Aurelia Butler

TOKYO (Reuters) – Japanese manufacturers turned less positive about their business conditions in January, in a sign the economy faces pressure from the Omicron variant as well as rising energy and raw material costs, the Reuters Tankan poll showed.Manufacturers and service sector firms were more optimistic about the coming three months, the monthly poll, which tracks the Bank of Japan’s closely watched “tankan” quarterly survey, showed.Some firms in the poll of 502 big and mid-sized companies, of which 254 responded, said their bottom lines were being pressured by commodity inflation, while others were more optimistic as they benefited from strong global demand.”There’s a demand rush before prices are raised,” a manager at a metal products maker said in the Dec. 22-Jan. 7 poll.The Reuters Tankan sentiment index for manufacturers fell to 17 in January from 22 in December, slipping from the previous survey’s four-month high, while the service index rose to a 23-month high of 8 from 6 in the prior month. (For a detailed table of the results, click)The poll showed profit margins at some firms in the world’s third-largest economy were taking a hit from higher raw material and energy prices, after the BOJ’s latest “tankan” business survey showed a recovery among manufacturers had stalled.”While demand conditions are good, soaring raw material and fuel prices are squeezing our profits,” a manager at a glass and ceramics maker wrote in the survey.”Margins are decreasing due to soaring raw material prices,” a steel maker manager said.The BOJ’s tankan survey for October-December released last month showed the service-sector mood had improved to a two-year high, while the index gauging big manufacturers’ sentiment was steady on the prior quarter.Despite the impact from higher raw material prices, manufacturers’ business confidence was expected to rise to 29 in April, in part due to strong forecasts for the metal products/machinery and carmaker sub-sectors, the Reuters Tankan poll showed.The mood among service sector firms was expected to rise to 14, also up from its January level, though firms in the sector said they continued to feel the impact of the coronavirus pandemic, including the highly infectious Omicron variant.Private-sector economists expect Japan’s economy to grow in the current quarter and the final three months of last year, although the spread of the Omicron variant at home and globally as well as raw material inflation are clouding the outlook.The Reuters Tankan index readings are calculated by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists. More

US technology stocks rose on Tuesday after a sell-off in the $22tn Treasury bond market finally ran out of steam, as Federal Reserve Chair Jay Powell made assurances that the central bank would act to curb inflation before it gets out of control.In an appearance before the Senate banking committee on Tuesday, Powell said high inflation had taken a “toll” and the central bank would act to prevent it from “becoming entrenched”. But Powell also reaffirmed that the central bank expected inflation to peak in the middle of the year, suggesting a dramatic increase in interest rates may not be necessary.That disrupted a recent sell-off in Treasuries which began last week and accelerated alongside minutes revealed last week from the Fed’s December meeting that signalled a more hawkish tone at the central bank. The yield on the benchmark 10-year US Treasury note dipped 0.02 percentage points to 1.74 per cent, after trading above 1.8 per cent on Monday. The yield on the two-year Treasury note, which closely tracks interest rate expectations, was roughly steady at 0.89 per cent. Earlier in the trading day it briefly rose to 0.94 per cent, its highest level since February 2020.The tech-heavy Nasdaq Composite index rallied 1.4 per cent, its biggest rise in three weeks. The index had briefly dropped into correction territory on Monday before recovering to end the session roughly unchanged. The broad-based S&P 500 stock index rose 0.9 per cent, while its information technology sub-index gained 1.2 per cent. Tech stocks, and especially high-growth tech stocks, are particularly sensitive to inflation and the prospect of higher interest rates. Their valuations, which are often based on profits not expected for many years or even decades, have been propped up by low interest rates. The sudden jump in rates has in turn knocked much of the sector.“I think the market was comforted by (Powell) saying that he will act if he needs to, but he also confirmed his view that the Fed expects inflation to peak mid-year. So that is, on balance, a fairly benign perspective,” said Kristina Hooper, chief global market strategist at Invesco. Markets have struggled to establish a direction in recent days as traders debated whether inflation had crested and how aggressively the Fed would act to reverse it. Tuesday’s move lower in yields may not last, some investors said. Following a better than expected drop in the US unemployment rate last week, and ahead of monthly consumer price figures due on Wednesday, traders now expect the Fed to lift rates by a quarter-point in March. “Its all about the Fed now and nothing else really matters,” said Hani Redha, portfolio manager at PineBridge Investments. The central bank has begun to wind down its pandemic-era stimulus policies. It has reduced the $120bn monthly purchases of Treasuries and mortgage-backed securities that were started in March 2020, and is preparing to reduce its $9tn balance sheet. Powell on Tuesday said the US economy no longer “needs or wants” these “highly accommodative” policies.Economists polled by Bloomberg expect Wednesday’s inflation report to show US consumer prices rose 0.4 per cent in December, and 7 per cent year over year. Europe’s regional Stoxx 600 share index added 0.8 per cent, having fallen 1.5 per cent on Monday, in its worst daily performance since November.In Asia, Hong Kong’s Hang Seng share index closed roughly unchanged and Tokyo’s Nikkei 225 fell 0.9 per cent. More

BRASILIA (Reuters) – Brazil’s annual inflation hit a six-year high of over 10% in 2021, government data showed on Tuesday, well above the central bank’s year-end target range and raising pressure on policymakers for more aggressive interest rate hikes.The benchmark IPCA consumer price index rose 10.06% last year, the highest annual rate since 2015, statistics agency IBGE said. The result was higher than the 9.97% median forecast in a Reuters poll of economists.By law, central bank chief Roberto Campos Neto was obliged to write an open letter explaining why annual inflation had missed the official target range. It was the sixth such letter since the current inflation-targeting regime was created in 1999. The last time was in 2017. Campos Neto said steps have been taken to ensure inflation targets are met for 2022, 2023 and 2024, reaffirming the need to keep raising rates “significantly into restrictive territory.”The surge in inflation pushed Brazil’s central bank into one of the most aggressive rate hike cycles in the world last year, raising its benchmark interest rate to 9.25% in December from 2% in March. Policymakers have already signaled another 150-basis-point increase in February and said the country’s monetary tightening may last longer until inflation expectations are back on track, a message Campos Neto repeated in his letter.Higher borrowing costs helped to tip Brazil into a recession last year, helping to cool inflation pressures in recent months.The country’s 12-month inflation rate eased in December from 10.74% in November, the first decline since May 2020.Still, the full 2021 print missed both the central bank’s annual target of 3.75% and the 5.25% top of its tolerance band.The index rose 0.73% in December alone, IBGE said, above the 0.65% forecast in a Reuters poll, mostly driven by clothing prices, which rose 2.06%. Transport was mainly responsible for the sharp price increase in Latin America’s largest economy last year, with annual gains of 21%. That was driven by a 49% annual spike in fuel prices. Housing costs had an annual rise of 13% with a 21% jump for electricity.Campos Neto said inflation missed the target mostly due to rising prices of imports, especially oil, along with other commodities. A weaker currency also contributed to the impact, he said in his letter, due to fiscal concerns in the second half of the year.Campos Neto also cited a spike in energy prices and global supply chain bottlenecks as inflation causes.Analysts expect inflation and higher interest rates to drag on the economy in 2022, hurting household demand and discouraging corporate investments. The central bank’s latest weekly survey of economists showed they lowered their forecasts for economic growth this year to just 0.28%, with expected inflation of 5.03% – again above the upper limit of the official inflation target of 3.50% for 2022, with a 1.5 percentage point margin of error on either side. More