Aurelia Butler

Europe’s biggest economy suffered a brief recession around the turn of the year and produced flat growth in the second quarter, so a contraction in the current period would mean four straight quarters with negative or flat growth.”Despite the somewhat slowing pace of price increases, strong wage increases and the good labour market, private households are still holding back on spending,” the central bank said. “In addition to consumer restraint, the increasing weakness of industry is also weighing on economic performance,” it added.Euro zone inflation has halved since late 2022 but at 5.3%, remains uncomfortably high and the European Central Bank has now raised its deposit rate to a record high 4% to arrest quick price growth.This rise in financing costs will also weigh on growth, the Bundesbank said, as will the declining order intake for the country’s vital and vast industrial sector. “The low and continued decline in incoming orders, and the declining order backlog are increasingly having an impact on industrial production,” the central bank said. Germany’s industry, heavily exposed to exports, has been particularly hard hit by weak demand from China and its prospects for recovery remain weak, market economists say. More

MONTEVIDEO (Reuters) – Diego Labat, Uruguay’s central bank chief, is sitting pretty. Inflation is at the lowest level in nearly two decades, the currency is one of the region’s strongest, and the country is leading a regional pivot towards interest rate easing.That’s a sharp contrast to just across the Rio de La Plata estuary in Buenos Aires, where inflation hit 124% in August, the highest since 1991, capital controls are barely holding back a fall in the currency, and net reserve levels are in the red.It’s also a sign of a tectonic shift over years: strong, independent institutions and political stability helping Uruguay’s economy increasingly detach from its larger neighbor, where the two once rose and fell in tandem.”Uruguay has done its homework,” Labat, 53, told Reuters at his office near the bustling port of Montevideo, adding that the country had been much more susceptible to economic shocks from Argentina just a few decades ago.In 2002 the small farm-driven economy suffered bank closures, high unemployment and soaring poverty during a devastating financial crisis in Argentina, due to a direct “link” between the two financial systems that has weakened since.”A problem in Argentina back then was a problem in Uruguay,” Labat said. Argentina was then Uruguay’s second biggest trading partner. Today it has fallen to number four, after China, Brazil and the European Union.”Today a problem in Argentina is no longer a problem here.”The opposing fortunes of the two countries is stark.Uruguay’s annual inflation rate was 4.1% in August, the lowest since 2005 and less than a third of Argentina’s rate of 12.4% in the single month of August alone.Uruguay’s peso, similarly valued to Argentina’s in 2018, now gets you almost 10 times as many dollars officially, and closer to 20 times in reality, with most Argentines trading on parallel markets as formal access to dollars is tightly limited.Argentina’s net central bank reserves are also estimated to be in the red, hurting its ability to make payments as it battles to keep a $44 billion International Monetary Fund (IMF) program alive. Uruguay’s meanwhile have been stable at around $8 billion.LEADING THE WAY ON RATE CUTSLower inflation in Uruguay and its currency stability has allowed the central bank to cut interest rates starting in April to 10% now, with another reduction likely at its next monetary policy meeting in October.This should help ease a drought-linked slowdown, which saw activity contract 2.5% in the second quarter versus a year earlier. Labat is confident of an economic rebound in 2024. Argentina’s benchmark interest rate meanwhile has soared to 118%, hindering growth and access to credit, and tipping the country towards recession.Labat said that a “strong and growing Argentina” was better for Uruguay, but pointed to trends like a drop in the proportion of non-resident bank deposits – many of them from Argentina – in the country. Total non-resident deposits have fallen to 8%, from a peak of 41.5% in 2001, central bank data show.That’s left Uruguay less exposed, even as it has built up its own institutions and credibility. Government borrowing costs are falling, with Uruguay edging out Chile this year as the region’s lowest-risk economy, a JPMorgan index shows. “There is pessimism about Latin America,” Labat said. “But Uruguay is an example of how better institutions can change the economy.” More

