Aurelia Butler

Annual inflation in Latin America’s largest economy slowed to 3.16% in June from 3.94% in May, in line with a market consensus of 3.17%. Prices fell 0.08% on a month-on-month basis, the first deflation registered since September of last year.The figures are likely to support expectations that the central bank will start cutting rates as soon as next month, after it took a dovish tone at its last meeting in June, saying that an August cut was possible if the positive inflation scenario continued.The Brazilian monetary authority has conducted one of the world’s most aggressive tightening cycles since early 2021 in a bid to tame high inflation, with rates at a six-year high of 13.75% since August 2022.The 0.08% consumer price fall from May to June was driven mainly by lower food, beverage and transportation costs and was also in line with market expectations.Annual inflation is currently within this year’s target range of 1.75%-4.75%, although an uptick is expected from July because of unfavorable base effects. More

By Qiaoyi Li and Kevin YaoBEIJING (Reuters) -China’s new bank loans jumped more than expected in June from the previous month, helped by central bank efforts to support the economy as a post-pandemic recovery fades.Chinese banks extended 3.05 trillion yuan ($423.45 billion) in new yuan loans in June, more than double May’s tally and beating analysts’ forecasts, data from the central People’s Bank of China showed on Tuesday.Economists polled by Reuters had predicted new yuan loans would climb to 2.34 trillion yuan last month, up from 1.36 trillion yuan in May.”Clearly, the market needs more time and information to assess the strong credit figures for the end of Q2 – while it looks similar to Q1 data, the market will definitely interpret with caution,” said Zhou Hao, economist at Guotai Junan International.”In our opinion, the most important is to gauge the housing sales across the country, which will provide a fresh perspective of the linkage between credit data and household sentiment.”Household loans, primarily mortgages, rose to 963.9 billion yuan in June from 362.7 billion yuan in May, while corporate loans soared to 2.28 trillion yuan last month from 855.8 billion yuan in May, according to the central bank data. China has moved to spur demand as households and private firms build up savings and reduce borrowing and spending to repair balance sheets after three years of COVID curbs. More stimulus steps are expected.China’s central bank on Monday extended until the end of 2024 some policies in a November rescue package to shore up the property sector.A post-COVID recovery in the world’s second-largest economy is faltering. Producer prices fell at the fastest pace in over seven years in June and consumer prices teetered on the verge of deflation.Premier Li Qiang, during a meeting with economists last week, pledged to roll out a raft of policy measures in a timely manner to stabilise growth and employment.The central bank cut its benchmark lending rates by a modest 10 basis points in June, the first such reductions in 10 months to shore up the economy. The central bank has pledged to implement a prudent policy in a “precise and forceful manner” to support the economy.Broad M2 money supply rose 11.3% in June from a year earlier, the central bank data showed, above the poll’s estimates of 11.2%. M2 expanded by 11.6% in May from a year earlier.MORE POLICY STEPS NEEDEDOutstanding yuan loans grew 11.3% in June from the year before, the lowest in five months, compared with 11.4% growth the previous month. Analysts had expected 11.2% growth.Year-on-year growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to 9.0% in June – the lowest on record – from 9.5% in May.”The continued deceleration adds to the headwinds to the economy in the second half of the year,” analysts at Capital Economics said in a note. “Further policy support is probably on the way, but we doubt this will drive much of a pick-up in credit growth given the weakness of demand,” the analysts said, expecting another 10bp rate cut to come before long.TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.In June, TSF jumped to 4.22 trillion yuan from 1.56 trillion yuan in May. Analysts polled by Reuters had expected June TSF of 3 trillion yuan. More

LONDON (Reuters) -The Bank of England may have to keep interest rates high for an extended period if inflation pressures persist, and it was right to raise them by half a percentage point last month, the International Monetary Fund’s directors said on Tuesday.British inflation was the highest of any major economy in May at 8.7%, and financial markets have priced in increasingly high peaks for BoE rates as wage and price data have come in hotter than expected in recent months. Markets see a roughly 50% chance that BoE rates will peak at 6.5% early next year, up from 5% now – a greater degree of tightening than is expected for the U.S. Federal Reserve or the European Central Bank.”A continuous review of the pace and magnitude of monetary tightening is warranted,” IMF directors said after an annual review of Britain’s economy.”Should inflationary pressures show signs of further persistence, the policy rate may have to be raised further and would need to remain higher for longer to durably lower inflation and keep inflation expectations anchored.”BoE Governor Andrew Bailey on Monday vowed to “see the job through” on returning inflation to its 2% target.The IMF’s latest comment is similar to language by staff in a preliminary version of its annual report on the British economy in May.The agency also repeated the forecast it made in May that Britain would avoid recession this year and that the economy would grow by 0.4%. Inflation will slow to “around 5.25%” by the end of the year, it said. May’s forecast said inflation at the end of 2023 would be “around 5%”. Both forecasts suggested inflation would be below the BoE’s 2% target by the middle of 2025.The IMF’s directors discouraged finance minister Jeremy Hunt from spending any unexpected fiscal windfalls.Instead, Britain should raise more money over the medium term from carbon and property taxes, and by removing loopholes in wealth and income taxation, in order to fund public services better and stop government debt rising, they said. More

