Aurelia Butler

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.The shadow over Asian markets cast by China’s economic malaise continues to darken, but chinks of light are beginning to appear – ‘peak Fed’ is drawing closer, U.S. bond yields may be topping out, and the dollar is its weakest in three weeks.These dynamics could intensify later this week if U.S. inflation data for June undershoots analysts’ already soft expectations. All else equal, this would be a tailwind for Asian stocks, bonds and currencies.Several Fed officials on Monday said interest rates will have to rise further to contain inflation, but the end of the tightening cycle is in sight. A New York Fed survey of consumer and inflation expectations was also “risk-friendly.” There are no major economic, policy or corporate events on the Asian calendar on Tuesday, leaving investors to take their cue again from the outlook for U.S. rates, and Chinese growth and stimulus.Sentiment toward Asian stocks in recent months has been mostly bearish, with the exception of Japan, but a pause in the selling on Monday lifted the gloom a little. Chinese and broader Asian stocks rose for the first time in four sessions, while the yuan and yen strengthened to two-week highs against the dollar. The dollar’s slide will cool speculation that Japanese authorities are poised to intervene to support the yen, and a steadier yuan will halt the spiral of a weakening currency, capital outflows and pressure on the central bank to intervene.But China’s latest inflation figures on Monday were sobering. Annual consumer price inflation in June was zero and producer price inflation slumped to -5.4%, signaling the heaviest deflation since 2015. Both readings undershot economists’ expectations, triggering another slide in Citi’s Chinese economic surprises index to a two-year low. The index has risen just four out of the last 60 trading sessions and is down 11 weeks in a row, its longest stretch of underperformance since 2010.Chinese bank stocks, measured by the Hong Kong-listed Hang Seng Mainland Banks Index, fell for a fifth day on Monday, but a potentially significant turnaround in the tech sector helped boost broader equity sentiment.Analysts reckon China’s near $1 billion fine slapped on Ant Group could draw a line under the fintech giant’s woes, giving hope to investors that a regulatory crackdown on China’s broader technology sector is over.The regional economic data calendar is light on Tuesday, with only Australian consumer confidence and business sentiment, and Philippines trade figures on tap.Here are key developments that could provide more direction to markets on Tuesday:- Australia consumer confidence (July)- Australia business confidence (June)- Germany inflation (June, final) (By Jamie McGeever; Editing by Marguerita Choy) More

