Aurelia Butler

WELLINGTON (Reuters) – Expected damage to New Zealand’s economy from severe weather over the past three weeks has prompted financial markets to downgrade the outlook for interest rate rises.An initial disaster, flash flooding in Auckland, New Zealand’s largest city, hit on Jan. 27. Then on Feb. 12 to 15 a cyclone hit the North Island, which includes Auckland.”As the scale of the devastation has been gradually revealed, the market has all but priced out the chance of the RBNZ going ahead with the 75bp hike it signalled last November,” said ANZ chief economist Sharon Zollner in a note, referring to the Reserve Bank of New Zealand (RBNZ).”Indeed, it’s now pricing a small chance of a pause or just a 25bp hike next week, which is fair,” she added.The flash flooding damaged roads across Auckland, closed businesses including the airport, destroyed houses, roads and crops. The cyclone then damaged still more roads, many of which are still closed, swept away rail track and grounded flights. Homes are flooded and communities cut off.Tanker trucks cannot collect milk, some logging is suspended, and meat processing is reduced. When Cyclone Gabrielle hit, picking had just begun on pip-fruit farms, whose production is worth about NZ$1 billion a year. Now the industry has lost not only 2023 product but many orchards are still inaccessible.Among 25 economists polled by Reuters on Feb. 13-16, 20 expected the central bank to raise its policy rate by 50 basis points next week, even though the RBNZ Monetary Policy Statement in November had suggested a 75 basis point rise this month and an eventual peak of 5.5%.The median from the Reuters poll now puts the peak at 5.25%.No one has yet estimated the scale of the damage from the severe weather. But Finance Minister Grant Robertson told broadcaster TVNZ the cost to the government could be similar to the NZ$13.5 billion ($8.42 billion) it had spent rebuilding Christchurch after an earthquake in 2011.”This will be a significant event financially for the government and for individuals, households, businesses, banks and insurers,” he said.Fifteen people are so far confirmed to have died in the two disasters.A surge in prices looks likely from the disruption. Economists expect inflation, already running at a near three-decade high of 7.2%, to rise as the country replaces homes and contents and repairs infrastructure. Loss of crops will push up food prices.That would normally be a reason for a central bank to lift interest rates further, but some economists expect the RBNZ to look past the sudden rise as being temporary. Still, Kiwibank chief economist Jarrod Kerr said the central bank should pause hikes until the effect of the cyclone can be understood.”Current circumstances warrant caution. But what we think they should do is not what they will likely do,” said Kerr.After the Christchurch earthquake, the central bank cut its policy rate due to concerns about the economy.($1 = 1.6090 New Zealand dollars) More

SHANGHAI (Reuters) – China kept its benchmark lending rates unchanged for a sixth straight month in February, as expected, with the world’s second-largest economy showing more signs of recovery from a pandemic-induced slump.A clutch of better-than-expected data recently suggests economic activity is rebounding as Beijing exited from its stringent zero-COVID strategy in December and shifted to a pro-growth policy stance.The one-year loan prime rate (LPR) was kept at 3.65%, while the five-year LPR was unchanged at 4.30%.”We expect the PBOC to stay accommodative in the first half of this year, but only through liquidity-related actions, not rate cuts,” analysts at Barclays (LON:BARC) said in a note.”Unlike the U.S. and EU, China remains the outlier on monetary policy, with still benign inflation and recovering but still weak activity creating room for the PBOC to remain accommodative in the first half.”In a poll of 27 market watchers, 21, or 78% of all participants, predicted no change to either rate.New bank loans in China jumped more than expected to a record 4.9 trillion yuan in January as the central bank looks to kick-start recovery while new home prices rose for the first time in a year, as Beijing stepped up support for the property sector that accounts for a quarter of the domestic economy.Market participants also said the LPR decision was within expectations, as the People’s Bank of China (PBOC) ramped up medium-term liquidity injections, rolling over maturing policy loans last week while keeping the interest rate unchanged.The medium-term lending facility (MLF) rate serves as a guide to the LPR and markets