Singaporean state-owned investor Temasek Holdings has reported its worst returns since 2016 and warned it has slowed investment amid recession risks, higher interest rates and geopolitical tensions.Temasek, one of the biggest and most active investors globally, said the net value of its portfolio had shrunk to S$382bn (US$285bn) in the financial year to March, as public and private equity capital markets fell and the technology sector was hit particularly hard. That compared with it being worth a record $403bn in 2022. A S$7bn loss was driven by mark-to-market accounting.The Asian investor, which has two-thirds of its portfolio in the region and has backed some of the world’s biggest start-ups from Jack Ma’s Ant Group in China to San Francisco and Dublin-based payments processing group Stripe, reported a 5.07 per cent drop in total shareholder returns. This compared with a 5.8 per cent increase the previous year and was far below the 24.5 per cent increase in 2021. The group slowed its investment pace for the period, calling it “the most challenging year for markets over the last decade”. The results underline the struggle of global investors to adapt to a new era of higher interest rates. Temasek’s cost of capital rose from 7 per cent to 9 per cent. Its total returns over a 10-year and 20-year period were 6 per cent and 9 per cent respectively. The drop in returns was the poorest annual performance since 2016. Investment returns from Temasek and sovereign wealth fund GIC, as well as the Monetary Authority of Singapore, the central bank, are the biggest contributors to Singapore’s budget. “The global economy is still quite fragile. Geopolitical tensions are high, showing no signs of easing. Inflation is elevated in most developed markets . . . we do believe that to get inflation under control, we probably will need to see a recession,” said chief investment officer Rohit Sipahimalani. Temasek, whose unlisted holdings have grown substantially over the past decade to more than 50 per cent of its portfolio, had some high-profile setbacks over the year. It was forced to write down its $275mn investment in the collapsed crypto exchange FTX. Chief executive Dilhan Pillay acknowledged the high reputational damage the investment had caused but described it as an “aberration”. Sipahimalani said Temasek was moderating the pace of its investments and applying a “geopolitical lens” to its deals. “We won’t invest in areas that are in the crosshairs of US-China tensions. We’ll prefer to invest in companies that have access to large domestic markets.”Management said it still saw opportunities in China over the long term in sectors linked to domestic consumption and electric vehicles, but its growth outlook was uncertain. “We expect that [government] stimulus will be much lower and much more modest than what we’ve historically seen,” Sipahimalani said.The proportion of Temasek’s portfolio allocated to China has remained flat over the past decade. It made up 23 per cent of the portfolio in 2013 compared to 22 per cent in 2023, whereas the Americas has gone from 10 per cent to 21 per cent. Its largest exposure, at 28 per cent, is to Singapore. Temasek said it would look to boost investments in India and south-east Asia. It sees opportunities there owing to supply chain diversification away from China — dubbed China+1 — and the digital economy. More

Although labour markets are tight, employers have not raised wages in pace with inflation in 31 out of the 34 countries tracked in the Paris-bsaed OECD’s 2023 Employment Outlook.After taking inflation into account, wages have fallen 3.8% in the first quarter of 2023 from a year earlier with the drop the biggest in Hungary at 15.6%, the report said.While workers have seen high inflation erode their purchasing power, all countries in the report have seen businesses’ profits grow faster than wages since the pandemic. “The cost of a living crisis is a cost that has to be shared between what governments can do, what companies have to do and what workers have to do,” OECD head of labour policy Stefano Scarpetta told a news conference.”There is some room in some room in profits to accommodate some increase in wages without necessarily generating a wage price spiral,” Scarpetta added.How much wages could be raised would depend country by country and sectors would also need to be taken into account as well as profit increases were smaller at small and mid-sized firms, he said. More

ISLAMABAD (Reuters) – Pakistan has received $2 billion in financial support from Saudi Arabia, Finance Minister Ishaq Dar said on Tuesday, a day before the International Monetary Fund’s board is expected to give final approval for a much-needed $3 billion bailout.Saudi Arabia has deposited the funds with the central bank, Dar said, boosting foreign exchange reserves when Pakistan was left with barely enough to cover a month of controlled imports.”I thank Saudi Arabia on behalf of the prime minister and army chief,” Dar said in a recorded video statement, terming it a “great gesture” from the longtime ally. The Middle Eastern country pledged the funds in April, but had held off depositing the money with the State Bank of Pakistan until it was sure that the IMF bailout would be forthcoming.”It reflects the growing confidence of our brotherly countries and the international community in Pakistan’s economic turnaround,” Prime Minister Shehbaz Sharif said.Teetering on the cusp of a sovereign debt default, Pakistan secured the $3 billion IMF bailout on the last day of June, though it still needs approval from the IMF board, which is meeting on Wednesday.Under the nine-month arrangement, Pakistan will receive about $1.1 billion upfront and the IMF will stagger disbursements of the rest.The IMF deal will unlock more bilateral and multilateral financing in addition to the money from Saudi Arabia, and Dar has said that he expects Pakistan’s foreign exchange reserves to rise to $15 billion by the end of this month.Credit rating agency Fitch on Monday upgraded Pakistan’s sovereign rating to CCC from CCC-, with the bailout bringing some relief to investors in the country’s stocks and bonds.Its sovereign dollar bonds on Tuesday rallied as much as 1.8 cents, according to Tradeweb data, after the Saudi assistance was announced. Shorter-dated bonds enjoyed the biggest gains, with the 2024 issue rising to 77.75 cents on the dollar, having gained almost 30 cents from late-June lows.Pakistan’s bonds have had a stellar rally since the heavily indebted nation secured the IMF deal.Sharif’s coalition government, which is due to face a national election later this year, has to undertake more painful fiscal discipline measures to satisfy the IMF, and the central bank has raised its policy interest rate to a record high of 22% while ordinary Pakistanis struggle with inflation running at about 29%. More