Aurelia Butler

BEIJING (Reuters) – New bank lending in China rose less than expected in November from the previous month even as the central bank seeks to bolster slowing growth in the world’s second-biggest economy.Chinese banks extended 1.27 trillion yuan ($200.19 billion) in new yuan loans in November, up from October but falling short of analysts’ expectations, according to data released by the People’s Bank of China (PBOC) on Thursday.The new loan figure was the weakest for the month of November since 2018, though broader credit growth ticked up.Analysts polled by Reuters had predicted new loans would rise to 1.56 trillion yuan in November from 826.2 billion yuan the previous month and 1.43 trillion yuan a year earlier.Household loans, mostly mortgages, rose to 733.7 billion yuan in November from 464.7 billion yuan in October, while corporate loans rose to 567.9 billion yuan from 310.1 billion yuan, central bank data showed.”We think credit growth could edge up further in the coming months given intensifying efforts to push down borrowing costs and support the housing market,” Julian Evans-Pritchard at Capital Economics said in a note.”That said, policymakers still appear to be trying to balance their desire to soften the economic downturn with their concerns over high debt levels. As such, we don’t foresee a sharp jump in lending of the kind that could drive a pronounced rebound in growth.”China’s economy, which staged an impressive rebound from last year’s pandemic slump, has lost momentum in recent months as it grapples with surging prices, a slowing manufacturing sector, debt problems in the property market and persistent COVID-19 outbreaks. The central bank said on Monday it would cut the reserve requirement ratio (RRR) for banks on Dec. 15, its second such move this year, releasing 1.2 trillion yuan in long-term liquidity to bolster slowing growth.On Tuesday, the PBOC cut the rates on its relending facility by 25 basis points (bps) to support the rural sector and small firms.Still, analysts believe economic growth will continue to cool into 2022 and expect further cautious policy easing in coming months. Barclays (LON:BARC) expects one round of 5-10 bps cuts on the rates of open market operations, the medium-term lending facility and benchmark loan prime rate, or LPR, by March 2022 and one more RRR cut in the first quarter. Citi expects a 25 bps rate cut in the second quarter of 2022 and another RRR cut sometime next year. Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy — closely watched indicator — picked up slightly to 10.1% in November from a year earlier and from 10.0% in October.China says it will continue to implement proactive fiscal policy and prudent monetary policy next year. It will keep economic operations within a reasonable range in 2022, the Politburo, the country’s top-decision making body, said this week.Broad M2 money supply grew 8.5% from a year earlier, central bank data showed, below estimates of 8.7% forecast in the Reuters poll. M2 grew 8.7% in October from a year ago.Outstanding yuan loans grew 11.7% in November from a year earlier – the weakest since May 2002 – compared with 11.9% growth in October. Analysts had expected 11.9%.TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.In November, TSF rose to 2.61 trillion yuan from 1.59 trillion yuan in October. Analysts polled by Reuters had expected November TSF of 2.70 trillion yuan. More

BENGALURU (Reuters) – The U.S. Federal Reserve will raise rates in the third quarter of next year, earlier than expected a month ago, according to economists in a Reuters poll who mostly said the risk was that a hike comes even sooner.That shift in expectations for lift-off to Q3 from Q4 next year was driven by persistently higher inflation and now brings economists’ views almost in line with market pricing.However, rising COVID-19 cases around the world and the emergence of the Omicron coronavirus variant, along with renewed restrictions in some countries underscore that the pandemic is not yet over.Still, the Dec. 3-8 poll predicted the Fed would raise rates by 25 basis points to 0.25-0.50% in Q3 2022, followed by three more hikes – in Q4 next year and Q1 and Q2 of 2023. The fed funds rate was expected to reach 1.25-1.50% by end-2023.”We currently have September and December rate hikes in our forecast, but if scientific evidence suggests we are not entering a darker period for the pandemic we would imagine three hikes is far more likely,” said James Knightley, chief international economist at ING. The timing shift to the third quarter of next year was also underpinned by Fed Chair Jerome Powell saying the central bank would discuss in December whether to end its $120 billion in monthly bond purchases a few months sooner than anticipated. Previous expectations were for it to end in mid-2022.More than 60% of respondents to an additional question, 22 of 35, said the program would end by March. More than 80% of respondents, 30 of 36, said the risk to