Aurelia Butler

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.Chinese inflation on Friday grabs the data spotlight in Asia at the end of a week in which hawkish Fed commentary has taken some froth of risk assets, as investors also ponder the market implications of deepening Sino-U.S. political tensions.Consumer price inflation in January is expected to have risen 0.7% on the month and at an annual rate of 2.2%, up from 0.0% and 1.8%, respectively, as the economy picks up following its COVID-19 pandemic paralysis. On its own, economic re-opening will likely accelerate growth and inflation this year. Economists at UBS expect growth of around 5% to be fueled by consumption growth of 7%, while analysts at Goldman Sachs (NYSE:GS) predict a “faster-than-expected reopening process” will drive 2023 real GDP growth of 5.5%.But immense structural challenges – such as the over-leveraged and debt-saddled property sector – are now being compounded by rising geopolitical risk thanks to the spy balloon crisis. A senior State Department official said on Thursday that the United States will explore taking action against entities connected to the Chinese military that supported the flight of the Chinese spy balloon into U.S. airspace last week. JP Morgan CEO Jamie Dimon told Reuters on Wednesday that he intends to visit China, and that dialogue and communication on all issues between the two superpowers is critical. “No talking will lead to a bad outcome.” But others may not see it that way. Deteriorating Sino-U.S. relations could encourage some investors and businesses to rethink their exposure to China, potentially affecting Chinese assets and rippling through to others, like European equities and U.S. Treasuries.Right now, Chinese stocks, the Hang Seng tech index and the MSCI Asia ex-Japan index are poised to close in the red for a second straight week. The S&P 500 and MSCI World index are on track for their biggest weekly decline in nearly two months. Despite individual economic and stock-specific developments – like the big undershoot in German inflation, or Disney’s share price surge on Thursday – the bigger picture is one of ‘higher for longer’ rates. See Australia, India and Sweden this week.And of course, the Fed. Wall Street is now pricing in a terminal rate this year comfortably above 5%, with barely 10 basis points of easing by year-end. Risk assets are repricing accordingly.Here are three key developments that could provide more direction to markets on Friday:- China CPI and PPI inflation (January)- Japan goods price inflation (January)- India industrial production (December) (By Jamie McGeever; Editing by Josie Kao) More

(Reuters) – North American companies struggling to hire workers in the tightest labor market in decades brought on more robots last year than ever before, with many earmarked for new electric vehicle and battery factories under construction.Demand for robots appears to have slackened near the end of the year, though, raising questions about how strong 2023 will be in the face of shifting household consumption patterns and the rising interest rates engineered by central bankers to bring high inflation under control.Companies, overwhelmingly located in the United States but including some in Canada and Mexico, ordered just over 44,100 robots in 2022, an 11% increase over the previous year and a new record, according to data compiled by the Association for Advancing Automation, an industry group also known as A3. The value of those machines totaled $2.38 billion, an 18% increase over the prior year, according to the data.The “labor shortage doesn’t seem to be letting up,” said Jeff Burnstein, president of A3. Many companies, scrambling to find workers amid the lowest U.S. unemployment rate since 1969, see automation as a quick fix.Burnstein said there was a visible slowdown in orders at the end of the year, which raises a question about how 2023 will evolve. “The fourth quarter was really propped up by the strength in the auto industry,” he said. “We saw a falling-off in non-automotive” orders.A shift away from pandemic-era consumer behavior likely played a role in the orders drop-off in some segments, he added. “You saw companies like Amazon (NASDAQ:AMZN) put a pause on building new warehouses, which means they probably canceled or delayed purchases of new automation.”Supply chain problems may also have distorted last year’s results. Burnstein said robot makers saw some customers place extra orders during the COVID-19 health crisis – just to ensure they would get part of what they needed. (Graphic: North American robot orders: https://www.reuters.com/graphics/USA-ECONOMY/ROBOT/lbvggbzaqvq/chart.png)AUTO SECTOR DRIVES DEMANDMore than half of last year’s orders came from automakers and their suppliers – a group that has long led the way in automation of U.S. factories.New plants for electric vehicles, batteries and battery recycling have been announced since the beginning of 2021 at a cost of $160 billion, according to Atlas (NYSE:ATCO) Public Policy, a U.S.-based research group working with automakers and environmental groups.Most robots ordered last year will be used for material handling – an expansive category that includes all types of movement and handling of goods inside factories and warehouses. Closure Systems International Inc’s sprawling plant in Crawfordsville, Indiana, for instance, recently automated the job of packing and sealing boxes at the end of the assembly line. The company produces closures used for things like soda bottles and food packages.Next up are “auditor” jobs. Machines in the Crawfordsville plant spit out new caps faster than a machine gun, so workers called auditors currently sit in small booths along the line, constantly checking that specifications are met.Brad Bennett, the company’s senior vice president of global operations, said small robots will soon be installed in the booths to do the inspection work. “We won’t have to reduce people,” he said. Those workers will move to other tasks.The new machines will help avoid what happened during the pandemic, he said. “During COVID, we were literally running with 30% of the plant down because we couldn’t get a $15-an-hour guy to show up.” More

