Aurelia Butler

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MEXICO CITY (Reuters) – The bumper reforms package Mexico’s president stitched together in the dying days of his presidency may fizzle in the legislature but it points to his desire to build a legacy and mould the political agenda of his handpicked successor. Making no secret that the package is an attempt to influence the debate before the June 2 poll his protégé Claudia Sheinbaum is favored to win, President Andres Manuel Lopez Obrador has conceded it’s unlikely Congress would pass many of his proposed 18 constitutional and two legal reforms.Yet the breadth of the changes spanning generous pensions, above-inflation minimum wake hikes, election of judges by a popular vote and many other modifications may put the opposition on the defensive while leaving his stamp on the country, analysts say. “This legislative package seeks to consolidate his legacy by changing many of the institutions set up since the 1980s that he believes were designed to benefit special interests,” said Daniel Kerner, Eurasia’s managing director for Latin America. The package, which would hike pensions to cover 100% of final salaries of some employees, doubles up as an attempt to “shape” Sheinbaum’s policy program, Kerner added.Other key reforms envisage abolishing many autonomous and regulatory bodies which act as a check on presidential power and reducing the size of a Congress Lopez Obrador deems bloated.As the president’s ruling Morena party lacks a qualified majority in Congress necessary to change the constitution, it is likely to be down to Mexico City Mayor Sheinbaum to take the baton given her wide poll lead in the presidential race. Some opposition parties have already announced that they will only support a handful of the proposed changes – depriving Lopez Obrador of a chance to deepen what he terms Mexico’s “Fourth Transformation”, his national revival project.The most likely reforms to pass are the least contentious ones, including prohibiting animal abuse, establishing extra support for agricultural workers and an obligation to raise the minimum wage above inflation. Targeting Mexico’s vast income gap, Lopez Obrador’s administration has raised the minimum wage by double digits every year since he took office at the end of 2018. The policy has been one of Morena’s most popular given that roughly half of Mexicans earn the minimum wage. ‘INTERESTING COCKTAIL’Still, Lopez Obrador may have succeeded in putting the opposition in a bind. If they vote down popular reforms like his pension hike plan which critics slam as endangering fiscal stability and undermining investor confidence, they risk being perceived as a brake on prosperity, analysts say.And if Lopez Obrador’s administration rams through all, or some, of the proposals, it will be a triumph that signals to many the need to keep Morena in power.”Without a doubt the president has made an interesting cocktail with this decision: he dominates the media agenda, offers his candidates a popular electoral script and forces the opposition to define itself and puts them on the defensive,” said Antonio Ocaranza, analyst and one-time spokesman for ex-president Ernesto Zedillo.Lopez Obrador’s critics dismiss the reforms as an attempt to distract from his failures like rampant drug violence and a weak public healthcare system. His administration has also fallen short in addressing the country’s worsening water shortages.Yet Lopez Obrador’s populist package looks like a wining electoral strategy, Ocaranza said. “It has been a master move to dominate the conversation until election day,” he added.($1 = 17.0760 Mexican pesos) More

“We are very confident that the world economy is now poised for this soft landing we have been dreaming for,” after some of the sharpest interest rate hikes in decades, Georgieva said at the World Governments Summit in Dubai.On the prospect of interest rates being cut in leading economies like the United States, she added: “I expect to see by mid year interest rates going in the direction inflation has been going on for the last year.”She cautioned to expect the unexpected in the wake of the COVID-19 pandemic and said a prolonged war between Israel and Hamas would impact global economies.”I fear most a longevity of the conflict because (if) it goes on and on the risk of spillovers go up,” the IMF chief said. “Right now we see a risk of spillover from the Suez Canal,” she said referring to recent attacks on ships in the Red Sea. “But if there are other unintended consequences in terms of where the fighting goes, then it can become much more problematic for the world as a whole.” More

