Aurelia Butler

COLOMBO (Reuters) -Sri Lanka’s central bank kept interest rates steady on Tuesday, in line with market expectations, forgoing a rate cut as a new tax threatened upward pressure on expenses and fuelled concerns about inflation.The Central Bank of Sri Lanka (CBSL) maintained the Standing Deposit Facility Rate at 9% and the Standing Lending Facility Rate at 10%, as predicted in a Reuters poll.The central bank said the decision was aimed at maintaining inflation at the targeted level of 5% over the medium term, while enabling the economy to reach its potential.”The Board took note of the effects of the recent developments in taxation and supply-side factors that are likely to pose upside pressures on inflation in the near term,” it said in a statement, adding that any such uptick in consumer prices this year was expected to be short-lived.The central bank slashed interest rates by 650 basis points last year as Sri Lanka’s economy began a painful recovery from its worst financial crisis in more than seven decades, helped by a bailout by the International Monetary Fund (IMF).Improvements in the economy need to be translated into improved living conditions for Sri Lankans, the IMF said last week, wrapping up a technical staff visit to the country.At the start of 2024, the island nation raised its value added tax (VAT) to 18% from 15% to meet revenue targets under the four-year $2.9 billion IMF programme.That could spark a renewed rise in Sri Lanka’s key inflation rate, which had eased to 4% at the end of 2023 from a high of 70% in September 2022.Sri Lanka could see inflation spike to “just under 7% in January” due to tax and short-term vegetable price increases, CBSL Govenor Nandalal Weerasinghe told reporters.”But inflation will trend down and return to the 4%-6% band targeted by the central bank. The uptick in inflation will remain for the first couple of months at about 6%.”The inflation spikes are likely to be short lived as the central bank does not see demand pressure building up in the economy, Weerasinghe added. “The uptick in inflation is rightly explained as caused by transitory factors of weather impacts on food prices and tax changes. And they find the rate cuts already done as sufficient to cause interest rates to ease further in the current context,” said Thilina Panduwawala, head of research at Frontier Research.Past monetary policy easing measures and a decline in the risk premium on government securities have created further space for market lending interest rates to decline, the central bank said.Sri Lanka will need to secure agreements with creditors in the next few months to get past the second review of the IMF programme, due in the first half of 2024. The country’s total external debt is $36.4 billion, according to the latest data released by the finance ministry.Sri Lanka is also pushing forward with its debt restructuring talks with commercial creditors who hold about $12 billion in international sovereign bonds in an effort to reach an agreement ahead of the IMF’s second review expected to be completed by around June, Weerasinghe said. Frontier Research’s Panduwawala expects the central bank to forgo any further easing for the time being “unless there are some visible delays on external debt restructuring”.”Rates of government securities will keep coming down, especially in the short term and risk premia will keep adjusting down with the improvements in the fiscal position and completion of external debt restructuring,” said Udeeshan Jonas, chief strategist at equity research firm CAL Group. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Carmakers, already struggling with supply chain problems, face further disruptions because of the Red Sea security problems as car-carrying vessels are rerouted, shipping executives have warned.Lasse Kristoffersen, chief executive of Oslo-based Wallenius Wilhelmsen, and Georg Whist, CEO of Gram Car Carriers, were speaking after continued attacks in the Red Sea last week prompted two leading Japanese operators — NYK Line and K Line — to suspend sailings via the Suez Canal.Their decision means that nearly all big car car-carrier operators have now switched their Asia to Europe services to the longer route round the Cape of Good Hope. The switch adds seven to 10 days to the normal voyage time of about four weeks between Shanghai and northern Europe, further reducing already squeezed capacity on the key trade route.Distinctive, boxlike car carriers, which can ship thousands of vehicles, are vital in transporting cars manufactured in Japan, China and South Korea to the key European market. According to Clarksons, the shipping services group, long-distance seaborne car shipments in 2023 were 17 per cent higher than the previous year, largely because of big increases in exports from China. This has come after large numbers of car carriers were scrapped during a market downturn in 2020.Kristoffersen, whose company operates 128 car carriers, said the global 766-vessel fleet was “sold out” even before the diversions, meaning that all the available capacity was in use. That had already been acting as “a constraint” on vehicle movements even before the latest crisis — a problem that diversions to a longer route would only exacerbate. The extra