Aurelia Butler

KARACHI, Pakistan (Reuters) – Pakistan on Saturday received a $3 billion loan from Saudi Arabia, the prime minister’s finance adviser said, as part of an economic support package.The South Asian country has faced growing economic challenges, with high inflation, sliding forex reserves, a widening current account deficit and a depreciating currency.Pakistan’s total liquid foreign reserves stand at $22,498 billion, based on central bank data.Shaukat Tarin, finance adviser to Pakistan’s prime minister Imran Khan, said in a tweet: “I want to thank His Excellency Crown Prince Mohammed Bin Salman and Kingdom of Saudi Arabia for the kind gesture.”The loan from Saudi Arabia will be for one year at a 4% interest rate under the terms of the package, which was signed last month. “This is positive news … and will help bolster both the foreign exchange reserves and sentiments in the forex market,” Saad Hashemy, executive director at BMA Capital said. The loan comes a week after the International Monetary Fund agreed with Pakistan on measures needed to revive a stalled $6 billion funding programme.The completion of the review, pending since earlier this year, would make available 750 million in IMF special drawing rights, or around $1 billion, bringing total disbursements so far to about $3 billion.Pakistan’s central bank has raised its benchmark interest rate by 150 basis points to 8.75% to counter inflationary pressures.Inflation had reached 11.5% in November, up from 9.2% a month earlier. The Pakistani rupee, which closed on Friday at 176.77 at inter-bank against a dollar, has depreciated more than 11% since the start of this year. More

A sharp drop in the US unemployment rate has set the stage for the Federal Reserve to accelerate the scaling back of its stimulus programme this month, economists said, giving it greater flexibility to raise interest rates sooner next year if necessary.The world’s largest economy added 210,000 jobs in November, roughly half the pace that economists expected and well below the previous month.But significant improvements in the rate of unemployment, which dropped 0.4 percentage points to 4.2 per cent, as well as the number of Americans re-entering the workforce, affirmed expectations that the Fed will proceed in less than two weeks’ time with a more aggressive timeline for withdrawing its support.“This employment report gives them cover to announce a speedier taper,” said Margaret Kerins, global head of fixed income strategy at BMO Capital Markets. “They need to taper faster so that they can be prepared to lift-off sooner in order to maintain price stability and prevent inflation from becoming entrenched.”“It’s a risk management approach, and the upside risk of inflation now outweighs the risk to employment,” she added.Jay Powell, the newly reappointed Fed chair, said in congressional testimony this week that he would support the central bank considering an earlier end to its asset purchase programme than the pace unveiled just last month. At the last policy meeting in November, the Federal Open Market Committee announced a $15bn reduction or “taper” of the $120bn bond-buying programme, meaning the Fed would cease adding to the size of its balance sheet in June. Powell expressed his support for possibly ending that process “perhaps a few months sooner” — a sea-change that has clear backing from other Fed officials. In an interview with the Financial Times on Thursday, Loretta Mester, president of the Cleveland Fed and a voting member on the FOMC next year, said she supports a faster taper so that the central bank has “optionality” to raise interest rates more swiftly to tame inflation.The Fed has said it will not raise interest rates until it achieves inflation that sustainably averages 2 per cent, and maximum employment. November’s jobs report showed progress towards the latter goal, said Sarah House, chief economist at Wells Fargo.“The labour market continues to tighten rapidly,” she said. “Yes, we saw a disappointing increase in the payrolls number . . . but the fact that the unemployment rate continues to decline and participation is increasing does show that we are continuing to move towards maximum employment.”The so-called labour force participation rate “bounced noticeably”, according to economists at Morgan Stanley, ticking up to 61.8 per cent from 61.6 per cent the previous month. While it is still 1.5 percentage points lower than its pre-pandemic level, it was a welcome development after many months of stagnation as workers were held back by Covid-related concerns and other issues.The employment-to-population ratio for “prime age” workers, which tracks the percentage of Americans in the 24-to-54 age bracket who have jobs, also made significant headway, rising to 78.8 per cent. That is the highest level since early 2020 and a jump from October’s 78.3 per cent level.Economists also pointed to the household survey portion of November’s jobs report, which indicated the number of employed rose 1.1m as 594,000 more people joined the labour force. The household survey is often seen as more volatile than the “establishment” survey, which registered much more muted gains, however.Taken together with the moderate wage gains and the shrinking gap in the unemployment rate between white and black workers, Kristina Hooper, chief global market strategist at Invesco, said the “fairly positive” jobs report keeps the Fed on track to push forward with its plans.“We will get an accelerated taper in December, especially since the very preliminary anecdotal evidence we are getting about Omicron is that it’s mild,” she said. “The big part of the Powell pivot is not so much that we have an accelerated taper, but that it [may mean] interest rate hikes sooner than expected especially in light of the Omicron variant.”Market measures of interest rate expectations, as estimated by Fed funds futures, suggest the central bank will raise rates roughly three times next year. Barclays has pencilled in an adjustment as early as May, while Evercore ISI and Goldman Sachs expect it in June. More

