Aurelia Butler

DHAKA (Reuters) -Bangladesh and the International Monetary Fund reached a staff-level agreement on the first review of a $4.7 billion bailout on Thursday, in a boost for the cash-strapped economy as it heads towards a national election in January.Bangladesh’s $416-billion economy was one of the world’s fastest growing for years, but has recently struggled to pay for imported fuel as its dollar reserves have shrunk by more than a third due to costly imports following Russia’s invasion of Ukraine.Completion of the first review, subject to IMF board approval in the coming weeks, will make about $681 million in loans available to the country, the IMF said in a statement.”The authorities have made substantial progress on structural reforms under the IMF-supported program, but challenges remain,” the Fund said. “Continued global financial tightening, coupled with existing vulnerabilities, is making macroeconomic management challenging, putting pressures on the Taka and FX reserves.”The IMF approved $4.7 billion in loans to Bangladesh in January, with an immediate disbursement of about $476 million, making it the first to secure such funds out of three South Asian countries that applied last year amid economic troubles.Bangladesh’s central bank hopes the IMF board meeting on Dec. 11 will approve the second tranche of loans, its spokesperson Mezbaul Haque said. The country of 170 million people is battling stubbornly high inflation spurred by a spike in energy and food prices, along with a weakening currency, which has caused a headache for Prime Minister Sheikh Hasina’s government.Protests by opposition parties ahead of January’s election have drawn tens of thousands of people angry over the cost of living onto the streets.”The IMF is apprehensive about the future outlook of the economy… and without major reforms, little scope for a turnaround would be possible,” said Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue think-tank.”It seems a major reform drive needs to be taken, targeting the banking sector, forex reserves and domestic resource mobilisation immediately after the election is over,” Moazzem said.The Fund said further calibrated monetary policy tightening, greater exchange rate flexibility and a tight fiscal policy would help restore macroeconomic stability in the country.The IMF projects Bangladesh’s growth at 6% in fiscal year 2024, while inflation is projected to moderate slightly above 7% by the end of the year. More

(Reuters) – A widening spread between long- and short-term U.S. bond yields makes longer duration assets more attractive for investors as a recession looms in an uncertain macroeconomic environment, a portfolio manager at bond giant PIMCO said on Thursday.”Starting yields are high, relative to history and other asset classes, on a risk-adjusted basis,” said Stephen Chang, who manages about $2.8 billion in Asia-focussed fixed income funds at PIMCO, among others.”This can create a ‘yield cushion’ amid a still highly uncertain outlook,” he told the Reuters Global Markets Forum (GMF), providing investors an opportunity to build resilient portfolios with robust yields and moderate risk.Pacific Investment Management Co. (PIMCO) had $1.74 trillion of total assets under management at the end of September 2023.Chang said markets were priced for an “immaculate disinflation” scenario, in which growth remains solid and core inflation drifts lower towards central bank targets swiftly.That pricing “may reflect complacency”, he said, adding that while the market sees a soft landing as a probable scenario, PIMCO is more inclined to expect weaker growth ahead.The recent rise in yields is a reflection of the Federal Reserve’s expected reaction to relatively stubborn core services inflation, Chang said, after a stunningly strong jobs report bolstered the case for more tightening by the central bank.”I would highlight that higher rates, including the 30-year mortgage, will tighten financial conditions, and may lead to the Fed having to do less,” he said.Chang said PIMCO’s strategies would look to favour U.S. agency mortgage-backed securities (MBS), given their high quality, government backing, robust liquidity, and attractive valuation.He said PIMCO also broadly favoured securitised investments and structured credit within fixed income.(Join GMF, a chat room hosted on LSEG Messenger, for live interviews: tinyurl.com/yyr3x6pu) More

