Aurelia Butler

“Right now that looks like what we’ll need,” Daly told reporters after a speech at Chapman University, saying she now expects to need to get rates up to 3.1%, her view of “neutral,” by year-end because the data suggests inflation has not peaked and households still have plenty of savings to spend.”If we get more tightening or a broader slowdown in the economy than I currently expect, then anything between 50 and 75 seems like a reasonable thing to consider,” she said. More

The European Central Bank will host a forum in Portugal, while a Chinese business activity survey and a closely followed U.S. inflation indicator will be among the data highlights. And Russia could be confirmed in default on external sovereign bonds for the first time in a century.Here’s your look at the week ahead in markets from Karin Strohecker, Sujata Rao and Dhara Ranasinghe in London, Ira Iosebashvili in New York and Tom Westbrook in Singapore. 1/ HALF THE PICTURESix months studded with rate rises, market turmoil and a war that fuelled runaway inflation are giving way to another half-year featuring … more of the same.Still, H2 may contain turning points, above all, peak inflation, which may be nearer than thought as economic growth slows and oil prices fall.Could recession signals temper central bank hawkishness? Markets expect U.S. rates doubling by year-end to 3.25% to 3.5%, and see euro zone rates rising to 0.75% from -0.5%.Still, stock markets, firmly in bear territory, may get a respite. History shows equities usually fall in the run-up to inflation peaking, then rally, Goldman Sachs (NYSE:GS) notes. But that also hinges on company profits. Double digit U.S. and European earnings growth is still projected for 2022.Finally, watch Japan and Turkey, central bank doves in a forest of hawks. The latter is at risk of triggering a serious crisis.GRAPHIC: Central bank rate hikes in developed economies (https://fingfx.thomsonreuters.com/gfx/mkt/zdvxoeqgqpx/THEME2306.PNG)2/ HEAD FOR THE MOUNTAINSThe Fed has Jackson Hole, but the ECB has Sintra, its very own central bank forum in the foothills of Portugal’s Sintra Mountains.The three-day shindig, starting Monday, will be especially interesting, given the biggest inflation surge in decades and worries of an imminent global economic recession.So, listen even more closely than usual to what ECB chief Christine Lagarde, Fed Chair Jerome Powell and Bank of England Governor Andrew Bailey say at the forum. ECB comments will also be scoured for any insight on a planned anti-fragmentation tool.Separately, Friday, July 1, will bring latest euro area inflation readings, which in turn could determine whether the ECB will deliver bigger interest rate hikes after a quarter-point move flagged for July.GRAPHIC: UK US EZ CPI (https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwboqlvo/UK%20US%20Euro%20CPI.PNG)3/ FLARING TENSIONSFour months into the war, tensions between Moscow and the West are ratcheting up again. EU leaders formally accepted Ukraine as a candidate to join the bloc, a bold geopolitical move triggered by Russia’s invasion of Ukraine.Meanwhile, Russian gas flows to Europe via Ukraine and the Nord Stream 1 pipeline have fallen, after the invasion and Europe’s moves to impose sanctions on Moscow. A dozen EU countries are affected and Germany has triggered the “alarm stage” of its emergency gas plan.Adding to concerns is a standoff over the Russian enclave of Kaliningrad, sparking fresh warnings from Moscow towards Baltic EU member states.And Russia could slip into sovereign default territory as the grace period for an interest payment on its international bonds runs out, possibly heralding the country’s biggest external default in more than a century.GRAPHIC: Timeline of key Western sanctions on Russian bond markets (https://fingfx.thomsonreuters.com/gfx/mkt/zdpxoeqwnvx/Pasted%20image%201655988897028.png)4/ DATA, THERE’S PLENTYFed chief Powell says the central bank is not trying to engineer a recession but is committed to containing price pressures even at the risk of a downturn.A raft of upcoming data should show how the U.S. economy is responding to an aggressive Fed, which has delivered 150 basis points worth of tightening this year, including this month’s 75 bps move.Highlights include Tuesday’s June consumer confidence index, which analysts polled by Reuters expect to fall to 100 from 106.4 in May.Monday’s pending home sales and Tuesday’s Case-Shiller home price index should show how much rising mortgage rates are biting, while the May personal consumption expenditures price index – an inflation indicator watched by the Fed – is due on Thursday.GRAPHIC: Consumer confidence (https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgebwbpb/Pasted%20image%201655938810148.png)5/ FLASH IN THE PANChina’s June factory activity figures on Thursday could offer a glimmer of hope to downbeat financial markets.Zero COVID lockdowns and a slowing global economy are knocking the wind out of commodities, pushing the growth-bellwether copper price almost 10% lower in two weeks in Shanghai. Iron ore too is on the skids and the red-dust miners in Australia have given up the year’s gains, dragging on the benchmark stock index there. That gloom might take some piercing. But lockdowns have eased and if the data shows economic momentum carrying output into growth territory, it would be a welcome signal for the economy and for those who see Chinese stocks as a haven from the stagflation fears gripping the West. GRAPHIC: Commodities tumble as China’s recovery path lengthens (https://fingfx.thomsonreuters.com/gfx/mkt/gkplgebqdvb/Pasted%20image%201655971895821.png) More

