Aurelia Butler

BENGALURU – U.S. Treasury yield forecasts from bond strategists have marched higher for a second month amid expectations of limited remaining Federal Reserve rate reductions and rising inflation risks in 2025, a Reuters survey found.Having kicked off its easing cycle with a jumbo half-percentage point cut in September, the central bank has lowered its fed funds rate by 75 basis points and looks set to trim another 25 bps on Wednesday to 4.25%-4.50%.Yet, since the first reduction, the benchmark U.S. 10-year Treasury yield, which moves inversely to prices, has shot up around 70 basis points – hitting a near six-month high of 4.50% last month.The resilience of the world’s largest economy and President-elect Donald Trump’s proposed policies from tariffs to tax cuts – all expected to be inflationary – have put a dampener on the Fed’s easing plans and pushed yields higher, particularly on longer-dated bonds.While the benchmark 10-year yield has moderated to around 4.40%, the median forecast from a Dec. 12-17 Reuters poll was for it to fall modestly to 4.25% in a year – above the 4.10% recorded last month and 50 bps higher than an October median.Around 55% of forecasters raised their twelve-month 10-year note yield forecasts from November.”If Trump’s policies focus on pushing growth up via increasing deficits, rates have even more room to move up,” said Zhiwei Ren, portfolio manager at Penn Mutual Asset Management. “Over the coming two years, it’s very hard to see those deficits coming down materially – which means the government will have to sell a lot of Treasuries to finance spending.” An Oct. 28 estimate from the Committee for a Responsible Federal Budget, a budget-focused think-tank, found Trump’s proposed policies could push up U.S. fiscal debt by $7.75 trillion over the next decade.”Inflation was coming down sharply during the summer, but now that has stopped. The labor market has weakened a bit, but is still strong. Consumer spending is resilient and equities are hitting record highs. Financial conditions may not be as tight as the Fed thinks,” Ren added. “If the Fed keeps cutting in this raging bull market, long-end rates will move even higher.”In line with interest rate futures, economists surveyed by Reuters last week now expect only three more quarter-point rate cuts next year – half the amount predicted earlier this year.Yet, forecasters remained mostly conservative in their point estimates for higher yields.Survey medians from 44 strategists showed the benchmark yield slightly below current levels at 4.30% in three months and 4.27% at end-May, but both higher than November.”Market rates are likely to remain around current levels,” said Robert Tipp, chief investment strategist at PGIM Fixed Income. “While the Fed is likely to continue to cut, it definitely won’t be the one-cut-per-meeting pace priced in at some points over the last several quarters.”A 75%-strong majority, 15 of 20 strategists, responding to an additional question said the 10-year yield was unlikely to cross 5% next year. The last time it did so was in October 2023.”One of the scenarios we considered is a ‘higher for longer’ yield curve, where the 10-year yield could return to 5%. In that case, extending duration, i.e. buying longer-dated bonds, could be detrimental. But it’s not our base case,” said Hong Cheng, head of fixed income and currency research at Morningstar. More

