Aurelia Butler

Franklin was located about 490 miles (790 km) southwest of Bermuda with maximum sustained winds nearing 130 mph (210 kph), the Miami-based center said.Franklin is expected to turn away from the U.S. eastern seaboard in the early part of the week but pass near the island of Bermuda on Wednesday, an NHC map shows. More

Eurozone money supply has shrunk for the first time since 2010 as private sector lending stalls and deposits decline, in a financial squeeze that economists warn points to a further downturn ahead.The money supply is one of the main metrics monitored by the European Central Bank to check the impact of recent monetary policy tightening. As lending dries up and short-term deposits shrink, economic activity is expected to slow and inflationary pressures to cool.The latest data will feed into the debate at the ECB’s governing council over whether it should pause interest rate rises for the first time since July 2022 at its next meeting on September 14. The more dovish members of the council say inflation is already falling and more rate rises risk causing an unnecessarily painful recession. But the hawks argue that inflation of 5.3 per cent in July is still too far above the ECB’s 2 per cent target. Economists say the decision is a “coin toss” that could depend on how much inflation falls in August when that data is released on Thursday.The ECB’s measure of overall money in the eurozone system — the M3 figure that includes deposits, loans, cash in circulation and various financial instruments — decreased 0.4 per cent in the year to July, down from growth of 0.6 per cent in June, the bank said on Monday.Economists said the data showed the unprecedented increase in the ECB’s benchmark deposit rate from minus 0.5 per cent to 3.75 per cent in the past year, as well as the shrinking of its balance sheet, was working as intended, supporting the case for a pause.“On the asset side of banks’ balance sheets . . . things look bad as credit growth collapsed for corporates and especially for households,” Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, wrote on social media platform X. He said this was “a feature, not a bug, of monetary policy” and it meant “the ECB can [should] stop hiking soon”.The main cause of the first decline in the bloc’s money supply in 13 years was a drop in the annual growth of lending to the private sector to 1.6 per cent in July, the slowest rate since 2016. Lending to governments also declined 2.7 per cent — the biggest fall since 2007.“Annual growth in bank lending continues to trend down rapidly,” said Bert Colijn, an economist at Dutch bank ING. “This has been driven by strong declines in business sector borrowing and a steady downward trend in household borrowing — which is mainly for mortgages.”Businesses and households moved money out of overnight deposits at a record rate, with these falling 10.5 per cent in the year to July. This largely reflected a shift into higher yielding fixed-term deposit accounts, which rose 85 per cent in the same period.Overall deposits, including those held by government bodies and financial institutions as well as households and companies, fell at a record rate of 1.6 per cent in the year to July.“With economic activity already in stagnation mode at the moment, monetary policy is set to contribute to a weak economic environment for the quarters ahead,” said Colijn.The eurozone economy grew 0.3 per cent in the three months to June from the previous quarter, having contracted or stagnated in the previous two quarters. But gloomy business surveys point to a likely downturn in the three months to September. More

