Aurelia Butler

Optimism is still running high in markets, but a degree of caution means bonds may be gearing up for a strong month, even in a bumper earnings season for stocks.Here’s a look at the week ahead in world markets from Rae Wee in Singapore, Lewis Krauskopf in New York and Dhara Ranasinghe, Karin Strohecker and Amanda Cooper in London.1/TOPSY TURVYIf stocks outshone bonds in January, the reverse may be true for February.Dashed hopes of an early U.S. rate cut and a fresh slide in U.S. regional bank stocks — reviving memories of the March banking crisis — has suddenly cast a pall over stocks. Yes, world equity markets ended last month higher, but note the S&P 500 on Wednesday – and post-Fed meeting – closed with its steepest daily loss since Sept. 21.Government bond markets, where yields ended January mostly higher, have been boosted by the safety bid and growing signs that big economies – think U.S. ADP employment index, euro zone and China factory activity – are weakening. This should set the tone for the week ahead, with central-bank talk in focus. And the decoupling of bonds and stocks that began at the start of 2024 should continue. 2/THE DISINFLATION DRAGONChinese inflation data on Thursday will be the next test of the health of its economy, which is plagued by persistently weak demand, a beleaguered property sector and fragile investor sentiment.January’s producer and consumer price inflation figures are likely to underscore the country’s struggling recovery, though the bigger question will be whether deflationary pressures have intensified.Chinese markets have already had a brutal start to the year. The blue-chip index ended January down 6%, marking a record six-month losing streak.Beijing’s recent support measures seemed to have reassured investors for now and the expectation for further stimulus has driven the benchmark 10-year Chinese government bond yield to a two-decade low. As the Year of the Dragon looms, some are hoping the buzz of the annual travel rush might be a shot in the arm for animal spirits to come roaring – or creeping – back. 3/EARNINGS SPOTLIGHT Another big week of U.S. corporate results will help determine if the rally that has taken stocks to record highs can keep going. While most of the big tech head-liners have already reported for this period, the coming days still bring a huge batch of S&P 500 companies giving quarterly updates, including Eli Lilly (NYSE:LLY), Walt Disney (NYSE:DIS), ConocoPhillips (NYSE:COP) and PepsiCo (NASDAQ:PEP). S&P 500 companies are on pace to have increased fourth-quarter earnings by 6.1% year-on-year, according to LSEG data as of Jan 31. So far, 80% have reported earnings above expectations, compared with the 76% average beat rate of the past four quarters. Investors will be paying attention to any insight companies give about 2024, with earnings expected to grow faster than in 2023. 4/IDEAL HOMESThe UK has kept calm and avoided recession. Inflation is falling, wages are holding up and borrowing rates are starting to ease. Coming days bring data on how consumers are spending their money, with new car sales and mortgage rates, but also property prices and activity. If there is one thing the Brits love, it is their homes. Some of the biggest builders report earnings, including Barratt, Redrow and Bellway (LON:BWY). Last quarter, major builders issued fairly dire warnings about 2024. Yet there could be a glimmer of hope. A measure of home affordability fell late in 2023 to its lowest since 2015 in real terms, according to home loans provider Halifax. Bank of England January data showed British lenders approved the most mortgages since June, while mortgage rates fell for the first time in over three years.5/BIG VOTES, SMALL CHANGESThe 2024 election cycle cranks up a gear, with some of the world’s most populous nations heading to the polls. Pakistan’s general election is scheduled for Thursday amid a flare-up in violence. The country battles an economic crisis with inflation running at almost 30%, a weak currency and a government that will have to navigate a recovery under a $3 billion International Monetary Fund bailout that runs out in April. Ex-prime minister Nawaz Sharif is considered the front-runner with his main rival, former premier Imran Khan, jailed and barred from running. Voters in Indonesia, the world’s third-largest democracy heads to an election on Feb. 14, with front-runner Prabowo Subianto expected to clinch victory. Meanwhile, El Salvador’s President Nayib Bukele, who calls himself the “World’s Coolest Dictator”, looks set for a landslide win on Sunday, despite a constitutional bar on immediate re-election, voter worries about the economy, and criticism of his draconian crackdown on civil and human rights. More

