Aurelia Butler

BUDAPEST (Reuters) – Hungary’s central bank could cut its 25% top collateralised loan rate next week as part of a “multi-step process” towards policy normalisation, its deputy governor said on Wednesday, jolting markets as the forint lost almost 2%.With many economists saying inflation in central Europe has peaked, Deputy Governor Barnabas Virag’s flagging of the narrowing of the interest rate corridor used by Hungarian policymakers looked to set the stage for what would be the region’s first rate cut since 2021.Policymakers tightened policy sharply starting in mid-2021 to quell surging inflation.Virag told the business website vg.hu in an interview published on Wednesday that the latest inflation data – showing a headline rate above 25% – was in line with expectations.The bank could return price growth to single digits by the end of the year using “coordinated and disciplined” economic policy, he said, while it could decide on “a significant narrowing” of the upper end of its interest rate corridor at next Tuesday’s meeting.”Extreme risk scenarios have been priced out, so we no longer need to maintain such a huge room of manoeuvre,” Virag said. The National Bank of Hungary (NBH) has the European Union’s highest base interest rate, at 13%.Last October, when the forint was plumbing new lows, it raised its overnight collateralised loan rate to 25% from 15.5%.The rate is the top of its corridor used to guide interbank markets toward the policy rate, setting limits on rate-setting. The bottom rate, used for overnight deposits, stands at 12.5%.”TRIAL BALLOON”Last October, the bank also launched a new one-day deposit with an 18% interest rate, which over the past half-year has helped lift the forint from all-time lows of around 430 to the euro. The forint traded at 378.30 to the euro on Wednesday, down 1.84% on the day.Virag said the question of the 18% rate on the one-day deposit could be on the agenda only at subsequent monthly policy meetings.”A cautious approach, keeping market stability in mind, continues to be warranted in this issue,” Virag said, referring to the 18% deposit rate. Piotr Matys, senior FX analyst at In Touch Capital Markets, said that Virag’s comments could be a way to test how markets will react to lower rates.”Lowering the upper end of the interest rate corridor would be a technical move — like a trial balloon,” he said. Morgan Stanley (NYSE:MS) said it expected a cut in the top 25% rate to around 18-20% next week. The bank might ease more with cuts to the 18% one-day deposit rate beginning in June, it said.Hungary’s headline annual inflation eased for a second straight month in March but only marginally, while its economy slipped 0.4% quarter-on-quarter to end 2022. Prime Minister Viktor Orban’s government has put pressure on the central bank to start lowering borrowing costs to help a recovery.Central bank Governor Gyorgy Matolcsy and Finance Minister Mihaly Varga held talks last week about ways to wrestle down inflation and reduce borrowing costs. More

Citi economists had earlier pegged global growth at 2.2% for the year and expected the onset of a recession in the United States in the third quarter.”Our outlook envisions that the acute financial stresses, which last month triggered pressures on both sides of the Atlantic, will continue to recede,” Citi economists led by Nathan Sheets said in a note.Sheets was referring to the collapse of two mid-sized U.S. banks last month and a forced takeover of Swiss lender Credit Suisse by UBS, sparking worries about broader stress in the banking system that is widely seen as being brought about by global central banks’ aggressive rate hikes to battle inflation.Citi however, cuts its global economic growth forecast for next year to 2.1%, from the 2.5% expected previously.”While the acute phase of the banking tensions appears to be abating, we continue to see chronic challenges associated with higher interest rates and, more broadly, the implications of this episode for bank assets, deposits and funding, and bank margins,” said Sheets.These conditions could lead to a tightening of credit conditions, including the possibility of a “credit crunch”, he said. More