NEW YORK (Reuters) – Philadelphia Federal Reserve President Patrick Harker said on Friday the surprisingly strong jobs data reported last week did not alter his view that moving to smaller interest rate rises was a good strategy for the U.S. central bank, as he flagged the prospect of rate cuts in 2024 should inflation continue to ease.”What is driving our rate increases right now is inflation, and we are starting to see signs, early signs that inflation is starting to move down,” Harker said in a Reuters interview. “At this point, we can go at a pace of 25 (basis-point rate hikes) and get inflation under control without doing undue damage to the labor market,” he said, adding that moving to smaller rate increases is a “risk management” issue for the Fed.The U.S. central bank, which delivered a series of 75-basis-point and 50-basis-point rate hikes last year in an effort to bring inflation back down to its 2% target, announced a smaller quarter-percentage-point increase last week. The Fed’s benchmark overnight interest rate is now in the 4.50%-4.75% range.That increase in borrowing costs was followed just a couple of days later by an employment report showing a gain of 517,000 jobs in January, nearly three times the forecast of analysts polled by Reuters. The jobs data raised questions as to whether the 25-basis-point hike was the right move, and whether the labor market’s resiliency in the face of stiff monetary policy tightening might cause the Fed to be more aggressive over time. Fed officials hope their rate rises will better balance supply and what they see as overly strong levels of demand in the economy, and they expect unemployment to rise as part of this process from its current ultra-low level of 3.4%. Harker, a voting member of the rate-setting Federal Open Market Committee this year, said he would still have opted for a 25-basis-point hike last week even if he had seen the jobs report ahead of the policy decision.Other central bank officials have defended the size of the recent rate rise, but Fed Chair Jerome Powell noted in an appearance on Tuesday that if jobs and inflation data stay hot “it may well be the case we have to do more” with rate rises over time.Inflation by the Fed’s preferred measure was running at more than double the 2% target in December.DOOR OPENINGIn the interview, Harker said he sees the Fed’s policy rate going up to somewhere above 5% and holding there for a while. But after that, with inflation on track to ease and head back to 2% over the next couple of years, Harker said the door would open to the possibility of the Fed cutting rates at some point, simply to keep monetary policy from becoming more restrictive of economic activity. “I don’t think that’ll happen this year,” but in 2024 “we could start to see” movement downward in the federal funds rate that will likely be gradual in nature, Harker said. He reiterated that he doesn’t believe the economy is on track to fall into recession and he cautioned against using simple benchmarks, like the relationship of bond yields, or moves in unemployment, as tools to divine the economic future. Harker said he expects the jobless rate to move up to 4.5% from its current level due to the impact of Fed policy before ebbing. Such a gain would not “rise to the level of a recessionary rise,” he said. More

