Aurelia Butler

“I’d be signaling four rate increases next year — with two-sided uncertainty, depending on how the inflation figures of work out,” Summer said on Bloomberg Television’s “Wall Street Week” with David Westin. “That will be a jolt. But a jolt is what is required to restore credibility.”Summers said that his key takeaway from Friday’s November employment figures was the tumble in the jobless rate to 4.2%, from 4.6%. The report also showed an influx of Americans into the labor force last month, reinforcing the strength of the improvement, he said.“I read this as consistent with the picture that we’ve got an economy moving towards overheating — with the benefits that that means for disadvantaged workers, but with the risks that go with inflation,” said Summers, a paid contributor to Bloomberg who’s a professor at Harvard University.Powell this week said that Fed policy makers will discuss bringing forward the termination of the central bank’s asset-purchase program from the current target of mid-2022. That would put the Fed in position to start raising rates sooner, though the Fed chief offered no specific guidance on any increases he expects for 2022.The Fed need not “lock in” to boosting its policy rate four times in 2022, Summers said — but signaling that would show the public the determination of policy makers to stem inflation, which in October ran at the fastest pace in three decades. The alternative might be to have to lift rates even faster in 2023, he said.“Four interest-rate hikes next year are less likely to tip us into recession than eight” in the following year, Summers said. “The lesson” of the 1960s and 1970s is that “you have to do even more to regain credibility” once it’s been sacrificed.Summers also said that financial markets are pricing in too low of an end-point for Fed rate hikes, given where inflation is.“If you look at every business cycle since the 1950s, the Fed funds rate has never peaked below 2.5%,” Summers said. With inflation exceeding 5%, “if anything that 2.5% figure is too low, and markets aren’t pricing anything like that, so I still think we’ve got some substantial distance to go in terms of signaling the Fed’s resolve.”©2021 Bloomberg L.P. More

Lithuania said on Friday that China had blocked all imports from the Baltic state in an escalation of a diplomatic dispute over relations with Taiwan.Vilnius said Beijing had delisted it as a country of origin, which meant goods cannot clear customs, and was rejecting all import applications. Beijing downgraded diplomatic ties with Lithuania and suspended consular services there after the country permitted a Taiwanese Representative Office to open in November.China considers Taiwan to be part of its territory. Gabrielius Landsbergis, Lithuanian foreign minister, denounced the “unannounced sanctions” on Friday and said Lithuania would ask the European Commission for help. It was “unprecedented when one EU member state is being partially sanctioned”, he said.The country exported €300m worth of goods to China in 2020, less than 1 per cent of its total exports. “We have been informed that Lithuanian shipments are not being cleared through Chinese customs and import applications are being rejected. We are in contact with Vilnius and the EU Delegation in Beijing in order to collect all possible information and clarify the situation,” the commission said.The move comes days before Brussels proposes a law allowing it to retaliate against such economic sanctions.The anti-coercion instrument, to be agreed by the commission on Wednesday, would allow the EU to retaliate more swiftly against the measures and US action against companies trading with Cuba and Iran. However, it faces opposition from several EU members which fear it could breach international rules and damage global trade. The 27 EU members and the European parliament must back the law before it comes into force. Estonia and Japan have lodged public objections, along with business lobbies in Denmark and Sweden. Their governments were also sceptical, diplomats said.Tokyo said the instrument could break World Trade Organization rules, a concern shared by some EU capitals.“Deterring/counteractions themselves may have a potential inconsistency with the WTO Agreement as a prohibited unilateral measure,” Tokyo told the EU in a consultation on the proposal in March. Estonia demanded that “the proposed instrument must be fully in line with WTO rules” in its submission. “The cornerstone of EU trade policy is its compatibility with the multilateral rules-based trading system, embodied by the rules of the WTO.”EU diplomats said Sweden, Denmark, Finland, Italy and the Czech Republic had concerns about the plan.“It is not clear to us that the problem is large enough to justify the proposal,” said Sweden in a letter to the commission seen by the FT. “If implemented, this instrument would likely have a significant economic impact on trade, businesses, and on the relations between the EU and other countries.”Global Times, the Chinese state-run media outlet, said in an article on Friday that Lithuania had been “dancing” with the US and making inappropriate remarks on Taiwan. It said Beijing had no choice but to lower Lithuania’s diplomatic status and that Vilnius must “bear all the consequences” arising from this.Additional reporting by Eleanor Olcott in London More

Zambia has agreed the terms of a $1.4bn bailout with the IMF, a crucial step towards ending a debt crisis in the copper-rich but near-bankrupt nation. The deal has been several years in the making and is a step forward for a country that last year became the first African nation to default since the start of the pandemic.Friday’s deal for a three-year extended credit facility will still need approval from the IMF’s board, but is a landmark for President Hakainde Hichilema’s government months after he unseated Edgar Lungu who dragged out talks with the fund even as Zambia’s debts spiralled.Africa’s second-biggest copper producer is struggling under about $15bn of external debt, including arrears, after a spending splurge gave way to an economic slowdown under Lungu.Hichilema, who has said that he inherited a “completely empty” treasury after winning elections in August by a landslide, needs the IMF deal to convince Chinese and private creditors to restructure their debts and to secure other financial support from bilateral lenders.