the timing of the first hike in this cycle was that it comes earlier.Sixteen said a hike could come in the second quarter of 2022 and five said it could come as early as next quarter. Just a month ago only five economists said the Fed should hike in Q2 next year and four said Q1.”We are penciling in the first hike in June, but with a risk it happens as early as March. It is a very close call, but we want to wait to see more data, including the impact of Omicron on the economy,” said Ethan Harris, global economist at Bank of America (NYSE:BAC) Securities.Economists were split on the biggest downside risk to the U.S. economy next year with 18 of 36 saying new coronavirus variants and 15 choosing high inflation.Participants in the poll expect the core personal consumption expenditures (PCE) price index, the Fed’s key inflation gauge, to stay above 4% this quarter and next – double the 2% target – before slowing in the second half of 2022 along with growth.Those forecasts were largely unchanged from last month, underlining the fact persistent price pressure remains a challenge for the Fed, and most other major central banks.”Reduced demand for virus-sensitive services such as travel could have a disinflationary impact in the near term, but prior virus waves suggest that such pressures would be temporary and reverse as demand recovers,” noted Joseph Briggs, economist at Goldman Sachs (NYSE:GS).”In contrast, further supply chain disruptions due to Omicron or further delays in the recovery of labor supply could have a somewhat more lasting inflationary impact.”(For other stories from the Reuters global economic poll) More

FRANKFURT (Reuters) – European Central Bank policymakers are homing in on a temporary increase in the regular bond purchase scheme that would still significantly reduce overall debt buys once a much larger pandemic-fighting scheme ends in March, sources told Reuters. The move, to be discussed at a meeting of the Governing Council on Dec. 16, would aim to keep bond yields in check even after the ECB’s 1.85 trillion euro ($2.09 trillion) Pandemic Emergency Purchase Programme ends, while not committing too much firepower at a time when inflation is already high and the growth outlook is uncertain.Conversations with six sources with direct knowledge of the debate indicate that a compromise is forming around beefing up the long-running Asset Purchase Programme (APP) but there would be limits on the size and time of the commitment, leaving policymakers with the usual flexibility to tailor policy later.While the details of this boost are still open, the sources said that the ECB could do one of two things. It could approve a purchase envelope until the end of the year, with the caveat that not all of it must be spent. Alternatively, it could lift the buys for a shorter period with the pledge that the purchases would still continue thereafter, but their size would be discussed later and would likely fall, if the economy develops as expected.In any case, the bond buys from April would be significantly smaller than the combined volume of the emergency and legacy programmes used now.An ECB spokesperson declined to comment. The sources added that no decision has been made and the debate remains vibrant.NO RATE HIKEUnder the likely options, the ECB’s commitment would not reach beyond 2022, a key issue for conservatives, or hawks, who fear that inflation might not fall below the 2% target, as now expected. Still, some want to make clear that purchases will continue until at least the end of 2022 to squash rate hike bets, as the bank’s guidance now rules out a rate increase while bond buys continue. The unusually lively debate is fuelled by diverging views on inflation. Doves, including chief economist Philip Lane, see it falling quickly next year, then languishing below target for years to come. Conservatives meanwhile see a risk that inflation gets stuck above 2%.Although hawks are now campaigning for no increase in bond purchases under the APP, currently running at 20 billion euros a month, many privately admit that going cold turkey is simply too risky, so an increase is needed to buffer against markets’ turbulence.Their demand, however, is higher-than-usual flexibility and optionality that would require the bank to reconfirm stimulus volumes regularly, much like it did in recent quarters when emergency purchase volumes were decided every second meeting. An open-ended increase in the bond buys is highly unlikely, the sources said, as is the creation of an entirely new programme, as advocated by some policymakers.While some are pushing for a delay in key decisions given the murky outlook, the sources said that a call on ending PEPP is unavoidable while at least the cornerstone decision regarding the APP is also necessary, with some technical details left to be ironed out.One of these details could be flexibility. The legacy scheme is governed by more rigid rules and some policymakers want at least part of the emergency scheme’s