can get over your nervousness, practice and eventually get to a skill level where you do not need those scripts anymore.BOOST YOUR COMPENSATIONYou should not feel ashamed about asking for what you are worth. And total compensation does not have to be just about a dollar amount – it could be about increased benefits, vacation days, tuition reimbursement or other perks.Remember that you are not powerless in this situation. If you are a valued employee who is good at their job, the cost of finding and training someone to replace you would be significant.And if asking for more salary freaks you out, run through it at home first with friend or relative. “Practice really helps,” Schulz says. “It’s a bit like exercising, building stronger muscles, and getting your reps in. That will make things easier on you.”BE NICEThe old stereotype is that negotiating is a zero-sum game, where one person wins, the other loses, and you have to act hyper-aggressive to bulldoze your opponent. All of that is false.After all, if you are a customer-service rep who is yelled at dozens of times daily, are you more likely to help someone who is cursing you out, or aid someone who is treating you with kindness and respect?The concept of “lifetime value” means that everyone can come out with a win, Schulz says. You get something waived, and they retain a loyal customer who will likely make them money down the road. The bottom line? Ask away. Once you do hone those abilities, a whole lot of financial possibilities open up. Says Schulz: “People have way more power over their money than they think they do.” More

NEW YORK (Reuters) – Federal Reserve officials are keen to start debating their balance sheet run-down endgame, but benign market conditions, recent central banker comments and bond dealer estimates now suggest the process may run longer than previously thought.One factor driving the rethink is a puzzling bout of better-than-expected liquidity conditions in U.S. short-term financing markets that has for now at least forestalled a run of volatility that some on Wall Street had expected to force the Fed’s hand into stopping the balance sheet shrinkage effort known as quantitative tightening.On top of that, minutes of the Fed’s most recent meeting in January showed some policymakers interested in an extended slowdown in the pace of shrinkage – a tapering – that could actually allow QT to proceed for a longer period. And bond dealers also now project that QT will not end outright until next year rather than late this year and leave the Fed with an even smaller balance sheet.How this plays out in the months ahead is a secondary – but still important – obsession on Wall Street to the guessing game over when the Fed starts rate cuts. That’s because the Fed’s only previous QT effort in 2018-19 ended in a market ruckus that no one wants to see repeated.”At the moment, the key concept in both rate and balance sheet policy is discretion,” said Jonathan Cohn, head of U.S. rates desk strategy at Nomura Securities International. “Without evident pressure in funding markets, the Fed has discretion regarding when it slows QT.”The Fed scooped up about $4.6 trillion of bonds during the COVID-19 pandemic as one of its planks alongside near-zero interest rates to prop up the economy through the health crisis. The effort to add liquidity to the financial system and keep it running smoothly more than doubled the size of its overall balance sheet to roughly $9 trillion.When a surge in inflation forced the central bank to start jacking up interest rates in March 2022, officials soon after started winnowing down the size of its stash of Treasuries and mortgage-backed securities, allowing up to $95 billion a month to mature from the balance sheet without being replaced.Total Fed bond holdings are now down to about $7.1 trillion and the full balance sheet has fallen to just below $7.7 trillion.SOFT FUNDINGA combination of larger Treasury debt issuance, higher interest rates and Fed QT had been expected to continue to drain liquidity this year, potentially inducing volatility in short-term funding markets, but so far that’s not happened. In fact, the borrowing rate in a key repurchase agreement (repo) market, where banks and other market players swap cash for Treasuries, has declined in recent weeks.”There’s been soft funding recently, overnight rates have been a little softer,” said Scott Skyrm, executive vice president of money market trading firm Curvature Securities.Just why remains unclear.”We don’t have a good answer for it, we’re asking ourselves the same question,” said Joe DiMartino, head of the repo desk at Clear Street. “There just seems to be way more cash than anticipated over the last several weeks.”A key upshot is usage of the Fed’s overnight reverse repo facility (ONRRP), which had become a favored place for Wall Street firms to park excess cash and a touchstone for Fed officials for market liquidity levels, may hold up more than expected. Its daily usage shrank over the last year from more than $2 trillion to an average of about $540 billion through February.As cash drains from ONRRP, still-abundant bank reserves at the Fed are expected to start falling, leading to a tightening in overall financial system liquidity that the Fed wants to keep under control by tapering QT.”The reality is that the drive to lower balances within the reverse repo facility has a little bit of upward pressure on it, and it won’t necessarily get to zero anytime soon,” said Jerome Schneider, leader of short-term portfolio management and funding at bond giant PIMCO. 2025 NOW EYED FOR QT ENDLast week’s minutes from their latest meeting showed an eagerness by many Fed officials to get moving on planning the QT endgame. That said, the minutes showed “some participants” eyeing a plan to start a prolonged taper process that would allow QT to continue at a diminishing pace even after rate cuts begin later this year.On the heels of that, the release late last week of the survey of primary dealers conducted ahead of each Fed policy meeting showed firms also expect a lengthy tapering operation starting this summer. They have pushed out estimates for when QT ends entirely to January or February 2025 from the fourth quarter of 2024 as estimated in the survey ahead of December’s Fed meeting.Moreover, the latest dealer survey pegs the Fed’s bond portfolio balance at $6.5 trillion at the end of QT – $250 billion less than estimated previously. And they also see more room for ONRRP levels to decline before QT ends – to $125 billion versus $375 billion in the December survey.Still, most Fed officials recognize the uncertainty ahead of them and want to proceed carefully so as not to repeat the events of five years ago.Philadelphia Fed President Patrick Harker last week said he favors proceeding “methodically” while watching for market tightness to flare up. Atlanta Fed President Raphael Bostic told CNBC earlier this month that “we just want to make sure our actions don’t cause disruptions.” That said, some in the Fed are less worried about smooth moves. Jeffrey Schmid, new president of the Kansas City Fed, said Monday: “I don’t favor an overly cautious approach to balance sheet runoff for the sake of avoiding any volatility in interest rates. Instead, some interest-rate volatility should be tolerated as we continue to shrink our balance sheet.” More