Aurelia Butler

SEOUL (Reuters) – South Korea’s economy expanded at the fastest pace in 11 years in 2021 thanks to record exports, though a slowdown in capital investment cast a cloud over the outlook for growth this year.Tuesday’s data from the Bank of Korea showed gross domestic product (GDP) expanded 4.0% in 2021, as demand for exports soared.From the third quarter, the economy expanded a seasonally adjusted 1.1% in the October-December period, beating the 0.9% expansion tipped in a Reuters poll and up from a 0.3% rise in the third quarter.Growth in annual terms in the fourth quarter was at 4.1%, also beating a median forecast of 3.7% in the poll.The BOK on Jan. 14 raised its benchmark interest rate to pre-pandemic levels and signalled it may tighten further as growth and inflationary pressures remain strong.”The economy got a boost from exports and investment in the final months of last year…Global demand for made-in-Korea will continue and consumption will improve on the back of expanded government spending to keep growth solid this year,” said Chun Kyu-yeon, an analyst at Hana Financial Investment.South Korea’s economy has had a sharp albeit uneven bounce from the coronavirus slump in 2020 as exports expanded at their fastest annual pace in 11 years while the consumption recovery has been patchy due to social distancing curbs.A recent Reuters poll of 20 economists forecast the economy to grow 2.9% this year, below the 3.0% projected by the BOK.Tuesday’s data showed exports were the main driver of growth in the fourth quarter, jumping 4.3% on-quarter. Growth was also helped by private consumption and construction investment, which expanded 1.7% and 2.9%, respectively.Capital investment declined 0.6% on-quarter following a 2.4% drop in the preceding three months. More

NEW YORK/ SAN FRANCISCO (Reuters) – The S&P 500’s early tumble on Monday put the world’s most-followed stock index within reach of confirming its first correction since the 2020 collapse in global markets brought on by the coronavirus pandemic.The S&P 500 slumped as much as 4%, slammed by ongoing worries about rising interest rates and geopolitical fears related to Ukraine. The index was more than 10% below its Jan. 3 record high close before bouncing back to end the session with a daily gain of 0.3%. It is now down 8.1% from its record. A correction would be confirmed if the index closes 10% or more below its record closing level, according to a widely used definition.(Graphic: Index losses of 10% or more from record highs, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwjdgjvo/Pasted%20image%201643053005222.png) Wall Street has reeled in recent months from spiking inflation and growing expectations the U.S. Federal Reserve will tighten monetary policy more quickly than expected. Monday’s early rout stemmed from those concerns, as well as an announcement by NATO that it was putting forces on standby to prepare for a potential Russian incursion into Ukraine.”Investors have gotten spooked because nobody really knows what (Fed Chairman) Jay Powell will do. Will he hike three times, four times, five times?” said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas, Texas.The Russell 2000 index of small cap stocks (RUT) was down more than 20% below its November record closing high Monday before reversing course. The Russell index ended up 2.3% on the day but remains down about 17% from its November record high following several weeks of steady declines. A close of 20% or more below its record closing high would confirm the index is in a bear market.Hitting those low levels early in the session may have triggered some buy signals, said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.”The small cap Russell 2000 hitting 20% down (from its record) might have been a bigger indicator than anything,” he said. The Nasdaq last week confirmed its fourth correction since the beginning of the pandemic, and is now down about 14% since its November record closing high.Rising interest rates tend to disproportionately harm shares of high-growth companies because investors value them based on earnings expected years into the future, and high interest rates erode the value of future earnings more than the value of earnings made in the short term.The Nasdaq and Russell 2000 have lagged the rest of the market because they have more stocks with higher multiples, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. Steven DeSanctis, equity strategist at Jefferies, wrote in a recent note that small caps “are pricing in a chance of a recession.” “High-yield spreads have not budged, nor have ’22 earnings estimates, yet relative valuations are as cheap as they were in ’20,” he noted.Following this month’s decline in the S&P 500, the index is trading at about 21 times expected earnings, still far above its 10-year average of about 17, according to Refinitiv data.(Graphic: S&P 500 forward P/E is far above its historical average, https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnjkylvq/Pasted%20image%201643052964596.png) Energy is the only one of 11 S&P 500 sector indexes with a gain year to date, up about 13%. Consumer discretionary (SPLRCD) and technology (SPLRCT) have been the worst performers in 2022, both down about 11%.(Graphic: S&P 500 component performance so far in 2022, https://fingfx.thomsonreuters.com/gfx/mkt/byprjmgnkpe/Pasted%20image%201643052901112.png) More