mostly use the medium-term rate as a precursor to any changes to the lending benchmarks.In spite of recovering momentum, some analysts expect rates will ease after China’s annual parliamentary gathering in March, when the government announces key growth targets for the year.”We think the PBOC may cut the MLF rate and banks will subsequently reduce the LPRs as early as March following the annual session of the National People’s Congress which is scheduled to begin on March 5,” said Tommy Wu, senior economist at Commerzbank (ETR:CBKG). “Macro policy stimulus will likely be announced during the annual session, and it will be a good timing for the PBOC to cut rates and signal that it stands ready to support the economic recovery.”Tommy Xie, head of Greater China research at OCBC Bank, agreed rates would likely be cut in the coming months.”Easing monetary policy is likely to work hand in hand with the expansionary fiscal policy in the face of weak domestic demand. A lower interest rate will help minimise the cost of the issuance of government bonds,” Xie said, adding that lower mortgage rate could also help defuse systemic risk.The LPR, which banks normally charge their best clients, is set by 18 designated commercial banks who submit proposed rates to the central bank every month.Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. China last cut both rates in August to boost the economy. More

Investing.com — China kept its key loan prime rate unchanged at historical lows on Monday, as the country struggles to maintain a balance between supporting a fledgling economic recovery and keeping its yuan currency robust.The People’s Bank of China (PBOC) held its one-year loan prime rate (LPR) at 3.65%, while the five-year LPR, which is used to determine mortgage rates, was maintained at 4.30%. Both lending rates were at their lowest in the past two decades.February now marks the sixth straight month that China has maintained its key lending rates at historically low levels, after an unexpected cut in August 2022.The LPR is decided by the PBOC based on considerations taken from 18 designated commercial banks, and is in turn used as a benchmark by private banks in offering loans.Monday’s move was largely in line with a Reuters poll. But it did disappoint a minority of analysts that forecast more interest rate cuts, given that Chinese economic growth slowed drastically in 2022, and has so far shown little improvement despite the lifting of anti-COVID measures earlier this year.The lifting of anti-COVID measures triggered an immense spike in infections, which disrupted local business activity. Still, Chinese government officials recently declared a “decisive victory” over COVID, citing a relatively small fatality rate in the latest outbreak.China’s move to hold interest rates was also driven by concerns over the yuan, which was dangerously close to moving past the key 7 to the dollar level. The currency had tumbled to its lowest level since the 2008 financial crisis after the People’s Bank unexpectedly cut the LPR in August.But the currency is now under renewed pressure from growing fears of a consistently hawkish Federal Reserve. Strong inflation and job market readings are expected to see the Fed keep raising rates in the near-term, widening the gulf between Chinese and U.S. interest rates. More

BEIJING (Reuters) – China’s job fairs are making a comeback after being forced online by COVID-19 for three years, but subdued wages and less abundant offerings in sectors exposed to weakening external demand point to an uneven and guarded economic recovery.Authorities announced hundreds of such events across the country this month, the latest sign that China is returning to its pre-COVID way of life and that youth unemployment, a major headache for Beijing, may ease from its near 20% peak.In a country of 1.4 billion people, job fairs are one of the most efficient ways for employers and workers to connect. Although attendees said their long-awaited return is encouraging, some were not brimming with confidence.”I only pray for a stable job, and do not have high salary expectations,” said Liu Liangliang, 24, who was looking for a job in a hotel or property management company at a fair in Beijing on Thursday, one of more than 40 held in the capital in February. “The COVID outbreak has hurt many people. There will be more job seekers battling for offers this year.”Employment anxiety is widespread.A survey of about 50,000 white-collar workers published on Thursday by Zhaopin, one of China’s biggest recruiting firms, showed 47.3% of respondents were worried they may lose their