WASHINGTON (Reuters) -The U.S. government posted a $39 billion budget deficit for January after a $119 billion monthly surplus a year earlier, as revenues dipped and one-time costs, including the bailout of a union pension fund, pushed outlays sharply higher, the Treasury Department said on Friday.The report, which comes as Treasury employs extraordinary cash management measures to avoid breaching the federal debt limit, showed receipts at $447 billion last month, down $18 billion, or 4%, from January 2022.Outside of the one-time costs, the budget data did not show major shifts from recent trends of slightly slowing revenues and rising costs for Medicare, Social Security and interest on the public debt.The Treasury has said its ability to pay U.S. obligations may not last past early June unless Congress raises the $31.4 trillion statutory debt ceiling. Republicans want spending concessions from President Joe Biden, who has said he will not negotiate over raising the limit. U.S. federal outlays in January were $486 billion, up $140 billion, or 4%, from a year earlier due in part to Biden’s $36 billion bailout of the Central States Pension Fund to prevent cuts to the pensions of over 350,000 Teamsters union workers and retirees that it serves.The January outlays comparisons were also affected by the non-recurrence of a communications spectrum auction last year that had the effect of reducing outlays in January 2022 by some $70 billion.Social Security costs in January rose $12 billion or 12% compared to a year earlier, reaching $114 billion due to cost-of-living adjustments. Interest on the public debt rose $8 billion, or 18%, reaching $51 billion in January.Withheld individual income and payroll taxes in January rose $11 billion, or 4% from a year ago, reaching $279 billion. A drag effect from lower bonus payments in December and January is expected to fade in coming months amid continued high employment, a Treasury official said.January non-withheld receipts fell $9 billion, or 6%, to $141 billion, reflecting lower capital gains being realized. The Federal Reserve posted no earnings in January as higher interest paid on bank reserves offset any bond portfolio income. This compared to Fed earnings of $10 billion in January 2022 and the zero-earnings trend was expected to continue potentially for several years, the Treasury official said.For the first four months of the fiscal year, which started in October, U.S. receipts fell $44 billion, or 3%, to $1.473 trillion, while outlays grew $157 billion, or 9%, to $1.933 trillion, a record for the period. More

ZAGREB (Reuters) – The European Central Bank needs to keep raising rates beyond March and must hold them at high levels for a while even as inflation falls and this “sacrifice” becomes more difficult to explain to the public, the ECB’s newest policymaker said. Having raised rates by 3 percentage points since July, policymakers have started to ponder when and where the fastest tightening cycle in ECB history will end, especially since inflation is now retreating quickly from record highs. But Croatian central bank Governor Boris Vujcic, whose nation joined the euro on Jan. 1, says stubborn underlying inflation means it is premature to predict the end of rate hikes and the cut priced in by markets for the turn of the year is not even worth discussing. “We are likely to see more rate action beyond March and I would leave the issue of the terminal rate for later,” Vujcic, a career economist, university professor and Croatia’s central bank chief for the past decade told Reuters.”Then typically you would keep the rate there for some time until you are confident that the inflation is back to where you want it to be,” he said in an interview.Seen as a policy hawk like most governors from Europe’s former communist east, 58-year-old Vujcic has already attended ECB meetings through much of 2022 and has another year and a half left in his term. With energy prices sharply down compared to 2022 highs and supply chains constraints easing, the ECB could cut its own inflation projections next month, Vujcic said.And there is a possibility that price growth falls back to , one the ECB’s 2% target more quickly than now expected, he added. GRAPHIC: Euro zone inflation expectations – https://fingfx.thomsonreuters.com/gfx/mkt/byprlknxqpe/Pasted%20image%201676018837733.png Still, that is not a signal that the ECB’s job is done, the Croatian argued.”There is a possibility that headline inflation will fall to 2% much sooner than expected due to various factors … (that) bring the headline figure down sharply, below core inflation,” Vujcic said.But the ECB needs to see a sustained decline in underlying inflation, which strips out volatile food and energy prices, as this figure is a more reliable indicator of underlying price pressures and the effectiveness of monetary policy.Dutch central bank chief Klaas Knot has also warned that headline inflation could fall below underlying prices.This is because lower gas prices are set to drag down the overall rate quite quickly while core inflation is proving unexpectedly stubborn due to a host of factors from wages to the second-round impacts of past inflation on prices. GRAPHIC: The race to raise rates – https://www.reuters.com/graphics/CANADA-CENBANK/zjpqjwaolvx/chart.png The problem is that while public tends to look at headline inflation, the ECB will have to watch underlying prices as well, taking into account that the final phase of cutting inflation may be the most difficult.”In this case, monetary policy has to be restrictive enough to push the core inflation downwards, which is not an easy task as it could imply relatively high sacrifice ratio,” Vujcic said.Economists call sacrifice ratio the loss suffered in order to achieve a reduction in the long-run inflation rate.It tends to be lower when inflation is coming down from high levels and usually increases in the “last mile” of disinflation, as price growth is approaching the target.”We would have to explain to public why we are keeping restrictive monetary policy stance if headline inflation already fell,” Vujcic said. A possible good news for the ECB is that the economy has appeared to avoid the worst of the economic downturn and prospects for a soft landing have improved.Click here for excerpts of this interview. More