“The U.S. real estate sector is actually pretty sophisticated,” Mensah said at the World Government Summit in Dubai. “It’s had its booms and busts. I suspect some of those assets will need recapitalisation, or they may need restructuring. But the market is pretty efficient.” “I don’t see anything systemic – famous last words – in that sector,” he added. A sell-off in regional U.S. bank stocks triggered by New York Community Bancorp (NYSE:NYCB) this month has brought exposure to commercial real estate in focus for analysts and investors.The industry has grappled with looming losses on commercial real estate loan books since early 2023, as the sector faced financing difficulties amid high interest rates and lower office occupancy due to widespread adoption of remote work.U.S. Treasury Secretary Janet Yellen said last week she was concerned about looming commercial real estate stresses on banks and property owners, adding that she believed the situation is manageable with assistance from bank regulators. More

Here’s your week ahead primer in world markets from Rae Wee in Singapore, Ira Iosebashvili in New York, and Amanda Cooper, Naomi Rovnick and Alexander Marrow in London. 1/ NOT YET For traders trying to bet on the timing of a first U.S. rate cut, life has not been made easy by an outperforming economy that could fuel a much-feared inflationary rebound.January’s stellar jobs number was just one sign that the U.S. economy is exceeding expectations. Its unexpected strength has fueled caution at the Federal Reserve, which has poured cold water on expectations of a March rate cut, lifting Treasury yields and the dollar.So, attention falls on Tuesday’s January inflation data. Any signs that price pressures are gaining momentum again could push rate cut bets further into the future. Economists polled by Reuters expect a 0.2% rise in consumer prices on a monthly basis, after December’s 0.3% increase. 2/ TOP DOLLARAn exceptional U.S. economy means an exceptional dollar. As 2023 ended, market-watchers were certain the U.S. currency was headed one way this year, south, with traders expecting as many as six Fed rate cuts in 2024. Now, powered by blockbuster jobs growth, a flourishing services sector, cooling inflation, a bottoming-out in lending conditions and a roaring stock market, just four are fully priced in. The dollar is at three-month highs, leaving competitor currencies, whose central banks are juggling slowing inflation and slowing growth, in the dust. Not a single G10 currency is in positive territory against the dollar so far this year. Investors are still not holding a net bullish position in the dollar either, suggesting that, if the gap between the U.S. economy and the rest of the world keeps widening, the greenback could get a fresh tailwind. 3/ NOT SO HASTY The Bank of England has held back from calling time on high rates. UK jobs data may see it fall further behind the more dovish U.S. Fed and European Central Bank. Recent revisions to labour data from November showed that the UK’s unemployment rate was running lower than previously thought. This, according to researchers at Pantheon Macroeconomics, means that UK jobless figures out Feb. 13 could undershoot the BoE’s 4.3% estimate. UK inflation figures on Feb. 14 could further complicate the monetary policy outlook. The BoE reckons inflation will return to its 2% target this year but has warned it could rise again in the third quarter. Money markets have pushed out the timing of a first BoE rate cut to June from May. Pantheon sees UK rates at 4.5% by December from 5.25% now, but warns “the risks that initial cut comes later are rising.” 4/ JOKOWI’S LEGACY Indonesians head to the polls on Wednesday to elect the next leader of the world’s third-largest democracy as Joko Widodo gets ready to step down as president after a decade in power. Three candidates are in the race to succeed Jokowi, as the popular president is known, and polls suggest Defence Minister Prabowo Subianto is the candidate to beat.Jokowi, not allowed to seek re-election after two terms, leaves behind a legacy of policies that have helped the trillion-dollar G20 economy thrive: from massive infrastructure projects to social welfare programmes.Yet, it’s not all smooth sailing. Rule changes allowing Jokowi’s son to run with Prabowo has sowed cabinet discontent and speculation that the widely-respected finance minister could quit.Indonesian markets, which have been resilient in the face of global rate hikes, are rattled. The rupiah has slumped almost 2% so far this year. 5/ TAKE A BREAK It may be time to take a break for Russia’s central bank at its Feb. 16 meeting. Policymakers have hiked rates by 850 bps to 16% since July to tackle inflation