ISTANBUL (Reuters) -Turkey’s central bank governor Hafize Gaye Erkan resigned on Friday, citing a need to protect her family amid a “reputation assassination”, and she was swiftly replaced by a deputy who is expected to carry on her tight policy stance.President Tayyip Erdogan – who hired Erkan eight months ago to pivot away from years of inflation-fuelling low interest rates to a more orthodox policy – named Deputy Governor Fatih Karahan to take the reins, the Official Gazette said early on Saturday, two hours after the surprise resignation.The personnel changes at the helm of Turkey’s economy came as Erkan’s aggressive interest rate hikes had begun cooling inflation expectations after a years-long cost-of-living crisis for Turks. The first woman to lead the central bank, Erkan was its fifth governor in as many years. Erdogan fired the last four, eroding the institution’s independence and sowing concerns about dysfunction. But late on Friday, cabinet leaders quickly said that the economic programme will carry on after Erkan’s departure.Karahan, a former Federal Reserve Bank of New York economist, was appointed deputy in July and is seen as a capable successor who played a big role in engineering the monetary tightening. Erkan, a former U.S. bank executive, began raising rates when she was appointed in June, launching a 180-degree pivot away from years of low rates under Erdogan that had sent inflation soaring and foreign investors fleeing. Since then the central bank had hiked its key rate to 45% from 8.5%. Last week, after another 250 basis-point rise, it said it had tightened enough to achieve disinflation, signalling a halt.Erkan said that “our economic programme has started to bear fruit”, citing rising foreign reserves and expectations that inflation will begin cooling around mid-year “as proof of this success”.”Despite all these positive developments, as is known to the public, a major reputation assassination campaign has recently been organised against me,” she added on social media platform X.”In order to prevent my family and my innocent child, who is not even one and a half years old, from being further affected by this, I have asked our President to pardon me from my duty.” Last month, opposition newspaper Sozcu published an article about a central bank employee who said she was wrongfully dismissed from the bank by Erkan’s father. In response at the time, Erkan said that an “unfounded” news story targeting her, her family and the bank was “unacceptable” and vowed to exercise her legal rights against those responsible. Erdogan later decried efforts to spread “rumours” meant to undermine economic progress, in an apparent endorsement of Erkan.CONFIDENCE Finance Minister Mehmet Simsek said Erkan’s resignation was her personal decision and the economic programme will carry on uninterrupted. Just hours before Karahan’s appointment was announced, Simsek said the new governor would be “a well respected macroeconomist with an extraordinary depth of knowledge and expertise,” and was appointed in line with his recommendation. Karahan has a doctorate in economics from the University of Pennsylvania and was a principal economist at Amazon (NASDAQ:AMZN) in 2022. The Official Gazette notice naming him also said Erdogan “dismissed” Erkan. Simsek said Erdogan continues to back the economic team and programme, a sentiment echoed in a separate statement by Turkish Vice President Cevdet Yilmaz. Inflation neared 65% last month and is expected to begin dipping around June, spelling some relief for Turks after years in which rent and other basic needs became unaffordable for many. Foreign investors, including world heavyweights Pimco and Vanguard, began buying Turkish assets late last year in a strong signal of confidence in Erkan and Simsek’s programme. Erkan’s resignation “may have been due to personal reasons but it will make investors a little sceptical until they see proof that the policies they have been pursuing remain,” said Jeff Grills, head of emerging market debt at Aegon (NYSE:AEG) Asset Management, referring to nagging worries that Erdogan could again return to rate cuts.But Serkan Gonencler, chief economist at financial firm Gedik Yatirim, said the assurances from cabinet leaders “relieve concerns about the continuity of the economic program”. Since 2018, Erdogan had overseen a policy of slashing interest rates in the face of soaring inflation, setting off a series of currency crises and prompting authorities to tighten their grip on foreign exchange, debt and credit markets. But after his re-election in May, Erdogan named a new cabinet and Erkan as central bank chief and backed the pivot to orthodoxy. More

