Aurelia Butler

LONDON (Reuters) -Global economic activity was mixed during the third quarter of 2023, with distinct signs of improvement in the United States and China but continued sluggishness elsewhere.Global industrial production was up by just 0.4% in August 2023 compared with the same month a year earlier, according to estimates compiled by the Netherlands Bureau for Economic Policy Analysis (CPB).But trade volumes were down by 3.8% in August compared with a year earlier and have not grown for a year, a sign of stagnation that is consistent with a recession (“World trade monitor”, CPB, Oct. 25).The United States and China, the world’s two largest economies, showed signs of growing somewhat faster in the third quarter after a pronounced slowdown in the first half of 2023.Preliminary estimates show U.S. real gross domestic product increased at an annualised rate of 4.9% in the three months from July to September up from 2.1% in the three months from April to June.The largest contribution came from increased consumer spending (+2.7 percentage points) especially on services (+1.6 percentage points) with a smaller contribution from goods (+1.1 percentage points).The acceleration is consistent with data from purchasing managers surveys showing service sector activity increased in the third quarter after the barest of slowdowns during the second quarter.Manufacturing activity continued to decline but there were clear signs it was approaching a cyclical trough with expansion imminent.Chartbook: Global economy and tradeInitial claims for unemployment benefits have trended lower since the start of July after rising throughout the first six months of the year.Service sector prices rose at an annualised rate of 5.2% in the three months ending in September up from 3.3% in the three months ending in June.But there were also warning signs that some of the strength may be temporary and not sustained in the coming quarters.The second largest contributor to real gross domestic product growth in the third quarter came from business inventories (1.3 percentage points).Contributions from inventory changes are normally reversed within 3-6 months so the tailwind in the third quarter is likely to turn into a headwind in the fourth.Real final sales to private domestic purchasers (FSPDP), a measure that strips out volatile changes in inventories, trade and government spending, increased at an annualised rate of 3.3% between July and September.Real final sales accelerated markedly from annualised growth of 1.7% between April and June and a contraction of -0.2% between October and December 2022.Final sales confirm the economy has returned to moderate growth after the briefest and shallowest of cyclical slowdowns at the end of 2022 and the start of 2023.But there are questions about how sustainable the current rebound will prove. There is not much spare capacity in the labour market or in energy supplies for renewed growth without sparking inflation.The unemployment rate was just 3.8% in September while inventories of diesel and other distillate fuel oils were 19 million barrels (-15% or -1.29 standard deviations) below the prior 10-year seasonal average.CHINA AND ASIAChina’s economy also appears to have returned to growth during the third quarter after a slump in the second quarter.The manufacturing purchasing managers index improved for four consecutive months and by September was in the 38th percentile for all months since 2011 up from just the 2nd percentile in May.The volume of containers handled by China’s coastal ports was up almost 8% in September compared with the same month a year before, according to data from the Ministry of Transport.China’s electricity generation was up 9% in September compared with a year earlier, with big increases in power consumed by service sector firms (17%), manufacturers (9%) and primary industries (9%).China’s recovery is helping lift other regional economies.Singapore acts as a major transshipment hub for trade between Asia and Europe and freight volumes also show signs of accelerating.The port handled a record volume of shipping containers in the last 12 months and volumes were up more than 4% in September compared with a year earlier.But in Japan, the volume of air cargo remains in the doldrums, with freight through Narita International Airport down by 23% compared with a year ago and showing no sign of recovering.South Korea’s KOSPI-100 equity index, which is usually a good proxy for global trade given its heavy weighting towards export-oriented firms, rebounded strongly through the end of July.But the index has since weakened, consistent with the renewed downturn in volumes shown in the global trade index.Global container shipping rates have fallen again in both September and October after rising over the summer in another sign demand remains sluggish.EUROPEEurope remains the weakest region as it struggles with the combined impact of higher energy prices and the disruption of trade flows following Russia’s invasion of Ukraine as well as persistent inflation and higher interest rates.Euro zone manufacturers reported business activity declined for the 16th month running in October and the purchasing managers index was stuck in just the 5th percentile for all months since 2007.In Germany, energy-intensive manufacturers reported output was still down by down 16% in August 2023 compared with January 2022 before Russia’s invasion and shows no sign of recovering.UNCERTAINTYUncertainty about the economic outlook and ambiguous data are usually greatest around turning points in the business cycle.The United States and China are the two locomotives of the global economy so accelerating growth in both could be harbinger the expansion is set to resume in 2024 after a slowdown in late 2022 and early 2023.But growth remains skewed