flexibility carried over. But there is no urgency in this decision as the APP is not yet at risk of being constrained, some of the sources said.Another item that can wait is a debate on revising the guidance that now stipulates a rate hike “shortly after” bond buys end.The sources added that the ECB could signal that the emergency scheme would remain ready to be deployed even beyond March 31 and the roughly 100 billion euros left in it could then be used in case of undue market turbulence.They also said that the ECB could exercise flexibility in how it reinvests funds in the emergency scheme. Cash from expiring debt is rolled back into the market but could be used flexibly, with focus on markets that may be experiencing stress. ($1 = 0.8832 euros) More

The government, which had previously forecast the economy to grow by 3.2% this year and 3.4% in 2022, said the economic upturn would be slowed but not halted provided the pandemic situation did not deteriorate further.In its first forecast for 2023, the State Secretariat for Economic Affairs (SECO) said it expects the Swiss economy to grow by 2%, still above the average growth rate of around 1.7%.”Supply bottlenecks and stricter COVID-19 measures are putting a strain on the economy internationally in winter 2021/22,” SECO said.Still, factors which have slowed the recovery should become less apparent during 2022, it said, as consumer spending and investment returned and exports recovered.”Provided there are no severely restrictive health policy measures, such as broad business lockdowns, economic recovery is not expected to come to a standstill in the medium term,” SECO said.The forecast is the latest downgrade to the Swiss economic outlook, following declines in the purchasing managers index and the KOF economic barometer. The number of coronavirus cases has surged in Switzerland in recent weeks while the Omicron variant has also arrived, prompting the government to tighten its restrictions.Neighboring Germany has imposed curbs on the unvaccinated, while Austria launched a new lockdown. England has also brought in tougher restrictions to slow the spread of the Omicron coronavirus variant.The strengthening Swiss franc makes exports more expensive, while rising raw materials costs and shortages of components like semiconductor chips are also weighing on growth. The Swiss National Bank, which has been battling the appreciation of the franc, is due to make its latest interest rates decision next week. More

Foreign investment in emerging market stocks and bonds outside China has come to an abrupt halt over fears that many economies will not recover from the pandemic next year, their prospects worsened by the Omicron coronavirus variant and expectations of higher US interest rates.In late November, non-resident flows to EM assets excluding China turned negative for the first time since the coronavirus-induced market ructions of March 2020, according to data from the Institute of International Finance.“We’ve seen the willingness of investors to engage with emerging markets dry up,” said Robin Brooks, chief economist at the IIF.“This is not only about isolated cases like Turkey,” where the currency has collapsed in recent weeks after the central bank persisted in cutting interest rates despite a steep rise in inflation, he added. “Turkey is a symptom of something much more broad based across emerging markets, and that is a lack of growth.”The IIF separates China from the rest of EM data because China’s inflows are so large they obscure any other trends that might be evident in the figures.The emergence of the Omicron coronavirus variant in recent weeks will have more of an effect on countries with lower vaccination rates, and most emerging market countries have a vaccination rate under the 70-80 per cent herd immunity level, according to S&P research. Many emerging economies, especially large, middle-income countries such as Brazil, South Africa and India, have also borrowed heavily on international and domestic markets to fund their pandemic response. For much of the past year, said Luiz Peixoto, emerging markets economist at BNP Paribas, concerns over the fiscal impact of rising debts “were suspended in the air, as if 10 percentage point increases in debt ratios meant nothing”.But the weak outlook for growth meant such concerns had now returned, he said. “Whether you are funded by local or foreign markets, it doesn’t matter because everywhere we are seeing interest rates rise,” he said.As a result, 10 major emerging markets, including Chile, Mexico, Poland and India, were at risk of a credit rating downgrade, Peixoto warned.Compounding investors’ concerns is the recent pivot to a more hawkish stance by Jay Powell, chair of the US Federal Reserve, in response to rising inflation. Powell’s openness to a quicker-than-expected withdrawal of the Fed’s huge asset purchase programme raised the prospect of earlier US interest rate rises next year and exacerbated a sell-off in risky assets.