Good morning. Turkey’s president Recep Tayyip Erdoğan has agreed to support Sweden’s membership of Nato, the military alliance has said on the eve of its annual leaders’ summit in Lithuania. The move paves the way for the Nordic country to join the US-led bloc after more than a year of opposition from Ankara.Erdoğan’s decision to lift his veto, after a last-ditch meeting with the leaders of Sweden and Nato on Monday evening, came after Turkey’s president linked his support for Stockholm’s accession to Turkey’s long-stalled EU bid. The lifting of Erdoğan’s block opens the way for Turkey’s parliament to approve Sweden’s entry into the military alliance, a step seen as critical to increasing the defence of eastern Europe in response to Russia’s invasion of Ukraine.Turkey’s president agreed to “forward the accession protocol for Sweden [to join Nato] to the Grand National Assembly as soon as possible and work closely with the assembly to ensure ratification,” Nato secretary-general Jens Stoltenberg said after hours of negotiations with the leaders of Turkey and Sweden. Stoltenberg described the decision as a “clear commitment” from Turkey’s president, but said it was “not for me to go into the details of the timelines of the different political institutions in Turkey”, when asked how soon Sweden could become a member of Nato.Go deeper: The unity of Nato’s 31 members will be put to its biggest test since the beginning of the Ukraine war at this week’s summit, writes Gideon Rachman.Here’s what else I’m keeping tabs on today:Economic data: July unemployment figures are due in the UK, while Germany reports the final June consumer price index and harmonised index of consumer prices, plus the ZEW economic sentiment survey. Asean meeting: Foreign ministers from south-east Asian countries will meet in Jakarta, Indonesia to discuss the crisis in Myanmar, tensions in the South China Sea and other regional issues. (Associated Press)Heat and flooding in China: Parts of eastern and south-west China are preparing for torrential rain, while employers across much of the country on Monday were ordered to limit outdoor work because of brutal heat. (Associated Press)Five more top stories1. Russian president Vladimir Putin met Yevgeny Prigozhin and other Wagner commanders a few days after their aborted mutiny, the Kremlin has revealed. The revelation is a further sign that Moscow is in no hurry to punish Prigozhin, who Putin had initially branded “a traitor”. 2. A top US banking regulator has announced tougher capital rules for a broader range of lenders in an effort to shore up a financial system rattled by the failure of several regional banks earlier this year. Here are more details on the regulatory changes for larger lenders.More US banks news: The largest US banks are this week set to report the biggest jump in loan losses since the onset of the coronavirus pandemic, as rising interest rates pile mounting pressure on borrowers across the economy.3. A growing number of countries are bringing their physical gold reserves back home to avoid Russian-style sanctions on their foreign assets, while increasing their purchases of the precious metal as a hedge against high levels of inflation. Read more on the global demand for gold. 4. The asset management industry faces dramatic consolidation over the next four years as one in six companies could disappear because of a mix of market volatility, high interest rates and pressure on fees. Read more on the findings from PwC’s survey of 500 asset managers and institutional investors. More asset management news: Big money managers in China have cut fees on thousands of mutual fund products, in a swift reaction to government pressure to reduce rates across the country’s fast-evolving financial services sector.5. A Singapore hedge fund has filed a petition in Hong Kong to wind up defaulted developer Kaisa, marking one of the first cases dealing with a Chinese developer’s mainland debt following a property sector meltdown in the country. Analysts say the case reflects creditors’ impatience with restructuring in China’s property sector. The Big Read

Volodymyr Zelenskyy, left, and Jens Stoltenberg © FT Montage/Reuters/Getty

As his battered troops continue to fight off a relentless invasion and attempt to claw back occupied territory in Ukraine’s south and east, Volodymyr Zelenskyy will this Wednesday be in Lithuania’s capital, Vilnius, with another strategic objective: to gain a seat at Nato’s table. But his bid poses difficult questions for the military alliance’s 31 members, from how prepared they are to fight Russia, to whether its mutual-defence clause needs to be earned before it is given.We’re also reading and watching . . . Endangered analysts: Two decades of scandals, complaints about overly rosy ratings and regulatory tinkering have imperilled the once-rock star equity analyst, writes Brooke Masters.China’s youth unemployment crisis: Beijing’s crackdown on tech and slow post-Covid growth have left a generation of graduates with fewer options. FT film 🎬: Gautam Adani saw more than $100bn wiped from his listed companies’ valuation after a short seller took aim at his empire. Now, the fallout has spread beyond the markets into Indian politics.Chart of the day

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China’s economy teetered on the brink of deflation in June, adding to calls for Beijing to launch a stronger stimulus package to sustain the country’s sputtering post-Covid recovery. The consumer price index was flat year on year and declined 0.2 per cent compared with the previous month, while factory gate prices fell at the fastest pace since 2016. Take a break from the newsFeeling worn out? Take a nap. Employers are waking up to the advantages of snoozing on the job, as groups from law firms to banks seek help for the overworked.

A short snooze isn’t a sign of idleness or moral decay. Framing a nap as fecklessness makes it more appealing © General Photographic Agency/Getty Images

