Aurelia Butler

TOKYO (Reuters) – The U.S. dollar held firm on Friday after rising overnight, as traders weighed how domestic GDP data that surprised to the upside would impact the Federal Reserve’s rate path and awaited key inflation data later in the day. The euro, meanwhile, was on the backfoot following the European Central Bank’s (ECB) latest monetary policy meeting on Thursday which held interest rates at a record-high 4%.In the United States, official data on advance GDP estimate showed gross domestic product in the last quarter increased at a 3.3% annualized rate, overshooting the consensus forecast of 2% growth rate. It also showed inflation pressures subsiding further.”US GDP data re-affirmed soft landing hopes for the US economy, but the bond market focused more on the disinflation component of the report which pushed yields lower. The dollar, however, held up,” said Charu Chanana, head of currency strategy at Saxo in Singapore.The dollar index, which measures the greenback against a basket of major currencies, hovered around 103.52 after climbing about 0.2% overnight. It’s gained about 2% so far this year.U.S. Treasury yields slid, with the benchmark 10-year yield down at 4.11% in the Asian morning. [US/]Markets are betting there’s a 50% chance of a rate cut in March, according to the CME FedWatch tool, down from 75.6% a month ago. “Pressure on yields and dollar could increase if December PCE comes in softer than expectations today,” Chanana added.The euro was last $1.0841, after slipping to a six-week low of $1.08215 on Thursday.The ECB stood pat at its policy meeting on Thursday as expected, although traders piled on bets that the bank will cut interest rates from April as they interpreted policymakers are growing more comfortable with the inflation outlook.The ECB’s pushback against market bets of an April rate cut was “less direct and positive direction was noted on wages,” which pushed up expectations and “emphasises a bearish outlook for the euro,” said Chanana. Sterling consolidated around $1.2703. The Bank of England will announce its latest decision on interest rates next Thursday.Elsewhere, the was stuck around 147.56 per dollar, after it inched further down overnight from recent lows hit earlier this week after the Bank of Japan took a more hawkish tone. Data on Friday revealed core inflation in Japan’s capital slowed to 1.6% in January from a year earlier, below the central bank’s 2% target. “The plunge in inflation to well below 2% in Tokyo last month was broad-based, casting doubt on the Bank of Japan’s willingness to end negative interest rates,” Capital Market’s Head of Asia-Pacific Marcel Thieliant wrote in a note.The focus in coming months will be on whether wages will rise enough to underpin consumption and help Japan sustainably achieve the Bank of Japan’s 2% inflation.In cryptocurrencies, bitcoin last fell 0.1% to $39,858.20. More

TOKYO (Reuters) – Bank of Japan policymakers agreed to further debate the timing of an exit from its ultra-loose monetary policy, and the appropriate pace of interest rate hikes thereafter, minutes of their December meeting showed on Friday.In a sign they were already brainstorming ideas, some in the board said the BOJ could maintain its bond yield control as a loose framework even after pulling short-term interest rates out of negative territory, the minutes showed.”A few members said the BOJ will likely maintain massive monetary easing for some time, even after ending negative interest rates and yield curve control,” the minutes showed.The minutes add to recent growing signs the BOJ is gearing up for a near-term end to its negative interest rate policy and yield curve control (YCC).The BOJ maintained its ultra-loose monetary policy at the December meeting. It kept policy steady at a subsequent meeting on Tuesday but signalled its growing conviction that conditions for phasing out its huge stimulus were falling into place, suggesting that an end to negative interest rates was nearing. More