OTTAWA (Reuters) -The abrupt resignation of Canada’s finance minister leaves the government adrift less than a month before the inauguration of a new U.S. administration that could impose crippling sanctions on Canadian exports.Chrystia Freeland quit on Monday after Prime Minister Justin Trudeau offered her a lesser position. She said his wish to increase spending could endanger Canada’s ability to withstand the damage done by the tariffs that U.S. President-elect Donald Trump is threatening to impose.Freeland had headed a special cabinet committee on Canada-U.S. relations and was working closely with the 10 provinces to ensure a united response.”As a country we have to project strength and unity, and it’s chaos right now up in Ottawa,” Ontario Premier Doug Ford (NYSE:F) said after a scheduled online conference call of provincial premiers on Monday to discuss the U.S. threat.An unimpressed Alberta premier, Danielle Smith, one of Trudeau’s biggest domestic critics, said the provincial leaders had only learned halfway through their call that the point person on Canada-U.S. relations had quit.”It’s chaos. I’d be looking at this wondering who the next leader is … are they going to be able to bring forward a coherent plan? Is there going to be a team that is able to do a Team Canada approach?” she said.”It’s not the greatest time to have a vacuum,” she added, calling for a national election to help restore stability.Unhappy legislators from the ruling Liberal Party, some of whom have been calling on Trudeau to quit for months, met on Monday in Ottawa to vent their frustration.The Liberals are trailing badly in the polls ahead of an election that must be held by late October 2025. Trudeau has until now ruled out the idea of resigning but if pressure on him mounts significantly, the results could be unpredictable.”Trump will be inaugurated in 34 days. Canada must have a stable government,” former Trudeau foreign policy advisor Roland Paris said in a post on X.When Trump came to power in 2017 he vowed to tear up the trilateral free trade treaty with Canada and Mexico. Freeland, who was then foreign minister, played a large role in helping renegotiate the pact and saving Canada’s economy, which is heavily reliant on the United States.Vincent Rigby, a former national security and intelligence adviser to Trudeau, said Freeland’s departure meant the Canadian stance with Trump was up in the air.”This is going to be quite problematic for the prime minister from a political perspective, but it’s now also going to be problematic in terms of how the Canadian government deals with an incoming Trump presidency,” he said on the sidelines of an event in Washington.The role of chief federal coordinator on U.S. relations now passes to Dominic LeBlanc, the new finance minister, who flew with Trudeau to Florida late last month to meet Trump.”The one thing I think the American administration will respect is a government that’s focused on our common priorities, on the shared issues,” he told reporters after being appointed.Freeland was not invited along. Trump, who made it clear during trade talks in September 2018 that he did not like Freeland, cheered her departure late Monday.”Her behavior was totally toxic, and not at all conducive to making deals which are good for the very unhappy citizens of Canada. She will not be missed!!!” he wrote on his social media platform. More

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FRANKFURT (Reuters) – A key indicator of the health of Germany’s property sector likely improved in 2024 and will make further gains next year, but will remain close to the weakest levels in more than a decade, underscoring the sector’s struggles, forecasts on Tuesday showed.Global real estate firm Jones Lang LaSalle (JLL) predicted that property transactions in Germany would rise to 35 billion euros ($37 billion) in 2024 and increase further to between 40 billion and 42 billion euros in 2025.The forecasts, if they pan out, would mean that 2023 was a low point in what has been a severe crisis in the industry in Europe’s largest economy. But they also reveal that any recovery will be slow.”Despite the growth, the picture remains sobering,” JLL said.Economic weakness has resulted in companies abandoning or postponing relocation and expansion plans, it said.For years, property in Europe and particularly Germany boomed as interest rates fell, spurring demand. But a sudden jump in interest rates and building costs tipped some developers into insolvency as bank financing dried up and deals froze.Germany has been hardest hit in Europe’s real estate-related rout that has also struck China and the United States.Cuts in interest rates have since lent some support to the market.Separate data on Tuesday pointed to ongoing weakness in the German economy, with business morale worsening more than expected in December, weighed down by companies’ pessimistic assessment of the coming months amid geopolitical uncertainty and an industrial slump.($1 = 0.9535 euros) More

BRUSSELS (Reuters) -The European Commission opened formal proceedings on Tuesday against social media firm TikTok over its suspected failure to limit election interference, notably in the Romanian presidential vote last month.The Commission said it will request information and look into TikTok’s policy on political advertisements and paid-for political content as well as TikTok’s systems to generate recommendations and the risks of them being manipulated. The opening of formal proceedings empowers the Commission to take further enforcement steps and to accept commitments made by TikTok. There is no specific deadline to complete proceedings.China’s Bytedance-owned TikTok said it had protected the integrity of its platform through more than 150 elections worldwide and had provided the European Commission with extensive information on its efforts.It added it did not accept paid political advertisements and proactively removed content violating its policies on misinformation and hate speech.The Commission ordered TikTok on Dec. 5 to freeze data linked to the Romanian elections under the bloc’s sweeping Digital Services Act (DSA), which regulates how the world’s biggest social media companies operate in Europe.Romania’s top court subsquently annulled the presidential election after accusations of Russian meddling and the victory of pro-Russia ultranationalist Calin Georgescu in the first round.The Commission is conscious of the risk of interference in the German parliamentary election in February and the presidential election in Croatia starting on Dec. 29. Commission President Ursula von der Leyen said the new investigation followed serious indications that foreign actors interfered in the Romanian presidential election.”We must protect our democracies from any kind of foreign interference. Whenever we suspect such interference, especially during elections, we have to act swiftly and firmly,” she said in a statement.This is the third investigation the Commission has launched against TikTok under the DSA, both related to risks for minors. One has been closed after TikTok committed to remove TikTok Lite Rewards from the EU. More