distance meant a further headache for carmakers as his company would be able to transport fewer vehicles annually than if they were using the Red Sea. That would further worsen the problems of a market struggling with undercapacity.Whist, whose company owns 18 car carriers, said travelling via the Cape would cut the fleet’s effective capacity by 5 per cent to 6 per cent. Even before the diversions, he said, manufacturers had been resorting to unconventional means of moving vehicles such as putting them in shipping containers or transporting them in the holds of vessels designed for moving dry bulk commodities.There is little immediate prospect that car carriers will return to their traditional Asia-to-Europe route via the Red Sea until the attacks subside. Kristoffersen rejected the idea of sailing through the danger area with a naval escort for protection, as French container line CMA CGM has done.“The principle is that we will not go back [until] we believe there’s a safe transit and we do not think that, with the current threat in Yemen, that any military protection will be sufficient,” Kristoffersen said. He contrasted the capabilities of the Houthis — who seized the car carrier Galaxy Leader in November by landing fighters from a helicopter — with the far more primitive threat previously posed by Somali pirates.“This is a military capability, obviously with very good intelligence, with military means, missiles,” Kristoffersen said of the Houthis. “They’re really hard to protect against.”Operators have 185 new vessels on order with shipyards, according to Clarksons. But deliveries this year are expected to increase fleet capacity by only a comparatively modest 7 per cent.Stephen Gordon, Clarksons’ managing director for research, said normally about 25 per cent of global, long-distance seaborne movements of cars went through the Suez Canal. His company estimated that of all shipping segments only container shipping was suffering bigger upheaval as a result of the problems in the Red Sea.However, the challenges for car-carrier operators are fundamentally different from those for container lines because there was a global excess of container ships before the latest crisis. Container lines have been able to reactivate idle ships to meet the extra demand created by longer journeys.Whist said car companies had built up some extra inventory in their key markets over the past year. He expected them to run stocks down as new vehicle deliveries from Asia were cut.“I expect it will be a combination of less service because of the longer distances but also some working into inventory to meet customer demand,” Whist said of the likely effects for carmakers. More

SINGAPORE (Reuters) – The yen languished near a two-month low on Tuesday ahead of a closely-watched policy decision by the Bank of Japan (BOJ) where expectations are for the central bank to stand pat on its ultra-loose monetary policy settings.Elsewhere, the U.S. dollar held broadly steady while its New Zealand counterpart slipped to a two-month low of $0.60625, pressured by strength in the greenback and China’s murky economic outlook.The yen was last fetching 148.13 per dollar, not too far from last week’s roughly two-month trough of 148.80, as it continues to be weighed down by the stark interest rate differentials between Japan and the United States.The BOJ concludes its two-day monetary policy meeting on Tuesday, though any expectations for a phasing out of its negative interest rate policy this month have been quashed in the wake of the country’s devastating New Year’s Day earthquake and dovish comments by BOJ Governor Kazuo Ueda.”I don’t think it is live,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:CMWAY), referring to Tuesday’s policy decision. “I think the earthquake in Japan… really shifted market expectations toward the BOJ not normalising policy any time soon.”So I don’t think today is going to bring any surprises in terms of the interest rate and (yield curve control) policy.”Focus will also be on the central bank’s set of economic projections in its quarterly outlook report.”Markets will closely watch whether the BOJ will revise up the 2025 CPI forecast towards the 2% target or keep it steady at 1.7%,” said Kong.”What that number prints will signal a lot about whether or not the BOJ sees the lift in inflation being sustainable.”The European Central Bank (ECB) also meets this week, where expectations are similarly for its deposit rate to be held steady at 4.00%.ECB policymakers, including President Christine Lagarde, have pushed back against market expectations for early rate cuts.That’s helped the euro a little, with the single currency having traded largely sideways over the past few sessions. It eased 0.06% to $1.0879 in early Asia trade.EASING PROSPECTSAcross the broader market, the kiwi was last at $0.6074, struggling pull away from its two-month trough.”The (New Zealand dollar) has emerged as the weakest currency in G10 FX of late, and this can partly be explained by negative sentiment towards China, but also recent New Zealand data flow has underwhelmed,” said Chris Weston, head of research at Pepperstone.The country’s fourth-quarter inflation reading is due on Wednesday, which will provide further clarity on how soon the Reserve