In a regular news conference, Kato said the recent rise in long-term interest rates was unlikely to have a big impact on Japan’s economy.But if long-term rates see further sharp increases, “there’s a chance economic activity could face downward pressure from rising interest payment for borrowing and a possible yen rebound that hurts exporters profits,” said Kato, who is head of the Japanese Bankers Association.Japanese government bond yields rose to new decade highs on Thursday, tracking gains in U.S. Treasury yields amid expectations the Federal Reserve will keep interest rates higher for longer.The 10-year Japanese government bond (JGB) yield rose 2.5 basis points to 0.830%, its highest since July 2013 and approaching the 1.0% hard cap set by the Bank of Japan in July.The recent rise in the 10-year yield has heightened market expectations the BOJ could raise the cap again as early as its next policy-setting meeting on Oct. 30-31. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.There are some questions that people have long asked themselves at a deep psychological level. How secure do I feel? Who is threatening me? How could I be safer? These days, every trade-dependent economy in the world is searching within itself for answers.Three years after Covid-affected supply chains starting freezing up, and as US-China geoeconomic rivalry intensifies, “economic security” is a buzzphrase in the ministries of big trading powers such as Japan and the EU. Brussels started to look at it in earnest over the summer under the snappily alliterative rubric of “promoting, protecting, partnering” (respectively encouraging growth, defending against unfair trade and working with allies).It’s a massively elastic concept — in fact a fresh framing of a longstanding issue — that’s going to need a lot of refining. Economic security could remain limited to controls on sensitive technology, such as the high-end semiconductor production equipment of which the Netherlands will restrict sales to China after being leaned on by Washington. It could extend into value network-critical inputs like rare earth minerals. Or it could expand, as some more dirigiste European officials would like, into building a broad industrial base including products with relatively few national security implications such as electric vehicles.The problems of designing and implementing policy are legion. European trade officials are bracing themselves for their territory to be invaded by battalions of securocrats with no sense of trade-offs between promoting growth and reducing vulnerability. (A hunter-gatherer society living in caves would be perfectly resilient to Chinese infiltration of 5G networks.) A broad definition will also be expensive, either through public investment and subsidies or by European consumers paying more for taxed or restricted imports.Taking as an example EVs — which would surely come under a wide view of economic security — the returns to promoting growth are likely to be bigger, more durable and better for the planet than protecting from competition, or partnering with allies.The EU is certainly having a go at the latter two. It recently announced an investigation into China’s subsidies to its EV exports to Europe. And after Joe Biden’s Inflation Reduction Act created the tax credits for EV manufacturers in the US, the EU expended a great deal of diplomatic energy making its companies eligible.But both of these are partial and defensive. EU officials accept that the anti-subsidy duties, if granted, will do no more than slow imports of Chinese vehicles. The duties are likely to be around 10 per cent. Even on top of an existing 10 per cent tariff, that probably doesn’t cancel out all China’s cost advantage. And hitting China with really serious tariffs (perhaps expanding the action into antidumping, which typically produces higher duties) could make EVs sufficiently expensive to deter European consumers from buying them, undermining the EU’s green credentials.As for partnering, the European car industry has to have better alliances than scrabbling around for fiscal scraps thrown by a US administration rescuing some semblance of transatlantic co-operation from a bill written in the supremely parochial US Congress. The White House itself is not a reliable ally on economic security, whether or not Donald Trump gets elected again. The Biden administration is currently threatening the EU with reinstating Trump-era tariffs unless Brussels trashes its carbon emissions regime with a plan to block imports of Chinese steel that is very likely illegal under World Trade Organization rules.The EU’s best strategy is to promote growth and the single market. It’s the creation of super-efficient supply networks, especially in central and eastern Europe, that has maintained the German car industry against lower-cost competition. The fact that Germany’s automotive-government complex dropped the ball on EVs over the past decade doesn’t stop it catching up.Business associations have long warned that single market rules are applied unevenly and often weakly across member states. The decision of Poland, Hungary and Slovakia last month unilaterally to block imports of Ukrainian grain, an unprecedented deliberate fracturing of the market, should be a serious warning. One of the many reasons Donald Tusk’s election as Poland’s prime minister is a massive relief is the stronger instinctive commitment to collective EU responsibility over such issues that he brings.EU markets in capital, energy and banking remain fragmented and inefficient, reinforcing other fissures. The EU economy is still vulnerable to fractures along member state lines: witness the intra-EU trade