(Reuters) -A pair of U.S. central bankers said on Friday they supported further sharp interest rate hikes to stem rapid price rises, even as investors cheered economic data showing inflation expectations to be less worrisome than initially feared.Last week, the Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point – its biggest hike since 1994 – to a range of 1.50% to 1.75%, and signaled its policy rate would rise to 3.4% by the end of this year.Markets quickly priced in even more aggressive rate hikes, with interest-rate futures reflecting expectations for a policy rate of 3.5%-4% by year end. A stream of analysts and at least one former Fed policymaker raised the alarm on recession risks.But on Friday, fresh data from the University of Michigan showed longer-term inflation expectations had not broken above their recent range, as a preliminary reading out just before the Fed’s June policy-setting meeting had suggested.Fed Chair Jerome Powell had cited the initial read of 3.3% — a possible early warning that months of 8%-plus consumer price inflation were beginning to undermine public faith in the Fed’s ability to contain price pressures — as one reason policymakers supported the big rate increase in June.San Francisco Fed President Mary Daly on Friday said she would still have supported a 75 basis point hike in June even had she known the revised 3.1% figure. And she believes another 75 basis point interest rate hike will be needed next month, with further increases to follow to deal with prices pressures that in her view probably have not peaked.Daly’s remarks are particularly striking because she is not known as an especially hawkish policymaker. She said that by year end rates should get to 3.1%, her view of a neutral level, though if inflation worsens the Fed may need to do more.Speaking earlier in the day, St. Louis Fed President James Bullard said the Fed must “act forthrightly and aggressively to get inflation to turn around and get it under control,” repeating his call to frontload hikes to bring inflation down to the Fed’s 2% target. Bullard since last summer has been one of the Fed’s most vocal hawks.Both Daly and Bullard expressed confidence the Fed will be able to avoid recession, citing the strength of the labor market and economy’s momentum, helped by excess household savings that Daly said had not been spent down as quickly as she forecast. Interest rate futures traders pared their expectations for Fed rate hikes and though they continue to price in a 75-basis point hike in July, ended the day reflecting expectations for a year-end Fed policy rate of 3.4%, exactly what Fed policymakers’ own forecasts suggest.U.S. stocks ended the week up, with the S&P 500 Index marking its biggest one-day jump since May 2020. More

(Reuters) -The executive board of the International Monetary Fund on Friday completed the first review of its $44 billion Extended Fund Facility for Argentina, its managing director said.The approval allows for the disbursement of about $4 billion.Kristalina Georgieva said on Twitter (NYSE:TWTR) the approval marked the conclusion of an initial step under the program to support the country’s “ongoing economic recovery and strengthen stability.”A source familiar with the matter had previously confirmed the information to Reuters.In a statement, the IMF said that notwithstanding shocks such as inflation pressures and challenging fiscal and reserve accumulation goals, Argentine authorities have met “all end-March 2022 quantitative targets and have made progress toward implementing the structural commitments under the program.” It added that it maintained the end-year program objectives with some flexibility in the quarterly paths to accommodate those shocks.Also on Twitter, Argentine Economy Minister Martin Guzman said the country will continue to implement macroeconomic policies in order to strengthen growth with “job creation and stability.”The IMF announced on June 8 that it had reached a staff-level agreement on an updated macroeconomic framework with authorities in Argentina – the fund’s biggest debtor. It said at the time that “all quantitative program targets” for the first quarter of the year had been met.Argentine authorities did not immediately respond to requests for comment.On Tuesday, Argentina’s government approved two payments to the IMF for some $2.75 billion. More