Karahan’s appointment came hours after central bank governor Hafize Gaye Erkan announced her resignation on Friday night on X, citing in part a need to protect her family amid a “reputation assassination”.Fatih Karahan, 42, has a University of Pennsylvania economics PhD and worked as an economist at the Federal Reserve Bank of New York for almost a decade, according to his biography on the central bank website.Karahan also taught as an adjunct professor at Columbia University and New York University and worked for Amazon (NASDAQ:AMZN) as a principal economist in 2022.Erdogan had appointed Karahan as one of the three new deputy governors to the central bank in July last year. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The US economy added 353,000 jobs in January, almost twice as many as forecast, in “stunning” figures that led investors to slash expectations for interest rate cut in March.Economists had expected a 180,000 jobs increase for last month, according to an LSEG survey.Tom Simons, US economist at Jefferies, described the figures as “stunning numbers” that left him “near speechless”.Analysts said the figures gave greater weight to the US Federal Reserve’s insistence that it may be too soon to cut interest rates, despite attacks on Fed chair Jay Powell by Republican presidential frontrunner Donald Trump.After the data’s publication, futures traders scaled back bets that the Fed would cut interest rates in March. Expectations of a cut fell to about 20 per cent, compared with 37 per cent before the report. “Barring some kind of exogenous shock, this removes the possibility of a rate cut in March,” said Simons of the labour data. “A cut in March would be unthinkable.”Traders also reduced their bets on interest rate cut in May, putting the odds at around 88 per cent. Before the report, a cut in May had been fully priced in.Stephen Stanley, chief US economist at Santander, said that although January’s 353,000 jobs figure was “exaggerated by seasonality”, the data was “strong across the board”. Treasury yields jumped as the markets backtracked on their expectations of early rate cuts. The two-year Treasury yield, which moves with interest rate expectations, was up 0.18 percentage points to 4.37 per cent. Powell sought earlier in the week to cool speculation about a March rate cut, warning that it was not the central bank’s “base case”.“Powell killed a March cut. The jobs number buried it,” said Robert Tipp, chief investment strategist at PGIM Fixed Income.Late on Friday afternoon, Michelle Bowman, a governor at the Fed, confirmed that the hot US labour market was now one of the main “upside” risks to officials’ hopes that inflation would soon hit their 2 per cent goal. The tightness in the jobs market “could lead to persistently high core services inflation”, Bowman said, adding that “some businesses continue to report above-average wage increases to compensate for inflation”.Highlighting the politically charged choice facing the US central bank, Trumpaccused Powell on Friday of seeking to lower rates to boost President Joe Biden’s electoral chances.“I think he’s going to do something to probably help the Democrats,” the Republican frontrunner told an interviewer, adding he would not reappoint the Fed chair.The S&P 500 gained 1.1 per cent on Friday to a record high as a surge in tech stocks helped the market shrug off the change in interest rate expectations.Meta shares climbed 20.3 per cent higher after the tech giant’s fourth-quarter sales and outlook exceeded forecasts, alongside the surprise introduction of its first quarterly dividend. Amazon rose 7.9 per cent.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Friday’s jobs report by the Bureau of Labor Statistics also showed that US workers’ average hourly wages grew 0.6 per cent to $34.55 — up 4.5 per cent over the past 12 months.Revised figures in the report indicated that the US had added 333,000 jobs in December, up from a first estimate of 216,000. The figure for November was also upgraded, by a more moderate 9,000 to 182,000. Some economists suggested that the dramatic gains in January’s jobs figures — a phenomenon that also occurred last year — may have been exaggerated by seasonal hiring. The seasonal adjustment methodology “has not caught up with the patterns in the real economy”, said Eric Winograd, senior economist for fixed income at AllianceBernstein.Until now, the Fed had been encouraged by signs that the labour market was cooling down. Referring to this week’s Employment Cost Index figures, which indicated wage rises were moderating, Powell said on Wednesday that the US was “still a good labour market for wages and for finding a job, but [was] getting back into balance and that’s what we want to see”. More

