Aurelia Butler

TOKYO (Reuters) – The dollar languished near a six-week low to the yen amid a sharp retreat in Treasury yields after investors interpreted a shrinking U.S. economy as one more reason for the Federal Reserve to ease its foot off the tightening pedal.U.S. second-quarter gross domestic product (GDP) contracted at a 0.9% annualized rate, according to the Commerce Department’s advance estimate, released Thursday. That followed a first-quarter contraction of 1.6%.Money markets currently give 76% odds that the Fed will slow the pace of rate hikes to half a point at the next meeting in September, against a 14% probability for a third consecutive 75 basis-point increase.The dollar traded at 134.39 yen, bouncing 0.13% after an overnight plunge of 1.74%, the most since March 2020. It touched a low of 134.2 on Thursday, the weakest since June 17.Long-term Treasury yields held around 2.67% on Friday in Tokyo, following a three-day decline.The dollar index, which measures the currency against six top counterparts, edged 0.03% higher to 106.25, after dipping to a more than three-week low of 106.05 on Thursday, when it notched a 0.28% decline.”Lower yields and positive risk sentiment is (a) tried and trusted recipe for a softer USD,” although that weakness has been “flattered” by an outsized rally in the yen, Ray Attrill, the head of FX strategy at National Australia Bank (OTC:NABZY) in Sydney, wrote in a client note.He warned, like many analysts have this week, that the market’s “conclusion that the Fed has lost some of its hawkishness (is) debatable.”The GDP data came a day after the Fed raised rates by an as-expected 75 basis points and committed to not flinch in its battle against the most intense U.S. inflation since the 1980s, even if that means a “sustained period” of economic weakness and a slowing jobs market.Fed Chair Jerome Powell said on Wednesday he did not think the United States was in a recession, based on the strength of the jobs market.Two consecutive contractionary quarters are widely viewed by economists as signalling a technical recession. In the U.S., though, the National Bureau of Economic Research is the arbiter of recessions, which it defines as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.”Meanwhile, the euro was flat at $1.01945 after a see-saw session on Thursday that ultimately ended with it little changed.Europe is facing its own recession risks amid an ongoing energy crisis. The International Monetary Fund has warned that if Russia, which reduced gas delivery to Europe this week, completely cuts off supplies by year-end, the region could face zero economic growth next year.Sterling was off 0.09% at $1.21725, easing back from its Thursday high of $1.21915, the strongest since June 29.Aussie slipped 0.09% to $0.69985, pulling away from the highest since June 17 at $0.70135, reached Thursday.Bitcoin was about flat around $23,851, following a two-day rally. A push above $24,280.30 would take it to the highest since June 13. More

BUENOS AIRES (Reuters) – Argentine President Alberto Fernandez launched his latest effort to tackle an economy in crisis on Thursday, tapping one of the ruling coalition’s most powerful figures to lead a new “superministry” on the same day the central bank hiked interest rates to 60%.Fernandez picked politician Sergio Massa for the new role overseeing economic, manufacturing and agricultural policy. Massa currently heads the lower house of Congress for the ruling Peronist coalition.The ministerial shake up, which moves current Economy Minister Silvina Batakis to lead state-run lender Banco Nacion, comes less than a month after her predecessor abruptly resigned.The changes point to tensions between different wings of the center-left ruling coalition over how to tackle the worsening price spiral for consumers, huge government debt obligations, and a peso currency that last week hit historic lows.Once Massa resigns his congressional leadership post, he will assume the newly created role, which is expected to happen after a special legislative session set for next Tuesday.The government announced Massa’s new job only hours after the central bank raised its benchmark Leliq interest rate by eight percentage points to 60%, in its seventh hike this year.The move continues the monetary authority’s so far futile push to tame surging inflation, which analysts speculate could exceed 80% by the end of this year.Prior to Fernandez’s cabinet changes, the beleaguered peso currency strengthened around 5% in the parallel black market, to trade at 311 pesos per U.S. dollar, according to private traders. Last week, the peso weakened to as much as 350 per greenback.Analysts offered mixed takes on the president’s attempt to turn the page on weeks of economic turmoil, citing persistent imbalances fueled by raging consumer prices plus an exchange rate gap between the parallel and tightly controlled official rate, which has climbed above 150% this month.”The policy response can well be characterized as a Band-Aid effort, lacking the required consistency and breadth to stabilize the economy,” J.P. Morgan said in a research memo after Massa’s appointment.It added that fresh economic stewardship must be able to better coordinate political support for sound fiscal policies. In what could be taken as a note of optimism, the bank’s Latin America market researchers noted that the incoming minister with a greatly expanded portfolio “may offer that coordination ability, amplified with political savviness.” More