If you like time warps, read Bill Clinton’s 2000 speech urging Congress to admit China into the World Trade Organization. China’s entry would enrich Americans and help convert China to freedom, he said. “There’s no question China has been trying to crack down on the internet,” Clinton conceded to laughter. “Good luck! That’s sort of like trying to nail jello to the wall.” Less than a quarter of a century later, China lives behind a Great Firewall and the Washington consensus has long since been declared dead. That term, which was coined by a British economist in 1989, consisted of free market maxims. Its guarantor was the US and its crack troops were the World Bank and the IMF. The ten-point list was exclusively economic. Geopolitics had lost its relevance since the end of the Cold War. The past is another world. The goal of integrating China has been replaced with a debate about how to dis-integrate China. Contrast Clinton’s speech — the high noon of the Washington consensus — with this week’s G7 foreign minister’s meeting, which was focused on disengaging from China. Compare the marginalised status of the IMF and World Bank in today’s global economy with the hegemonic Bretton Woods bodies of the 1990s. The new Washington consensus is different to the old in three key respects. First, Washington is no longer the uncontested Rome of today’s world. It has competition from Beijing. The new consensus is thus largely confined to Washington itself rather than the swaggering US that set the global standards after the end of the Cold War. It is an American political consensus with Donald Trump its harshest exponent. He talks of how trade with China has created “American carnage” and led to the “rape” of America. Joe Biden’s language is far gentler but his enforcement is more rigorous. Biden’s policy is Trumpism with a human face. Second, the new consensus is geopolitical. It does have economic tools, such as reshoring supply chains, prioritising resilience over efficiency, and industrial policy. But these are largely means to a national security end, which is to contain China. The old consensus was a positive sum game; if one country got richer others did too. The new one is zero sum; one country’s growth comes at the expense of another’s.The third difference is that the new consensus is as pessimistic as the old one was optimistic. In that sense it is less intuitively American than what it replaced. The spirit of can-do has given way to a roster of can’t-dos. Today’s US cannot make trade deals, cannot negotiate global digital rules, cannot abide by WTO rulings and cannot support Bretton Woods reforms. Washington has lost faith in economic multilateralism. Will the new consensus be effective? The ultimate test is whether China can variously be contained, engaged, competed and cajoled into accepting the US-led order. Today’s Washington subscribes to all of these approaches, some of which are more sophisticated than others. Biden himself focuses more on competition than cajoling. His aim is not to decouple from China but to create what Jake Sullivan, the US national security adviser, calls a “small yard” with a “high fence”. That means America will continue to trade with China except in goods that can be used to upgrade China’s military, which means high-end semiconductors and anything that boosts China’s AI ambitions. It is not obvious where you can safely draw that line, which suggests Sullivan’s small yard will expand over time. Compared to the China hawks outside the Biden administration, however, Sullivan’s approach is nuanced and flexible. Yet it still begs the question: how can China be squeezed into a US-led order in which America itself has stopped believing? Biden has not yet given a clear answer to that question because it is so hard. He wants to deprive China of the means to reach military parity with America without provoking a US-China conflict or global economic retrenchment. A full-scale decoupling would make everyone poorer and create an Orwellian world of hostile blocs. A return to the status quo ante — what Clinton was extolling — would accelerate China’s rise. The middle way between the old Washington consensus and the new is to preserve what was good about the old, rather than to throw out the baby with the bathwater. Of course history did not end. By the same token, however, the future has yet to be written. No power will be its sole author. But America still has an outsized say on whether the script will be dark or [email protected]  More

The ECB has raised interest rates at its past six meetings and said that unless the economy starts developing differently than it predicted last month, more increases will be needed to curb inflation. “The expansion of services business activity is accelerating, supported by a continuation of strong reopening effects and rising incomes, whereas manufacturing output stagnated in the first quarter of the year,” Lane said in Dublin. “Incoming survey indicators suggest that the steady improvement in business and consumer sentiment, which remains at low levels, may have stalled,” he added.Markets are now betting on a 25-basis-point interest rate hike at the ECB’s policy meeting on May 4 but investors see a one-in-three chance of a 50-basis-point increase before rates rise further in subsequent meetings. The peak in rates is seen just below 4% and Lane said that once the benchmark rate hits a plateau, it will stay there for an extended period before cuts are possible. He also noted that once rates come down, they could stabilise around 2%, not returning to sub-zero levels. More