Additional contributions by Tee Zhuo and Gordon Smith More

(Reuters) -The Federal Reserve will likely need to raise interest rates further to bring down inflation that is still too high, but the end to its current monetary policy tightening cycle is getting close, several U.S. central bank officials said on Monday.The Fed has raised interest rates by 5 percentage points since March 2022 to bring down the highest U.S. inflation in four decades. Fed policymakers opted last month to forego a rate increase to give themselves time to assess the still-developing effects of the previous hikes in borrowing costs, even as most also penciled in at least two more increases by the end of 2023.”We’re likely to need a couple more rate hikes over the course of this year to really bring inflation” sustainably back to the U.S. central bank’s 2% goal, San Francisco Fed President Mary Daly said during an event at the Brookings Institution, giving voice to the most common view among her rate-setting peers at the Fed.But, Daly added, while the risks of doing too little are still greater than those of overdoing it on rate hikes, the two sides are getting into better balance as the Fed nears “the last part” of its hiking cycle. Daly said she fully supported June’s policy decision, along with a go-slower approach that allows for more “extreme” data-dependence. “We may end up doing less because we need to do less; we may end up doing just that; we could end up doing more. The data will tell us.”Fed policymakers are widely expected to deliver a rate hike at their meeting later this month, a move that would bring the policy rate to the 5.25%-5.50% range. What’s less clear is whether they will raise rates again at the September meeting, wait until November, or just stay on hold and let inflation ease over time. Fed Chair Jerome Powell has said he cannot rule out consecutive rate hikes to deal with stubbornly high inflation, which by the central bank’s preferred gauge, the personal consumption expenditures index, has fallen from a peak of 7% last year to 3.8% in May, still nearly twice the Fed’s target. “We still have a bit of work to do,” Fed Vice Chair for Supervision Michael Barr said on Monday at a separate event. “I’ll just say for myself, I think we’re close.”NEAR-TERM INFLATION EXPECTATIONS FALLA survey released on Monday by the New York Fed on the state of consumer expectations in June showed near-term inflation expectations dropped to their lowest level since April 2021. That could buttress the case that price pressures are weakening, which in turn could take some pressure off the central bank to hike rates again. But the survey also showed a fifth straight month of expected home price gains, suggesting that housing inflation could again become an issue for the Fed at some point.Atlanta Fed President Raphael Bostic, speaking at yet another event on Monday, repeated his view that the Fed can be “patient” on rates and allow restrictive policy to bring down inflation without further action by the central bank. But within the Fed there remains a camp that feels just the opposite.Commenting on last month’s policy meeting, Cleveland Fed President Loretta Mester told reporters, “if it was just me alone, I would have moved the rates up, but I understood the rationale for not moving in June,” given the importance of matching market expectations. Mester, who does not have a vote on the Fed’s policy-setting committee this year, reaffirmed her view that interest rates will need to rise but was not yet ready to say that should happen at the July 25-26 meeting, as more data on the economy is inbound. Mester also said her outlook for rates is in line with or slightly above the Fed consensus of half a percentage point more of additional tightening before the end of the year.Mester, however, said higher rates will be needed because “the economy has shown more underlying strength than anticipated earlier this year, and inflation has remained stubbornly high, with progress on core inflation stalling.” More