A strengthening US dollar could destabilise the economies of countries such as Turkey, which borrow heavily in dollars, as well as the likes of Brazil, South Africa and India, which tend to borrow in their own currencies but depend largely on foreigners for inflows. As the greenback strengthens, returns for international holders of EM stocks and bonds are eroded. MSCI’s index of EM equities has slipped 4 per cent this year in US dollar terms, trailing far behind the 19 per cent gain for the index provider’s broad gauge of equities in developed markets. Bonds have also come under pressure, with the JPMorgan global GBI-EM index tracking EM debt issued in local currency off 4.5 per cent for the year to date on a total return and US dollar basis. During the early months of the coronavirus pandemic the value of the dollar depreciated, lifting emerging market assets. But as vaccination rates increased and the US economy began to recover this summer, the dollar has risen. The Fed’s cautious signalling of its intention to withdraw stimulus and tighten policy meant markets had been spared a repeat of the 2013 “taper tantrum”, when an abrupt change in the Fed’s messaging prompted a sudden sell-off in risky assets including emerging market stocks and bonds, said Brooks at the IIF.But the combination of weak growth and a strengthening US dollar could still provoke a sell-off, he warned, particularly given persistent uncertainty over the pandemic and rising tensions between the US and both China and Russia.The IIF data show that foreign inflows into EM stocks and bonds peaked in the fourth quarter of 2020, right before vaccine access became widespread in advanced economies. The subsequent recovery of the US — and other developed market economies — has hurt EM assets since then. But inflows had not halted until this quarter, when the Fed began the process of tightening monetary policy. The tapering of the Fed’s $120bn monthly asset purchases supports the dollar because it indicates the Fed is closer to raising interest rates, a big driver of currency valuations worldwide. That pressure has only intensified since the so-called Powell pivot on November 30, when the Fed chair said he no longer believed that inflationary pressures were transitory and signalled that the central bank was open to accelerating its monetary tightening.“The Powell pivot has exacerbated an already difficult adjustment for many developing countries. While relative yields in EM local currency bonds are attractive, investors may now face further pressures from rate hikes and currency weakness,” said Samy Muaddi, a portfolio manager at T Rowe Price. More

UK inflation has given retail investors a strong incentive to find ways of hedging against the effects of price rises. One popular candidate for this role has traditionally been commercial property.Evidence from the past 40 years of rental growth in commercial property, however, shows that investors should not assume that the same property types which provided an automatic hedge against inflation in the past will do so in future.It is true that rental growth in the sector as a whole has kept pace with inflation across the past four decades, with both averaging 3 per cent a year. But our recent research suggests this conceals nuances that matter for investors’ returns. Those headline numbers hide significant divergence not only between subsectors but also within various decades and economic cycles. Commercial property certainly offers plenty of opportunities for the agile investor. Since 1980, we found UK real estate provided periods of rental growth ahead of economy-wide price rises. Between 1986 and 1991 and 2001 and 2008, when inflation increased over several years, driven by rising demand and an upswing in the economic cycle, rental growth was equally robust, on average outstripping inflation in those years.But these opportunities shift between different subsectors as economic conditions and structural factors come into play. The determining factor in whether rental growth can keep up with inflation is whether price increases are caused by a demand side or supply side shock. Demand-driven inflationary increases bode well for real estate in terms of hedges against rising inflation, but supply side shocks, such as the UK shortage in food-grade carbon dioxide this year, are historically more difficult to hedge. Over the next five years we expect some property types will generate above-inflation rental growth, but most will see their rents decline in real terms — and likewise their popularity with investors seeking an inflation hedge. Which types will thrive and which will struggle? Signs of constrained supply are a good place to start. Central London buildings, as well as other scarce city centre assets, will continue to look attractive on this measure. The undersupply in the residential market is also expected to persist.It is important to remember that supply can be constrained at a micro-location or asset level, even if the sector more broadly is not. For example, while