As we have all become supply chain experts over the past year, more of us have become familiar with the dread “bullwhip effect”, when shortages of goods unexpectedly turn into surpluses. Well, it seems the bullwhip has cracked, at least for many US retailers.Having spent months making excuses about stock shortages to American consumers, they are now trying to lure them back into the store or on to the website with promises of extended sales, discounts and faster deliveries. But it seems the buying public are no longer so interested. So goods such as furniture, appliances and building materials, once impossible to find, are piling up in warehouses and stores.Some evidence of this came with the Chicago ISM, a midwest business barometer often seen as a leading indicator of economic activity nationally. Its inventories index rose 8.5 points last month to 59.6, which was the highest since the US autumn in 2018. Order backlogs for manufacturers in the area dropped 18.8 points to 60.8, which is 6 points below the 12-month average.Likewise, the IHS Markit Purchasing Managers Index for the US manufacturing sector for November this week pointed to increased inventory building. It said this often reflected concerns over the future supply situation.This supply chain un-jamming seems to set the world’s largest consumer economy on track for a slowdown in the first quarter of next year as inventories are wound down, reducing new orders. An excess of finished goods might also lead to consequent weak pricing, moderating the current inflation panic. For once, it seems, a Federal Reserve forecast — that high inflation was transitory — could have been correct.I have been following the reports of economist Susan Sterne on the US consumer for decades, and I do not think anyone can match her obsessive-compulsive detail on buying trends, inventory levels, sentiment indicators and labour force dynamics. Policymakers I know would agree.According to Sterne, at the retail level “this appears to be more a shortage of demand than supply, which is consistent with what the consumer says about current buying conditions”. Consumers, she says, are in a bad mood and do not, for the most part, think this is a good time to buy things.This sentiment, Sterne says, is actually a leading indicator because it is predictive of consumer spending. “I keep an eye on sale announcements on line and arriving in the mail, and every sale is being extended. Otherwise the retailers just won’t get the volume,” she says.If they don’t get that volume, they are going to have a lot of stuff, especially durable goods such as appliances, still lying around come January. “I think they [retailers and wholesalers] overestimated what people will rush out to buy,” she says.Nobody wants to spoil the holiday mood, or the optimistic assumption that there was one in the first place.But what about all the money the public has in bank accounts or high-priced securities? According to Sterne, “the only ones who have the savings are upper income people, and they can choose not to spend now. Consumer debt levels are quite high. That is particularly the case for young people — there was a substantial increase in borrowing for that age group.”There have been headline increases in pay for hourly workers such as those in Amazon warehouses or Walmart stores. But the inflation that came with the recovery has eaten through most of those raises.And the extra money flows from government payments to middle and lower income people have dried up in recent months. Having reached a peak of close to $500bn in March, those were down to just above $200bn by October.Democrats in Congress and the Biden administration had hoped to include some fat transfer payment programmes in the Build Back Better package now straining through Congress. Those are being trimmed back in negotiations now. Whatever comes out might be further cut by a future Republican Congress.The public also knows tax increases are coming, and not just for billionaires. Payments on government sponsored student loans, a substantial burden on young consumers, were deferred at the beginning of the pandemic. That deferral expires in February, and no extension of the deadline is planned.To me, this all suggests that it will not take much in the way of interest rate or energy price increases to restrain any “animal spirits” among the general public. And there will be some deep discounts in stores next month. More