Aurelia Butler

PRAGUE (Reuters) – The Polish zloty should lead gains among central European currencies over the next 12 months as it plays catch-up with its peers, a Reuters poll showed on Thursday, although the start of U.S. Fed rate hikes will take some shine off the region.Expectations of rising U.S. interest rates and a strengthening dollar should continue to drag on central Europe now the Federal Reserve has flagged a March interest rate rise.But with policy tightening already underway in central Europe, currencies have started 2022 with gains, led by a hefty 3.9% rise in the Hungarian forint and 2.4% increase in the Czech crown, as of Tuesday’s close.The zloty, up only half a percent to begin the year, will appreciate with an expected 1.7% rise over Tuesday’s close, firming to 4.495 to the euro in a year’s time.”Generally all the currencies should benefit from tightening of local monetary policy,” said Krystian Jaworski, senior economist at Credit Agricole (OTC:CRARY) in Warsaw.”Still, the intensifying market expectations of tightening by the Fed and European Central Bank will limit the room for significant appreciation.”The National Bank of Poland, battling inflation that is already at a more than two-decade high of 8.6%, has lifted its main rate by 215 basis points to 2.25% since October. More hikes are expected. Similarly, the Czech National Bank, the region’s most aggressive in policy tightening amid the prices spike, meets on Thursday and analysts forecast a 75 basis point hike to the main rate, putting it above 4% for the first time in 20 years. But rates should soon peak and the poll saw the crown, which hit its highest since 2011 in January, easing 2.1% to 24.8 to the euro in the coming year, a similar forecast to a poll month ago.Hungary’s forint should reach stronger ground in the coming 12 months after short-term easing in the first quarter. Analysts see the forint at 353.50 to the euro in a year, a 0.5% rise.”No matter how strong the (central bank’s) push to bring down inflation, the market’s focus could easily wander to the upcoming risk events, creating some short-term selling pressure,” ING said, mentioning Budapest’s disputes with the European Union and an upcoming April election.In Romania, the leu, a laggard in the region due to budget and political uncertainties while its central bank has been less aggressive in policy tightening, was forecast to ease to 5.00 to the euro, 1.1% down from Tuesday’s close. (For other stories from the February Reuters foreign exchange poll:) More

If you were hoping for calm before Thursday’s Bank of England and European Central Bank meetings, forget it.U.S. stock futures are down sharply in early London trade — Nasdaq futures are sliding 2% with tech stocks globally in the doldrums.Facebook (NASDAQ:FB) owner Meta Platforms Inc’s shares plunged more than late on Wednesday after posting weaker-than-expected forecasts. In Japan, Sony (NYSE:SONY) and Panasonic (OTC:PCRFY) shares fell over 6%, while stock futures point to a weak open in Europe.That’s all before the BoE looks set to hike its key rate 25 basis points to 0.5% — the threshold at which it has said it will start unwinding its 895 billion pound ($1.2 trillion) quantitative easing programme.For some, markets are underestimating the risks of so called quantitative tightening, QT for short. Others note the BoE’s ability to surprise, noting November when markets were positioned for a rate hike and the BoE left rates unchanged and then December, when markets expected no move and the BoE hiked.The takeaway? The BoE’s decision at 1200 GMT may not bring what we all expect. The ECB meanwhile is not expected to change policy on Thursday. But ECB President Christine Lagarde may have to acknowledge that inflation could stay high for longer than it had projected, a signal that may be taken by some as a hint at a faster exit from stimulus.Data on Wednesday showed a 5.1% January inflation print, the highest ever for the euro zone.Markets price 30 bps of tightening by year-end; the ECB insists a move in 2022 is unlikely. If Lagarde admits price pressures have been underestimated, rate-hike bets could be bought forward, triggering an unwanted tightening of financing conditions.Meanwhile data out this morning showed that Turkey’s annual inflation soared to near-50% and producer prices to more than 90%, heaping fresh pressure on the lira.Oh yes, let the fun begin.Key developments that should provide more direction to markets on Thursday: – Nordea Q4 net profit beats forecast.- ING reports Q4 pretax profit up 27% to 1.33 billion euros- Turkish president Erdogan visits Ukraine- Services PMI everywhere, US factory orders/ISM non-manufacturing PMs/weekly jobless claims- US earnings: Alibaba (NYSE:BABA), Eli Lilly (NYSE:LLY), Merck, Honeywell (NASDAQ:HON), Estee Lauder (NYSE:EL), Hersheys, Lazard (NYSE:LAZ), Cardinal Health (NYSE:CAH), ConocoPhillips (NYSE:COP), Amazon (NASDAQ:AMZN), Ford, Activision, News Corp (NASDAQ:NWSA), – European earnings: Intesa Sanpaolo (OTC:ISNPY), Dassault, BBVA (MC:BBVA), Shell (LON:RDSa), Danske Bank, BT, Compass Group (LON:CPG), Skanske, ING, Roche, Nokia (NYSE:NOK), Nordea- Emerging markets: Egypt, Czech central bank meeting GRAPHIC: Bank of England set to raise rates again, https://fingfx.thomsonreuters.com/gfx/mkt/gkplgjlmzvb/BoE0302.PNG More