TORONTO (Reuters) – The Canadian bond market is coming to the view that expected multiple interest rate hikes in 2022 by the Bank of Canada, including one potentially this week, will bring price pressures under control, albeit at a cost of slower economic growth. This marks a shift in perception that is underscored by moves in the so-called inflation breakeven rate, a market measure of inflation expectations. The 10-year breakeven rate has dropped below 1.9% this month after touching 2.3% in November, its highest level by far in data going back to 2015.In contrast, recent survey data https://www.reuters.com/world/americas/firms-see-increasing-labor-shortages-wage-pressures-bank-canada-survey-2022-01-17 from the Canadian central bank showed that expectations for price increases among consumers and businesses have climbed.Lowering of inflation expectations give businesses greater confidence to pursue their growth plans.”With the market pricing in an aggressive Bank of Canada tightening cycle, it implies that inflation is less likely to remain elevated in future years,” said Andrew Kelvin, chief Canada strategist at TD Securities. Money markets see a 65% chance that Canada’s central bank will raise its benchmark interest rate, which currently sits at 0.25%, in a policy announcement on Wednesday despite uncertainty triggered by the Omicron variant of the coronavirus. It would be the first rate hike https://www.reuters.com/world/americas/even-omicron-slams-canada-bets-january-rate-hike-rise-2022-01-18 since October 2018.Investors expect six hikes in total this year, which would lift the policy rate to its pre-pandemic level of 1.75%. The expected number of increases is up from four in December and two more than markets expect from the Federal Reserve.The urgency that the market sees for the BoC to start tightening comes as Canadian inflation, which hit a 30-year high of 4.8% in December, threatens to overshoot the central bank’s 2% target for longer by feeding expectations for future price increases.Signs of an overheated Canadian housing market could also concern the central bank after data for December showed the average selling price of a home was up nearly 18% from a year earlier.’PSYCHOLOGICAL WAR’But the potential for an easing in supply-chain disruptions later this year could reduce price pressures, say economists, while past increases in energy prices will fall out of the inflation calculation over time.”Central banks in Canada and the United States are winning the psychological war, successfully convincing investors that they are serious about fighting inflation” said Karl Schamotta, chief market strategist at Cambridge Global Payments (NYSE:GPN).Bank of Canada Governor Tiff Macklem said in December that slack in Canada’s economy caused by the coronavirus pandemic has substantially diminished, a key sign the central bank would begin hiking rates soon. The Fed has also turned more hawkish.Both central banks tend to raise rates in 25-basis-point increments but could move faster.Some time after the first hike, the BoC is expected to begin quantitative tightening, or QT, reducing the amount of bonds on its balance sheet that were bought during the pandemic to support the economy.The combination of QT and rate hikes could weigh on economic activity, particularly after Canadians increased borrowing during the pandemic.Household credit market debt was C$2.6 trillion in the third quarter of 2021, or about 177% as a share of income, up 10% from the final quarter of 2019. But employment has climbed above its pre-pandemic level and people have accumulated an unprecedented amount of savings.Economists estimate that the increase in savings over the pre-pandemic trend could be nearly C$300 billion, or about 20% of annual spending.Tightening “doesn’t need to imply a painful economic period,” Kelvin said. “It means that the period of above-trend growth probably comes to an end in the next two years.” More