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1. Futures edge higherU.S. stock futures inched up on Monday, as investors geared up for a key Federal Reserve interest rate decision later in the week.By 05:13 ET (09:13 GMT), the Dow futures contract had gained 46 points or 0.1%, S&P 500 futures added 7 points or 0.2%, and Nasdaq 100 futures climbed by 24 points or 0.2%.The Dow Jones Industrial Average managed to eke out a small increase last week, while the broad-based S&P 500 and tech-heavy Nasdaq Composite slipped for the second consecutive week.Tech stocks led the declines on Friday. Lingering concerns over the broader economic outlook were exacerbated after Reuters reported that Taiwanese chipmaker TSMC had asked its major suppliers to delay the delivery of high-end semiconductor manufacturing equipment.The news dampened some enthusiasm around British chip designer Arm (NASDAQ:ARM) after its stellar initial public offering (IPO) in New York last week. Shares in the company dipped by 4.5% in their second day of trading, although the stock remained well above its offer price.2. Fed decision looms largeAttention now turns to the Fed, with the U.S. central bank widely tipped to keep interest rates steady at a range of 5.25% to 5.50% after a two-day gathering set to conclude on Wednesday.Markets will likely be keen to receive any indications from policymakers about their plans for borrowing costs during the rest of the year. Much will depend on where the Fed sees inflation in the world’s largest economy heading in the coming months. A jump in petrol costs fueled the biggest surge in consumer prices in 14 months in August, although the underlying figure decelerated to its slowest rate in almost two years.Along with the Fed’s much-anticipated decision, the Bank of England and Bank of Japan are also scheduled to hold policy meetings this week. A cooling U.K. economy may persuade the BOE to unveil one final rate hike in a long-standing tightening cycle, while the BOJ could provide some clues about a possible shift away from an era of ultra-loose policy.3. Klaviyo to improve IPO price range – Bloomberg NewsMarketing and data automation provider Klaviyo is expected to raise the target price range for its upcoming IPO in a regulatory filing today, according to Bloomberg News, in the latest sign that Arm’s bumper debut has helped to reignite the once-dormant market for new listings.The Boston-based group now plans to improve the price band to $27 to $29 a share, up from its prior proposal to sell 19.2 million shares at $25 to $27 each, unnamed sources familiar with the matter told Bloomberg. Klaviyo would then price the share sale on Tuesday, Bloomberg reported.The move would mirror a similar decision by grocery-delivery service Instacart, which also increased its proposed IPO price range on Friday. Shares in the company are projected to begin trading this week.Arm’s stock surged by 25% in its first trading day last Thursday, sparking hopes for a revival in an IPO market that has been hit by economic uncertainty and elevated interest rates.4. Evergrande shares slump after wealth management staff detainedShares in China Evergrande Group (HK:3333) fell sharply on Monday after police detained some staff at the embattled property developer’s wealth management unit.Police in the southern city of Shenzhen, where the company is headquartered, said over the weekend that “public security organs took criminal compulsory measures” against these employees. The statement did not specify how many were detained, the charges they face, or when they were taken into custody.The stock slipped to by as much as 25% in early morning trading, although it later pared back some of those losses.Evergrande, the world’s most indebted real estate group with liabilities worth $340 billion, previously delayed a decision on offshore debt restructuring from September to October.5. Crude prices extend rally as central bank meetings loomOil prices climbed on Monday, extending a recent rally that has been driven by expectations for a tighter crude market, while traders also looked ahead to the crucial central bank policy-setting meetings.The crude benchmarks have risen by over 30% over the past three months in the wake of supply cuts from Saudi Arabia and Russia, which could push the market into a substantial deficit in the fourth quarter.Meanwhile, investors will be carefully watching this week’s series of interest rate decisions and subsequent statements from policymakers, as well as fresh economic data out of top oil importer China.By 05:14 ET, the U.S. crude futures traded 0.3% higher at $90.33 a barrel, while the Brent contract gained 0.3% to $94.17. More

The ECB raised its deposit rate to a record high 4% last week and hinted at a pause, raising expectations in the market that its next move will be a cut, possibly as soon as late spring 2024.”Only the March forecast can confirm that we are heading unequivocally and steadily towards our inflation goal,” Kazimir said in an opinion piece. “That is why I cannot rule out the possibility of further rate increases today.”Kazimir was one of the few policymakers in the run up to the September policy meeting to openly call for a rate hike, arguing that underlying inflation continues to simmer and was at risk of getting stuck above the target. He added that even if the ECB was at the so-called terminal rate, or the peak in interest rates, the bank would need to chart steady course for an extended period.”Assume we’re (already) at the top. If so, we may have to stay camping here for quite some time and spend the winter, spring and summer here,” Kazimir said. “It is, therefore, premature to place market bets on when the first interest rate cuts will occur,” he added. The end of rate hikes would also start a new phase of the policy discussion and policymakers would then need to debate what to do with the bank’s two bond purchase schemes, the Pandemic Emergency Purchase Programme (PEPP) and the Asset Purchase Programme (APP).Maturing debt in the PEPP is scheduled to be reinvested until the end of 2024 and some policymakers say this end date should be revisited. Others meanwhile argue that bonds in the APP could now be sold off.”As soon as incoming economic data and analyses confirm that further tightening is unnecessary, I see room for a debate about adjusting the pace of our quantitative tightening,” Kazimir said. More

BANGKOK (Reuters) – Thailand’s new cabinet approved on Monday higher budget spending of 3.48 trillion baht ($97.64 billion) for fiscal year 2024, along with a larger budget deficit of 693 billion baht, the deputy finance minister said on Monday.The bigger allocation comes as the new government, which took office last month, chalks out fresh policies to stimulate a sluggish economy weighed down by soft demand for exports and low investor confidence.”The cabinet approved a budget of 3.48 trillion baht for fiscal year 2024 … which is line with economic conditions and revenue collection,” Deputy Finance Minister Julapun Amornvivat told reporters.The revised budget is higher than that approved by the previous government, which projected spending of 3.35 trillion baht and a deficit of 593 billion baht.The new budget projects a rise of 9.3% in spending and a drop of 0.3% in the budget deficit to 693 billion baht, or 3.63% of gross domestic product (GDP), versus the current fiscal year, the Budget Bureau said in a statement.Investment makes up 20.6% of the total spending, at 717.2 billion baht. The plan is based on projected economic growth of 2.7% to 3.7% in 2024.The 2024 budget process had been on hold until the new government took over, three months after the May election. Last week the Budget Bureau said the budget would be ready in April 2024, well after the October start of the new fiscal year.The budget plan will go to parliament for a first reading in early January, and faces two more readings in early April before it is submitted for senate and royal approval.The new budget is in line with current economic conditions and fiscal discipline, government spokesperson Chai Wacharonke told a briefing.The cabinet also approved a cut of 10.3% in electricity bills from September, to 3.99 baht a unit, to ease the cost of living, he added.Southeast Asia’s second-largest economy grew 1.8% in the April-June period on the year and 0.2% on the quarter, slowing sharply from the previous three months.It is now expected to grow 2.8% this year, Deputy Finance Minister Krisada Chinavicharana said last week, less than the ministry’s previous projection of 3.5% growth.($1=35.64 baht) More

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