Aurelia Butler

TOKYO (Reuters) – Japan’s economy grew more than initially thought in January-March, revised data showed on Thursday, as a post-pandemic pickup in corporate and consumer spending helped offset the hit to exports from slowing global demand.With inflation running at a four-decade high, further growth in the world’s third-largest economy will depend on sustained wage hikes, which the Bank of Japan and the government regard as core policy objectives.Japan’s gross domestic product (GDP) expanded an annualised 2.7% in January-March, against a preliminary estimate of a 1.6% growth and much higher than economists’ median forecast for a 1.9% rise.The growth followed a 0.4% expansion in October-December and a 1.5 contraction in July-September, the revised data showed. Figures released last month initially showed two straight quarters of decline in the second half of last year, the definition of a technical recession.The January-March expansion translates to a 0.7% quarter-on-quarter rise, data released by the Cabinet Office showed, against a preliminary reading of 0.4% and economists’ forecast for a 0.5% increase.Capital spending rose 1.4%, upgraded from initially estimated 0.9% after Ministry of Finance data last week showed that Japanese manufacturers’ business spending was growing at the fastest rate since 2015.Private consumption, which makes up more than half of Japan’s GDP, grew 0.5%, revised down slightly from an initial estimate of a 0.6% increase.Domestic demand as a whole contributed 1.0 percentage point to the revised first-quarter GDP growth, more than initially estimated, while net exports detracted 0.3 of a percentage point, the same rate as in the preliminary estimate, the data showed. (This story has been corrected to reflect revisions to data in second half of last year, in paragraph 4) More

ORLANDO, Florida (Reuters) -If the Federal Reserve ‘skips’ raising interest rates next week only to tighten monetary policy again a month later, which is what some U.S. central bank officials are indicating and markets are pricing, it will be the shortest pause in the modern era. Since Alan Greenspan began his 19-year tenure as Fed chief in 1987 and the central bank moved towards a 2% inflation-targeting policy framework in the 1990s, it has never paused a hiking cycle for just one meeting.It has raised rates at alternate meetings, most recently in 2017 and 2018, and also held fire for six months in 2017. But a one- or even two-meeting break just as the end of the cycle is coming into view would be unique.The question is, why bother? That’s especially pertinent when you consider that U.S. unemployment is near a 50-year low and inflation is still well above target, and unlikely to get back there until 2025, according to Fed policymakers’ own median forecast.Equally, if you are wary of the ‘long and variable’ lag of 500 basis points of rate hikes in little over a year – the most aggressive tightening campaign in four decades – and the cycle end is in sight, why bother skipping one meeting?However, a one-off pause would not be unique globally. The Reserve Bank of Australia seems to have executed a one-meeting ‘skip’, but perhaps more by accident than design. Its rate hikes last month and this week were major surprises to financial markets. To cut policymakers everywhere a large slice of slack, the post-pandemic economic and inflation landscape is unlike anything seen before. The usefulness of old forecasting models has been patchy, at best, so it figures that policy responses and their effectiveness have been unique too. Signaling a one- or even two-meeting break from raising rates is likely a communications tactic aimed at buying policymakers more time to judge what to do next – but also reining in markets from betting the cycle in done.But it is risky.John Silvia, founder of Dynamic Economic Strategy, agrees it may have merit as a policymaking tactic, but makes little sense from an economic perspective – the economy is not in recession and inflation is still way too high.”So why are you skipping this meeting? Do you then skip July, and September? You have to ask why are you doing this, then it becomes a credibility issue – you say your inflation goal is 2% but you’re not pursuing 2%,” Silvia said.FINGER IN THE WINDGiven the policy-setting Federal Open Market Committee’s meeting schedule, there will be nearly two full months worth of incoming data after the July 26 decision for Fed Chair Jerome Powell and his colleagues to assess before their next decision on Sept. 20.That’s a significant chunk of time. Leaving open the possibility in July of another 25-basis-point hike two months later could prevent financial conditions from loosening too much. The Fed wants policy to be restrictive, and financial markets to move accordingly.The notion of a pause then tightening again was first floated by Dallas Fed President Lorie Logan in January, but dismissed by Powell two weeks later after the Fed raised its federal funds