Aurelia Butler

LONDON (Reuters) – Investors’ expectations of global economic growth and corporate profits have tumbled to the lowest on record, Bofa’s monthly survey of global fund managers for July said on Tuesday, describing the picture as “full capitulation”BofA which polled investors overseeing $800 billion in assets said equity allocations had slumped to levels last seen in the 2008 global financial crisis, which was triggered by the collapse of the U.S. investment bank Lehman Brothers.They raised the share of uninvested cash in portfolios to above 6%, the highest in more than two decades, BofA said, adding the survey showed a “dire level of investor pessimism”. The poll was conducted July 8-15, just after U.S. shares posted the worst first-half decline since 1970. They are now down almost 20% in the year so far.Recent data showed rapidly cooling economic growth with stubbornly high inflation despite steadily rising interest rates and a 150 basis-point increase in U.S. 10-year borrowing costs.The rate rises and global growth pessimism have lifted the U.S. dollar to its highest levels in two decades. The survey found dollar positioning was the most crowded trade in July.Recession fears, now at levels last seen in May 2020, were prompting fund managers to reassess expectations for price growth. Three-quarters of those surveyed saw inflation slowing in the next 12 months and did not predict higher bond yields.With an eye on slowing economic growth, funds cut allocation to bank shares by 16 percentage points month on month, going underweight in the sector for the first time since October 2020.Half of the investors said they would prefer companies to shore up balance sheets, rather than spend more capital or return cash to shareholders.But Bofa said the survey indicated its Bull/Bear indicator was now at “max bearish”, suggesting a turnaround might be on the cards. “Sentiment says stocks/credit rally in coming weeks,” it added. GRAPHIC: Profit optimism https://fingfx.thomsonreuters.com/gfx/mkt/gkplgyjlwvb/Pasted%20image%201658233037400.png More

Governor Godwin Emefiele said a previous 150 basis points rate increase in May had not permeated enough in the economy to halt rising inflation, which came in at 18.6% in June, its highest level in more than five years.Emefiele said all members of the 11-member monetary policy committee (MPC) voted for rates to rise at the latest meeting, although they differed over the size of the increase. Six MPC members, a majority, voted for a 100 basis point increase.”Members were unanimous that given the aggressive increase in inflation, coupled with the resultant negative consequences particularly on (the) purchasing power of the poor, … there is a need to continue to tighten (policy)” said Emefiele.”However the policy dilemma was hinged around the level of tightening needed to rein in inflation without dampening manufacturing output, which could result from the higher cost of borrowing.”Emefiele said if inflation continued on an upward trajectory the bank would continue with its tightening policy.The country’s naira currency was quoted at a new record low on the black market after the rate decision was announced, traders said.Inflation in Nigeria is being driven by rising prices of staples like bread, rice and maize and the cost of diesel, which is widely used to generate power. More

Housing starts fell 2% to a seasonally adjusted annual rate of 1.559 million units last month, the lowest level since September 2021, the Commerce Department said on Tuesday. Data for May was revised higher to a rate of 1.591 million units from the previously reported 1.549 million units.Economists polled by Reuters had forecast starts would come in at a rate of 1.580 million units. Permits for future homebuilding fell 0.6% to a rate of 1.685 million units. The housing market is very sensitive to interest rates, and, with the Federal Reserve lifting rates aggressively to blunt inflation running at its highest in four decades, the market has softened notably this year. The average contract rate on a 30-year fixed-rate mortgage climbed to nearly 6% in June, up from about 3.3% at the start of the year, which has put home purchases out of reach for a growing number of prospective buyers, particularly first-time purchasers.While it is unclear how much higher mortgage rates will climb, it’s almost certain they will remain high for some time with the Fed set to raise interest rates again at its meeting next week and more hikes to come through the end of the year. An Oxford Economics index out last week showed homes were the least affordable in the first quarter of 2022 at any time since the 2007-2009 financial crisis, and it forecast that picture would worsen through the rest of this year. Meanwhile, a survey out on Monday showed the National Association of Home Builders/Wells Fargo Housing Market Index suffering its second-largest drop on record in July, with a gauge of prospective buyer traffic falling below the break-even level of 50 for a second straight month. More

Inflation in Turkey has soared in the wake of a December currency crisis that was caused by a series of unorthodox interest rate cuts, and which ended up stripping 44% off the lira’s value against the dollar last year. Annual price rises neared 80% last month, a 24-year-high, due to the monetary easing, currency depreciation and the spike in global commodity prices following Russia’s invasion of Ukraine. Annual inflation is expected to climb further to 84.7% at the end of the third quarter, based on the median estimate, before starting to descend due to so-called base effects from the previous year, the Reuters poll showed. President Tayyip Erdogan has said the inflation burden on households will ease around the end of first quarter of 2023. But the median estimate in the poll showed it slipping only to 50.8% in that period. By the end of the second quarter – when presidential and parliamentary elections are due – inflation is seen at 42.3%.Inflation was seen dipping to 34.4% by the end of 2023, and to 20.0% a year later, according to the poll.Despite the soaring costs of living, the central bank is seen holding its policy rate at the current 14% until the end of next year at least, the poll showed. That would be in line with the government’s programme that prioritises low rates to boost credits and exports.Some economists in the poll saw the central bank changing direction and hiking its policy rate despite pressure from Erdogan for monetary stimulus.Tera Yatirim’s Chief Economist Enver Erkan said the bank would continue pursuing loose policy at a time when central banks around the world are getting tighter in their fight against inflation.”We do not expect any action from the Central Bank for a while, and we foresee a policy expansion in line with the growth-oriented targets of the economy management for at least one more quarter,” Erkan said.Erdogan’s economic programme stresses exports and credit to fuel growth, despite widespread criticism of the policy from economists and opposition lawmakers. Opinion polls show the economic strain is hurting his support. Turkey’s economy meanwhile bounced back from the COVID-19 pandemic to grow 11% last year, its highest rate in a decade. But it has already slowed and should continue to do so, economists say.The median estimate of 36 economists for gross domestic product (GDP) growth in 2022 was 3.3%, compared to 3.0% in the previous poll. The medians for 2023 and 2024 were 3.2% and 3.0% respectively.The economic programme aims to ease Turkey’s chronic current account deficits with rising exports, but surging energy import prices have more than offset that. Economists have revised up their estimate for the current account deficit this year to a median 5.5% of GDP in this month’s poll, compared to 4.4% in an April poll. They see it at 3.5% in 2023, from 2.8% previously.(For other stories from the Reuters global long-term economic outlook polls package:) (Polling by Milounee Purohit and Vijayalakshmi Srinivasan; Writing by Ezgi Erkoyun; Editing by Jonathan Spicer) More