jobs this year, up from 39.8% a year ago.About 60% cited the “uncertain economic environment” as the main factor affecting their confidence, up from 48.4% in 2022.Job confidence of those working in consumer-facing sectors, which are recovering faster from a low base, was higher than in sectors such as manufacturing, affected by weakening external demand, or property, which has only just started to show tentative signs of stabilising, the survey showed.A human resources manager at Beijing Xiahang Jianianhua Hotel, who only gave his surname Zhang, said his company had three times more job openings compared with last year, as Chinese resumed travelling.By contrast, Jin Chaofeng, whose company exports outdoor rattan furniture, said he has no plans to add to his payroll as orders from abroad are slowing.”People in my industry are waiting and seeing, prudently,” he said, adding that he plans to cut production by 20%-30% in March from a year earlier. Frederic Neumann, chief Asia economist at HSBC, expects the service and manufacturing sectors to run at vastly different speeds this year, but said overall employment in China should grow.”Restaurants, hotels, and entertainment venues are now scrambling to hire staff. This is especially helpful for younger workers,” Neumann said. “The youth unemployment rate should start to fall in the coming months.”China’s economy grew 3% last year, in one of its weakest performances in nearly half a century. Policymakers are expected to aim for growth of about 5%, which would still be below the blistering pre-pandemic pace.That’s partly because the pain caused by stringent COVID rules persists.At another job fair in the capital, Wei, a former cleaner looking for similar work, said she and her unemployed husband are struggling with credit card debt.Wei, who has a child in primary school and did not want to give her full name, citing personal privacy, quit her previous job last year after her employer wanted to cut her wages to 3,200 yuan ($465.34) per month from 3,500 yuan despite demanding she work late hours to conduct COVID-related disinfection.”We owe the banks hundreds of thousands yuan,” she said. “We are overwhelmingly anxious.”($1 = 6.8767 Chinese yuan renminbi) More

SINGAPORE (Reuters) – The dollar was on the front foot on Monday, supported by a strong run of economic data out of the United States that traders bet will keep the Federal Reserve on its monetary policy tightening path for longer than initially expected.The greenback advanced broadly in early Asia trade, sending sterling 0.12% lower to $1.2028 and the Aussie falling 0.18% to $0.6866.Against the Japanese yen, the dollar rose 0.14% to 134.32.Trading is likely to be thin on Monday, with U.S. markets closed for Presidents’ Day.A slew of data out of the world’s largest economy in recent weeks pointing to a still-tight labour market, sticky inflation, robust retail sales growth and higher monthly producer prices, have raised market expectations that the U.S. central bank has more to do in taming inflation, and that interest rates would have to go higher.”For the week ahead, the dollar can track higher given the recent run of economic data which supports the narrative of higher-for-longer interest rates,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY) (CBA).Markets are now expecting the Fed funds rate to peak just under 5.3% by July.Hawkish comments from Fed officials have also underpinned the U.S. dollar, as they signalled that interest rates will need to go higher in order to successfully quash inflation.Similarly, two European Central Bank (ECB) policymakers said on Friday that interest rates in the euro zone still have some way to rise, pushing up market pricing for the peak ECB rate.That, however, did little to lift the euro, which was last 0.16% lower at $1.0677.”The hawkish ECB comments aren’t likely to support euro, given the dollar strength,” said Kong.Elsewhere, the U.S. dollar index rose 0.05% to 104.03, and is up nearly 2% for the month so far, keeping it on track for its first monthly gain since last September.The kiwi slipped 0.17% to $0.6232, with eyes on the Reserve Bank of New Zealand’s (RBNZ) interest rate decision on Wednesday.The RBNZ is expected to scale down its tightening campaign only slightly, with a half-point interest rate hike to 4.75%.”With inflation so high … not staying the course could mean even higher interest rates are required down the track,” said analysts at ANZ.In Asia, focus is on China’s loan prime rate decision on Monday, with markets widely expecting its benchmark lending rates to be kept unchanged at the monthly fixing.”We don’t think there will be any changes made,” said CBA’s Kong. “Our view has been that the (Chinese) government should announce more easing measures to aid the Chinese recovery.”The offshore yuan was last marginally lower at 6.8783 per dollar. More