target range by 25 basis points to 4.50%-4.75%.Philadelphia Fed President Patrick Harker and Fed Governors Christopher Waller and Philip Jefferson in recent weeks have introduced ‘skip’ and ‘skipping’ into Fed-watchers’ lexicons. Until then, a pause was generally assumed to lay the ground for rate cuts, not a resumption of rate hikes.The Fed’s shortest hiatus in the modern era was six months in the second half of 2017. Then, however, headline and core annual inflation as measured by the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) Price Index were mostly below 2%, and the unemployment rate was between 5.0% and 5.2%.The Fed will hope it can convince markets that a ‘skip’ is not a pivot, and some may see it as the logical next stage in a gradual slowing of policy tightening – the size of the rate hikes since November has gone from 75 bps to 50 bps to 25 bps. ‘Skipping’ a meeting would be rare, but in the post-pandemic world of extremely low visibility, perhaps fitting.”Forecasting is always finger in the wind, but the good thing is that now they (policymakers) know it,” said Lou Crandall, chief economist at Wrightson ICAP (LON:NXGN). “The Fed at different times has expressed misgivings about locking itself into metronomic patterns, and they have certainly not been on one in this cycle.”(The opinions expressed here are those of the author, a columnist for Reuters.)(By Jamie McGeever; editing by Paul Simao) More

BENGALURU (Reuters) – The Reserve Bank of Australia (RBA) will hike its key interest rate once more by the end of September to 4.35% following a surprise hike on Tuesday and then hold policy for the rest of the year, according to economists in a snap Reuters poll.Having paused rate increases in April, the central bank resumed tightening in June, underscoring the challenges of managing inflation.Australian inflation fell to 7.0% last quarter but the latest monthly data showed a rise to 6.8% in April from 6.3% in March, still more than double the RBA’s target range of 2-3%, suggesting it has more work to do. Following confusion in recent months over whether rates might go higher, Governor Philip Lowe in a speech on Wednesday said “more tightening may be required”, adding his “patience has a limit and (inflation) risks are starting to test that limit”.Around three quarters of economists polled, 20 of 26, forecast the RBA would hike by at least 25 basis points to 4.35% by the end of September. The remaining six forecast the cash rate to stay at 4.10%.But nearly two thirds, 16 of 26, expect the RBA to hold fire at its next meeting on July 4, with 10 forecasting a 25 basis point rise. Markets are pricing in a slightly greater than 50% probability of a July hike.”Given our own views about the outlook for productivity, unit labour costs and the stickiness of services inflation we continue to expect another 25 basis point increase from the RBA, most likely in August,” said Adelaide Timbrell, senior economist at ANZ. “Our forecast is August because that is when the Reserve Bank will have the fresh inflation data from the quarterly CPI report. It is possible that they’ll raise earlier in July, and certainly the Reserve Bank has surprised the market before. “Among major local banks, ANZ, CBA and NAB forecast a July pause while Westpac expects a quarter-point hike. All four saw rates peaking at 4.35% by the end of September. The RBA meets to set interest rates monthly.The median forecast showed the cash rate at 4.35% at year-end, 25 basis points higher than the peak expected in a poll taken before the June meeting. The highest forecast was 4.85%.Australia’s economy grew 0.2% last quarter, its weakest pace in one and a half years, suggesting 400 basis points of rate increases from the RBA are beginning to restrain the economy.But a surge in savings during the COVID pandemic and a tight labour market have made the interest rate sensitive housing market more resilient.Home prices were expected to stagnate on average this year compared to a near double-digit fall predicted three months ago, a separate Reuters poll found. More

BENGALURU (Reuters) – The dollar’s renewed strength against most major currencies will not fade away anytime soon, according to FX strategists polled by Reuters, who said it would take rate cuts from the Federal Reserve to weaken the currency substantially.The greenback has recouped all of its roughly 3% losses for the year sustained through April on safe-haven bids related to recent concerns over the U.S. debt ceiling and growing expectations of a July rate hike after a pause in June.That, along with receding rate cut calls for 2023, will support the dollar in coming months, analysts say, even if Fed policymakers decide to skip a meeting for the first time in an aggressive tightening campaign that began in March last year. Most major currencies were not expected to reclaim their end-April levels against the dollar at least until September, according to median forecasts from 74 market strategists polled