WASHINGTON (Reuters) -The United States on Friday imposed sanctions targeting Iran’s ballistic missile and drone procurement programs as well as officials it said were involved in hacking U.S. infrastructure, as Washington looks to increase pressure on Tehran.The U.S. Treasury Department said in a statement it had imposed sanctions on four Iran- and Hong Kong-based companies involved in providing materials and technology to Iran’s ballistic missile and drone programs as well as a Hong Kong-based firm for selling Iranian commodities to Chinese entities.The Treasury also said it placed sanctions on six officials of Iran’s Islamic Revolutionary Guard Corp’s Cyber Electronic Command (IRGC-CEC) for malicious cyber activities against critical infrastructure in the United States and elsewhere.Iran’s mission to the United Nations did not immediately respond to a request for comment. China’s embassy to the United States criticized the sanctions as “unlawful unilateral” steps.The sanctions, announced in separate statements, represent Washington’s latest efforts to punish Tehran, whose proxies in Iraq, Lebanon, Syria, Yemen and the Gaza Strip have attacked U.S. and Israeli targets.The United States blamed a weekend attack on a U.S. base in Jordan that killed three American soldiers and wounded more than 40 on Iran-backed militants and the Biden administration has promised a response that will include retaliatory strikes.The weekend attack was the first to kill U.S. troops in the Middle East since the start of the Israel-Hamas war in October after a cross-border rampage by Iran-backed Hamas militants that killed about 1,200 people.The Treasury said it had imposed sanctions the four Iran- and Hong Kong-based entities for operating as covert procurement entities for Iran’s Pishtazan Kavosh Gostar Boshra (PKGB) and its managing director Hamed Dehghan, who it said support Iranian military organizations, including the Islamic Revolutionary Guard Corps (IRGC). The Treasury named the three Hong Kong firms it accused of being part of the procurement network for Iran’s ballistic missile and drone programs as FY International Trading Co., Limited, Duling Technology HK Limited and Advantage Trading Co., Limited.Hong Kong-based China Oil and Petroleum Company Limited was also hit with sanctions on Friday, with the Treasury accusing it of being a front company for the IRGC’s Quds Force. The Treasury said it has arranged contracts and sold hundreds of millions of dollars’ worth of Iranian commodities and was involved in trade with China-based entities to benefit the Quds Force.Liu Pengyu, a spokesperson for the Chinese embassy in Washington, criticized the sanctions.”These are typical acts of putting unlawful unilateral sanctions and long-arm jurisdiction, severely undercutting Chinese interests,” Liu said. “China is deeply concerned and firmly against … such moves.”Narin Sepehr Mobin Istatis (NSMI), an Iran-based subsidiary of PKGB, was also among those sanctioned in Friday’s action, which freezes any U.S. assets belonging to those targeted and generally bars Americans from dealing with them. Those that engage in certain transactions with them also risk being hit with sanctions.In a separate statement, the Treasury said it had imposed sanctions on six IRGC-CEC officials: Hamid Reza Lashgarian, Mahdi Lashgarian, Hamid Homayunfal, Milad Mansuri, Mohammad Bagher Shirinkar, and Reza Mohammad Amin Saberian. More

(Reuters) -Federal Reserve policymakers seeking greater confidence that inflation is on track to their 2% goal may have gotten the opposite on Friday when data showed U.S. job growth surged last month at well above the pre-pandemic pace, and wage growth accelerated. The numbers – 353,000 new jobs added across a broad range of sectors and hourly earnings up 4.5% from a year earlier – do not put U.S. central bank officials off course for interest rate cuts later this year. But ongoing labor market strength could make the road to rate cuts a longer one. Revisions published Friday to last year’s data show the U.S. economy added 3.1 million jobs last year, more than the 2.7 million earlier estimated, despite the Fed’s aggressive rate hikes. This week, Fed Chair Jerome Powell said the job market need not necessarily weaken to get progress on inflation, which fell sharply from 5.5% at the start of last year, to 2.6% by the end by the Fed’s preferred measure.But continued outsized job gains could add to the Fed’s caution about easing policy too soon.”The Fed would be very wary of cutting into a reaccelerating economy,” wrote Evercore ISI economists. “Strong growth and employment makes the Fed want to accumulate more evidence subdued inflation can continue.”The central bank on Wednesday kept its benchmark overnight interest rate in the 5.25%-5.50% range, where it has been since July. Powell said that would likely mark the peak, and that rate cuts would only come once policymakers have “greater confidence that inflation is moving sustainably down to 2%.”Data delivering a sufficient degree of confidence was unlikely to be in hand before the Fed’s meeting next month, Powell said. Fed Governor Michelle Bowman, speaking at a banking conference late Friday in Hawaii, cautioned against cutting rates “too soon.” She said that the strong job growth suggested last year’s labor market rebalancing was stalling out and accelerating wage increases posed upside inflation risk. To Chicago Fed President Austan Goolsbee, though, the jobs report was reassuring.”We wouldn’t want to make much of any one month, but the continued strength of the labor market, if that