SYDNEY (Reuters) – Asian shares got off to a subdued start on Monday as a U.S. holiday made for slow trading ahead of minutes of the last Federal Reserve meeting and a reading on core inflation that could add to the risk of interest rates heading higher for longer.Geopolitical tensions were ever present with North Korea firing more missiles and talk of Russia ramping up attacks in Ukraine before Friday’s one- year anniversary of the invasion.There were reports the White House planned new sanctions on Russia, while Secretary of State Antony Blinken on Saturday warned Beijing of consequences should it provide material support, including weapons, to Moscow.All of which made for a cautious start and MSCI’s broadest index of Asia-Pacific shares outside Japan was largely flat, after sliding 2.2% last week. Japan’s Nikkei dipped 0.2% and South Korea 0.4%.S&P 500 futures eased 0.2%, while Nasdaq futures lost 0.3%. The S&P touched a two-week low on Friday as a run of strong U.S. economic news suggested the Fed might have more to do on interest rates even after hiking a huge 450 basis points in 11 months.”It’s the most aggressive Fed tightening in decades and U.S. retail sales are at all-time highs; unemployment at 43-year lows; payrolls up over 500k in January and CPI/PPI inflation reaccelerating,” noted analysts at BofA. “That’s a Fed mission very much unaccomplished.”They warned the repeated failure of the S&P 500 to break resistance at 4,200, could unleash a retreat to 3,800 by March 8.Markets have steadily lifted the expected peak for Fed funds to 5.28%, while sharply scaling back rate cuts for later this year and next.Minutes of the Fed’s last meeting due on Wednesday should add colour on the deliberations, though they have been superseded somewhat by barnstorming numbers on January payrolls and retail sales.The latter means figures on U.S. personal consumption expenditures (PCE) due this Friday are expected to show a 1.3% jump in January, more than recovering from weakness in the prior two months.The Fed’s favoured inflation indicators, the core PCE index, is seen rising 0.4%, the biggest gain in five months, while the annual pace may have slowed just a fraction to 4.3%.There are also at least five Fed presidents speaking this week, to provide running commentary.Earnings season continues this week with major retailers Walmart (NYSE:WMT) and Home Depot (NYSE:HD) set to offer updates on the health of the consumer.Other companies reporting include chip company Nvidia (NASDAQ:NVDA), COVID-19 vaccine maker Moderna (NASDAQ:MRNA) and e-commerce store front eBay (NASDAQ:EBAY).The prospect of more Fed hikes has lifted Treasury yields and generally supported the dollar, which hit a six-week top on a basket of currencies last week.The euro was stuck at $1.0676, having touched a six-week low of $1.0613 on Friday, while the dollar was just off a two-month top on the yen at 134.34.Investors are anxiously awaiting Friday’s testimony from the newly nominated head of the Bank of Japan, and his thinking on the future of yield curve control (YCC) and super-easy policy.Any hint of an early end to YCC could see yields spike globally and send the yen surging, so analysts assume Kazuo Ueda will be careful not to spook markets.Higher yields and a firmer dollar have not been good for gold, which was struggling at $1,837 an ounce and not far from a five-week low of $1,807. [GOL/]Oil prices were trying to steady after shedding around 4% last week amid signs of ample supply and concerns over future demand. [O/R]Brent edged up 14 cents to $83.14 a barrel, while U.S. crude rose 15 cents to $76.49. More

Australia’s energy price caps and planned export controls threaten to stifle investment and upset relationships with key trading partners, as one of the world’s biggest gas exporters acts to cushion consumers from rising prices. Prime Minister Anthony Albanese’s government this month proposed introducing laws giving it the right to limit exports in response to rising concerns about domestic supply. It introduced in December temporary price caps on uncontracted gas and a mandatory code of conduct that would enforce the sale of gas at a “reasonable price”.Analysts and businesses warn that these interventions could have serious consequences for liquefied natural gas investment as well as trading relationships with countries including