June 1-7. That was a near-across-the-board upgrade compared with a May survey.”The U.S. economy continues to surprise to the upside, while Europe and China have been weaker than expected…this pattern will have to abate before medium-term shallow dollar depreciation can come back into view,” noted Kamakshya Trivedi, head of global FX at Goldman Sachs (NYSE:GS).”At current pricing, ‘sticking with skipping’ in the midst of a buoyant risk backdrop would present some challenge to the dollar, but we suspect that downside will continue to be shallow and limited by U.S. macro performance.”Net USD short positions have eased over the past few weeks as the recent rally dampened bearish investors’ mood who were hoping for a sustained weakness in the dollar following last year’s multi-decade highs, according to data from the Commodity Futures Trading Commission.That was contrary to what was predicted by most FX strategists in the May survey. Just over a half of respondents said net short dollar positioning would increase by end-May. Despite markets expecting the European Central Bank and the Bank of England to go for at least two more rate hikes, versus one from the Fed, the euro and sterling were predicted to make only modest gains over the coming three months.After declining more than 3% in May, the euro, currently at $1.07, was expected to gain just around 2% and trade at $1.09. Sterling was forecast to change hands at $1.24, broadly unchanged from the current level.Mostly all major currencies were predicted to trade below their respective 2022 highs against the dollar – which were largely before the Fed began its tightening cycle – in one year from now. A majority of respondents who answered an additional question said a rate cut by the Fed, which economists do not expect to come until next year, or a pause in its tightening cycle could lead to a sustained weaker dollar.But a majority of economists in a separate Reuters survey predicted the Fed would pause in June for the first time in more than a year and keep its key interest rate at 5.00%-5.25% then and for the rest of the year. A growing minority, however, expected at least one more hike between the June and July meetings. “As the U.S. economy continues to demonstrate resilience in the face of higher rates, the rates market is pricing out rate cuts and could yet contemplate the idea that a June Fed pause, or skip, could be followed by another jump,” said Kit Juckes, chief FX strategist at Societe Generale (OTC:SCGLY).”The FX market is tracking short-term rates more closely than ever in the face of wider uncertainty, and with positioning still short USD, the current uptrend can continue for a while longer.” (For other stories from the June Reuters foreign exchange poll:) More

Wage growth accelerated in the UK in May even as the job market cooled according to real-time data that highlights the challenge the Bank of England faces in bringing inflation back to target.The median wage cited in UK job adverts was 7.2 per cent higher last month than a year earlier, the fastest pace seen in data stretching back to 2019, based on a cross-country wage tracker published by the job search website Indeed, in collaboration with the central bank of Ireland.Indeed said that while still high by historic standards, wage growth had slowed sharply in the US and steadied in most eurozone countries in recent months, after peaking in 2022. This reflected a decline in the ratio of vacancies to unemployed workers, a key measure of workers’ bargaining power. In the UK, however, growth in advertised wages had picked up pace even as hiring slowed.“The UK is an outlier,” said Pawel Adrjan, director of EMEA Economic Research at Indeed. He added that the recent pay deal for nurses working in the NHS was one factor, and April’s increase in the statutory minimum wage could also have pushed up average wages. But pay pressures could also be stronger in the UK than in other countries facing similar labour shortages simply because workers were facing higher inflation, he said.Indeed’s tracker is less comprehensive than official statistics on earnings, but is a timely indicator of workers’ ability to secure a pay rise when they move jobs. The data will reinforce fears in the Bank of England that pay pressures are now amplifying the UK’s inflation problem, making it harder to bring it down to its 2 per cent target.Clare Lombardelli, the OECD’s new chief economist, warned this week that the UK’s inflation challenge was more troubling than elsewhere because it had “a particular issue about the labour market”, with a post-Covid contraction in the size of the workforce raising pressure on companies to pay people more.However, separate data published on Thursday will offer policymakers hope that labour shortages and wage pressures could ease later in the year. A monthly survey by KPMG and the Recruitment & Employment Confederation found the number of candidates available for roles increased in May at the sharpest pace since 2020 — reflecting more widespread lay-offs and a slowdown in hiring. It also suggested growth in starting salaries had begun to slacken, although the survey still pointed to pay growth well above historic trends. Neil Carberry, chief executive of the REC, said there was a clear split between sectors where hiring was still strong — such as hospitality, construction and engineering — and weaker areas such as IT and retail.“For hiring businesses, greater candidate availability will help resolve shortages,” he said. But he added that the people available for roles did not necessarily fit the sectors still keen to hire and that “inflation means wage growth remains high”. More

