Aurelia Butler

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyLast week was a lesson in central bank “unusual” — developments that are less common and deserve to be thought through carefully as they speak directly to the future wellbeing of the global economy. I am talking here of two notable contrasts: first, larger differences in policy implementation among major central banks. Second, and more important, a notable variance between the latest signals from the US Federal Reserve and the financial conditions through which monetary policy delivers outcomes.At Wednesday’s press conference that followed the announcement of a widely expected 25 basis point rate hike, Fed chair Jay Powell referred to disinflation some 11 times. In contrast, the word did not come up at all in this week’s press conferences of Christine Lagarde, the president of the European Central Bank, and Andrew Bailey, Bank of England governor.The disinflation narrative helps explains why markets, which had done very little in response to the release of the Fed policy statement before the press conference, then took off in a generalised fashion as Powell answered questions from reporters.But the difference between the Fed on the one hand and the ECB and BoE on the other is not limited to words. We are also seeing a divergence in policy developments and prospects.The Fed appeared last week to have taken a hard turn towards expecting a soft landing — that is, inflation heading down to target with little damage to growth and economic growth. The other two central banks seem more worried about inflation persisting and, therefore, a hard landing such as a recession or, worse, stagflation.Needless to say, there are implications for the global economy given the systemic influence of these central banks.Compare this situation with the prior monetary policy regime when we had a high degree of correlation, if not initial co-operation, between central banks. After normalising malfunctioning financial markets, central banks doubled down on unconventional monetary policy to pursue broader macroeconomy outcomes (growth and employment in particular).Another, and potentially more consequential contrast is between how the Fed portrayed financial conditions and what the most widely followed indices are telling us.Financial conditions matter for the effectiveness of monetary policy. As an illustration, think back again to how the prior regime of floored interest rates and sizeable liquidity injections repressed both economic and financial volatility.This time around, and according to longstanding indices, developments in financial conditions have divorced themselves from monetary policy. They are as loose today as they were a year ago before the Fed embarked on its 4.50 percentage point rate hiking cycle; and this loosening has been turbocharged since the December Fed policy meeting. All of this is consistent with last Friday’s stunning US payrolls report.This disparity has been the subject of much discussion among market participants. Yet it is not what the Fed sees, judging from Powell’s comments at last Wednesday’s press conference, where he repeatedly referred to financial conditions having tightened quite a bit in the last twelve months.It could well be, as suggested by vice chair Lael Brainard a few weeks ago, that the Fed is guided by a slimmed down view of financial conditions. That would be similar to its approach for inflation where it is now paying a lot of attention to core prices in services excluding housing. One way of figuring this out would be by knowing how the Fed reacted internally to Wednesday’s roaring market price action and Friday’s strong jobs report. Unfortunately, such information is highly elusive unless some key Fed officials come out in the next few days, or Powell himself at his scheduled February 7 event, to “correct” the markets’ understanding of what they heard and seen.The longer this “financial conditions paradox” remains unresolved, the larger the scope for another policy mistake.For many years, major central banks were celebrated for being effective repressors of economic and financial volatility. We are now in a different world. They have to be careful to avoid their communication being an undue source of such volatility. This is even more important in a global economy navigating the uncertainties associated with changing globalisation, the energy transition, the rewiring of supply chains and, in the case of the US and UK, exceptional labour market conditions.  More

Under the proposed all-stock deal, Life Storage shareholders would receive 0.4192 share of Public Storage (NYSE:PSA) for each Life Storage share or unit, which equates to $129.3 per share based on Public Storage’s closing share price on Friday.Shares of Public Storage traded at $308.47 each on Friday, giving the California-based company a market value of nearly $54.2 billion, while Life Storage’s shares were at $100.58. Public Storage said Life Storage had rejected an offer under similar terms in January, with the target saying the it was “not for sale” and the deal was not in the best interest of shareholders. Life Storage did not immediately respond to a request for comment.Public Storage said the combination would save costs and make Life Storage’s business more efficient. “We believe your shareholders deserve to be informed of our proposed transaction and to have the opportunity to make their views known, and we are making this letter public in light of your refusal to engage in any meaningful dialogue,” Public Storage said in a letter to Life Storage’s management. Real Estate Investment Trusts (REIT) was a bright spot for mergers and acquisitions in 2022, bringing $83 billion in deal volume, the second highest for the sector since 2007, according to National Association of REIT. Prologis (NYSE:PLD) Inc’s acquisition of Duke Realty (NYSE:DRE) Corp and private equity buyers like Blackstone (NYSE:BX) contributed to the largest deals in the space. More

“China has to change its policies because low income countries cannot pay,” she said. “What we are working towards is to bring all creditors, the traditional creditors from advanced economies, new creditors like China, Saudi Arabia, India, as well as the private sector, and put them around the table with the debtor countries.”Georgieva said last month the first such gathering will take place on the sidelines of a meeting of Group of 20 finance officials in India. Georgieva, the first person from an emerging market economy to head the International Monetary Fund, has said debt relief was critical for heavily indebted nations to avoid cuts in social services and other repercussions. “China is going to participate at the level of minister of finance and the governor of People’s Bank of China,” she told 60 Minutes. More