Zambia last year stopped payments on $3bn of US dollar eurobonds and negotiated debt reprieves with Chinese lenders. The agreement with IMF staff “is based on the authorities’ plans to undertake bold and ambitious economic reforms,” said Allison Holland, the IMF mission chief to Zambia. “The IMF programme will provide much needed fiscal space to Zambia and anchor our domestic economic programme,” said Situmbeko Musokotwane, the country’s finance minister. After coming to power Hichilema had aimed to “finalise negotiations with the fund, that had [been] protracted for years, within the shortest possible time”, said Musokotwane. “This is exactly what we have done.”Hichilema’s government now faces difficult sacrifices to comply with IMF conditions. It has pledged to cut Zambia’s fiscal deficit to 6.7 per cent of gross domestic product next year, down from 10 per cent this year, and then to aim for surpluses. The government has promised to protect health and education programmes and to devolve much more spending to local government. A revival in world copper prices this year has cushioned state revenues.Hichilema has also rehired a central bank governor whose abrupt firing by Lungu last year drew the IMF’s ire, and launched ambitious plans to revive foreign investment in Zambia’s copper mines.Even with IMF support, Hichilema will have a tough task to balance the competing interests of Zambia’s creditors in talks that his government is aiming to finish early next year.The finance ministry has already revealed that the share of Zambia’s debt owed to China is $6bn, or about double what had been previously reported. Bondholders have expressed fears that any money they give up will be used to pay off Chinese creditors. The government has pledged equal treatment of all creditors. Zambia has already received $1.3bn of funds from the IMF this year under the global allocation of special drawing rights to member countries. More

A hawkish rate setter at the Bank of England has said the Omicron coronavirus variant added uncertainty to the economic outlook, meaning there were “advantages” in waiting for more information before tightening monetary policy. The cautious approach by Michael Saunders, an external member of the Monetary Policy Committee, reinforced some economists’ expectations that the UK central bank would hold its policy rate at 0.1 per cent at the upcoming December meeting. Referring to the timing of an interest rate rise, Saunders said in a speech on Friday: “At present, given the new Omicron Covid variant has only been detected quite recently, there could be particular advantages in waiting to see more evidence on its possible effects on public health outcomes and hence on the economy.”Saunders was one of the two members of the nine-strong committee who voted for an interest rate rise to 0.25 per cent at the last meeting. Policymakers in many advanced economies, such as the US and the eurozone, are closely watched by investors for signs of a rate increase to respond to inflation that has surged to well above their targets. Saunders said that at the meeting on December 16, a “key consideration” for him “will be the possible economic effects of the new Omicron Covid variant, and the potential costs and benefits of waiting to see more data on this before — if necessary — adjusting policy”.His speech showed that “his underlying view remains hawkish, but Omicron has added a layer of uncertainty,” said Andrew Goodwin, economist at consultancy Oxford Economics. Goodwin added that the December meeting was “on a knife-edge”, as the strength of the incoming data clashed with news of the new variant. “Unless we get some clarity on Omicron in the next two weeks, we think the majority will be keen to press pause for the time being,” said Goodwin. Similarly, traders now view a rate rise this month as a roughly one-in-three chance, compared with just below 50 per cent prior to Saunders’ comments. Before the emergence of the Omicron variant there was a roughly 75 per cent probability of a December increase priced in.However, Saunders also warned that a continued delay in tightening monetary policy “also could be costly”. He explained that if the economy continued along its recent path, maintaining the current highly accommodative policy would probably result in the labour market tightening further and reinforced risks of a further rise in long-term inflation expectations.“This could require a more abrupt and painful policy tightening later,” he explained.Saunders was more hawkish on inflation. The bank expects inflation to peak at 5 per cent in the spring and slow afterwards, with two-sided risks to the outlook. However, Saunders said: “The balance of these risks is more to the upside than downside.”

A “major upside risk” compared with the bank forecast comes from the possibility of a bigger rundown of the excess savings accumulated by households during the pandemic, which has now reached £250bn, or 17 per cent of annual consumer spending. He also said that in his view there was a series of risks that pointed to a “more persistent overshoot of the 2 per cent inflation target”, including stronger underlying pay growth. The bank has forecast a slowdown in pay growth in 2022, but with fewer EU workers, lower labour force participation and strong hiring, “it seems more likely to me that pay deals will pick up in the coming year”, he said. Additional reporting by Tommy Stubbington More