The writer is co-chief investment officer for Bridgewater AssociatesAs economies continue their transition from an adrenaline-fuelled lift-off to more self-sustaining growth, policymakers will increasingly be confronted with choices as challenging as any since the 1970s.The monetary and fiscal stimulation that was applied during the pandemic and earlier in the US and most developed economies boosted incomes, filled wealth gaps and raised household wealth. Importantly, the spending that resulted from this is measured in nominal terms before taking into account inflation. That is connected to the nominal flow of credit that initially came from the expansion of government credit, financed by printing money. How that nominal spending divides between real gross domestic product and inflation depends on the quantity produced.To date, production cannot meet this high level of nominal demand or expand quickly enough. As a result, the very high level of nominal spending is producing a lot of inflation, which is seeping into the cost of living and wages and the need for pay to keep up. In other words, a self-reinforcing inflation cycle is building. We are now facing the greatest potential for a sustained rise in inflation in decades.These conditions will require a policy transition. It is clear that policymakers now realise this, but it is not clear how aggressive their moves will be. Given the circumstances, odds favour them moving too little and too slowly.The pandemic and near-zero interest rates make their choices especially difficult. With Covid-19 and the risk of new variants constantly in the background, there will be continued questions about whether rising inflationary pressures will persist as well as ongoing uncertainty about the effects of the pandemic on economic growth.These questions will be compounded by the asymmetric ability of central banks to tighten versus ease. Policymakers have a full arsenal of policies to tighten. But with nominal rates near secular lows and asset prices high, they have only one form of policy to stimulate — money printing co-ordinated with fiscal expansion. That lever is now less available because rising inflation is causing political resistance to further action. And with the politics of government spending now increasingly fraught, if the US Federal Reserve overtightens, it may even do so into a time of fiscal drag instead of stimulus. Finally, the Fed will be worried about the sensitivity of the economy to rising rates after it was forced to quickly reverse course after the 2018 tightening. Taken together, this set of circumstances incentivises the Fed to stay looser for longer on monetary policy, which leaves room for a more entrenched inflation cycle.While the Fed and other central banks are probably concerned about heightened sensitivity to tightening, there is a reasonable probability that the economy may actually be less sensitive to a rise in interest rates than recent experience would suggest.