TOKYO (Reuters) -Bank of Japan (BOJ) policymakers debated the chance of a global economic slowdown, including a U.S. recession caused by the Federal Reserve’s aggressive monetary tightening, a summary of opinions at their July policy meeting showed on Friday.While many board members projected Japan’s economy to keep recovering, some saw risks such as a renewed spike in COVID-19 infection cases and uncertainty over the global outlook.”Monetary tightening by overseas central banks and a prolonged shortage of semicondoctors are among factors weighing on the global economy,” one member was quoted as saying.”As European and U.S. central banks tighten monetary policy, we must be vigilant to risks that could affect Japan’s economy including the chance of the U.S. economy falling into recession,” another opinion showed.Fears of a U.S. recession are beginning to emerge as a talking point among Japanese policymakers as a real risk that could affect their policy decisions.At the July meeting, the BOJ kept monetary policy ultra-loose to support a fragile economic recovery, a contrast to many other central banks that are raising interest rates to combat surging inflation.”Risks to Japan’s economic outlook are skewed to the downside, particularly regarding a resurgence of COVID-19 at home and abroad, prolonged supply-side constraints, and falling asset prices reflecting monetary tightening in major economies,” one board member was quoted as saying in the summary.The Fed raised interest rates by a widely expected 75 basis points on Wednesday, while its chair Jerome Powell said a recession was not necessarily required to tame inflation.The U.S. economy shrank for a second straight quarter, data released on Thursday showed, amplifying an ongoing debate over whether the country is, or will soon be, in recession. More

TOKYO (Reuters) – Japan’s factories ramped up output at the fastest pace in more than nine years in June as disruptions due to China’s COVID-19 curbs eased, a welcome sign for policymakers hoping the economic outlook will improve.Separate data showed retail sales rose for the fourth straight month in June, supporting the view that rising consumption helped the economy return to growth in the second quarter after contracting in January-March.Factory output surged a seasonally adjusted 8.9% in June from a month earlier, posting the biggest one-month rise since comparable data became available in February 2013, official data showed on Friday.The advance was largely due to the lifting of a strict COVID lockdown in Shanghai, which gave a tailwind to Japanese output of motor vehicles, electrical machinery and electronic parts and devices.”A huge 14.0% month-on-month rebound in car production drove the increase as parts shortages resulting from the Shanghai lockdown eased,” said Marcel Thieliant, senior Japan economist at Capital Economics.While the advance was bigger than a 3.7% gain expected by economists in a Reuters poll, a government official said downside risks for output remained as parts supply delays lingered.The data comes after Toyota Motor (NYSE:TM) Corp said on it produced 793,378 vehicles globally in June, slightly above a target it had cut twice and capping a quarter that saw the company slip 9.8% behind its production plan.The world’s largest automaker by sales has struggled to meet its global production goals in recent months due to chip shortages and disruptions caused by the lockdowns in China.The government upgraded its assessment of industrial production, saying it was moving back and forth.Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to extend its recovery by 3.8% in July and 6.0% in August.Separate data showed retail sales were weaker than expected, but still posted their fourth straight month of gains, rising 1.5% in June from a year earlier. That compared to a median forecast for a 2.8% gain in a Reuters poll.Tokyo’s core consumer prices, which exclude volatile fresh food but includes energy costs, rose 2.3% in July from a year earlier, overshooting the Bank of Japan’s inflation target for a second month.The jobless rate, meanwhile, stood at 2.6% in June, unchanged from the previous month, while an index gauging job availability was 1.27 in June, slightly higher than 1.24 in May. More

Japanese foreign minister Yoshimasa Hayashi and trade minister Koichi Hagiuda will meet U.S. Secretary of State Antony Blinken and Commerce Secretary Gina Raimondo in Washington D.C. for the first round of economic “two plus two” talks on Friday, with supply chain security expected to be a major topic.A joint research and development centre will be set up in Japan by the end of this year to research 2-nanometer semiconductor chips, the Nikkei Shimbun said. The centre will include a prototype production line and should begin producing semiconductors by 2025, it added. The agreement to set up the centre will be included in a statement to be issued after the meeting. Taiwan now makes a vast majority of semiconductors under 10-nanometers, used in products such as smart phones, and there is concern about stability of supply should trouble arise involving Taiwan and China, which views the island as a renegade province. Tokyo University and RIKEN, a semi-governmental research institute, will be among the groups taking part in the new centre, with companies also likely to be invited to participate, the Nikkei added.The new technology will later be offered to companies in Japan as well as in nations such as South Korea and Taiwan, it said. More