fanned by labour shortages, rouble weakness and high budget spending.With President Vladimir Putin seeking re-election in March, just over two years after the invasion of Ukraine unleashed sanctions and severed Russia from the global financial fabric, the central bank faces the daunting task of zapping inflation without adding to borrowing costs for consumers and businesses. It is also at odds with the Kremlin over the benefit of extending capital controls that have supported the rouble since October and opposes a push for an extension, but will likely be overruled. Russian internet firm Yandex (NASDAQ:YNDX)’s Dutch holding company meanwhile just announced a $5.2-billion cash and shares deal to hand over Yandex’s Russian business to domestic buyers. (Graphics by Vineet Sachdev, Kripa Jayaram, Prinz Magtulis, Riddhima Talwani and Sumanta Sen; Compiled by Dhara Ranasinghe; Editing by Christian Schmollinger) More

ORLANDO, Florida (Reuters) -An engine of world growth for 20 years, the largest consumer of commodities and world’s number two economy has somehow slipped into “alternative investment” buckets for many global investors. China’s property bust and increasingly interventionist government, along with deepening geopolitical fissures with the United States, have dramatically dimmed its allure as a destination for international capital.China may not yet be “uninvestable”, as U.S. Commerce Secretary Gina Raimondo suggested U.S. companies believe, but many investors are recategorizing their reduced exposure – in some cases to alternative investment.”Alts” are typically assets outside the traditional stocks, bonds and cash buckets, like hedge funds, real estate and private equity. They are often riskier but potentially more lucrative bets, and are attractive for their diversification and hedging qualities.Crucially, they are non-correlated with traditional assets. This is where many investors see Chinese stocks and bonds now – a non-correlated, idiosyncratic play, effectively a hedge against their core bets.That was the anecdotal evidence garnered from investors, asset managers and allocators on the sidelines of the recent “Hedge Fund Week” conferences in Miami. It is also supported by global capital flows trends.One fund manager said he may put 5-10% of his portfolio in Chinese stocks but is fully prepared to lose it. A hedge fund manager overseeing billions of dollars of assets said he likes China’s “idiosyncrasies” and diversification qualities but noted that his investors’ money is mostly offshore, not onshore.Alex Lennard, fund manager at Ruffer, admitted that the economic climate in China is “clearly awful” but his firm is putting money there, essentially as a hedge. “It’s a small part of our portfolio, about 4%, but it does provide an offset to some of the other market ‘certainties’ that exist,” Lennard said. It’s worth noting that they are relative optimists on China. The wider consensus is far gloomier.OUTFLOWS, OUTFLOWS, OUTFLOWS According to Morningstar Direct, U.S. equity funds’ average asset-weighted exposure to Chinese stocks in December last year was 1.38%, down from 2.17% three years earlier, while their average equal-weighted exposure is down to 3.5% from 4.13%.U.S. emerging market funds’ allocation to China as a share of total EM exposure declined to 20.6% from 28.6% on an asset-weighted basis, and to 20% from 26% on an equal-weighted basis. It is a similar pattern across global emerging market funds. The China portion as a share of their overall EM equity allocation has fallen to 19.5% from 27.1% on an asset-weighted basis and to 21% from 25.5% on an equal-weighted basis, according to Morningstar Data.Demand for Chinese bonds should be stronger though, right? China is included in the $1.2 trillion benchmark JP Morgan EMBI Global Diversified bond index, and there is now an in-built demand for Chinese bonds from the yuan’s emergence in recent years as an alternative international reserve currency. But China’s share of the $12 trillion global FX reserves pie has slipped to a four-year low of 2.37%, and has never been higher than 2.83%, according to the International Monetary Fund.Figures from the Institute of International Finance show outflows from Chinese debt portfolios for seven straight months and only three monthly inflows in the last two years. Emerging market ex-China debt funds, meanwhile, have attracted inflows for the past seven months and in January drew in $47.3 billion, the most since October 2022 and one of the highest on record.Whichever way you slice it, investors of all stripes are taking chips off the Chinese table. BURST OPTIMISMThis is not how many thought it would pan out. A Greenwich Associates