Aurelia Butler

OK, central banks still seem far away from actually cutting interest rates — the much-vaunted Pivot! that many investors have been praying for — but the overall pace of tightening has collapsed.This may seem like an odd thing to say, after the Federal Reserve, the European Central Bank and the Swiss National Bank all jacked up their main policy rate this spring, with the BoE announcing another quarter point rise to 4.5 per cent just yesterday. However, in the three months to April there were only 48 rate increases across the 57 central banks that the FT tracks — about half those over the same period for most of the second half of 2022 and the lowest figure since the three months to February 2022. This is because many central banks in emerging markets have already paused their monetary tightening, with Canada also joining their rank as it held rates unchanged in the last two meetings. Here’s William Jackson, chief emerging markets economist at Capital Economics:Most EM central banks have drawn their monetary tightening cycles to a close now and, if history is any guide, it looks like the conditions will be in place for an easing cycle to start from around July/August.In Latin America, Brazil has left its policy rate unchanged since August last year, Chile hasn’t increased rates since October and Peru has been on pause since the start of 2023. Across 12 countries in central and Latin America there were 11 rate increases in the three months to April, less than half the number in the summer last year.In eastern Europe, where inflation has been higher than in the rest of the continent, the picture is similar. In the three months to April, there were 12 rate increases across 18 countries, down from a peak of 24 rate rises in the three months to February 2022. This comes as Romania paused its rate increases at the start of the year, Poland in September 2022, while Romania and the Czech Republic announced their last increase in June 2022.The EM pause is largely because many developing countries started ratcheting up interest rates far earlier and with more alacrity than western central banks to quell inflation. Brazil, for example, lifted its Selic target rate already in March 2021, nearly one and half year earlier than the ECB, and it now stands at a hefty 13.75 per cent — more than twice as high as the current inflation rate. So when is the pivot to lower rates going to start?Some countries — such as Vietnam, Uruguay, Costa Rica and Angola — have already cut interest rates. Capital Economics predicts that South Korea, Hungary and Chile will be among the next to ease monetary policy, and markets are pricing some probability of a rate cut at the next meeting for India, Poland, Colombia, Chile, Brazil and the Czech Republic.Here’s Jackson again, with his emphasis below:Unsurprisingly, having been the first to hike, EM central banks also brought their tightening cycles to an end long before DM central banks . . . So the monetary policy tide seems to be shifting.. . . Historically, EM central banks have tended to turn from tightening to loosening monetary conditions quite rapidly. In the past few decades, central banks have waited around four months on average between ending their hiking cycle and delivering their first rate cut. Typically, the larger the preceding tightening cycle, the quicker the move to interest rate cuts.But as every macroeconomist knows, Réal Pivöts can only be produced in the Washington region of America, with some also arguing that the terroirs in Frankfurt, London and Tokyo are not to be sniffed at. When are we likely to see those hit the market?Well, markets seem pretty convinced that the Fed pause is now in, and the economic fallout from tightening credit conditions will spur cuts later this year. Others major central banks expected to follow. George Cole, economist at Goldman Sachs said that his base case “is that G10 central banks will in general complete their hiking cycles relatively soon, before ultimately lowering rates in years to come.”Not that investors should be looking forward to that, notes Saira Malik, chief investment officer at Nuveen.Consensus expectations call for interest rate cuts by the end of 2023, but we expect rates to remain higher for longer. A Fed pivot may sound like a tailwind for risk assets, but such a shift won’t occur in a vacuum. In fact, what ultimately causes the Fed to cut — a slowing economy that devolves into a recession — is bound to be a negative for markets. Until then, continued tightness in the labor market, along with stubbornly sticky areas of inflation and a contentious political landscape in Washington, D.C., should cause volatility to pick up in the coming weeks. More