SYDNEY (Reuters) – Asian shares eased on Monday after a run of upbeat economic data from the United States and globally lessened the risk of recession, but also suggested interest rates would have to rise further and stay up for longer. Bond markets took a beating on Friday following stunning reports on jobs and services, catching speculators very short of dollars and sending the currency sharply higher.The dollar extended its rally on the yen to a three-week top of 132.60 on Monday amid reports the Japanese government had offered the job of central bank governor to the current deputy, Masayoshi Amamiya.Amamiya has been closely involved with the Bank of Japan’s current super-easy policies and is considered by markets to be more dovish than some other contenders.The early gains were later pared to 131.94 yen but still helped the dollar hold firm on a basket of currencies at 103.090, having jumped 1.2% on Friday. The euro was huddled at $1.0791 after shedding 1.1% on Friday.In equity markets, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7%, with South Korea down 1.0%. Japan’s Nikkei added 1.1%, encouraged by hopes the BOJ would keep policy easy.S&P 500 futures dipped 0.2%, while Nasdaq futures lost 0.3% as the stellar January payrolls report forced investors to price in the risk of more hikes from the Federal Reserve, and less chance of cuts later in the year.Futures are almost fully priced for a quarter point rate rise in March, and likely another in May, leaving the peak at 5.0% from 4.9% ahead of the jobs data.Likewise, yields on two-year Treasuries were now up at 4.35%, compared to 4.09% before the data, while 10-year yields climbed to 3.56%.A host of Fed officials are set to speak this week, led by Chair Jerome Powell on Tuesday, and the tone could be hawkish. Policy makers from the European Central Bank and the Bank of England will also be making appearances. Bruce Kasman, head of economic research at JPMorgan (NYSE:JPM), noted recent surveys on manufacturing globally had also shown a bounce in January.”The data decisively quiet the near-term recession narrative,” wrote Kasman in a note. “It appears that underlying growth momentum did not materially slip through a noisy turn into the new year, and the U.S. expansion remains firmly on its feet.””Importantly, we see material risk that developed market rates will need to rise well above market estimates of terminal rates for the cycle, even as we expect the Fed to signal a pause next quarter.”Higher rates, and thus yields, will stretch equity valuations and challenge the market’s bullish outlook for assets including commodities.Gold, for one, slid 2% on Friday and was last stuck at $1,865 an ounce. [GOL/] Oil futures steadied on Monday, having lost 3% post-payrolls. Brent edged up 11 cents to $80.05, while U.S. crude firmed 13 cents to $73.52 per barrel. [O/R] More