JACKSON HOLE, Wyoming (Reuters) – Record levels of government debt, geopolitical tensions that threaten to split the global trading system, and the likely persistence of weak productivity gains may saddle the world with a slow-growth future that stunts development in some countries even before it starts.That sobering view of a post-pandemic global economy emerged from research organized by the Kansas City Federal Reserve and debated here this past weekend. It explored issues like the outlook for technological innovation, public debt, and the state of international trade at a time when the Russian invasion of Ukraine and conflict between the U.S. and China have eroded a once-broad global agreement, at least in theory, to boost the free flow of goods and services.”Countries are now in a more fragile environment. They’ve used a lot of their fiscal resources to deal with a pandemic…Then you have policy-driven forces, geoeconomic fragmentation, trade tensions, the decoupling between the West and China,” International Monetary Fund chief economist Pierre-Olivier Gourinchas said in an interview on the sidelines of an annual Fed conference here. “If we get to a point where part of the world is stuck without catching up and has large amounts of population, that creates tremendous demographic pressures and migration pressures.”Gourinchas said it is possible that global growth settles into a trend of around 3% annually, a figure far below rates above 4% seen when rapid advances in China’s economy drove global output higher and which some economists consider borderline recessionary in a world where quick gains should still be achievable in large, less-developed countries.But in the emerging pandemic economy, “the global growth environment has become very challenging,” said Maurice Obstfeld, a former IMF chief economist and now a fellow at the Peterson Institute for International Economics in Washington.China is now suffering what may be chronic economic problems along with a shrinking population. Emerging industrial policies in the U.S. and elsewhere are reordering global production chains in ways that may be more durable or serve national security ends, but also be less efficient.The symposium is among the first major attempts to take stock of longer-term economic developments after the pandemic and amid renewed geopolitical tensions after years in which officials were at first preoccupied with fighting COVID-19 itself, then had to focus on a global breakout of inflation.Economists and policymakers here appeared in rough consensus that two trends from before the pandemic, both with global-growth implications, had been intensified by the health crisis and other recent events.After rocketing higher during the Global Financial Crisis 15 years ago, the ratio of public debt to world economic output has grown to 60% from 40% thanks to pandemic spending and is likely now at a level where serious debt reduction is not politically feasible, Serkan Arslanalp, an economist at the International Monetary Fund, and Barry Eichengreen, an economics professor at the University of California, Berkeley, wrote in a paper. The implications of public debt that is “here to stay” varies by country, they said, with higher-debt but higher-income nations like the U.S. likely able to muddle through over time, while smaller nations perhaps face future debt crises or binding fiscal constraints.Globally the fallout could be severe if public borrowing steers capital from countries that still have growing populations and less developed economies, said Cornell University economics professor Eswar Prasad.”This puts us in a bleak setting, thinking about the parts of the world that are labor rich but capital poor,” he said. While the populations of major European nations, Japan, China and the U.S. are all aging, some African nations like Nigeria continue to grow fast.’A MORE NAIVE TIME’ The other pre-pandemic trend that has endured and intensified is a rising openness to policies that range from the outright protectionist tariffs imposed under former U.S. President Donald Trump to Biden administration efforts to steer production of things like computer chips back to the U.S.White House Council of Economic Advisers Chair Jared Bernstein said at the symposium Biden administration industrial policies weren’t necessarily tilted either for or against more international trade, since many of the intermediate goods needed to make silicon chips, for example, would be imported. “In my view the strategies we are pursuing despite a lot of heated rhetoric implies neither more nor less trade,” Bernstein said during one discussion.Others noted the Russian invasion of Ukraine, and the fast follow-on divorce of the European power grid from Russian energy, fractured one of the key precepts behind the spread of globalization: Trade would create durable partnerships, if not outright allies.”I do remember a time, maybe a more naive time…when more trade would create friends,” said Ben Broadbent, deputy governor of the Bank of England.But World Trade Organization Director-General Ngozi Okonjo-Iweala said while the pandemic raised reasonable issues around global supply resilience, particularly for sensitive items like pharmaceuticals, the move to reorder global production patterns risked leaving growth opportunities on the table. “From a political point of view you can understand how attractive it is to say we see the vulnerabilities so we are going to try to do business with those who have the same values as we do,” she said. But whatever the strategy – “nearshoring,” “friendshoring,” “reshoring” – she argued that “maybe you need to go a little bit further…If you are going to diversify anyway…spread it to those who have been at the margins of the global system.” “Friends,” she noted, can change, a pointed statement at a time when Trump, who aimed tariffs at Europe, is running again and recently raised the idea of an across-the-board tax on imports.If there was a potential bright spot, it was around the discussion of advances in artificial intelligence as a possible driver of higher productivity.Yet even that was weighed against the possible damage the technologies may do, and against research findings showing innovation was getting exponentially harder. Even beyond that, any benefits may be slow in coming.”I think of ChatGPT like Peloton (NASDAQ:PTON),” said Nela Richardson, chief economist for payroll processor ADP, comparing the AI innovator with the maker of upscale exercise bike systems. “You can put as many as you want in a home office. If doesn’t mean people are going to use it.” More