LONDON (Reuters) -U.S. crypto firm Harmony said on Friday that thieves stole around $100 million worth of digital coins from one of its key products, the latest in a string of cyber heists on a sector long targeted by hackers. Harmony develops blockchains for so-called decentralised finance – peer-to-peer sites that offer loans and other services without the traditional gatekeepers such as banks – and non-fungible tokens.The California-based company said the heist hit its Horizon “bridge”, a tool for transferring crypto between different blockchains – the underlying software used by digital tokens such as bitcoin and ether.Thefts have long plagued companies in the crypto sector, with blockchain bridges increasingly targeted. Over $1 billion has been stolen from bridges so far in 2022, according to London-based blockchain analytics firm Elliptic.Harmony tweeted that it was “working with national authorities and forensic specialists to identify the culprit and retrieve the stolen funds”, without giving further details. In a statement, Harmony added that it had a global team “working around the clock to address the issue”.”We are currently narrowing down the potential attack vectors while working to identify the culprit,” a spokesperson said, adding that Harmony had already tried to contact the hacker via a transaction to their crypto wallet address. Elliptic, which tracks publicly visible blockchain data, said the hackers stole a number of different cryptocurrencies from Harmony, including ether, Tether, and USD Coin, which they later swapped for ether using so-called decentralised exchanges. In March, hackers stole around $615 million worth of cryptocurrency from Ronin Bridge, used to transfer crypto in and out of the game Axie Infinity. The United States linked North Korean hackers to the theft. More

Brenda McKinley has been selling homes in Ontario for more than two decades and even for a veteran, the past couple of years have been shocking.Prices in her patch south of Toronto rose as much as 50 per cent during the pandemic. “Houses were selling almost before we could get the sign on the lawn,” she said. “It was not unusual to have 15 to 30 offers . . . there was a feeding frenzy.”But in the past six weeks the market has flipped. McKinley estimates homes have shed 10 per cent of their value in the time it might take some buyers to complete their purchase.The phenomenon is not unique to Ontario nor the residential market. As central banks jack up interest rates to rein in runaway inflation, property investors, homeowners and commercial landlords around the world are all asking the same question: could a crash be coming?“There is a marked slowdown everywhere,” said Chris Brett, head of capital markets for Europe, the Middle East and Africa at property agency CBRE. “The change in cost of debt is having a big impact on all markets, across everything. I don’t think anything is immune . . . the speed has taken us all by surprise.”

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Listed property stocks, closely monitored by investors looking for clues about what might eventually happen to less liquid real assets, have tanked this year. The Dow Jones US Real Estate Index is down almost 25 per cent in the year to date. UK property stocks are down about 20 per cent over the same period, falling further and faster than their benchmark index.The number of commercial buyers actively hunting for assets across the US, Asia and Europe has fallen sharply from a pandemic peak of 3,395 in the fourth quarter of last year to just 1,602 in the second quarter of 2022, according to MSCI data. Pending deals in Europe have also dwindled, with €12bn in contract at the end of March against €17bn a year earlier, according to MSCI.Deals already in train are being renegotiated. “Everyone selling everything is being [price] chipped by prospective buyers, or else [buyers] are walking away,” said Ronald Dickerman, president of Madison International Realty, a private equity firm investing in property. “Anyone underwriting [a building] is having to reappraise . . . I cannot over-emphasise the amount of repricing going on in real estate at the moment.” The reason is simple. An investor willing to pay $100mn for a block of apartments two or three months ago could have taken a $60mn mortgage with borrowing costs of about 3 per cent. Today they might have to pay more than 5 per cent, wiping out any upside.The move up in rates means investors must either accept lower overall returns or push the seller to lower the price. “It’s not yet coming through in the agent data but there is a correction coming through, anecdotally,” said Justin Curlow, global head of research and strategy at Axa IM, one of the world’s largest asset managers.