towards services rather than merchandise, which will act as a drag on international trade flows.More worrying is persistent inflation in the service sector while limited spare industrial capacity and inventories of raw materials imply merchandise inflation could also re-emerge relatively quickly.Most interest rate traders anticipate the U.S. central bank will have to keep overnight interest rates higher for longer to prevent a resurgence of price pressures in 2024.Yields on longer-term government securities, which act as a benchmark for corporate and household borrowers, are rising.Yields on 10-year U.S. Treasury notes are currently trading around 4.9%, the highest for 16 years, up from just 3.5% at the end of April.The longer rates remain elevated the greater the share of lending that will be repriced to higher levels and the bigger the impact on business investment and household spending.In the United States, business spending on new equipment has already been hit by higher borrowing costs and uncertainty about the economic outlook.New orders for nondefense capital equipment excluding aircraft (a proxy for business equipment spending) have shown essentially no growth in nominal terms over the last 12 months.Related columns:- Persistent U.S. services inflation dampens oil outlook (October 13, 2023)- U.S. manufacturing rebound will stretch diesel supplies (October 5, 2023)- Global container freight stuck in doldrums (June 23, 2023)- Global freight shows signs of bottoming out (April 27, 2023)John Kemp is a Reuters market analyst. The views expressed are his own More

SYDNEY (Reuters) – Asian shares slipped on Monday as Israel’s push into Gaza stirred fears of a wider conflict ahead of central bank meetings in the United States, Britain and Japan, the latter of which might see a policy tightening.The earnings season also continues with Apple (NASDAQ:AAPL), Airbnb, McDonald’s (NYSE:MCD), Moderna (NASDAQ:MRNA) and Eli Lilly & Co (NYSE:LLY) among the many reporting this week. Results so far have been underwhelming, contributing to the S&P 500’s retreat into correction territory at 4,117.”The price action is bad as SPX could not defend a key 4,200 level; risk is it heads to the 200-week moving average of 3,941 before a trading rally,” BofA analysts said.Early on Monday, S&P 500 futures edged up 0.3% to 4,152, following Friday’s sharp retreat, while Nasdaq futures added 0.5%.Risk appetite was dulled by Israel’s push to surround Gaza’s main city in a self-declared “second phase” of a three-week war against Iranian-backed Hamas militants.MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2%, having hit a one-year low last week.Japan’s Nikkei fell 1.0% amid speculation the Bank of Japan (BOJ) might tweak its yield curve control (YCC) policy after its two-day policy meeting wraps up on Tuesday. Many analysts expect the central bank will lift its inflation forecast to 2.0%, but are unsure whether it will finally abandon YCC in the face of market pressure on bonds. “Remaining uncertainty about the wage outlook, combined with stresses in global bond markets could prompt the BOJ to err on the side of caution, making our view that YCC will be scrapped a very close call,” said analysts at Barclays.”The BOJ could still opt to revise policy but less drastically, perhaps by raising the ceiling for 10-year yields as it did in July.”Abandoning YCC altogether would likely see Japanese bond yields rise and add to pressure on global markets already bruised by a vicious sell-off in U.S. Treasuries.FED ALL DONE?Yields on 10-year Treasuries stood at 4.87% on Monday, having climbed 30 basis points so far this month and touched 16-year peaks at 5.021%.Sentiment will be tested further on Monday when Treasury announces its refunding plans, with more increases likely. NatWest Markets expects $885 billion of marketable borrowing in the fourth quarter and $700 billion in the following quarter.The sharp rise in market borrowing costs has convinced analysts the Federal Reserve will stand pat at its policy meeting this week, with futures implying a 97% chance of rates staying at 5.25-5.5%.The market has also priced in 165 basis points of easing for 2024, starting around mid-year.”The Fed appears to have coalesced around the view that the recent tightening in financial conditions led by higher long-term interest rates has made another hike unnecessary,” said analysts at Goldman Sachs, who estimated the rise in yields was the equivalent of 100 basis points of rate increases.”The story of the year so far has been that economic reacceleration has not prevented further labor market rebalancing and progress in the inflation fight,” they added. “We expect this to continue in coming months.”Job figures due Friday are forecast to show U.S. payrolls rose a still solid 188,000 in October, after September’s blockbuster gain, but annual growth in average earnings is still seen slowing to 4.0% from 4.2%. The Bank of England is also expected to stay on hold this week, with markets pricing around a 70% chance it is done tightening altogether.Oddly the ascent of U.S. yields has not helped the dollar any higher recently.”Likewise, the fall in global equity markets and the ongoing uncertainty around the Hamas-Israel conflict has not done much to drive the dollar higher against risk-sensitive currencies,” Capital Economics analysts wrote in a note.”This reinforces our sense that a relatively optimistic assessment of the outlook in the U.S. is by now largely discounted in the dollar.”The dollar was steady against a basket of currencies at 106.580, having bounced between 105.350 and 106.890 last week. It firmed a touch on the yen to 149.77, but remained short of last week’s top of 150.78.The euro idled at $1.0563, and is almost unchanged on the month so far. [FRX/]In commodity markets, gold was steady at $2,003 an ounce. [GOL/]Oil prices eased as worries about demand outweighed risks to Middle East supplies, at least for the moment. [O/R]Brent lost 96 cents to $89.52 a barrel, while U.S. crude fell $1.00 to $84.54 per barrel. More