Japan and South Korea. Australian gas last year accounted for more than 42 per cent of Japan’s LNG imports, 34.5 per cent of China’s and 22 per cent of South Korea’s, according to consultancy EnergyQuest and official trade statistics. “There is growing concern that Labor is undermining commitments to trade partners about gas exports. That should be a red flag for the government,” said Saul Kavonic, an energy analyst with Credit Suisse. “International companies will now see Australia as a country of increased sovereign risk,” Kavonic added. Since the Albanese government was elected last May, it has won praise from the business community over its diplomatic efforts to end trade tension with China, the country’s biggest trading partner. But the energy initiatives have raised questions over how the government intends to balance public concern over costs and supplies with the commitment to invest in Australia’s vast energy and mineral riches, the most important pillar of the country’s export economy. It also marks a shift away from the previous rightwing government’s policies which were broadly supportive of the fossil fuel and mining industries. “This is the most anti-business, anti-market policy Australia has had for some time,” said Kavonic.

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The Japanese embassy in Canberra has said it is closely monitoring the situation and Japanese company Mitsui, in an interview with Australian media, warned of the “unintended consequences” of short-term interventions.Despite reassurance from Canberra, Japanese trading houses with energy interests in Australia have expressed concerns about the impact of the export controls. “It is true that we are not currently facing any shortage of Australian LNG but we have expressed our concerns at every opportunity,” said a Japanese trade ministry official.An official at South Korea’s Ministry of Trade, Industry and Energy said its concern was limited because South Korea received LNG from Australia mostly on long-term contracts.Graeme Bethune, chief executive of EnergyQuest, said Japanese and Korean angst about the limits on LNG exports could have repercussions on the switch to green energy. “Australia is also counting on both countries to invest in Australian hydrogen export projects,” he pointed out. Following a surge in the price of gas following Russia’s full-scale invasion of Ukraine, the value of Australia’s LNG exports hit A$90.8bn (US$61.9bn) in 2022, up 83 per cent from 2021, according to the Australian Bureau of Statistics.The government brushed off the industry’s outrage in December. “I see no reason to jump at shadows,” said Albanese when asked about warnings by the sector that the policy would stifle investment. He similarly dismissed concerns about the impact on trade relationships. Still, the impact on industry is tangible. Ian Davies, chief executive of Senex Energy, said this week that the “reckless intervention” by the government threatened to “suffocate industry investment confidence” and could lead to companies having to break export contracts to divert supply to the domestic market. The company suspended a proposed A$1bn investment following the intervention. Senex, which produces oil and gas in Queensland and South Australia, is majority-owned by South Korean steelmaker Posco Group. Davies said the intervention would mean Posco would view the country as a “much riskier proposition”.David Maxwell, head of Cooper Energy which last month suspended an expansion of its gas operations in Gippsland, Victoria, argued that the price caps and export controls would ultimately increase pressure on the domestic market because it would stop new supply coming into the market. “Longer-term cost pressures and energy security concerns will very likely be much more severe if policy settings and regulations do not support needed investment in new competitive supply,” he said. Analysts and bankers also cite government policy as a threat to the $12bn takeover bid of energy company Origin by Canada’s Brookfield Asset Management and US private equity group EIG Global Energy Partners. While talks continue, Origin has said the political climate makes it difficult to sign long-term contracts for gas supply. The government’s energy policy has also sounded alarm bells in the wider resources sector. Geraldine Slattery, BHP’s Australia president, said: “Recent proposed changes to legislative and fiscal settings have created an element of uncertainty that could see Australia yield some of its competitive advantage.”Additional reporting by Kana Inagaki in Tokyo and Song Jung-a in Seoul More