survey of institutional money managers in 2020 showed that pension funds and endowments had 3-5% allocations to China and only 5% of North American institutions had any dedicated exposure to Chinese stocks.Nearly a quarter of respondents said they planned to increase or significantly increase their dedicated allocation to Chinese equities in the next three to five years.Liang Yin, investment director at Willis Towers Watson (NASDAQ:WTW), wrote in November that year that investors should consider raising their allocation to China to around 20% over the next decade.But Beijing’s closer alignment with Moscow, fraying relations with Washington, and a strengthening interventionist hand in business and markets at home have scared a lot of horses.The findings of a recent survey by the Official Monetary and Financial Institutions Forum of 22 public pension and sovereign wealth funds managing $4.3 trillion in assets were startling – not one had a positive outlook for China’s economy or saw higher relative returns there. (The opinions expressed here are those of the author, a columnist for Reuters.)(By Jamie McGeever;Editing by Kylie MacLellan) More

As markets boost their bets on interest rate cuts this year, investors are heavily focused on exactly how low borrowing costs will ultimately fall as the inflationary menace retreats. Central banks including the Federal Reserve and European Central Bank will be influenced by an elusive and controversial concept: the so-called neutral rate of interest — the borrowing rate that keeps economies growing steadily, with full employment and inflation around 2 per cent. After falling to rock-bottom levels before the pandemic, the neutral rate has, by some measures, edged up more recently. This could suggest official rates will not head as low as their pre-pandemic levels, even as inflation eases.  “Whether you are a bank or business or government or household, I don’t think you should expect interest rates to go back to pre-Covid levels, so there’s an adjustment to come,” said Bank of Canada governor Tiff Macklem, speaking before his central bank’s recent policy decision. “There are a number of things suggesting that the neutral rate could be higher.”Why is the neutral rate so important? The neutral rate is not directly set by central banks, and they cannot reliably observe where it is. But for many economists the inflation-adjusted neutral rate — known by a range of other labels including the natural or equilibrium rate or R-star — is a valuable guiding light. If the official interest rate sits above it, central bankers consider policy to be restricting economic activity; below it, policy is deemed to be expansionary. The neutral rate’s value is highly contested, however. There is no consensus on a single model for estimating its level or future direction. Some central bankers are therefore wary of giving it undue weight. The rate can be valuable when seen in the “rear-view mirror” to assess an economy’s past performance, said Bert Colijn, a senior economist at ING bank, but it is less helpful as a guide for future policy decisions. “The reality is that it is very difficult to determine where it is,” he said. “It is constantly moving.” What level is the neutral rate? The lower neutral rates of recent decades were driven by a range of long-term factors, including subdued productivity growth, a glut of savings swilling around the world and an ageing population that boosted the stockpiles of cash stored away for retirement. One widely used estimate, from the New York Fed, points to a multi-decades-long decline in inflation-adjusted neutral rates in both the US and euro area that shows no sign of reversing. This put R-star in the US at the third quarter of last year at 0.9 per cent before inflation — a big fall from levels approaching 4 per cent at the start of the millennium. Canada’s inflation-adjusted neutral rate was 1.5 per cent and the eurozone’s was -0.7 per cent, according to their model. Other methodologies for estimating the neutral rate point to similar declines.Some economists see signs that the R-star has risen. Megan Greene, an external member of the Bank of England’s Monetary Policy Committee, argued in November that the neutral rate might have edged up in the medium term as a result of rising public debt and increased investment in areas such as the green transition. Where do things stand in the US? While Fed officials acknowledge that, at a 23-year high of 5.25-5.5 per cent, their benchmark federal funds target rate is way into restrictive territory, that does not mean they are willing to use assessments of the neutral rate to guide policy decisions. Instead, they are led more by what