BUENOS AIRES (Reuters) – Argentines, grappling with one of the highest inflation rates in the world at 104% – and rising – are increasingly having to skimp and save as salaries fall behind prices, stoking anger and frustration at the country’s center-left government.The South American nation, an important grains exporter and the region’s no. 2 economy, is expected to have seen prices rise 7.5% in April alone, a Reuters poll of analysts shows, with the inflation rate for the year likely to end near 130%.That has pushed one in four people into poverty in a country that in the early 1900s was among the wealthiest in the world, though it has battled for decades with high inflation, along with cyclical debt and currency crises. Dwindling central bank reserves are now imperiling the government’s finances.”They’ve turned us into a country of beggars,” Carlos Andrada, a 60-year-old self-employed worker, told Reuters as he searched for cut-price deals at a vegetable stall at a market in the suburbs of capital city Buenos Aires.”One despairs because after working all your life, you have to fight just to get a tomato or a bell pepper,” he said.Argentina’s fragile economic situation has been aggravated by a historic drought since last year, which has hammered soybeans, corn and wheat exports, draining foreign reserves and hindering the government’s ability to fight currency weakness.Volatility in the foreign exchange market, which saw the peso hit record lows near 500 to the dollar in parallel markets last month, has inflamed prices further and strained Argentina’s huge $44 billion loan deal with the International Monetary Fund. “When I came last time (to the market), I paid 300 pesos a kilo for bell peppers – it’s 300 pesos a half kilo now,” said Olivia María Belbruno, 70, a retiree.”These are the governments we have and we, the citizens, must think because we are the ones who give them our votes.”The Peronist ruling coalition is battling to bring prices down ahead of August primary elections and a general ballot in October, where high prices and poverty are badly hurting its chances of staying in office as voters feel the pain.”I’ve stopped going out to eat once a month, we haven’t been on vacation anywhere for four years, we had to sell the car because we couldn’t pay insurance, licenses and garage costs,” said graphic worker Salvador Paterno, 64.”We use little air conditioning, heating. Everyone cuts back on these habits to make ends meet – if you even make it at all.” More

NIIGATA, Japan (Reuters) -Treasury Secretary Janet Yellen said there was still uncertainty about exactly when Treasury would run out of cash to pay U.S. government debts, but she would keep Congress apprised of any change in the date, which could come as early as June 1.Speaking on the sidelines of Group of Seven (G7) finance officials meeting in Japan, Yellen told Bloomberg TV that the Biden administration was working around the clock to avert the economic upheaval that would be triggered if Congress failed to raise the $31.4 trillion debt limit.She said she had discussed the issue with business leaders in recent weeks and would meet next week with senior Wall Street bankers about the possibility that Washington could default on its debt for the first time since 1789.”Our focus is on making sure that Congress does raise the debt ceiling. I feel that’s something we’re going to succeed in doing, and we’re working hard to make sure that that gets done.”She viewed it as appropriate for Wall Street leaders and business owners to speak out about how the debate over the debt limit was affecting the U.S. economy and the global economy, causing “a grave level of uncertainty”.World Bank President David Malpass told Reuters the risk of a U.S. default was adding to problems facing the slowing global economy, with rising interest rates and high debt levels choking back investments needed to fuel higher output.”Clearly, distress in the world’s biggest economy would be negative for everyone,” he said on the sidelines of the G7 meeting. “The repercussions would be bad to not get it done.”Yellen last week told lawmakers that Treasury could run out of money to pay all the government’s bills as early as June 1.President Joe Biden’s Democrats and the Republicans, who control the U.S. House of Representatives, remain at odds over the need to raise the debt limit, which reflects previously spent federal money. Biden says Congress has a constitutional duty to raise the ceiling without conditions, while Republicans have tied their agreement to increase the cap to sweeping budget cuts.Unlike most developed countries, the U.S. sets a ceiling on how much it can borrow. Because the government spends more than it takes in, lawmakers must