Online job adverts fell by 1.6% in September from August, bucking the usual end-of-summer bounce in job postings, and advertised salaries fell by the same amount, Adzuna said.”September traditionally sees a surge in job market activity but the figures we’re seeing this year could signal a cooling off of the job market, which had shown signs of resilience earlier in the year,” Adzuna co-founder Andrew Hunter said.The BoE, which is widely expected to leave interest rates at their 15-year high of 5.25% on Thursday, is trying to gauge how much inflationary heat remains in the jobs market. Its task has been complicated by problems at Britain’s official statistics office in conducting its surveys of the workforce.The Office for National Statistics said earlier this month its measure of job vacancies fell to a two-year low of 988,000 in the three months to September.Separately on Monday, a survey showed small businesses recovering a bit of their lost confidence but the overall mood remained negative.The headline confidence reading published by the Federation of Small Businesses rose to -8.0 in the three months to the end of September from -14.2 in the second quarter but remained below -2.8 recorded in the first quarter.Hospitality firms were the most pessimistic, followed by retailer and wholesalers and construction. Only professional, scientific and technical firms had a positive outlook among significant sectors, the FSB said.Martin McTague, FSB’s national chair, said the survey showed signs of stabilisation after 18 months of surging costs.”The improvement in the overall confidence measure since Q2 is a good start, but we really want to see it firmly back in positive territory, rather than eight points below zero, as it is currently,” McTague said. More

BENGALURU (Reuters) -High inflation will dog the world economy next year, with three-quarters of over 200 economists polled by Reuters saying the main risk is that it turns out higher than they forecast, suggesting interest rates will also remain higher for longer.Several central banks are still expected to begin cutting interest rates by the middle of 2024, but a growing number of economists surveyed are adjusting their views, pushing the more likely date into the second half of next year.This is a significant change from expectations at the start of this year. Then, some investment banks were predicting the U.S. Federal Reserve, which sets the tone for many others, would be cutting rates right around now.Despite broad success in bringing inflation down from its highs – the easier bit – prices are still rising faster than most central banks would prefer and hitting their inflation targets is likely to be tough. The latest Reuters poll of over 500 economists taken between Oct. 6 and Oct. 25 produced 2024 growth downgrades and inflation upgrades for a majority of the 48 economies around the world surveyed.A 75% majority who answered a separate question, 171 of 228, said the risk to these broadly-upgraded inflation forecasts was skewed higher, with only 57 saying lower.The results follow news on Thursday the U.S. economy unexpectedly grew nearly 5%, annualised, in the third quarter, underscoring how the strength of the world’s largest economy is setting it apart from most of its peers.The survey results also follow a warning from European Central Bank President Christine Lagarde, who said after the ECB snapped a 10-meeting tightening streak that “even having a discussion on a cut is totally, totally premature”.While many central banks, including the Fed and the ECB, have presented a “higher for longer” narrative on rates for the better part of this year, many economists and financial market traders have been reluctant to accept that view. “I think all of us have to keep an open mind that maybe policy isn’t restrictive enough,” said Douglas Porter, chief economist at BMO.”Our forecast is that the Fed has done enough and they don’t have to raise rates further, but I haven’t closed off the possibility we could be wrong and the Fed does ultimately have to do more.”While most economists still say the Fed will cut by mid-year, the latest poll shows just 55% backing that scenario compared with over 70% last month.The Reserve Bank of New Zealand, which often leads the interest rate cycle, was also forecast to wait until July-September 2024 before cutting.The majority backing no cuts until the second half of 2024 has also grown stronger for the Reserve Bank of Australia, Bank Indonesia and the Reserve Bank of India.Even the Bank of Japan, the outlier sticking to ultra-loose policy through this entire round of inflation, is now expected to abandon negative interest rates next year.Crucially, most economists agree the first easing steps will not be the beginning of a rapid series of cuts.Asked what would prompt the first cut by the central bank they cover, over a two-thirds majority, 149 of 219, said it would be simply to make real interest rates less restrictive as inflation falls.The remaining 70 said the first move would mark a shift towards stimulating the economy, suggesting only a minority expect a hard enough hit to demand and inflation hard to warrant monetary response.Global economic growth was forecast to slow to 2.6% next year from an expected 2.9% this year. “Central banks have had the highest rates in order to fight inflation … it’s certainly restraining activity, and it’s going to be a while before we get global growth above what has been its historical average,” said Nathan Sheets, global chief economist at Citi.(For other stories from the Reuters global economic poll:) More