One of the overarching market themes this year – aside from the hype around artificial intelligence – has been investors avidly building up bets on the Federal Reserve finally announcing an end to its cycle of rate hikes, only to have that optimism dashed. There’s no doubt that the U.S. central bank is nearing the end of its mission to wrestle down inflation. Headline consumer price pressures are rapidly abating, thanks to a wholesale retreat in food and energy prices. Headline inflation in July rose 3.2% on an annual basis – a far cry from last June’s 9.1% – and nearing the Fed’s 2% target. There’s just a couple of easily identifiable snags. Inflation as reflected in the Fed’s preferred data point – the core personal consumption in expenditures (PCE) index – is running at 4.1%, having peaked February 2022 at 5.4%.The economy isn’t generating jobs as quickly as it was a year ago, but it’s still set to add another 170,000 in August, which will mean more than 25 million workers will have been added to non-farm payrolls since the depths of the COVID pandemic in April 2020. And crucially, Fed Chair Jerome Powell has once again reinforced the “higher for longer” mantra that has underpinned most of his, and his officials’, communications this year, no matter how much market participants have bet otherwise. The dollar, which economist Mohammed El-Erian described earlier this year as “the cleanest dirty shirt” among world currencies, is set for a 2% gain in August, marking its strongest monthly performance since May, thanks in large part to anticipation of at least one more Fed rate hike before 2023 draws to a close. U.S. two-year Treasury yields, the most sensitive to shifts in expectations for Fed monetary policy, posted their largest weekly rise in two months last week, after Powell’s comments at the annual Jackson Hole Economic Policy Symposium.He vowed to tread carefully with rate rises and rely on incoming data, but was clear about the endgame.”It is the Fed’s job to bring inflation down to our 2% goal, and we will do so,” he said.While some asset managers are keeping the faith that the Fed is at the end of the cycle, speculators are taking no such chances. In the week to Aug. 22, data from the Commodity Futures Trading Commission showed non-commercial market participants expanded their bearish holdings of U.S. two-year Treasury note futures to the most since at least 1990, reflecting a bet that two-year cash yields will continue to rise. Money markets show traders believe the Fed has one more hike in the pipeline this year, which would bring its target rate to a range of 5.50%-5.75%, from 5.25%-5.50% right now.Just three months ago, when rates were at 5.125%-5.37%, markets were betting on a year-end range of 5.00%-5.25%, implying at least one rate cut this year. This week, investors get a dose of top-tier data to help shape their view on the Fed’s next move. A second read of U.S. gross domestic product is due on Wednesday, while core PCE and August non-farm payrolls arrive on Thursday and Friday, respectively. Key developments that should provide more direction to U.S. markets later on Monday: * Dallas Fed August manufacturing business index* Three-, six-month bill auctions; 2- and 5-year note auctions More

China’s July data, such as retail sales, business investment and industrial production were “on the weak side,” Ueda said, according to the text posted on the BOJ’s website on Monday.”The underlying problem appears to be the adjustment in the property sector and its spillover to the rest of the economy,” Ueda said on China, adding that the hit to Japan from China’s weakness has been somewhat offset by the relative strength of the U.S. economy.Ueda also said trade and foreign investment flows suggest Japanese firms are diversifying production from China into the rest of Asia and the United States, partly in response to geopolitical risks.”Longer run effects of geopolitical factors on the Japanese economy are unsurprisingly very uncertain,” Ueda said, adding that “the tit-for tat war,” mainly in the semiconductor sector, between major advanced economies and China was a risk.”Central banks will have a hard time factoring in these forces when making policy decisions,” he added.Ueda delivered the speech during a session on globalisation held on Saturday at the Jackson Hole Symposium in Wyoming.Geopolitical tension between the United States and China has been among the risks to global trade that have weighed on export-reliant economies such as Japan.Relations with China soured after Japan started releasing treated radioactive water from the wrecked Fukushima nuclear power plant into the Pacific Ocean on Thursday, drawing expressions of concern from neighbouring countries. More