WASHINGTON (Reuters) – The U.S. government could start missing payments on its bills as soon as Dec. 21 if Congress fails to raise a legal limit on public borrowing, the Bipartisan Policy Center said on Friday.The think tank’s projection, based on updated official data on tax receipts and government spending, underscores the mounting pressure on President Joe Biden’s Democratic Party to find a way to raise the $28.9 trillion debt limit and avoid the economic calamity that could come with missed payments.Congress passed legislation on Thursday to fund the government through mid-February, averting the risk of a partial government shutdown this week. But lawmakers have yet to address the fact that they have authorized more borrowing and spending than their debt limit allows.”Congress would be flirting with financial disaster if it leaves for the holiday recess without addressing the debt limit,” said Shai Akabas, the Washington-based Bipartisan Policy Center’s director of economic policy. If upcoming tax receipts are favorable, the center projected, the debt ceiling could become binding as late as Jan. 28.On Tuesday, the nonpartisan Congressional Budget Office said the Treasury Department could start missing payments by the end of the month, while Treasury Secretary Janet Yellen said Washington can likely keep paying all its bills through at least Dec. 15. Once the Treasury Department hits its borrowing limit, it will only have incoming tax receipts to pay its bills. And because it borrows nearly 40 cents for every dollar it spends, the Treasury would start missing payments owed to lenders, citizens or both. Shock waves would ripple through global financial markets. Domestic spending cuts would push the U.S. economy into recession as the government misses payments on everything from Social Security benefits for the elderly to soldiers’ salaries.Biden’s Democrats hold razor-thin majorities in both houses of Congress, but Republicans have vowed not to cooperate on the debt ceiling, which could stymie attempts to lift borrowing limits under normal legislative rules. With time running out, Democrats could raise the limit without Republican votes under a more time-consuming legislative process known as “reconciliation.” (This story refiles to remove text of news alert from the body of the story) More

Non-resident flows to emerging markets landed at $15.6 billion last month, compared with $18.6 billion in October and $115.5 billion in November 2020, IIF data showed on Friday.The November 2020 monthly inflow was the largest by far on IIF records going back to 2005.Emerging market debt pulled in $6.3 billion from foreign accounts last month, with two-thirds of the total going to China. On the equities side, EMs saw inflows of $9.2 billion, $5 billion of which went to Chinese stocks. Graphic: Portfolio flows into EM economies slow in November – https://graphics.reuters.com/GLOBAL-EMERGING/EMBARGOED/jnvweayalvw/chart.png “Large devaluations of EM currencies, and the expectation of a Fed tightening cycle earlier than expected affected the flows dynamic,” IIF economist Jonathan Fortun said, adding that fears over a new COVID-19 variant further weakened flows at the end of the month.Inflationary risks in the United States have tightened the timeline for tapering bond purchases and eventually rising rates at the U.S. Federal Reserve, forcing many emerging market central banks to tighten monetary policy.Even as rates rise, EM currencies have suffered sharp losses against a strengthening dollar. The Russian ruble, Mexican peso and South African rand each fell 4% or more last month, while the Turkish lira suffered its second-largest monthly loss on record, falling nearly 29%.Flows to emerging markets outside China suffered a “sudden stop” this quarter according to a Thursday note from the IIF. More

Investors sold global equity funds worth a net $15.56 billion, that marked the biggest outflow since the week ended April 28, Refinitiv Lipper data showed. Fund flows into global equities bonds and money markets: https://fingfx.thomsonreuters.com/gfx/mkt/jnpweayrapw/Fund%20flows%20into%20global%20equities%20bonds%20and%20money%20markets.jpg European equity funds faced outflows of $27.12 billion, although investors purchased U.S. and Asian funds worth $7.59 billion and $3.26 billion respectively.Among equity sector funds, technology funds secured inflows of $3.17 billion, their biggest weekly inflow in over nine months, meanwhile, financials and energy funds saw net selling of $1.74 billion and $0.45 billion respectively. Global fund flows into equity sectors: https://fingfx.thomsonreuters.com/gfx/mkt/zgvomnblavd/Global%20fund%20flows%20into%20equity%20sectors.jpg Global bond funds witnessed their first weekly outflow in seven weeks, worth a net $1.89 billion.A rush for safety led inflows of $3.69 billion in global government bond funds, the largest since July 21, meanwhile, inflation protected funds pulled in $872 million, although, high yield funds posted net selling for a second straight week, worth $2.76 billion. Global bond funds’ flows in the week ended Dec 1: https://fingfx.thomsonreuters.com/gfx/mkt/byprjqlnepe/Global%20bond%20funds’%20flows%20in%20the%20week%20ended%20Dec%201.jpg Global money market funds drew net purchases of $16.31 billion, a 45% surge over the previous week.Within commodity funds, precious metal funds attracted $120 million in net purchases, marking a second straight week of inflow, while energy funds lured a net $101 million.An analysis of 24,052 emerging market funds showed investors sold bond funds for a third straight week worth $1.75 billion, while equity funds saw $384 million worth of outflow after four straight weeks of inflow. Fund flows into EM equities and bonds: https://fingfx.thomsonreuters.com/gfx/mkt/akpezoqynvr/Fund%20flows%20into%20EM%20equities%20and%20bonds.jpg More