President Alberto Fernández has appointed the influential leader of Argentina’s lower house to spearhead a new economic “super ministry” in an attempt to rescue his government and regain market confidence as fears of a full-blown economic crisis worsen.Sergio Massa, the Peronist leader of the lower house of congress, will be in charge of a ministry that oversees economic, manufacturing and agricultural policy, the government announced on Thursday.He is the third person to take charge of the Argentine economy in less than a month. He replaces Silvina Batakis who was sworn in on July 4, taking over from Martín Guzmán, who quit unexpectedly amid a split in the ruling coalition government over what direction economic policy should take.As part of his role Massa will also lead Argentina’s $44bn restructuring deal with the IMF, as well as negotiations with other international lenders, the government said.Batakis, who has just returned from Washington where she met with IMF officials earlier this week, is due to stay on in the government as head of the state-owned Banco Nación, according to officials.Speculation in recent days of a cabinet shake-up had brought some relief to markets amid signs that Massa, who is considered a more moderate member of the governing coalition, could be granted sweeping powers to introduce much-needed reforms to help bring down inflation and avert a crisis.Argentine bond prices rallied on Thursday, with dollar bonds due in 2030 climbing to over 23 cents on the dollar, their highest level since Guzmán resigned at the beginning of July.The president’s decision to create the ministry comes as confidence in his government’s ability to deal with the fast-deteriorating economy has collapsed.Despite Batakis’s pledges to stick to IMF commitments and restore “order and balance”, investors and the public worried she lacked the political support to turn the economy round.Savers in Argentina have been racing to swap their pesos for currencies such as the US dollar, as fears of a possible devaluation pushed the black market exchange rate to record lows in July. Sovereign bonds are trading in distressed territory, and inflation is forecast to exceed 90 per cent this year.Massa has reportedly insisted on having a level of control over the finance ministry and energy ministry as conditions for accepting the job that would allow cuts to energy bill subsidies and other tougher policy changes to be pushed through, according to local media. These are the same conditions, analysts say, which former economy minister Guzmán failed to secure and which led to his resignation earlier this month.

As a lawyer who served as a cabinet chief under Cristina Fernández de Kirchner, the current vice-president and former president, analysts say Massa could be better placed than his two predecessors when negotiating with different members of the coalition as well as the opposition.Kirchner leads the more radical bloc of the leftwing coalition and believes the Peronists should spend more to shield voters from rising inflation ahead of the 2023 presidential race. An open split between her and the president over how to reconcile the economy has intensified in recent months and spurred a number of senior resignations.Argentine economist Eduardo Levy Yeyati said the appointment of Massa was “the president’s last playing card” as a figure who may give some reassurance to investors. However, if it does not end up working, the Fernández government will be left with no other options, he added. More

BENGALURU (Reuters) – Australia’s central bank will deliver its third consecutive half-point interest rate hike on Tuesday and another in September, playing catch-up with peers in a campaign to contain surging inflation, a Reuters poll of economists found.With inflation speeding to a 21-year high of 6.1% last quarter and expected to climb higher as food and energy costs surge, analysts say the Reserve Bank of Australia has work to do to get inflation back to its preferred 2-3% range.One of the last major central banks to join a global monetary policy-tightening cycle, the RBA was forecast to raise the cash rate by 50 basis points to 1.85% at its Aug. 2 meeting, according to 32 of 34 economists surveyed July 22-28.This would be the first time the RBA has raised rates by half a percentage point at three consecutive meetings since the introduction of the cash rate in 1990. The remaining two economists expected an even bigger hike, of 65 or 75 basis points.”Inflation clearly is running hot. This should keep the pressure on the RBA to continue to move quickly towards a more neutral setting of policy,” said Taylor Nugent, economist at NAB who sees the RBA moving by 50 bps in August and September.”There is a clear broadening out of inflation into services amid the tight domestic labour market backdrop, pointing to the risk the RBA feels compelled to move policy more explicitly into restrictive territory.”All four major local banks – ANZ, Westpac, CBA and NAB – were expecting a 50-basis-point hike on Tuesday.The RBA is then expected to deliver a fourth consecutive 50 basis point hike at the September meeting. CASH RATE RISEA majority, 19 of 31 economists who had a long-term view on rates, now expect the cash rate to reach 2.35% or higher by end-September, not year-end as forecast in the previous poll.Further interest rate rises are seen on the way, with rates reaching 2.85% by end-2022, up 50 basis points from the previous survey. This would bring it above the estimated neutral rate, which neither stimulates nor restricts the economy, of 2.50%.More than half of respondents – 14 of 25 – who had forecasts until the end of next year saw rates hitting 3.00% or higher. Money market traders are betting on rates going above that by the end of this year.These expectations for a series of faster rate hikes come at a time when the RBA faces the first independent inquiry into its operations since the 1990s, amid criticism of its inflation and policy forecasting.The Reserve Bank of New Zealand has come under similar criticism, but it started its rate hiking campaign last year.Other central bank peers, the Bank of Canada and the U.S. Federal Reserve, delivered 100 and 75 basis point moves at their latest meetings. Some analysts say the RBA has been moving too slowly.”The RBNZ, BoC and the Fed will soon have cash rates around neutral-to-slightly restrictive levels, roughly around 2.5% on average. The RBA, with a cash rate of 1.35%, is the ‘odd one out’ and has plenty of work to do,” said Andrew Ticehurst, senior economist at Nomura. More