Investing.com — Netflix disappointed with the extent of its subscriber additions in the first quarter, while Fox settled its defamation lawsuit by Dominion, taking a hefty financial hit in the process. Tesla earnings are due after the close, while U.K. inflation is proving to be particularly sticky.1. Netflix disappoints with guidance, subscriber addsThe new earnings season received results from Netflix (NASDAQ:NFLX) after the close Tuesday, and while the streaming giant’s first quarter earnings topped estimates, its guidance fell short of expectations even after the launch of its ad-supported tier.Netflix also added 1.75 million users, compared with a loss of 200,000 in the same period last year, but that missed estimates of over 2M net adds. It also forecast that second quarter paid net adds were expected to be “roughly similar to Q1 ’23.”The company serves as a bellwether for the streaming industry, in which growth has slowed as competition has intensified. Its stock fell 1% in after-hours trading.There are more earnings to digest Wednesday, including major lender Morgan Stanley (NYSE:MS) before the open and electric vehicle giant Tesla (NASDAQ:TSLA) after the closing bell.2. Fox settles Dominion lawsuitFox Corp. (NASDAQ:FOXA), the owner of Fox News, has settled a defamation lawsuit by Dominion Voting Systems for $787.5 million, the largest ever settlement struck by an American media company.Dominion had sought $1.6 billion in damages in the lawsuit filed in 2021 over the media giant’s coverage of false vote-rigging claims in the 2020 U.S. election.As expensive as this settlement is, Fox’s lawyers must have thought it still represented a good deal given that alongside the $1.6B, Dominion was also seeking punitive damages in any amount jurors see fit.Additionally, the deal spared a number of well-known Fox employees, including the company’s 92-year-old chairman Rupert Murdoch, from having to answer potentially embarrassing questions.While this agreement ends this particular lawsuit, another U.S. voting company, Smartmatic, is seeking $2.7B from Fox in a similar lawsuit pending in New York County Supreme Court.The fact Fox chose to settle is likely to provide Smartmatic with confidence of a similar result.Fox stock fell 1.5% in premarket trading.3. Futures lower; Tesla earnings in focusU.S. futures traded lower Wednesday, as investors digested mixed earnings reports from a number of major companies.At 05:00 ET (09:00 GMT), the Dow futures contract dropped 110 points or 0.3%, S&P 500 futures fell 18 points or 0.4%, and Nasdaq 100 futures retreated 75 points or 0.6%.While Bank of America (NYSE:BAC) and Johnson & Johnson (NYSE:JNJ) beat expectations Tuesday, other big companies such as Goldman Sachs (NYSE:GS) and Netflix [see above] fell short on some measures.Tesla leads the earnings schedule Wednesday after the close, and investors will also pay attention to the release of the Fed’s Beige Book later in the session as it could provide more color for investors on the economic conditions around the country.4. U.K. inflation remains particularly stickyThe U.K. received another nasty inflation surprise Wednesday, as its March CPI remained in double figures, western Europe’s highest rate of consumer price inflation.Data released earlier Wednesday showed CPI came in at 10.1% in March, a small drop from February’s 10.4%, and above the forecast 9.8%.This elevated level was largely driven by prices of food and non-alcoholic drinks rising by 19.1% in annual terms in March – the biggest such increase since August 1977.Last month the Bank of England said it expected inflation to “fall significantly” in the second quarter, forecasting March inflation of 9.2%, and thus this number is likely to prompt the central bank to raise interest rates next month once more.Sterling rose as a result, with GBP/USD up 0.2% to 1.2435.The final iteration of the Eurozone’s March consumer price index was also released earlier Wednesday, with the CPI rising 0.9% on the month in March, an annual rise of 6.9%, a drop from the 8.5% seen in February.5. Oil prices drop on fears of slowing U.S. growthCrude prices weakened Wednesday, weighed by concerns that another hike by the U.S. Federal Reserve will hit economic activity in the world’s largest economy and major oil consumer.By 09:00 ET, U.S. crude futures were down 1.8% at $79.40 a barrel, while the Brent contract fell 1.8% to $83.25 per barrel.Federal Reserve Bank of St. Louis President James Bullard called Tuesday for continued interest rate hikes to counter persistent inflation, while his colleague Atlanta Federal Reserve President Raphael Bostic suggested one more interest rate rise of 25 basis points was likely in May.There was some good news Tuesday, as an industry report from the American Petroleum Institute showed U.S. crude stocks fell about 2.68M barrels last week.The official inventory report by the Energy Information Administration is due to be released at 10:30 ET. More

UK inflation remained in double digits in March with annual price rises of 10.1 per cent, making it more likely that the Bank of England will increase interest rates next month. Consumer price inflation had been 10.4 per cent in February and was expected to drop to 9.8 per cent last month. Although petrol and diesel prices fell in the month, further sharp rises in the costs of food, recreation and culture — a broad category which includes theatre, concerts and sporting events — left the index in double digits. The BoE had been watching these figures very closely as they were the last significant data release before its next meeting in early May. Officials had hoped that there would be the first signs of a significant drop in inflationary pressure, but core inflation, excluding food and energy prices, remained unchanged at 6.2 per cent, which remains too high to give them comfort. Sterling strengthened against the dollar, with the pound up 0.3 per cent against the dollar at $1.24 in early trading on Wednesday.

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Grant Fitzner, chief economist of the ONS, said that inflation remained at a “high level”. Falling motor fuel prices “were partially offset by the cost of food, which is still climbing steeply, with bread and cereal price inflation at a record high,” he said.The drop in headline inflation was almost entirely caused by motor fuels where the average price of a litre of petrol fell from just over £1.60 in March 2022 to just under £1.47 last month.