restrictions on face masks during the early months of Covid.It’s much less glamorous grinding through the detail of financial services regulation and harmonising goods inspection procedures than setting up high-level technology task forces armed with exciting new powers of intervention. But it’s the right thing to do irrespective of where the Commission and EU governments want to draw the line on more coercive action. Defining economic security, let alone creating policy and a means of implementing it, has a long way to go. But one guiding principle is clear. High-productivity growth and the application of technology are the first places to look when making economies more resilient. The EU cannot just regulate its way to security. Its companies must first be able to [email protected] More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Fresh evidence of sticky inflation in the UK is likely to harden the Bank of England’s determination to keep monetary policy tighter for longer, as it seeks to squeeze persistent price pressures out of the economy.But the data leaves the UK central bank with an increasingly difficult challenge as rising prices coincide with signs of sluggish growth: can it stamp out inflation while sparing the economy from unnecessary pain?Headline consumer price inflation unexpectedly held firm at 6.7 per cent in September, official data showed on Wednesday, while services inflation — a gauge of domestic pricing pressures closely followed by the BoE — ticked higher.The figures followed separate data that showed UK wage growth remained close to record highs in the three months to August.“Inflation is higher than comparable measures in France, Germany, the US and the EU27 as a whole,” noted Ellie Henderson of Investec. “This is not an accolade the Bank of England wants to win.”The BoE’s plan for dealing with the UK’s persistent inflation is to hold interest rates at high levels until the inflation threat has passed. The bank’s chief economist Huw Pill has labelled the strategy “Table Mountain”, an allusion to the flat-topped landmark in South Africa.The approach is intended to prime the UK public for a long period of high borrowing costs that would durably tamp down inflation, rather than jolting the economy and potentially stoking up financial stability risks by sharply raising rates and then reversing course with steep cuts.Given the latest evidence of persistent inflation, many economists expect the BoE Monetary Policy Committee to hold rates at their 15-year high of 5.25 per cent at its November meeting, following a finely balanced decision to leave them unchanged at its last meeting. But this approach remains fraught with risk. The most recent UK output numbers paint a picture of a vulnerable economy that is struggling with higher mortgage rates, rising taxes, the depletion of household savings and higher corporate insolvencies.GDP rose by just 0.2 per cent in August following a 0.6 per cent quarter-on-quarter fall in July. The figures mean it is unclear whether the country will see any growth in the third quarter, according to the National Institute for Economic and Social Research.A tough fiscal settlement in chancellor Jeremy Hunt’s November 22 Autumn Statement is set to add to the headwinds facing the economy. Hunt is expected to squeeze spending further while resisting calls from some Conservatives to cut taxes.The UK, like other economies, faces further threats from the spectre of a widening conflict in the Middle East beyond Israel and Gaza, which would likely inflame oil and gas prices and trigger a fresh supply-driven inflation shock while hitting confidence.With a general election expected next year, the independent central bank, led by governor Andrew Bailey, is set to face calls to relent and ease borrowing costs if the economy continues to deteriorate, as many analysts expect.Sanjay Raja, economist at Deutsche Bank, said the UK economy would be “walking a fine line between recession and stagnation” in the coming months as the lagging effects of previous monetary policy tightening become increasingly apparent. Only about half of the impact of rate rises to date have so far fed through into the economy, according to Raja.The BoE is not alone among central banks in finding itself on a tightrope as it seeks to reduce the risks of an economic hard landing while conquering inflation. Its task of calculating how far and hard to push tight monetary policy has been made particularly difficult by the series of shocks that have hit the UK economy in recent years — principally Brexit and global issues such as the Covid-19 pandemic and Russia’s full-scale invasion of Ukraine.These have led to fundamental changes in the supply side of the economy, confounding the bank’s traditional models for economic analysis. Some of the factors may explain the higher inflation rates seen in the UK compared with its peers, according to Paul Dales of Capital Economics.The UK has markedly higher wage growth than in the US and the eurozone, for instance, which Dales said could be driven