NEW YORK (Reuters) – The U.S. Treasury is likely to boost the size of auctions for bills, notes, and bonds in the fourth quarter when it announces its financing plans this week to fund a worsening budget deficit, analysts said.Investors are playing close attention to this week’s quarterly refunding announcement as a sharp jump in long-term Treasury yields has been partly attributed to concerns about the U.S. fiscal deficit. Since the end of July, the 10-year yield has climbed more than 100 basis points. “The market has associated the rise in Treasury yields with deficit concerns and reflects worries about the sustainability of those deficits,” said Guneet Dhingra, managing director and head of U.S. rates strategy at Morgan Stanley in New York.The budget deficit is increasing due to several factors, including higher federal government borrowing costs arising from the Federal Reserve’s interest rate increases and quantitative tightening. Analysts at TD Securities expect the deficit to expand to $1.85 trillion in 2024 from $1.69 trillion this year and projects another $677 billion of bills that mature in a year or less coming to market and about $1.7 trillion in notes and bonds. So far this year, the Treasury has issued about $1.6 trillion of additional bills and roughly $1.04 trillion in longer-term debt.The spotlight will also be on Monday’s announcement of borrowing estimates for the fourth quarter and the first quarter of 2024. It was the announcement on July 31 of $1.007 trillion in funding needs for the third quarter that spooked the bond market, leading to the sharp increase in auction volumes.The Treasury will release its quarterly borrowing requirements on Monday at 3 p.m. ET (1900 GMT) and its refunding news on Wednesday at 8:30 a.m. ET (1230 GMT).The Treasury is also likely to announce a buyback program for a possible launch in January, aimed at improving bond market liquidity, analysts said. The last time it conducted a regular buyback program was in the early 2000s, and it ended in April 2002.SKEWING SHORT-ENDThe latest refunding could see the Treasury skew issuance to the shorter-term bills, while the increase at the long end could shrink due to concerns about the impact of additional supply on long-term yields, analysts said.That would be a divergence from the August refunding when the Treasury aggressively raised the auction sizes for notes and bonds, which have longer maturities, after largely relying on the sale of short-term bills to raise its cash holdings and finance its growing deficit amid the debt ceiling suspension in June.Morgan Stanley’s Dhingra, who expects the Treasury to rely on T-bills to finance its budget needs, said such a move could push the percentage of T-bills as a share of outstanding U.S. debt to around 22%. That is slightly higher than the 15% to 20% range adopted by the Treasury.Tom Simons, U.S. economist at Jefferies in New York, said the current market environment should support a more elevated T-bill percentage for some time because of a still-healthy appetite for shorter-term investments.The projected increase in longer-term deficits in the coming years, however, will keep Treasury raising auction sizes, analysts said.”But the government doesn’t want to lean too heavily on the longer end of the curve to finance the deficit,” said Zachary Griffiths, senior investment grade strategist at CreditSights in Charlotte, North Carolina, adding that there was a need for a “balance-of-risk approach. More

Euro-area inflation, which peaked at 10.6% in October 2022, is projected to fall to 3.1% this month. This aligns closely with the ECB’s 2% goal as per recent economic forecasts. In light of these developments, commercial lenders have promptly adjusted rates on mortgages and loans. However, savers have seen less impact from these changes.Vujcic further noted that Croatian banks haven’t significantly raised deposit interest rates like their German counterparts. Instead, they are providing cheaper mortgages and loans in the euro area’s newest member country. He expressed confidence in achieving the ECB’s 2025 inflation target.President Lagarde anticipates no immediate hikes and expects steady borrowing costs until 2024. This comes as part of the ECB’s strategy to manage falling inflation and a lending slump after implementing various measures.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Evergrande had been working on an offshore debt restructuring proposal for more than a year-and-a-half, but its plans were thrown off course last month when billionaire founder Hui Ka Yan was confirmed to be under investigation for suspected criminal activities.The judge could order the company be liquidated, or adjourn the case for more new information. A liquidation of Evergrande, which listed total assets of $240 billion as at end-June, would send further shockwaves through already fragile capital markets, but is expected to have little immediate impact on the company’s operations, including its many home construction projects.Evergrande did not respond to request for comment.The world’s most indebted property developer with more than $300 billion of total liabilities, Evergrande defaulted its offshore debt in late 2021 and became the poster child of a debt crisis that has since engulfed China’s property sector.Evergrande revealed the investigation into its founder and one of its main subsidiaries last month, and it was barred by mainland regulators from issuing new dollar bonds, a crucial part of the restructuring plan. It also cancelled creditor votes originally scheduled for late last month.Top Shine, an investor in Evergrande unit Fangchebao, filed the winding-up petition in June 2022 because it said Evergrande had not honoured an agreement to repurchase shares the investor bought in the unit. More