BEIJING (Reuters) -China’s policymakers plan to show more support for domestic demand this year but are likely to stop short of splashing out big on direct consumer subsidies, keeping their focus mainly on investment, three sources close to policy discussions said.In recent weeks, top policymakers have repeatedly signalled their intention to work towards harvesting the consumer power of China’s 1.4 billion people, after economic growth in 2022 slumped to one of its weakest levels in nearly half a century.That has raised expectations that large-scale household stimulus measures could be announced at an annual parliament meeting in March. Prominent academics have felt emboldened to speak publicly about sizeable demand-side measures such as 1 trillion yuan ($148.28 billion) or more in nationwide consumption vouchers.The sources close to policy discussions, however, expect China to stick more closely to its familiar playbook of policies to support key industries and splurge on infrastructure, aiming to shore up jobs and incomes which will eventually lift consumer sentiment off record lows.    “There are limited options to stimulate consumption,” said one insider, who like the other sources spoke on condition of anonymity due to the closed-door nature of policy debates. “The possibility of giving cash handouts is small.”China’s National Development and Reform Commission, the top state planner, did not immediately respond to a request for comment.Last year was dismal for Chinese consumers, who bore the brunt of harsh COVID-19 curbs that were abruptly lifted in December. Retail sales fell 0.2%, the second worst performance since 1968, while per capita disposable income rose just 2.9%, the second smallest rise since 1989. REBALANCING OVERDUE    Many economists have argued for years that the world’s No. 2 economy should rebalance, relying more on domestic consumption and reducing its reliance on debt-backed investment, which now produces more debt than growth.Reviving consumer demand quickly is even more critical for an economic recovery this year as the country’s exports falter amid a global slowdown and the crisis-hit property market struggles to get back on its feet.  But policymakers’ apparent reluctance to veer too swiftly, or too far, from their old investment playbook highlights the difficulty of any rebalancing act for the $18 trillion economy.    Since the Communist Party’s Central Economic Work Conference in December, top policymakers have repeated their intention to boost consumer’s spending power, without saying how.    President Xi Jinping said on Wednesday that China should take steps so that consumers “dare to spend without worrying about the future.”    World Bank data shows investment as a share of China’s GDP is almost 20 percentage points above the global average, while household consumption is almost 20 points below, a greater imbalance than Japan’s in the 1980s, before its long stagnation.    MUST ‘GUARANTEE’ GROWTH    Change is easier said than done.Chinese leaders have signalled their intention to boost domestic consumption many times in the past decade, without much follow-through.    Policymakers worry that large cash handouts would worsen wealth inequality, lower productivity and fan inflation risks, said the sources involved in internal policy discussions. Some economists also say any sales gains could be short-lived.    “The government prefers to invest and launch projects,” said Guo Tianyong at Beijing’s Central University of Finance and Economics.    Given such concerns, arguments for Beijing-funded consumer vouchers in excess of 1 trillion yuan made by influential academics such as Yao Yang, dean of the National School of Development at Peking University, or for bolstering China’s barely noticeable social safety net made by most advocates of a consumer-centric growth model, are losing ground. Advisers to Chinese policymakers worry that weakening demand in the West endangers manufacturing jobs. They argue that a range of industries, including emerging technologies such as AI, require support and that infrastructure spending needs to continue if youth unemployment is to be brought down from near-record levels.    “We must guarantee economic growth of above 5% this year. If economic growth revives, companies will have money and people will have jobs and incomes,” said an adviser to the Chinese cabinet.    The government is expected to widen its budget deficit to around 3% of GDP this year to accommodate those spending needs, policy insiders said, adding to overall debt in the economy.    Some analysts say pent-up demand during the pandemic may be enough for consumption to grow with little policy support. They point to new household savings reaching 17.8 trillion yuan last year, an increase of 7.9 trillion yuan from 2021.    But others warn that a large chunk of the rise may be explained by consumer’s safety-first reallocations into bank deposits and that many such deposits have long-term maturities.    “The increased household deposits in China are unlikely to be fully transmitted to private consumption,” ANZ economists wrote.    LEAVE IT TO LOCAL GOVERNMENTS    Consumption-boosting policies still have their place on the agenda, but they are likely to be local in nature and modest, government advisers said.     Several Chinese cities have already offered about 5 billion yuan in consumption vouchers and subsidies in total since December. The Jiangsu provincial government has pledged to subsidize shopping festivals, while other jurisdictions have promised to subsidize purchases of electric vehicles or senior care services, local media reported.    “Calls for issuing consumption vouchers and direct subsidies are growing, but we should let local governments to do the job based on local conditions,” said a third source close to policy discussions.($1 = 6.7440 Chinese yuan renminbi) More

LONDON (Reuters) – Proposals to reimburse hundreds of millions of pounds to scam victims in Britain are “fundamentally flawed” and are taking too long to come into force, lawmakers said in a report published on Monday.Banks will have to refund within 48 hours customers tricked into sending money to fraudsters under plans drawn up by watchdog the Payment Systems Regulator (PSR) unveiled in September.So-called “authorised push payment” scams have become Britain’s largest type of payment fraud and cost customers 583 million pounds ($715 million) in 2021.Lawmakers on Britain’s powerful Treasury Select Committee criticised the plans and said mandatory reimbursements should begin this year at the latest, and not as late as 2024.The PSR’s proposal for Pay.UK – which operates Britain’s faster payments system – to handle reimbursements would lead to “inherent conflict of interest” as it is guaranteed by the financial services industry, the committee added.”Putting an industry body in charge of reimbursing scam victims is like asking a fox to guard the henhouse,” said Harriett Baldwin, chair of the Treasury committee.The PSR said it would consider all feedback before publishing its final position in May this year, adding it regulated payment system operators including Pay.UK.A Pay.UK spokesperson said its bank guarantors did not influence its decision-making. “Our governance model is approved and supervised by the Bank of England and the PSR to ensure our independence,” the spokesperson added.Some of the banks that would be affected by the new rule include HSBC, NatWest, Lloyds (LON:LLOY), Barclays (LON:BARC), Santander (BME:SAN) UK and Virgin Money (LON:VM).Lenders have long said they should not pick up the full bill for online fraud and that tech platforms exploited by criminals to lure victims should also pay up.Bank lobby group UK Finance said a reimbursement model was necessary, but added “we need greater cross-sector action, including shared accountability for fraud prevention and reduction, to help tackle the threat at source.” ($1 = 0.8159 pounds) More

Rui Costa said on TV GloboNews that the announcement will be made on Feb. 14 in Bahia state as part of several trips by the leftist president until March to initiate programs that boost the economy and quickly benefit the population.The focus of the housing program, which means “my home, my life”, would be on the resumption of unfinished works and on one that involves greater government subsidy, Costa said.According to Costa, the program had been “extinct” under the administration of former President Jair Bolsonaro. Now, around 120,000 unfinished units will be resumed, he said. Created in 2009 during Lula’s second presidential term, the program offers federal subsidies for home ownership, boosting works carried out by homebuilders such as MRV and Tenda.Costa also said that the president would visit the state of Sergipe on Feb. 15 to resume a highways program. More