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The question for property investors and owners is how widespread and deep any correction might be.During the pandemic, institutional investors played defence, betting on sectors supported by stable, long-term demand. The price of warehouses, blocks of rental apartments and offices equipped for life sciences businesses duly soared amid fierce competition. “All the big investors are singing from the same hymn sheet: they all want residential, urban logistics and high-quality offices; defensive assets,” said Tom Leahy, MSCI’s head of real assets research in Europe, the Middle East and Asia. “That’s the problem with real estate, you get a herd mentality.”With cash sloshing into tight corners of the property market, there is a danger that assets were mispriced, leaving little margin to erode as rates rise.For owners of “defensive” properties bought at the top of the market who now need to refinance, rate rises create the prospect of owners “paying more on the loan than they expect to earn on the property”, said Lea Overby, head of commercial mortgage-backed securities research at Barclays. Before the Federal Reserve started raising rates this year, Overby estimated, “Zero per cent of the market” was affected by so-called negative leverage. “We don’t know how much it is now, but anecdotally its fairly widespread.”Manus Clancy, a senior managing director at New York-based CMBS data provider Trepp, said that while values were unlikely to crater in the more defensive sectors, “there will be plenty of guys who say ‘wow we overpaid for this’.”“They thought they could increase rents 10 per cent a year for 10 years and expenses would be flat but the consumer is being whacked with inflation and they can’t pass on costs,” he added.If investments regarded as sure-fire just a few months ago look precarious; riskier bets now look toxic. A rise in ecommerce and the shift to hybrid work during the pandemic left owners of offices and shops exposed. Rising rates now threaten to topple them.A paper published this month, “Work from home and the office real estate apocalypse”, argued that the total value of New York’s offices would ultimately fall by almost a third — a cataclysm for owners including pension funds and the government bodies reliant on their tax revenues. “Our view is that the entire office stock is worth 30 per cent less than it was in 2019. That’s a $500bn hit,” said Stijn Van Nieuwerburgh, a professor or real estate and finance at Columbia University and one of the report’s authors.The decline has not yet registered “because there’s a very large segment of the office market — 80-85 per cent — which is not publicly listed, is very untransparent and where there’s been very little trade”, he added.But when older offices change hands, as funds come to the end of their lives or owners struggle to refinance, he expects the discounts to be severe. If values drop far enough, he foresees enough mortgage defaults to pose a systemic risk.

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“If your loan to value ratio is above 70 per cent and your value falls 30 per cent, your mortgage is underwater,” he said. “A lot of offices have more than 30 per cent mortgages.”According to Curlow, as much as 15 per cent is already being knocked off the value of US offices in final bids. “In the US office market you have a higher level of vacancy,” he said, adding that America “is ground zero for rates — it all started with the Fed”.UK office owners are also having to navigate changing working patterns and rising rates. Landlords with modern, energy-efficient blocks have so far fared relatively well. But rents on older buildings have been hit. Property consultancy Lambert Smith Hampton suggested this week that more than 25mn sq ft of UK office space could be surplus to requirements after a survey found 72 per cent of respondents were looking to cut back on office space at the earliest opportunity.Hopes have also been dashed that retail, the sector most out of favour with investors coming into the pandemic, might enjoy a recovery. Big UK investors including Landsec have bet on shopping centres in the past six months, hoping to catch rebounding trade as people return to physical stores. But inflation has knocked the recovery off course. “There was this hope that a lot of shopping centre owners had that there was a level in rents,” said Mike Prew, analyst at Jefferies. “But the rug has been pulled out from under them by the cost of living crisis.”

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As rates rise from ultra-low levels, so does the risk of a reversal in residential markets where they have been rising, from Canada and the US to Germany and New Zealand. Oxford Economics now expects prices to fall next year in those markets where they rose quickest in 2021.Numerous investors, analysts, agents and property owners told the Financial Times the risk of a downturn in property valuations had sharply increased in recent weeks.But few expect a crash as severe as that of 2008, in part because lending practices and risk appetite have moderated since then. “In general it feels like commercial real estate is set for a downturn. But we had some strong growth in Covid so there is some room for it to go sideways before impacting anything [in the wider economy],” said Overby. “Pre-2008, leverage was at 80 per cent and a lot of appraisals were fake. We are not there by a long shot.”According to the head of one big real estate fund, “there’s definitely stress in smaller pockets of the market but that’s not systemic. I don’t see a lot of people saying . . . ‘I’ve committed to a €2bn-€3bn acquisition using a bridge format’, as there were in 2007.”He added that while more than 20 companies looked precarious in the run-up to the financial crisis, this time there were perhaps now five. Dickerman, the private equity investor, believes the economy is poised for a long period of pain reminiscent of the 1970s that will tip real estate into a secular decline. But there will still be winning and losing bets because “there has never been a time investing in real estate when asset classes are so differentiated”. More