ORLANDO, Florida (Reuters) -A gradual financial disentangling of China and the United States after decades of symbiosis may reduce fears of ‘mutually assured financial destruction’ but also harden divisions in an increasingly polar global economy.Whether one or the other suffers more from that separation is under the microscope right now. But the mutual threat – especially China’s U.S. bond holdings – looks far less potent than once assumed. Since China’s return to the global economic stage in 2000, the wave of U.S. corporate and banking investment in the country was seemingly matched by China banking windfall savings from the resulting export and growth boom back into U.S. Treasury bonds.Channeling the old Cold War thesis of a stable nuclear arms rivalry, some saw ‘MAFD’ and the resulting inter-dependence as binding the two together and preventing any sudden fracture in the economic relationship. The circular thinking was that any political standoff that disturbed those investment flows would be so devastating to both in the highly integrated world economy that they would always step back from the brink.But that’s not quite how it has panned out.Following the trade wars of late 2010s, the pandemic shock and geopolitical rifts surrounding Ukraine and Taiwan, both sides have substantially reduced their respective financial footprints in the other. “Derisking,” in Washington parlance.While its debatable to what extent China’s current deep market disturbance is related to the rapid retreat of U.S. corporate and banking investment over the past two years, China’s hold on the U.S. bond market has loosened too.The latest figures show China held $782 billion of Treasuries in November – a large amount, but also around its smallest in 15 years and down significantly from the peaks of $1.3 trillion in 2011 and 2013.More importantly, China’s footprint in the U.S. bond market is a fraction of what it once was. China owns less than 3% of all outstanding Treasuries, the smallest share in 22 years, and again substantially down from the record 14% in 2011.Granted, China also likely holds Treasuries via other countries like Belgium. And an estimated 60% of China’s $3.24 trillion foreign reserves is in other dollar-denominated assets like agency bonds, shorter-term bills, and bank deposits. But Beijing’s influence over the U.S. bond market has waned.”China’s holdings are large enough that selling could in theory be very disruptive, although its hold over the market is not what it was relative to the past,” notes Alan Ruskin, macro strategist at Deutsche Bank.”But China has not shown any desire to be a disruptive force in this regard.” DECOUPLINGChina is not alone. The rise in overseas holdings of Treasuries to all-time highs of around $6.8 trillion is down to the private sector – global official holdings have fallen to a 12-year low around $3.4 trillion.The Treasury market is now a $26 trillion beast, twice as large as it was eight years ago and five times its size before Lehman Brothers collapsed in 2008. But China has steadily lagged its central bank peers, and Beijing’s share of all Treasuries owned by the official sector is now 21%. That’s the lowest since 2005, and well below the peak of 37.5% in 2011.There are signs that outright selling as well as valuation adjustments is shrinking China’s Treasuries portfolio.Deutsche Bank’s Ruskin estimates that China sold $15 billion in November, taking net selling over the last 12 months to $65 billion, flows that will support the notion that China is “decoupling from a key financial linkage with the US.” GO WITH THE FLOWIt is difficult to accurately track bilateral U.S.-China capital flows. Chinese companies list on non-Chinese exchanges, U.S. investors funnel funds into China via offshore financial centers, and there is the huge difference in liquidity and accessibility of Chinese ‘A’ shares and ‘H’ shares.But broad measures suggest the decoupling is going both ways. In the first nine months of last year U.S. investors sold a net $1.76 billion of Chinese financial assets, according to official U.S. quarterly balance of payments data. That was largely driven by equity selling. In calendar year 2022 they sold a net $9.5 billion of Chinese assets and the year before that they sold a whopping $67 billion. Both were driven by powerful equity outflows.U.S. companies have been pulling money out of China too.Official U.S. balance of payments data show that a net $5.6 billion of direct investment flowed back to the United States in the first nine months of last year, and in calendar year 2022 that flow totaled $12 billion.This tallies with China recording an $11.8 billion deficit in foreign direct investment in the third quarter last year, its first ever FDI deficit with the rest of the world. That was a marker.The United States and China start 2024 on very different financial and economic footings – the S&P 500 is at a record high; U.S. market outperformance over Chinese stocks is yawning; nominal U.S. GDP growth last year was probably higher than China’s; global money is flooding out of China and into America.As their financial co-dependence diminishes, China appears to be the more vulnerable of the two. Not what everyone would have predicted 20 years ago.(The opinions expressed here are those of the author, a columnist for Reuters.)(By Jamie McGeever; Editing by Andrea Ricci) More

LONDON (Reuters) – British consumers are their most confident since January 2022 as lower inflation helped them to feel better about their finances, a survey showed on Friday, welcome news for Prime Minister Rishi Sunak before a national election expected this year. The GfK consumer confidence index rose to -19 in January from -22 in December. A Reuters poll of economists had forecast a slightly smaller improvement to -21.”Despite the cost-of-living crisis still impacting many households across the UK, consumers appear to be encouraged by the positive news about falling inflation,” Joe Staton, client strategy director at GfK said. Sunak, who has suggested he will hold a national election in the second half of 2024, has promised to voters that he will get the economy growing again. While British inflation unexpectedly rose to 4% in December, denting investors’ hopes of quick interest rate cuts by the Bank of England, it is well below its peak of 11.1% in October 2022. The BoE is expected to hold its main Bank Rate at a nearly 16-year high of 5.25% next week after 14 consecutive increases between December 2021 and August 2023 but analysts are expecting a signal that the time for rate cuts might be approaching. GfK said all five of its confidence gauges rose in January with the outlook for personal finances in the next 12 months out of negative territory for the first time in two years with a reading of zero. “This significant change is the best single indicator for how the nation’s households feel about their income and expenditure,” Staton said. A measure of how consumers view the economy over the next 12 months increased by four points to -21.Friday’s survey contrasted with official data published last week, which showed the biggest fall in retail sales for nearly three years in December, raising the risk that the economy slipped into recession in late 2023. More