Offsetting this and keeping the headline rate high were soaring food prices, especially of bread and cereals, with prices rising 19.1 per cent in the year to March. The BoE’s Monetary Policy Committee has been looking for signs that underlying inflationary pressure is moderating and that declines in the headline rate are not caused solely by large energy price increases last year beginning to drop out of the annual comparisons. The members will not be reassured by both services inflation remaining at 6.6 per cent and core inflation failing to fall, instead sticking at 6.2 per cent. The MPC has said that it will raise interest rates again from the current 4.25 per cent level, “if there were to be evidence of more persistent pressures”.Kitty Ussher, chief economist at the Institute of Directors, said that the failure to see any drop in core inflation would require the bank to take action and raise rates again on May 4. “Taken together with yesterday’s strong labour market data, it is now clear that there is more demand in the economy than the Bank of England had expected in the first quarter,” she said. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the fall in the headline rate had been “too modest for the MPC to stop raising rates”. Capital Economics, the consultancy, said that the stubbornness of high inflation raised the possibility that a rise in interest rates to 4.5 per cent at the May meeting may not be the last. UK inflation has not been falling as quickly as comparable indicators in many European countries which saw lower energy prices reflected in the March data, but headline rates for the UK are expected to drop significantly next month. With gas and electricity prices for April already known, the annual increase in this component will fall from 96 per cent to 27 per cent, although consumers will not feel better off as the energy price cap will stay at the same level. These prices are expected to start falling in the summer. Headline inflation is still on course to halve by the end of the year, meeting the government’s target. In a statement, Jeremy Hunt, chancellor, said: “These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses”. More

The last time emerging markets faced a major debt crisis, in the 1990s, influential creditors, named after traditional centres of diplomacy and finance, could quickly gather in private to agree a solution.These days, bringing together a more diverse group of lenders has proved a more cumbersome exercise. The Paris Club’s members are the mostly western nations that used to dominate bilateral lending. But their contributions are dwarfed by China, which now lends more to the world’s poorest countries than all other bilateral creditors put together. The London Club of commercial banks has lost its relevance, with borrowers increasingly raising finance on bond markets. These shifts have meant creditors’ positions are far less aligned. As Anna Gelpern, a senior fellow at the Peterson Institute for International Economics, puts it, new entrants are “just not embedded” in the clubby set-up of the past. What’s replaced the clubs is a blame game, where critics accuse China of lending on terms that give it hidden advantage over other lenders. As its loans have soured, the country has become an alternative lender of last resort, challenging the IMF and stymying restructuring negotiations by trying to impose its own terms. For those in default — such as Zambia, Sri Lanka, Ghana and others — the lack of an informal club has meant debt restructurings have been frustratingly slow, taking years in some cases. More sovereign issuers are likely to suffer a similar fate soon as higher global borrowing costs and weak growth push them into insolvency.

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Finding the right approach to break the debt deadlock will be hard to achieve, analysts said, with much depending on Beijing. In the past week, it has appeared to soften its opposition to collegiate action. It may even have dropped its insistence that multilateral development banks should join other creditors in writing down the value of their loans. That proposal, which would raise the funding costs of the World Bank and other development banks, is widely seen as a non-starter by economists and western governments. Such a change in China’s position, says Clemence Landers, senior fellow at the Center for Global Development think-tank, would be “an important and long-overdue breakthrough”. The Group of 20 large economies — of which China is a member — has come up with a Common Framework. However, only four countries have signed up: Zambia, Chad, Ethiopia and Ghana. In part, that’s because the framework obliges debtors to seek the same treatment from all creditors, including those in the private sector — something that many sovereigns are keen to avoid for fear of damaging their creditworthiness. Bondholders, meanwhile, say they are being kept in the dark. Kevin Daly, a director at Abrdn, an asset manager, says the IMF’s assessment of a debtor country’s needs should be shared with all creditors including bondholders from the start, and not only after bilateral creditors including China have reached a deal. In Zambia, for example, he notes that, as creditors, bondholders are as big as Beijing. “We’re trying to come up with ideas to speed things up but we lost months of lead time,” he said. “Yet we’re not the ones who lent recklessly on opaque terms.” Some say the recent leaking of the IMF’s criteria for a deal in Sri Lanka offers a precedent for greater transparency for the private sector. That bondholders got sight of what to expect early on with no harm done to the negotiations reinforces the case for making it a habit.Another way of speeding things along would be to substantially increase the funding available from multilateral development banks, enabling them to provide more grants or concessional loans, rather than outright debt relief, to countries in distress. Ways of doing this are under active discussion.In what looks like an attempt to revive the clubby meetings of the past, the IMF, World Bank and G20 have tried to corral all creditors into a new initiative. The Global Sovereign Debt Roundtable met in Washington last week — with both China and members of the Paris Club participating in the talks, alongside private-sector representatives.Little progress was made. Even with more creditors around the same table, effective action will be slow. But for now, with no other workable solutions on offer, borrowers and lenders hope the forum will be given a chance to succeed. More