Bank of New Zealand (RBNZ) could begin easing rates.”A downside surprise would likely bring forward expectations of the first 25bp rate cut from May to the April RBNZ meeting,” said Weston.Against the dollar, sterling slipped 0.03% to $1.27075, while the Australian dollar tacked on 0.06% to $0.6574.The dollar index steadied at 103.36, not too far from an over one-month high of 103.69 it hit last week, as traders pare back their expectations for a rate cut by the Federal Reserve in March.That’s kept U.S. Treasury yields supported, with the two-year yield last at 4.3847%, up more than 25 bps from its January low of 4.1190%. [US/]The benchmark 10-year yield likewise settled above 4% and was last at 4.0976%.”We look for the FOMC to remain in a holding pattern, not only with the Fed funds rate at its January meeting, but also with its policy guidance,” said economists at Wells Fargo ahead of next week’s Fed meeting.”While progress in lowering inflation over the past six months has built the case that rate cuts are coming, the economy’s recent performance suggests no imminent need to ease.”In cryptocurrencies, bitcoin fell 0.24% to $39,720, after slipping below the $40,000 level in the previous session for the first time since the launch of 11 spot bitcoin exchange-traded funds on Jan. 11. More

Employment in California saw an addition of 34,500 jobs, although the job growth rate for the year has been approximately half of what it was in 2022. Continuing claims for unemployment insurance remained elevated, surpassing 400,000 for six months in a row. The unemployment rate in the state has increased by 0.7% since December 2022, reaching 4.8%. Industrial electricity sales, often used as an indicator of industrial production, fell by 1.5% in October, indicating a possible slowdown after three months of strong performance.The housing market presented a complex picture. Housing starts increased for the second month in October but were still approximately 7% lower in the first ten months of the year compared to the same period in 2022. Despite this, house prices in California’s three largest metro areas—Los Angeles, San Francisco, and San Diego—continued to rise, marking a 7.1% increase from January 2023.Tourism, an essential sector for the state, showed signs of weakening, with hotel occupancy and air passenger traffic both declining. This downward trend in tourism is reflected in the fourth consecutive month of reduced air passenger traffic. The state’s real fiscal revenues have also seen a significant drop from the previous year due to decreased personal income and corporate tax receipts.While California’s real GDP grew robustly in the first three quarters of 2023, Comerica’s Index suggests that economic momentum may have slowed in the fall. Factors such as housing challenges, high interest rates, persistent inflation, and reduced consumer spending are contributing to this deceleration. Additionally, the national tech slowdown continues to impact California’s economy.Comerica Bank, the creator of the index, is a Dallas-based financial services company with a presence in several U.S. states and a history dating back 175 years. The bank’s total assets were reported at $85.8 billion as of December 31, 2023. As Comerica Bank’s California Economic Activity Index provides a snapshot of the state’s economic trends, it’s also beneficial to consider the financial health and outlook of Comerica itself. According to recent data from InvestingPro, Comerica boasts a market capitalization of $7.08 billion and a Price/Earnings (P/E) ratio of 8.25, reflecting a valuation that could be attractive to value investors. The adjusted P/E ratio for the last twelve months as of Q4 2023 stands slightly lower at 8.13, which may indicate a stable earnings perspective relative to the stock price.InvestingPro Tips highlight that while analysts have revised their earnings expectations downwards for the upcoming period, and the company suffers from weak gross profit margins with an expected drop in net income this year, Comerica has maintained dividend payments for an impressive 53 consecutive years. This consistency in dividend payments, coupled with a strong return over the last three months of 43.34%, could be a sign of resilience and a commitment to shareholder returns.For those interested in a deeper analysis, InvestingPro offers additional tips on Comerica and other financial institutions. The InvestingPro subscription is now on a special New Year sale with a discount of up to 50%. Use coupon code SFY24 to get an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an additional 10% off a 1-year InvestingPro+ subscription. With these insights and the opportunity to unlock more with a subscription, investors can better navigate the complexities of the financial sector.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