BERLIN (Reuters) -Germany’s main political parties were unveiling their manifestos on Tuesday, offering competing visions to lift Europe’s largest economy out of the doldrums while fighting off a far-right surge ahead of a snap election on Feb. 23.Germans will go to the polls after Chancellor Olaf Scholz’s three-way coalition collapsed last month, likely spelling the end for Germany’s most unpopular leader in modern times and the return to power of the main opposition conservatives.The election comes at a testing time for Germany. Its economy is set to shrink for a second straight year, industrial giants like Volkswagen (ETR:VOWG_p) face an existential threat from foreign rivals and political attitudes are hardening towards migrants.Data from the Ifo institute also delivered a sharp reminder of Germany’s woes on Tuesday, with business morale worsening more than expected in December as economic weaknesses become “chronic”. Details of the parties’ election manifestos have already leaked out, with the economy, welfare, migration and the war in Ukraine dominating the headlines. Campaigning has kicked into gear after Scholz lost a confidence vote on Monday, as expected. The conservative frontrunner Friedrich Merz and his Christian Democratic Union party (CDU) want cuts to income and corporation taxes and lower electricity prices as a way to boost the economy. “After three years in opposition, we are ready and able to assume government responsibility in Germany again,” Merz said at his manifesto launch. “The Chancellor asked for a vote of confidence yesterday and lost. He lost the trust of the majority of the population long ago. He has also lost the trust of investors who have been leaving Germany for several years now.”Merz’s policies have been seized on by political opponents as uncosted, though the CDU believes it can finance them through faster economic growth and cuts in some welfare payments.While signalling some openness to moderate reform, Merz has so far said he plans to stick to a constitutionally-enshrined government spending cap known as the debt brake. The tool was introduced after the 2009 financial crisis but critics say it hobbles growth by restricting borrowing and investment.Scholz’s Social Democrats (SPD) and their coalition ally the Greens want to reform the debt brake. Economy Minister Robert Habeck from the Greens accused Merz of failing to grapple with the realities facing Germany. “We have to get our infrastructure up to scratch,” Habeck said at the presentation of his party’s manifesto. “That requires a reform of the debt brake.”The SPD, battling to regain the initiative, has also proposed incentivising private investment and modernising infrastructure with an off-budget 100 billion euro fund. They plan to introduce a “Made in Germany” premium to boost investment. DIVISIONS ON UKRAINEGermany under Scholz has ramped up defence spending and become the second biggest military backer of Ukraine behind the United States. However, Merz would like to go further by equipping Kyiv with Taurus missiles, a step Scholz fears could drag Germany into direct confrontation with Russia. By contrast, the far-right Alternative for Germany (AfD), currently in second place after the conservatives in the opinion polls, wants an end to weapons deliveries to Ukraine and a resumption of good relations with Moscow.Migration is another hot button issue.Germany, which offered a warm welcome to Syrian and other refugees during the 2015 migrant crisis, has since hardened its stance and this year reintroduced border checks. Merz has pushed for migrants to be turned away at Germany’s borders and wants a third-party country to process asylum claims. More

With markets already pricing in nearly a full rate cut, attention will likely focus on the Fed’s communication regarding its future policy direction.BofA expects both the Summary of Economic Projections (SEP) and Chair Jerome Powell’s remarks at the press conference to signal a slower pace of cuts ahead, potentially indicating a pause in January if economic data aligns with expectations.The FOMC statement language is likely to remain largely unchanged, despite recent signs of stalled progress on inflation.BofA points out that the recent inflation surprises have been concentrated in goods sectors, particularly new and used cars, which the Fed may view as temporary.Housing inflation, meanwhile, appears to have stabilized at levels consistent with the Fed’s 2% target, and November PCE inflation is expected to remain subdued based on CPI and PPI trends.Within the SEP, BofA notes the focus will be on the 2025 median dot plot. In September, the median projection indicated 100 basis points of rate cuts in 2025. Given the stickiness of inflation and resilient economic activity, the bank’s strategists believe the median will move higher, signaling fewer cuts.“Despite this recent stickiness, we expect the median dots to show three cuts in 2025, two in 2026 and none in 2027. This would move the policy rate path from 2025 onwards up by 25bp, relative to the September dots,” strategists led by Mark Cabana said in a note.Recent commentary from Fed officials also suggests a reassessment of the neutral rate. Strategists anticipate the longer-run median rate will increase by 25 basis points to 3.125%. More