continues, would lessen my worry that the job market side of our mandate is deteriorating,” Goolsbee told the Wall Street Journal in an interview. Rising worker productivity may mean Fed officials will need to rethink how much economic and employment growth can occur without stoking inflation, he said, according to the paper. So while some analysts may see the strong hiring as a reason for the Fed to wait on rate cuts, “you can’t really do that if there are positive supply shocks working their way through the system.” Some Wall Street analysts that had held on to their forecasts for a March rate cut abandoned those Friday in favor of May or June. Traders of rate-future contracts are now pricing in an 80% chance the Fed will leave rates on hold next month but begin a series of five quarter-point rate cuts at their April 30-May 1 meeting.REVISIONS, SKEPTICISMSome analysts downplayed the January jobs report, noting that statistical adjustments meant to account for seasonal patterns in hiring and firing may end up overstating the strength of job gains.Other recent data appears to encourage faith in inflation’s further decline this year along with worries about the labor market, including a string of strong productivity data and reports of rising layoffs. Analysts and Fed policymakers will watch next Friday’s annual revision to the estimates for consumer inflation, which fell by almost half to 3.4% by December. Last year’s update to the prior year’s consumer price index data erased what had looked like good progress on inflation in 2022, and Fed Governor Christopher Waller says he will be watching this year’s revisions closely. CBS’ “60 Minutes” program on Sunday will air an interview with Powell conducted on Thursday. It was not clear if the Fed chair, who gets early access to critical economic data, had the jobs report in hand at the time of the interview. More

WASHINGTON (Reuters) – U.S. President Joe Biden will put forth his proposed U.S. spending plan on March 11, according to the White House Office of Management and Budget.The document is a wish-list for how the government should spend its money in the fiscal year starting in October. It takes on special symbolic significance in a year when the Democratic president is seeking re-election.Congress would need to pass Biden’s proposals for them to take effect. Republican control of the House of Representatives, and particularly the influence of a hard-line group of Republicans loyal to likely Biden 2024 opponent Donald Trump, make agreement hard to come by.The two sides are currently in a standoff over immigration policy, with Republicans holding up an October request by Biden for $61 billion for Ukraine as it battles Russian invaders and $14 billion for Israel in the aftermath of the Oct. 7 raids by Hamas.Last March, Biden traveled to a union hall in the competitive election state of Pennsylvania to present a $6.8 trillion budget plan that included higher taxes on the wealthy and more spending from the military to healthcare subsidies.That plan was never enacted in any way close to the way the president proposed, with Biden and congressional lawmakers engaged in tense negotiations over short-term spending deals to prevent the government from having to shut down.Congress still has not fully funded the government for the current fiscal year, which ends in September.Last month, they signed their third stopgap funding bill, known as a “continuing resolution” or “CR,” which extends last fiscal year’s spending levels until two deadlines of March 1 and March 8 for various government agencies. Lawmakers will need to pass additional bills providing for the full-year budget. More

“My baseline outlook is that inflation will decline further with the policy rate held at the current level,” Bowman said in remarks prepared for delivery to a banking conference in Maui, Hawaii, noting that recent declines in inflation have been “encouraging.” If inflation continues to decline sustainably toward the Fed’s 2% goal, she said, “it will eventually become appropriate to gradually lower our policy rate to prevent monetary policy from becoming overly restrictive.”But stronger-than-expected job market data published Friday suggests a pickup in wage growth and a stalling out of last year’s progress toward labor market rebalancing, she said, adding that labor market tightness could keep underlying inflation elevated. “I will remain cautious in my approach to considering future changes in the stance of policy,” Bowman said. “Reducing our policy rate too soon could result in requiring further future policy rate increases to return inflation to 2 percent in the longer run.” Bowman voted with her Fed colleagues on Wednesday to keep the Fed’s policy rate on hold in the 5.25%-5.5% range, where it has been since last July. Most Fed policymakers expect a round of rate cuts this year, with markets currently betting they will begin at their April 30-May 1 meeting. More