SYDNEY (Reuters) -Australia’s sovereign wealth fund has cautioned against expecting rate cuts in Australia or the U.S. anytime soon after reporting on Tuesday a rebound in its performance in the final quarter of 2023 buoyed by the rally in global equity markets.The A$212 billion ($139 billion) Future Fund, returned 8% in the year ended Dec. 31, narrowly missing its target return of 8.4%. In the December quarter it returned 3.2% versus a target of 1.9%.Chair Peter Costello, who retires next month, said while there were signs inflation in Australia was beginning to moderate, it was too early to call a peak in interest rates.”We think equity markets have priced in a peak and maybe a fall in interest rates already and they may have done that a little too early,” Costello, who was Australia’s Treasurer from 1996 to 2007, said on a call with reporters.Markets are wagering Australia’s interest rates have peaked but do not forecast rate cuts until November, expecting total easing this year of a modest 34 basis points.CEO Raphael Arndt said the fund did not expect rate cuts in the U.S. “anytime soon” and had increased its allocation to floating rate credit to just over 10% of the fund as a result.The above target December quarter gains followed a choppy patch for the sovereign wealth fund, which has repeatedly missed its return targets, in part due to being positioned for interest rates to stay higher for longer.Arndt said the fund had made A$70 billion worth of portfolio changes over the past 18 months in line with its view set out in 2022 that an era of “stagflation”, or slow growth and high inflation, similar to the 1970s was possible.Designed to cover pension liabilities for public servants, the Future Fund was set up in 2006 with the proceeds from the privatisation of state telco Telstra (OTC:TLGPY) and today rivals Australia’s largest pension funds in size.($1 = 1.5223 Australian dollars) More

TOKYO (Reuters) – The Bank of Japan is widely expected to retain its ultra-easy monetary settings on Tuesday, as policymakers assess the progress made by the economy towards meeting the conditions for phasing out the decade-long accommodative policy.While the BOJ has its eyes set on ending negative interest rates, many in the bank likely prefer to spend more time determining whether wage increases will broaden enough to keep inflation sustainably at its 2% target, sources have told Reuters.None of the economists polled by Reuters expect the central bank to end its negative rate policy at the conclusion of its two-day meeting on Tuesday, though many see it happening as early as April.Traders are focusing on any clues provided by governor Kazuo Ueda on how soon the BOJ will pull short-term rates out of negative territory, which is seen as the next move Ueda will take in dismantling his predecessor’s radical stimulus programme.”The chance of Japan seeing a positive wage-inflation cycle kick off is heightening,” said former top BOJ economist Seisaku Kameda. “The question is whether that will be sustained, which is something the BOJ probably wants to scrutinise,” Kameda said, adding he expects negative rates to end in March or April.Markets widely expect the BOJ to maintain on Tuesday its short-term rate target at -0.1% and that for the 10-year bond yield around 0%. Ueda will hold a press conference after the decision, which usually starts around 0630 GMT.In a quarterly outlook report due after the meeting, the BOJ is likely to roughly maintain its forecast that an index gauging trend inflation will stay near its 2% target in coming years.The BOJ’s meeting precedes that of the European Central Bank on Thursday and the U.S. Federal Reserve next week, both of which aggressively tightened monetary policy last year and are now contemplating cutting interest rates ahead.Japan has seen inflation exceed the BOJ’s target for well over a year. But Ueda has stressed the need to hold off on raising rates until there is more evidence that inflation will durably stay around 2%, accompanied by solid wage growth.Surveys and comments from business lobbies have shown an increasing chance Japan’s spring wage hikes will be above last year’s 30-year high 3.58% for major firms – a key prerequisite set by the BOJ for exiting ultra-loose monetary policy.But the chance of success in meeting another prerequisite, which is a steady rise in services prices, remains uncertain.While services prices have crept up, the increases are concentrated on sectors benefitting from a rebound in inbound tourism or where labour shortages are acute.Japan’s decade-long history of stagnant wage growth has made it difficult for companies to pass on labour costs through price rises. A BOJ report showed some smaller firms in regional areas remain wary of hiking pay, keeping policymakers cautious of ending negative rates too soon.Recent soft data have added to the drag on Japan’s fragile economic recovery and heightened uncertainty on the timing of an exit. Service-sector activity slid 0.7% in November from the previous month, data showed on Monday, underscoring the weakness in consumption.Factory output is likely to take a hit from weakening demand in China and a production halt at Toyota Motor (NYSE:TM)’s small-car unit which is under investigation for misconduct over safety tests.Toru Suehiro, chief economist at Daiwa Securities, sees a growing chance Japan may have suffered two straight quarters of contraction in October-December on weak output and consumption.”It’s hard to be optimistic about Japan’s economy,” which means the BOJ probably needs to await October-December gross domestic product (GDP) data due in February, said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. More