BENGALURU (Reuters) – Global growth is set to stay resilient this year and only pick up pace a bit in 2025, according to a Reuters poll of economists, a stable outlook at odds with still-relatively aggressive interest rate cut bets in financial markets.Growth among leading economies is not forecast to be consistent, with relative strength in the United States and India, and sluggishness expected from the euro zone, as well as No. 2 economy China.Economists more broadly are optimistic, however, there will not be a resurgence in inflation now most central banks have got price pressures down close to where they want them.The Jan. 3-25 Reuters polls covering 48 economies showed economists forecasting global growth at an average 2.6% in 2024: not boom times, but not recession either.This year’s view is only slightly weaker than an expected 3.0% rate for 2023 despite a rapid series of central bank rate hikes. This time last year, these same economists were too pessimistic, expecting just 2.1% growth.Global growth is forecast to accelerate to around 3.0% next year and also in 2026. And with a still-tight labour market across most of the developed world, resilient consumer and government spending, risks to growth were mostly to the upside.”If you look at the economic outlook for 2024, it’s easy to say reasons why it could be bad. But there’s no evidence of that in the data yet. There are plenty of reasons in the data already to suggest why it could be better than expectations…a similar story to 2023,” said James Pomeroy, global economist at HSBC.That may come as a disappointment to those in financial markets gunning for aggressive rate cuts.RATE CUTS FORECAST FROM MID-YEARTraders started to price in a first Federal Reserve interest rate cut in March after Chair Jerome Powell surprised markets and analysts at the December policy meeting by saying a discussion of cuts was coming “into view”.However, economists in Reuters polls since September 2023 have consistently predicted the first Fed rate cut will come around the middle of this year.Markets are already swinging back in that direction, with fed funds futures on Thursday implying around a 47% probability of a March Fed rate cut, down sharply from about 90% a month ago.So while interest rate reductions are coming, if economists’ forecasts are right, there won’t be so many.”I think the mistake the markets are making kind of broadly in the pricing is they’re pairing a forecast for rates that would, that could, prevail if we’re seeing a sharp slowing in the economy,” said Nathan Sheets, global chief economist at Citi, who expects a mild slowdown this year.”I don’t think the full force of the monetary policy tightening has been felt yet.”The rate cut trajectory was largely dependent on how quickly central banks will bring inflation down to their targets.A strong 77% majority of economists, 213 of 277, who answered a separate question said the risk of a significant resurgence in inflation over the coming six months was low (194) or very low (19). The remaining 64 said high or very high.While inflation has fallen sharply from over 10.0% in some countries to low single digits in the past year, the last leg down to target may not be a smooth ride simply because there is much more scope for small upside disappointments. “It did come down fairly dramatically, but it’s still above target in most major economies…(and) the reality is that underlying inflation is still sticky,” said Douglas Porter, chief economist at BMO Capital Markets.(For other stories from the Reuters global economic poll:) More

(Reuters) -Levi Strauss & Co forecast annual sales and profit below Wall Street expectations on Thursday, and said it would cut 10% to 15% of global corporate jobs as the denim maker seeks to rein in costs amid weakness in its wholesale business. Levi attributed the weak forecast to plans to exit its Denizen brand and cut back on off-price sales, as well as weaker foreign currency exchange rates and the final liquidation of its Russia business. The company also missed fourth-quarter revenue estimates.The fallout of an inventory glut last year and consumers feeling the pinch from inflation are a drag on the company’s wholesale channel and outweighing the gains in its direct-to-consumer (DTC) business. Levi’s (NYSE:LEVI) incoming CEO, Michelle Gass, said the company’s U.S. wholesale business improved over its last quarter and is expected to show growth in the second half of 2024. However, unpredictable consumer demand meant Levi’s would continue to be conservative in its outlook, she told investors in a post-earnings conference call.”We’re encouraged, but as it relates to that channel, we’re not declaring victory yet,” Gass said. “There’s been a lot of volatility this past year … so we are taking a cautious approach as we look forward.” Phasing out the Denizen brand, which is more inexpensive than other Levi products and sells at a lower margin, would allow the company to focus more on expanded product categories, including lighter-weight denim and athletic wear, according to Chief Financial and Growth Officer Harmit Singh. “They want to make (Levi’s) more upscale,” said Rachel Wolff, an analyst at Insider Intelligence. “It’s a strategic decision as they try to move up-market and appeal to a more premium consumer.” Singh also told investors that Levi’s is experiencing delays of 10 to 14 days in transit times as a result of continued disruptions to Red Sea shipping. The company has shifted some U.S. shipments to the West Coast, a route that avoids the Red Sea and Suez Canal.Shares of the company were down 1.7% in after-hours trading on Thursday. Sales in Levi’s total wholesale business, which accounted for about 62% of its net revenue in 2022, dipped 3% on a constant-currency basis in the quarter ended Nov. 26. The layoffs are set to occur in the first half of 2024, and, coupled with more DTC-focused initiatives, would generate net cost savings of $100 million in 2024. The company will take a $110 million to $120 million charge related to the job cuts in the current quarter.”We’re in a soft demand environment and I think that’s reflected in the cost-cutting announcement,” said Mari Shor, a senior equity analyst at Columbia Threadneedle Investments. “It’s a signal they don’t feel great about the topline and are looking for other ways to cut expenses.”Levi has about 20,000 workers globally, with roughly 5,000 corporate employees.The company projected fiscal 2024 net revenue growth of 1% to 3%, compared with analysts’ estimate for a 4.7% increase to $6.49 billion, according to LSEG data. Levi’s expects adjusted per-share profit of $1.15 to $1.25, lower than estimates of $1.33. More