(Reuters) -Coinbase Chief Executive Brian Armstrong on Wednesday hit back at U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler over the agency’s lawsuit against the crypto exchange, calling him an “outlier,” while also reassuring customers that their funds were safe. The SEC on Tuesday alleged Coinbase (NASDAQ:COIN) traded at least 13 crypto assets that are securities that should have been registered, including tokens such as Solana, Cardano and Polygon. The agency also said Coinbase was operating as an unregistered exchange, broker and clearinghouse. Armstrong, an outspoken critic of the SEC who has led a push in Washington for clearer crypto rules, said at a Bloomberg conference that the company had approached the regulator about becoming registered, but received an “icy reception” from Gensler at their first meeting. Gensler has long said most tokens constitute securities and has steadily asserted the SEC’s authority over the crypto market. U.S. President’s Working Group on Financial Markets has also said some coins linked to fiat currencies may be securities. Crypto companies, including Coinbase, dispute that crypto tokens are securities and have repeatedly called for the SEC to create clear rules. “The SEC chair is really an outlier,” Armstrong said, adding that several lawmakers he had talked to were supportive of developing a clear regulatory framework for the technology.Coinbase shares rebounded on Wednesday to rise nearly 3.1% to $53.2. A spokesman for the SEC declined to comment. The SEC on Monday sued Binance, the world’s largest cryptocurrency exchange, likewise accusing it of selling cryptocurrency products without registering them as securities. It also alleged Binance artificially inflated trading volumes, diverted customer funds and failed to restrict U.S. customers from its platform. Armstrong was quick to draw distinctions between the two cases, which he told CNBC “could not be more different.””In Coinbase’s case, for instance, there hasn’t been any allegation of misappropriation of customer funds,” he added. Speaking to Reuters late on Tuesday, Paul Grewal, the company’s chief legal officer, also said he was “confident” the SEC would not try to freeze Coinbase’s assets, as it has done in the case of Binance. “The standards that are required for such an asset seizure simply don’t apply in our case,” he said. Binance did not immediately respond to a request for comment. In a statement on Monday, Binance pledged to vigorously defend itself against the lawsuit, which it said reflected the SEC’s “misguided and conscious refusal” to provide clarity to the crypto industry. SETTLEMENT BREAKDOWNIt was not the first time Armstrong, who co-founded Coinbase in 2012 after a stint as a software engineer at Airbnb, has taken aim at the SEC. In 2021, he accused the agency in a series of tweets of “really sketchy behavior” after it warned Coinbase it would sue the company if it went ahead with a planned lending program. Coinbase subsequently spiked the product. Last July, Coinbase disclosed an SEC probe into its asset listing processes, staking programs and yield-generating products. In the first quarter of this year, Coinbase lawyers had been discussing a potential settlement with the SEC that would involve the company paying a penalty, and provide a path to registering with the agency, a source with knowledge of the discussions said.But those talks broke down in March when the SEC made its position clear that fundamental aspects of the firm’s business model were essentially illegal, the source said. Coinbase received a notice from the SEC that it planned to bring an enforcement action against the company the same month. Coinbase has been pushing the SEC to formulate new crypto-specific regulations since last year and in April asked the U.S. Court of Appeals for the Third Circuit to compel the regulator to respond. That court on Tuesday ordered the SEC to provide a response within a week.Grewal said despite the lawsuit, Coinbase would still be interested in a dialogue with the SEC about how to bring cryptocurrency into the regulatory perimeter. “If there were an opportunity for a real conversation, of course we would take it up, but I want to be very clear: Coinbase is absolutely committed to defending itself in court,” he said. More