current data tells them about the balance between consumer price pressures and the labour market. But official Fed projections suggest that some rate-setters believe the neutral rate is creeping up. Directly before the pandemic, the so-called “central tendency” estimates for the longer-run federal funds target range lay between 2.4 per cent and 2.8 per cent, implying policymakers believed R-star lay between 0.4 per cent and 0.8 per cent when taking into account the Fed’s 2 per cent inflation goal. But the most recent projections show a range between 2.5 per cent and 3 per cent, or 0.5 per cent and 1 per cent for R-star. Raphael Bostic, president of the Atlanta Fed, is one such official. “My sense is that the neutral rate has increased to somewhere between 2.5 to 3 per cent” including 2 per cent inflation, he said. “We’re actually having arguments about that in the [Atlanta Fed] building.” What about the eurozone? Most economists agree the neutral rate for the eurozone fell in the decade after the 2008 financial crisis, as governments, businesses and households reduced debt levels, while population growth slowed and productivity declined. This forced the ECB to cut rates into negative territory to fight off deflation. The big question is whether the 20-country bloc will become mired in the same trap of low growth and low inflation again.“Those factors that were also weighing on R-star — lower birth rates and lower productivity — have not abated,” said Jens Eisenschmidt, a former ECB economist now at Morgan Stanley. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.However, ECB executive board member Isabel Schnabel told the Financial Times this month: “There are good reasons to believe that the global R-star is going to move up relative to the post-financial crisis period.” She predicted that higher investment to tackle climate change, increased defence spending, the fragmentation of the global trading system and higher government debt would all push up the neutral rate of interest.Schnabel said uncertainty over R-star meant that once the ECB started to cut rates it should “proceed cautiously in small steps” and “may even need to pause on the way down if inflation proves sticky”. ECB officials published a paper this week outlining how the median of the various measures of the neutral rate that it tracks had risen 0.3 percentage points since before the pandemic hit in 2020. But they said the estimates “still signal risks” that the ECB policy rate may need to fall back towards or even below zero in future, warning that inferences about movements in R-star remain subject to “high uncertainty”. ING’s Colijn said that while the neutral rate was “attractive conceptually, it is very difficult to actually use as an anchor for monetary policy”. More

(Reuters) -Australia’s ANZ Group said on Monday its first-quarter group revenue was in line with the quarterly average of first-half fiscal 2023 revenue, driven by its institutional division’s markets business, lifting shares to their highest in 22 months. Shares of the Melbourne-listed lender rose nearly 1% to A$27.93, as of 2320 GMT, to hit their highest levels since April 21, 2022; as against the broader benchmark’s 0.3% drop. Surging demand for its institutional banking services pushed Australia’s fourth-biggest lender to post a record annual profit last year, as it benefited from a payments platform that processes big cross-border transactions. “The institutional division’s markets business had a good start to the year with revenues a little better than the first-half FY23 average of A$575 million ($374.73 million),” the company said in a statement on Monday.It also added that its lending growth across its Australian retail and consumer franchises were robust, fueled by customer deposits, and is continuing to boost Australian home loan book profits. ANZ Group added A$8 billion in customer deposits across its retail and commercial divisions in Australia, even as its institutional deposits fell by A$3 billion. The bank’s first-quarter revenue was in line with the quarterly average of the previous fiscal year’s first half of A$5.26 billion, the company said in a limited quarterly update that did not provide a profit number.”1Q24 group revenue was in line with the 1H23 quarterly average and consequently slightly better than we expected,” analysts from Citi said in a client note. “This will be received as an in-line disclosure given the share price rally into the result and generally benign financials,” the analysts said. The bank’s common equity tier 1 ratio, however, fell to 13.1% at the end of December 2023, compared with 13.3% at the end of last September.($1 = 1.5344 Australian dollars) More