at least in part by a post-Covid contraction in the size of the workforce that forced companies to raise pay. A less flexible immigration system post-Brexit may also be playing a part. One option for the BoE would be to wait until conclusive evidence emerges in price or wage data that it has vanquished the UK’s inflation problem before the central bank starts cutting ratesBut rate-setters are meant to be forward-looking, Pill pointed out at an event earlier this week. Waiting to see the “whites of the eyes” of declining inflation before easing risked waiting too long, he said.The economic indicators available to the BoE have often conflicted. The jobs market has clearly loosened, a range of surveys show, but some point to a rapid weakening while others suggest only a slight easing.Wage growth looks much stronger on official measures than other sources suggest, but the Office for National Statistics delayed the release of key data on employment and labour force participation this week because of problems with data collection.With domestically generated inflation continuing to “run hot”, Krishna Guha of Evercore ISI said there remained a risk that the bank “could yet find itself scrambling to tighten further”. As Pill told his audience this week, the top of Table Mountain in South Africa is often “shrouded in cloud”, a reminder that the BoE does not have a clear view of developments in the economy. Any further shocks could easily throw its current strategy back off course. More

The US economy’s lead over that of Europe, a trend first evident in the aftermath of the global financial crisis and cemented during the coronavirus pandemic, is set to last into 2024 and beyond. The IMF last week became the latest economics organisation to declare that the US economy would power ahead, forecasting an expansion of 1.5 per cent next year. This compares with IMF forecasts of 1.2 per cent for the eurozone and 0.6 per cent for the UK. But what explains the persistent divergence between two of the world’s richest regions, in which the US has grown at roughly double the pace of the eurozone and the UK over the past two decades? The reasons range from cyclical to structural. Relatively short-term factors such as post-pandemic stimulus and Russia’s full-scale invasion of Ukraine have played into the difference, but so have underlying divergences such as access to credit and investment trends, along with industrial composition and demographics. Here is a breakdown of some of the factors: Stronger pandemic stimulus boosts spendingDuring the pandemic, officials on both sides of the Atlantic resorted to aggressive fiscal stimulus to stop a health crisis from turning into an economic one. However, the US did so at a greater scale. After registering a double-digit shortfall in 2020, the primary government deficit for 2021 was still a massive 9.4 per cent of GDP in the US, more than double the level of the eurozone and almost double that of the UK. “The US experienced a particularly strong fiscal response after the pandemic, which supported the economy,” said Jennifer McKeown, chief global economist at Capital Economics.The generous government support has helped drive a recovery in US consumer spending, one of the prime reasons why growth in the country has been so strong. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Repercussions from Russia’s invasion of UkrainePierre-Olivier Gourinchas, the IMF’s chief economist, said European households may have been more “prudent” than their US counterparts for other reasons, including their proximity to the war in Ukraine. Gourinchas argued that Europe’s “brutal” energy price shock — another consequence of Russia’s invasion — has been the “most important” driver of the two regions’ recent economic divergence. The wholesale European gas price surged to a record high, much higher than the US equivalent, in the aftermath of Russia’s February 2022 invasion. That pushed the consumer inflation rate for energy up to 59 per cent in the UK and 44 per cent in the eurozone. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.“The region is poor when energy prices are high,” Gourinchas said of Europe during the fund’s annual meetings in Marrakech. Tomasz Wieladek, chief European economist at the investment company T Rowe Price, agreed. “Europe’s main source of energy has turned out to be unreliable,” he said.The US’s booming tech sectorA critical structural factor behind the US-European divergence is the difference in the industrial composition of the two economies. The US has a booming tech sector, with successful and innovative companies such as Amazon, Alphabet and Microsoft that have no European equivalents in Europe. With the US dominating artificial intelligence, that gap is likely to widen, economists warn. By contrast, Europe specialises in industries that are increasingly facing the threat of Chinese competition, such as electric vehicles.Europe, and Germany in particular, were “a massive winner [from] globalisation the way it existed until 2018, but that type of globalisation now seems to be over,” said Christian Keller, head of economics research at Barclays Investment Bank. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The US is also proving more nimble in shifting its economy towards green technology. The $369bn Inflation Reduction Act has helped to incentivise investment in green technologies, with hundreds of billions of dollars in subsidies and tax credits. The EU response has been slower and more complex to implement, according to many economists.Attracted by the IRA, some European companies have shifted investment to the US, including Total Energies, BMW and Northvolt. “There’s definitely an investment renaissance in the US right now,” said Paul Gruenwald, chief economist at S&P Global Ratings. Invest in the US Easier access to finance has long helped the US economy, including its tech sector, to boom. More venture capital, and better developed debt and equity markets, have made it easier for US companies to fund their expansion than their European counterparts, which rely much more on banks. Europe has also endured a sovereign debt crisis and fiscal austerity — both of which have hit investment. In AI alone, venture capital investment over the past decade has topped $450bn, nearly 10 times that of the eurozone or the UK, according to data from the OECD. “The ability to raise large sums, to finance quite risky investment, just isn’t there [in Europe],” said Keller. “The European bank finance model doesn’t allow it.” Nathan Sheets, chief economist at US bank Citi, flagged that venture capital had provided a “flexible financing mechanism” for tech. “I’m sure it is easier to pitch tech ideas to a venture capital firm in Silicon Valley than it would be to pitch it to a large European bank,” he added. Businesses can be scaled up more quickly in the US, as the country offers a large market with a consistent language and regulatory system, aiding innovation. Despite its single market, Europe is still in many ways fragmented, particularly in the services sector.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Innovation from top US universities, such as the Massachusetts Institute of Technology on the east coast and Stanford on the west, has also helped. “Once you have that agglomeration of expertise it tends to kind of proliferate,” said Sheets. Those factors have helped boost US investment and productivity, a crucial determinant of living standards, much more than in Europe. An ageing society and weak labour marketEurope’s rapidly ageing population and weaker population growth is weighing on the continent’s public finances. It is also having an impact on the gap with the US, which — unlike Europe — has seen its working-age population expand since 2010, albeit at an increasingly slow pace. “Europe has grappled with low productivity growth for some time, and the effects of population ageing and labour supply constraints are starting to bite,” said Alfred Kammer, the IMF’s Europe director, earlier this month. Without the differences in demographics, the gap between transatlantic growth would be less stark.However, demographic trends in the coming decades are also set to work in the US’s favour. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Wieladek also noted that European growth had been aided by labour market tailwinds in recent decades, such as more women and older people working.“The wages of skilled eastern European workers are rising rapidly,” he said. “Social reform in western Europe — which contributed to raising labour market participation — has likely reached its limits.” An ever-widening gap? With stronger investment and better demographics, the gap between the US and Europe is likely to widen further in the coming years. “The US could increase its potential growth while Europe struggles to maintain the lower growth it already had,” said Keller. A European catch-up “seems quite unlikely”, said Samy Chaar, chief economist at the bank Lombard Odier.Sven Jari Stehn, economist at investment bank Goldman Sachs, agreed that the US would “continue to outgrow the euro area in coming years”, even if the temporary post-pandemic factors fade.However, the high US deficit — it is set to boost public debt from the current 97 per cent of GDP to 119 per cent by 2033, a record high — poses a threat to its growth. “The US will have to take tough decisions on the fiscal side,” said Keller. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.A sea of red across world stock markets and another surge in U.S. Treasury yields on Wednesday will likely ensure a bearish open in Asia on Thursday, as investors also brace for monetary policy decisions and outlooks from South Korea and Indonesia.The regional economic data calendar is pretty full too, with the latest trade figures from Japan and Malaysia, and the latest unemployment numbers from Australia and Hong Kong also on tap.Investors may also deliver a delayed or revised verdict on China’s generally upbeat economic indicators from Wednesday, which included third quarter year-on-year growth of 4.9%, much stronger than most economists had expected.Chinese stocks fell sharply on Wednesday, pressured by deepening turmoil in the country’s property sector as top private developer Country Garden flirts with default. Could investors decide the GDP and other indicators show the economy is in better shape than feared?Maybe. But the one-two combination of new multi-year highs for U.S. bond yields and a steep selloff on Wall Street looks set to deliver an early blow to Chinese and other markets across Asia on Thursday.As well as rising bond yields on Wednesday, Wall Street felt the heat from downbeat U.S. earnings. Stocks fell the most in two weeks, even though the message from Fed officials on the stump was that interest rate hikes are probably over.The selling pressure bearing down on the U.S. bond market simply refuses to relent. The 10-year yield scaled 4.90% for the first time since 2007, and the two-year hit a fresh 17-year high of 5.2440%.The curve bear steepened again too. The 2s/10s yield curve has steepened 14 out of the last 17 trading sessions, and Wednesday’s move was the biggest in three weeks.On top of that, oil and gold prices continue to move higher, reflecting investors’ ongoing unease regarding events in the Middle East.In currencies, the dollar is pressing right up against 150.00 yen. Given how high U.S. yields are moving, it is little wonder – the 2-year U.S./Japanese yield spread reached 517 basis points on Wednesday, the widest gap in favor of the dollar since December 2000.Will the Bank of Japan intervene? It stepped into the Japanese Government Bond market on Wednesday to buy bonds and put a cap on the 10-year yield, which had spiked to a new decade high of 0.819%.The main events on the regional calendar on Thursday will be the policy decisions from Bank of Korea and Bank Indonesia. Both are expected to keep rate on hold, before easing policy in the second quarter of next year, according to Reuters polls.Here are key developments that could provide more direction to markets on Thursday:- South Korea interest rate decision- Indonesia interest rate decision- Several Fed officials speak, including Chair Jerome Powell (By Jamie McGeever; Editing by Josie Kao) More

TOKYO (Reuters) – The dollar held the yen near a two-week low, as growing expectations the U.S. Federal Reserve will keep rates higher for longer had the greenback and U.S. Treasury yields on the rise overnight and markets awaited a speech by Fed Chair Powell.Fed Governor Christopher Waller and John Williams were among the latest U.S. central bank officials to make comments this week, with the Fed’s Oct. 31 – Nov. 1 monetary policy meeting fast approaching.Waller, who is one of the Fed’s most hawkish members, said he wants to “wait, watch and see” if the U.S. economy continues its run of strength or weakens in the face of interest rate hikes to date.The dollar index, which measures the dollar against a basket of currencies, held steady near Wednesday’s high of 106.63 in the Asian morning. The greenback received support from a surge in U.S. Treasury yields overnight, as concerns about government debt issuance mounted against the backdrop of the ongoing interest rate discussion.Recent rhetoric from the Fed reflects significant tightening in financial conditions, as well as increased uncertainty given recent geopolitic events in the Middle East, according to IG Market Analyst Tony Sycamore.Federal Reserve policymakers are signaling a pause in hiking interest rages for another couple months as they wait for a resolution of mixed signals, including strong economic data and signs of progress on still-stubbornly high inflation. Market attention now turns to Fed Chair Jerome Powell, who is set to speak on Thursday.”I think it highly likely the Fed Chair will reinforce the more cautious commentary heard from Fed speakers over the past week and half,” said Sycamore.The Japanese yen strengthened slightly to 149.77 per dollar, off Wednesday’s two-week low of 149.94 but still near the 150-level that markets perceive as a potential trigger for currency intervention by Japanese authorities. Earlier in October, the yen rallied sharply after falling past 150, although it later fell back and early indications suggest Japan did not intervene. Dollar/yen could be pushed even higher depending on whether U.S. yields continue to rise at a faster pace than their Japanese peer yields, Carol Kong, currency strategist and economist at the Commonwealth Bank of Australia (OTC:CMWAY), wrote in a note.Japanese 10-year government bond yields rose to a fresh decade high of 0.815% on Wednesday, prompting the Bank of Japan to announce $2 billion in emergency bond-buying to keep downward pressure on yields.”The implication is the risk of FX intervention by the BoJ remains high in our view,” said Kong.Elsewhere, the Australian dollar fell around 0.3% versus the greenback to $0.6319, while the kiwi was down nearly 0.2% at $0.5847.Against the dollar, the euro mostly flat at $1.05365 after falling overnight.Sterling stood steady at $1.2137. More