The improvement in household balance sheets, particularly those of the middle class, implies a greater degree of resilience to monetary tightening. And given the rise in inflation, there is more room to raise nominal rates without tightening conditions in real terms. Carrying this set of conditions forward, a diminished economic sensitivity to a rise in interest rates combined with a cautious approach to raising them would add further to the risk of falling behind the curve, followed by a more significant tightening with an even bigger impact on economies and markets at that time.So how much and how fast should they move? Given current low unemployment, to achieve target inflation levels, the tightening must slow nominal demand growth to a level moderately above the growth of the labour force plus productivity. Doing that will require a combination of draining reserves held by banks at the Fed and a rise in real interest rates. It will also require higher interest rates relative to what is discounted by the market and an increase in short-term bond yields relative to long-term ones. This process is, of course, a dance in relation to unfolding conditions, but these would be important criteria.For investors, these circumstances create two unique risks relative to the past four decades. First, there is the risk that asset values will fall in real terms due to a sustained rise in inflation. Second, there is the risk of central banks falling further behind the move in inflation and having to aggressively catch up. In the very near term, continued loose monetary policy would tend to have benign effects along the lines of a mid-cycle economic transition. However, too much delay could mean the stimulus is overextended. The longer-term risk is the Fed falling behind in tightening and then forced catch-up with a much bigger response. More

The European Central Bank meets today as eurozone inflation hits record 5.1% in JanuaryYour browser does not support playing this file but you can still download the MP3 file to play locally.Spotify delivered a weak outlook for first-quarter subscriber growth, investors are putting more pressure on the European Central Bank to raise interest rates, and Argentina has been plunged into a fresh crisis after a crucial political figure resigned over the country’s outline debt deal with the International Monetary FundMentioned in this podcast:Spotify warns it’s ‘too early’ to calculate impact of Joe Rogan rowEurozone inflation hits record 5.1% in JanuaryResignation of Peronist leader triggers crisis over Argentina’s $44.5bn IMF dealThe FT News Briefing is produced by Fiona Symon and Marc Filippino. The show’s editor is Jess Smith. Additional help by Peter Barber and Gavin Kallmann. The show’s theme song is by Metaphor Music. Topher Forhecz is the FT’s executive producer. The FT’s global head of audio is Cheryl Brumley. Read a transcript of this episode on FT.com See acast.com/privacy for privacy and opt-out information.Transcripts are not currently available for all podcasts, view our accessibility guide. More

(Reuters) – Democratic lawmakers in New York passed a new congressional map on Wednesday that gives their party the advantage in 22 of the state’s 26 districts, potentially reshaping the battle for control of the U.S. Congress ahead of November’s midterm elections.The plan, which passed largely along party lines in the Democratic-controlled state Senate and Assembly, could cut the state’s Republican congressional delegation in half, offsetting Republican gains in states such as Texas and Georgia where the party muscled through its own partisan maps last year.Democrats currently hold 19 of the state’s 27 seats; New York is slated to lose one district due to slower population growth.The map would ensure the eliminated seat is a Republican one while transforming three other Republican-leaning districts into Democratic-favored ones. Governor Kathy Hochul, a Democrat, is expected to sign the map into law.Democrats hold a narrow 222-212 edge in the U.S. House of Representatives, with one vacancy. If Republicans can win a majority in November, they would be in position to foil much of President Joe Biden’s legislative agenda.U.S. federal law requires states to redraw their congressional lines once a decade to account for population shifts. In most cases, lawmakers control the process, allowing them to engage in gerrymandering – the deliberate manipulation of district boundaries to favor one party over another.Many national Democrats have attacked Republicans for gerrymandering. In January, congressional Democrats tried and failed to pass voting rights legislation that would, among other things, bar partisan redistricting, thanks to Republican opposition.The New York map would not have been permitted under that bill, noted Michael Li, a lawyer and redistricting expert with the Brennan Center for Justice.”It opens them up to charges of being hypocrites,” he said of Democrats.Lawmakers were able to pass their own plan after a bipartisan commission, approved by voters in 2014, failed to produce a consensus map, with Democratic and Republican members trading accusations of political gamesmanship.Republicans could seek to challenge the map in court, as voters and civil rights groups have done in numerous other states. More