TOKYO (Reuters) – Core inflation in Japan’s capital slowed below the central bank’s 2% target to hit the lowest level in nearly two years, data showed on Friday, underscoring policymakers’ view that cost-push pressures will continue to ease in coming months.The focus shifts to whether wages will rise enough to underpin consumption and help Japan sustainably achieve the Bank of Japan’s 2% inflation, which it describes as a prerequisite for phasing out its massive monetary stimulus, analysts say.The core consumer price index (CPI) in Tokyo, a leading indicator of nationwide inflation trends, rose 1.6% in January from a year earlier, government data showed, slower than a median market forecast for a 1.9% gain. The Tokyo core inflation, which excludes volatile fresh food but includes fuel costs, slowed for the third straight month to the lowest level since March 2022, due mostly to falling energy prices. It followed a 2.1% rise in December. The so-called “core core” index that strips away both fresh food and fuel prices – closely watched by the BOJ as a gauge of broader price trends – rose 3.1% in January after increasing 3.5% in December, the data also showed. With inflation having exceeded the BOJ’s 2% inflation target for more than a year, many market players expect the bank to end negative interest rates this year with a growing number of them betting on this to happen in March or April.The BOJ has pledged to keep ultra-loose policy until the recent cost-push inflation is replaced by price rises driven by robust domestic demand, accompanied by higher wages.The central bank maintained its ultra-easy monetary settings on Tuesday but signalled its growing conviction that conditions for phasing out its huge stimulus were falling into place, suggesting that an end to negative rates was nearing. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK consumer confidence reached a two-year high in January, according to research company GfK, in the latest positive sign for the economy.The consumer confidence index, which measures people’s views of their finances as well as their view on broader economic prospects, rose three points month on month to minus 19, the highest level since January 2022.This was the third consecutive month-on-month increase and followed the release of January’s purchasing manager index last week, which showed economic activity rising at the fastest pace in seven months.Economists said the findings suggested that January’s cut in national insurance, falling mortgage rates and rising real wages were helping consumer sentiment despite the cost of living crisis still hurting household budgets.“What really stands out is consumer expectations of personal finance for the next 12 months, which is positive for the first time in two years,” said Joe Staton, client strategy director at GfK. “That shows that things are heading in the right direction and that people are more likely to spend.”The rise in consumer confidence in the UK compares with a larger-than-expected drop in the eurozone, according to data released earlier in the week. But an improvement in consumer sentiment does not always feed through to the economy. December retail sales in the UK fell at a surprisingly fast rate, despite GfK’s confidence index ticking upwards.“Economic momentum in the UK is clearly improving,” said Tomasz Wieladek, an economist at T Rowe Price. “However, the headwinds to consumer confidence could become more powerful in the future, especially if supply chain restrictions become greater and inflation stickier.”GfK’s consumer confidence index remains negative, which means that the majority of respondents were gloomy about the economy, and is still below the long-term average of minus 17.There was a slight, unexpected uptick in inflation in December from 3.9 per cent to 4 per cent the previous month. The impact on supply chains from the attacks on shipping in the Red Sea has stoked fears of more persistent price pressures. The Bank of England is expected to hold interest rates at a 15-year high of 5.25 per cent at its next rate-setting meeting on February 1, with investors betting the benchmark rate will fall to 4.25 per cent by the end of the year with the first cut in June. Expectations of lower borrowing costs have helped a reduction in fixed mortgage rates over the past few months. More