there are fears that increased remote working will create an oversupply of average quality office assets, this will not apply to “best in class” buildings located near important transport hubs. The supply of new real estate is also today unusually constrained by materials shortages and rising construction costs, although these constraints are expected to ease in the medium term.Similar short-term considerations have the potential to cause sector-specific inflation. To take an example outside commercial property, the sharp devaluation of sterling following the Brexit referendum pushed up retailers’ input costs at a time when they had little power to pass these on to consumers. That intensified the pressure on retail profitability. In commercial property, long-lasting structural mismatches between supply and demand enable rental growth to outpace inflation over longer periods. Our analysis suggests these structural factors — such as demographics, technology or behavioural change — are more significant than the cyclical drivers of real estate. Nothing illustrates this more clearly than the rise of ecommerce and the shifting of rental growth from retail to industrial property. In the retail sector, the majority of rental values kept pace with inflation in the three decades up to 2010 but the rise of ecommerce has significantly damped rental growth thereafter. This trend looks set to continue, suggesting rental growth in the industrial sector, driven by warehousing and fulfilment, will outpace inflation in the coming years — even if supply is likely to respond over the medium term. Among structural factors, demographics is the most predictable — and it is in residential and healthcare property that population-driven demand will be strongest. As the number of 18-year-olds in the UK rises over the coming decade, student accommodation is set to see greater demand from the domestic population, while an ageing population will fuel demand for retirement and care homes. Even if inflation turns out to be higher than expected, our sector preferences would be similar, although lease characteristics will become more important.Some leases include indexation, guaranteeing that rental growth will match inflation, at least within certain bands. Lease length also plays a role. Even where there is no indexation, UK rent reviews are typically upwards-only, offering protection from short-term rent falls. Investors must remember, though, that rents will at some point revert to market rates. One such sector currently at risk is supermarkets, which has recently seen strong investment activity. While the current rise in inflation has spooked some investors, the evidence of the past 40 years shows that real estate has a valuable role in hedging against it. While this remains the case today, the subsectors that offer protection against inflation change over time. Successful investors must dig deeper into demographic and behavioural changes if they are to keep pace with rising prices and achieve the kind of returns that commercial property is capable of offering.Himanshu Wani is senior associate in UK Real Assets Research at CBRE Investment Management More

LONDON (Reuters) – The number of people in Britain putting their home up for sale fell for an eighth month in a row in November, placing further upward pressure on house prices, the Royal Institution of Chartered Surveyors (RICS) said on Thursday.RICS said its monthly house price balance held at +71 in November after an upward revision to October’s reading, not far from the 33-year high of +82 recorded in June.”The continuing drought in new listings was a significant factor holding back the market nationwide,” RICS said.”Unless this trend is reversed soon, transaction levels may flat-line in 2022 with limited choice proving more significant than any shift in the interest rate environment for new buyers,” RICS chief economist Simon Rubinsohn added.The Bank of England has said it is likely to raise interest rates from a record-low 0.1% in the coming months, although financial markets have dialled back their bets on a move at next week’s meeting, due to the new Omicron coronavirus variant.Britain’s housing market surged through most of last year and in 2021, bolstered by more demand for space to work from home during the pandemic, as well as temporary tax breaks for house-buyers which were phased out between July and September.The most recent official data shows house prices rose 11.8% in the year to September and RICS said surveyors expected house prices to “drift higher” over the next 12 months.”Even if the cost of mortgage finance does begin to edge up, it is likely that house prices will continue to move higher through the coming year, albeit at a somewhat slower pace than over the past 12 months,” Rubinsohn said.Rents were forecast to rise by 4% as demand from tenants rose but supply from landlords fell.BoE Deputy Governor Ben Broadbent said on Monday that he expected consumer price inflation to “comfortably exceed” 5% by April next year. More