Aurelia Butler

Christine Lagarde warned financial markets on Thursday that the European Central Bank was determined to “stay the course” and signalled further big interest rate rises lay ahead to get inflation down.In comments that bolstered the euro, the ECB president told the World Economic Forum in Davos that markets should ditch their view that the central bank would soon slow down its rate rises in response to signs that eurozone inflation has peaked. “I would invite [financial markets] to revise their position; they would be well advised to do so,” she told a panel. The euro rose 0.2 per cent against the dollar immediately after Lagarde’s hawkish remarks, trading at $1.0821. Eurozone governments’ borrowing costs also increased. Rate setters on the governing council next meet on February 2, when they are expected to raise the ECB’s benchmark deposit rate by 50 basis points to 2.5 per cent. Lagarde’s remarks raise the chances of another 50bp increase at the council’s following meeting in March. Silvia Dall’Angelo, a senior economist at Federated Hermes, an investment manager, said: “In the short term, the ECB’s path is set and rates will increase further in coming months.” The ECB raised interest rates by a total of 2.5 percentage points last year to combat a surge in prices in which inflation reached an all-time high of 10.6 per cent in October. However, eurozone rates remain lower than US and UK borrowing costs. Markets increasingly think US interest rates are approaching their peak and that the Federal Reserve will shift from half-point to quarter-point rate rises in the coming months. Such expectations of smaller rate increases in the US have led to speculation that rate-setters elsewhere could follow suit. However, Krishna Guha, of research firm Evercore ISI, said that the ECB was “earlier in the tightening cycle than the Fed” and that its “default path” was to continue with half-point moves at both the February and March meetings. Lagarde added that headline, core and all other measures of inflation were still a concern at the central bank in Frankfurt. “Inflation, by all accounts, is way too high,” she said. Headline inflation has fallen in recent months, but the core measure — which excludes movements in food and energy prices and is seen as a better measure of underlying price pressures — rose in the year to December to 5.2 per cent, from 5 per cent the previous month. “It will take several months before core inflation eases to levels that make the ECB more comfortable,” said Frederik Ducrozet, economist at Pictet Wealth Management. “Virtually all ECB officials appear to be united in their fight against inflation, doves and hawks alike.”Lagarde said interest rates would need to be “in restrictive territory” for long enough to ensure that inflation was brought back down to the bank’s target of 2 per cent in “a timely manner”. Her comments came as Italian government bonds sold off during the day, with the yield on the country’s 10-year note rising 0.09 percentage points to 3.83 per cent. Bond yields move inversely to prices and tend to rise on expectations of higher interest rates.The sell-off extended to other eurozone debt: the yield on the two-year German government bond rose earlier in the day, reaching 0.06 percentage points higher at 2.51 per cent by late morning. The regional Stoxx Europe 600 fell 1.3 per cent, with all sectors in negative territory. Germany’s Dax and France’s Cac 40 both lost 1.4 per cent.Lagarde added that the eurozone’s resilient jobs market could lead to higher wages.“The job market in Europe has never been as vibrant as it is now,” she said. “The unemployment number is at rock bottom compared with what we’ve had in the last 20 years. And the participation rate, which matters as well, is also [at a] very, very high level and that is pretty much homogeneous throughout the euro area.”The ECB head said she was pleased with improved signals from the eurozone economy. “The news has been much more positive over the past few weeks,” she said. “It will not be a brilliant year [in 2023], but a lot better than feared.” More

China is speeding up the process of granting permissions to foreign institutions in a move to boost confidence among overseas investors as part of efforts to revive its economy battered by the stringent COVID measures, which ended last month. JPMorgan’s asset management arm will be allowed to take full ownership of China International Fund Management Co. (CIFM), in which it holds a 49% stake, the China Securities Regulatory Commission said.The approval came more than two years after the U.S. bank had applied to buy out CIFM in 2020. “Symbolically it’s very important, given both the size of the deal, and also the fact that China is meant to be one of JPMorgan’s primary growth engines moving forward,” said Peter Alexander, managing director of fund consultancy Z-Ben Advisors, which estimates the deal to be worth around $1 billion. JPMorgan had no immediate comment. British bank Standard Chartered won an approval to set up a new securities brokerage unit in China also on Thursday, the regulator said. Chinese regulators and government officials were preoccupied with the zero-COVID policy in 2022, and preparation for October’s 20th Communist Party Congress, but approvals granted to foreign institutions have recently picked up pace, Alexander said. The CSRC gave a green light to Schroders (LON:SDR) late on Friday, allowing the British asset manager to expand its footprint in China by setting up a mutual fund unit. Canada’s Manulife Financial (NYSE:MFC) Corp in November received regulatory approval to take full control of its Chinese mutual fund venture.U.S. asset manager Neuberger Berman in the same month won approval to set up a new fund unit in China. “China is certainly going to be bit of a long slog,” Alexander said, referring to China’s lengthy approval process for foreign companies. “But that does not mean that the opportunity itself is not ever present,” he said. (This story has been refiled to remove the extra space in the headline) More

P&G, like other consumer goods companies, has implemented multiple price increases over the last few months to cover soaring transportation, commodity and labor costs, as well as the impact of a stronger U.S. dollar on its overseas revenue.While the price hikes have been met with less pushback compared to those in discretionary products that customers have largely shunned, sales volumes for P&G have still dipped. The company reported a 6% fall in second-quarter overall volumes.Average prices across its product categories, which include brands such as Gillette and Pampers, rose 10% in the second quarter ended Dec. 31.The company said it expects fiscal 2023 total sales to range between flat and a 1% drop, compared with its previous forecast of a 1% to 3% fall, but maintained its annual earnings forecast of flat to up 4%, citing elevated commodity costs.The company’s shares fell about 1% to $143.93 in premarket trading. P&G said net sales fell 1% to $20.77 billion in the reported quarter, compared with analysts’ average estimate of $20.73 billion, according to IBES data from Refinitiv.The company’s earnings per share of $1.59 was in line with analysts’ average estimate. More

U.S. Treasury Secretary Janet Yellen and others have used the term to encourage countries to diversify supply chains away from China to market-oriented democracies such as India.Speaking on the sidelines of the World Economic Forum in Davos, Okonjo-Iweala urged caution, citing the need to explore trade opportunities more widely with those countries and regions that until now have been left on the margins of world trade.”Who is a friend? You’re not too sure they’ll be a friend tomorrow, we’ve seen examples of that,” she told Reuters.”Friends should not just be in Asia, there is Latin America, there is Africa. There are countries there that are places where you can perfectly de-concentrate manufacturing. You bring them into the supply chain and that way you also include them.”The Ukraine war has prompted a hasty exit from Russia of the Western firms who for years – with the support of their governments – saw it as a lucrative market. Similar aspirations for China have also cooled amid human rights and other concerns. Okonjo-Iweala has acknowledged that the WTO in its current form need to reform its processes and institutions to make sure it can effectively promote free trade. But she called on trade blocs not to abandon the WTO and its rules-based system.”Don’t throw the baby out with the bathwater,” she said. “If you do it outside, you are in for a free-for-all and I don’t think that would be for the benefit for anyone.” More