periodically raise that cap.Yellen dodged a question on whether Treasury would keep making payments on securities if the debt ceiling was breached – a possibility raised during an earlier debt ceiling debate. She said there was no good option other than for Congress to raise the debt limit, as it has done nearly 80 times since 1960.”We’ve not discussed what to do if that doesn’t occur with the president. Our focus is getting it done,” she said.Yellen said Treasury might be able to provide more refined guidance on exactly when it would run out of cash to pay the government’s bills as the date neared.German Finance Minister Christian Lindner said on Friday he hoped U.S. politicians would come to a “grown-up” decision to raise the federal debt ceiling, warning there was a risk to the global economy if they did not. More

LONDON (Reuters) – Global stock markets clung to modest gains on Friday, reassured by the prospect of a steady start on Wall Street, though worries over U.S. government finances capped investor appetite for risk.Oil prices shook off earlier losses as signs of a supply deficit countered worries over fuel demand in the United States and China.The dollar edged higher, heading for its biggest weekly gain since February as investors bet that overnight data showing a slowing U.S. economy would prompt the U.S. Federal Reserve to pause on rate hikes.The MSCI All Country stock index was flat and little changed for the week, but still up about 7% for the year.Nasdaq futures and S&P 500 futures were firmer, with Tesla (NASDAQ:TSLA) Inc up 1.5% in pre-market trading as the electric vehicle maker raised the U.S. prices of some models and boss Elon Musk said he has found a new chief executive for Twitter.In Europe, the STOXX index of 600 companies edged up 0.4%, putting it slightly firmer for the week as Richemont shares hit a record high on news of strong demand in the Asia Pacific region.Britain’s economy grew in the first three months of the year – instead of recession that was being forecast in late 2022 – but recovery remains fragile.Analysts said investors are searching for fresh reasons to push markets out of their ranges as a generally positive earnings season draws to a close and the next batch of major central bank rate-setting meetings are a few weeks away.”We have had an aggressively sideways moving market and people are looking for something to give it direction,” said Mark Tinker, chief investment officer at Toscafund asset management in Hong Kong.A meeting between U.S. President Joe Biden and top lawmakers that had been scheduled for Friday has been postponed to early next week, with the IMF warning that a U.S. default would have “serious repercussions” for the U.S. economy. “We have a lot of things to trip over in the next six months and that is why people are not committing to buying,” Tinker said, pointing to the U.S. debt ceiling stalemate, ending the use of Libor interest rates in June, and how the war in Ukraine unfolds.U.S. data on Thursday added confidence that the Federal Reserve is almost certain to pause its rate hikes at its policy meeting in June, with futures markets continuing to price in cuts of about 78 basis points by the end of the year.Next week, investors will be scrutinising a batch of U.S. data for rate clues, with retail sales and industrial production figures. “The former should get a lift from robust auto sales, while the latter will be held back by falling production,” ING bank said.CHINA LOSING STEAMChina’s economic recovery seems to be losing steam, with new bank loans tumbling in April, consumer prices rising at the slowest pace in more than two years and imports unexpectedly contracting, driving a plunge in commodity prices from copper and iron ore to oil.[O/R] China’s blue-chips fell 1.3% and looked poised to lose 1.7% for the week, while Hong Kong stocks were down 0.5% on the day.In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6% and was headed for a weekly decline of 1.2%.Japanese shares outperformed, however, with the Nikkei climbing 0.9% to its highest level since November 2021, as investors cheered announcements of increased shareholder returns during earnings season. (T)The U.S. dollar benefited from safe-haven flows amid growth concerns and banking worries, holding on to slim gains against a basket of currencies. [FRX/]The euro was trading at $1.089, down 0.2% on the day, and sterling was slightly firmer at $1.2527.Treasury yields firmed, with benchmark 10-year notes at 3.4177%, while two-year yields were at 3.9140%.U.S. crude futures edged up 0.4% to $71.17 per barrel, while Brent crude gained 0.3% to $75.24 per barrel. Gold prices were 0.6% lower at $2,004 per ounce. Bitcoin was down 2.3% at $26,362. More