WASHINGTON (Reuters) – The Federal Reserve’s top regulatory official laid out a sweeping plan to increase capital requirements for the nation’s largest banks in the wake of recent bank failures, a move that was immediately met with criticism from the industry. In a widely-anticipated speech, Fed Vice Chair for Supervision Michael Barr said he planned to pursue multiple regulatory initiatives that would direct larger banks with more than $100 billion in assets to hold more in reserve, saying the recent bank failures underlined the need for regulators to bolster resilience in the system.”Events over the past few months have only reinforced the need for humility and skepticism, and for an approach that makes banks resilient to both familiar and unanticipated risks,” Barr said in a speech at the Bipartisan Policy Center in Washington. Barr had been expected to prescribe tighter rules on the sector since being tapped by President Joe Biden to serve as the Fed’s bank watchdog. But Monday’s remarks marked the most detailed view yet of his agenda, and confirmed industry fears he would pursue a broad set of tighter requirements and also ignore their pleas for relief in some areas.The banking industry called the effort misguided and could hinder lending.”The changes he outlined today fail to adequately consider the negative repercussions from forcing banks of all sizes to hold more capital than is needed to maintain safety and soundness. Higher capital requirements come at a cost to the economy, and regulators have other existing regulatory tools to manage risks,” said Rob Nichols, president and CEO of the American Bankers Association. The nation’s largest bank lobby said it would oppose any proposals it deemed unnecessary and economically harmful.Barr said he did not plan to overhaul the U.S. bank capital framework, but instead build on it in several ways, including by fully implementing the globally agreed Basel bank capital agreement and expanding annual “stress tests” of banks’ health. He did not offer a specific timeline for any changes, but the effort is expected to kick off in the coming weeks.’HOLISTIC REVIEW’Barr’s speech served as a comprehensive update on a “holistic” review of bank capital rules that he launched shortly after joining the U.S. central bank in 2022. He had already indicated at the time that he was considering where rules might be strengthened, but now argues the banking crisis in March and April, which saw the failure of Silicon Valley Bank (SVB) and two other lenders, underlined the need to do more.”The holistic review began well before then, of course, and the steps proposed here address shortcomings in capital standards that did not begin in March of 2023,” he said. “But in an obvious way, the failures of SVB and other banks this spring were a warning that banks need to be more resilient.” Specifically, Barr said the crisis proved the systemic role smaller banks can play, which means they also should face stricter oversight. He said he will seek to apply stricter capital rules to banks with more than $100 billion in assets, expanding the pool of firms that must comply.The banks which would qualify, according to Fed data, include Citizens Financial (NYSE:CFG) Group, Fifth Third, Huntington and Regions. The banks did not immediately respond to requests for comment. The stock prices of the first three firms were down at least 0.3% in midday trading Monday, while Regions was up 0.3%.Dashing industry hopes for any rules relief, Barr also said he did not plan to weaken an existing surcharge on large global banks or leverage rules which the industry argued hampered Treasury market functions. Barr said evidence of that is “inconclusive,” and any impact should be reduced when a fuller set of rules in is place.However, Barr did emphasize that any new requirements would go through a formal rule-writing and public comment process, and include lengthy transition periods to allow banks to raise necessary capital.He said that most banks already have enough capital to meet the new standards he has envisioned, but firms that must raise capital would be able to do so in less than two years of retained earnings, while maintaining their investor dividends.The Fed has itself come under criticism for its oversight of banks involved in this year’s banking crisis. The Republican-led U.S. House of Representatives Oversight Committee on Monday asked Fed Chair Jerome Powell to hand over confidential documents related to the U.S. central bank’s supervision of failed Silicon Valley Bank. Barr also said on Monday the Fed is close to reaching the appropriate level of interest rates to bring inflation back to its 2% target but “we still have a bit of work to do.” More

LONDON (Reuters) – Britain’s government and the Bank of England “will do what is necessary, for as long as necessary” to return inflation to its 2% target, finance minister Jeremy Hunt said on Monday, adding to signs that interest rates will stay high for some time.”Delivering sound money is our number one focus,” Hunt told finance executives at the City of London’s annual Mansion House dinner, in a speech alongside BoE Governor Andrew Bailey, who said he would “see the job through” on bringing down inflation.British inflation hit a 41-year high of 11.1% in October and has been slower to fall than in other big economies. Last month the BoE unexpectedly raised its key interest rate by half a percentage point to 5%, after inflation held at 8.7% in May.Since then, Bailey has suggested that the BoE may have to hold rates at their peak for some time, although he has given little indication of how high that will be. Markets see rates reaching 6.25% or 6.5% late this year or early in 2024.Prime Minister Rishi Sunak promised in January to halve inflation this year, a goal which now looks challenging. “Working with the Governor and the Bank of England, we will do what is necessary for as long as necessary to tackle inflation persistence and bring it back to the 2% target,” Hunt said at the start of a speech which focused largely on changes to Britain’s pension sector.The finance minister added that businesses should show restraint on profit margins, saying “margin recovery benefits no one if it feeds inflation”.Hunt reiterated that the fight against inflation would have to take priority over the tax cuts which many lawmakers in his Conservative Party want to boost their ailing political fortunes ahead of a national election expected next year.Public-sector workers are also likely to be disappointed by pay rises the government is due to announce later this month.Reducing inflation “means taking responsible decisions on public finances, including public sector pay, because more borrowing is itself inflationary”, Hunt said, sticking close to previous statements.Trade unions dispute how inflationary public-sector pay rises would be, as higher costs for public services do not feed directly into consumer price inflation, and the government has the option of raising taxes to fund them. More