Aurelia Butler

Here’s your week ahead in markets from Tom Westbrook in Singapore; Dhara Ranasinghe, Karin Strohecker and Ahmad Ghaddar in London; Ira Iosebashvili and Lewis Krauskopf in New York. Compiled by Sujata Rao1/DOVES, HAWKS & COVID COVID-19 fears and inflation data are looming large over policy makers who have to decide the fate of two ECB bond-buying schemes in just three weeks.Tuesday brings November flash euro zone inflation. October’s print was 4.1% and many see it staying above the ECB’s 2% target next year. German, Spanish and French CPI data are out Monday and Tuesday.As inflation surges, ECB hawks warn against keeping monetary policy too loose for too long. A new German government meanwhile could raise the minimum wage by around 25%.Their message has resonated with edgy markets. But resurgent COVID strengthens the ECB doves as Europe battles a fresh surge and news of new virus variant spreading across South Africa triggers alarm.Renewed economic uncertainty means investors are again scaling back rate-hike bets for the U.S., euro area and Britain. The doves, it appears, have fresh ammunition to push back against those clamouring for an early end to stimulus. Inflation watching in the euro area, https://fingfx.thomsonreuters.com/gfx/mkt/egvbkadropq/theme2511.png 2/JOBS FOR ALLWith the Federal Reserve’s taper underway, a strong November employment report could bolster the case for those arguing its $120 billion-a-month bond-buying should be unwound faster.While the Fed projects the unwinding to be complete in mid-2022, robust economic growth and inflation running at more than twice the 2% flexible average goal have sparked bets on a faster unwind and earlier rate rises.Payroll expectations were boosted by weekly data showing jobless benefits claims at the lowest since 1969. Employers are forecast to have added 563,000 jobs, and any figure more than that could revive recent bond market ructions and mean another leg higher for the dollar. November U.S. nonfarm payrolls, https://fingfx.thomsonreuters.com/gfx/mkt/zdpxonzqmvx/Pasted%20image%201637784564860.png 3/ TURKEY TANTRUM Turkey just served up (another) reminder that prudent monetary policy matters – all the more so in emerging markets during times of high inflation. President Tayyip Erdogan has doubled down on his view that double-digit inflation can be tamed by cutting interest rates. The lira has responded with a 15% plunge on Tuesday that’s left it in unchartered waters. The currency has partly recovered but the central bank may deliver another rate cut at its Dec. 16 meeting.Monetary policy worries are stirring in Mexico, too. The peso has taken a hit after the president unexpectedly ditched his nominee for central bank governor, instead nominating a deputy finance minister.A strengthening dollar, rising inflation and a Fed in taper mode leaves emerging market central banks precious little room for error. Lira timeline November 26, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwndnkvo/Lira%20timeline%20November%2026.PNG 4/MORE OIL OR LESSThe OPEC+ oil producers’ group has stuck to monthly output increases of 400,000 barrels per day (bpd) since August, defying consumer nations’ pleas for more oil to cool $80-plus prices. Its Dec. 1-2 meeting will come just after the U.S. decision to release 50 million barrels of oil from strategic reserves.The prospect of extra oil hasn’t fazed oil markets; Goldman Sachs (NYSE:GS) called it a “a drop in the ocean”. Yet an OPEC+ source said the oil release by the United States and several other countries, while smaller than anticipated, would complicate its calculations.OPEC+ production cuts will amount to 3.8 million bpd by end-December, about 4% of global consumption. Sources say there are no discussions yet about responding to the U.S. move by pausing output increases. But the group has warned the move could cause an oil glut next year. Brent crude price, https://graphics.reuters.com/GLOBAL-OIL/byprjkwaepe/GLOBAL-OIL.jpg 5/SLOW BUT STEADYING? New mortgage growth is underpinning hopes the trough might be in for Chinese credit, and that the economic drag from a feared real estate calamity is starting to fade.There are signs of a drift toward policy easing. While benchmark rates have not changed, banks are being prodded to lend to developers, authorities are seeking to cut funding costs for small business and have moved to buttress yuan stability.Tuesday’s Purchasing Managers’ Indexes could show if the tide is indeed turning. But keep an eye on Dalian https://www.reuters.com/world/china/china-faces-biggest-delta-outbreak-infections-grow-northeastern-city-2021-11-15, where COVID is on the rise (1 euro = 14.0991 liras) Loan growth spurs hope for China’s credit outlook, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwnzbgvo/Pasted%20image%201637734453580.png More

FRANKFURT (Reuters) – Banks in the euro zone increased the pace of lending to companies last month and continued to extend credit to households at a brisk pace, data showed on Friday, in a sign of confidence in the bloc’s recovery.Loans to companies grew by 2.5% year on year, the fastest pace since April, the European Central Bank data showed. Loans to household were up by 4.1%, the same pace as the month before. More

Taiwanese chipmaker United Microelectronics Corporation will pay Micron Technology an undisclosed fee to settle a trade secrets dispute that stoked US fears that China was stealing technology. UMC was fined $60m in October last year after pleading guilty to US charges of stealing Micron’s confidential information and sharing it with China-based Fujian Jinhua during a collaboration with the company. The case put under scrutiny Taiwanese technology companies that form a crucial part of the global semiconductor supply chain but often have deep links with Chinese manufacturers.Taiwanese companies were pushed to decrease their dependence on China during heightened tension between Washington and Beijing under the presidency of Donald Trump.The resolution of the UMC dispute comes as the US has stepped up its campaign to limit technology transfer to China. Linghao Bao, an analyst at Trivium China, said that with computer chips in short supply, manufacturers were at an increasing risk of getting caught in the middle of US-China tensions.“Chips have become the new oil. They are inseparable from geopolitics,” Bao said.The Biden administration on Wednesday put a dozen Chinese groups involved in quantum computing and other advanced technologies on an export blacklist. It has also called for greater transparency in semiconductor supply chains, a move analysts said would harm the competitiveness of some chipmakers.The UMC dispute stems from 2016 when the company signed a deal with Fujian Jinhua, which included provisions for the Taiwanese company to help it to boost its production capacity.In October last year, UMC admitted in court that it had hired engineers from Micron who later worked on the project and allegedly shared confidential information from Micron with UMC.In a joint statement issued on Friday the two companies said that with the payment of an undisclosed fee from UMC, both sides would withdraw their complaints against each other. The companies added that they “look forward” to future mutual business opportunities.Dan Wang, a Shanghai-based technology analyst at Gavekal Dragonomics, a research firm, said semiconductors remained “one of the central fronts” in US-China competition and that the US had given “little indication” that it would loosen its controls on the technology.“Chipmakers are in a gloomy mood. The US government has made it a matter of policy to evict them from a country that is everyone’s largest or fastest-growing market.” More

Could this be the ultimate poisoned chalice in monetary history? Joe Biden’s decision this week to grant a second term to Jay Powell at the Federal Reserve looked judicious from the administration’s perspective but the challenges that the chair faces rate close to 10 on the Richter scale.It is not simply that inflation is racing away, with consumer prices up 6.2 per cent in the year to October while personal consumption expenditures, the Fed’s preferred measure of inflation, have risen 4.1 per cent over the same period, the highest level in three decades. Powell has to secure the post-pandemic normalisation of monetary policy when President Joe Biden’s stimulus packages are driving demand at a frenetic rate relative to supply and the economy is plagued by bottlenecks.This, according to former Treasury secretary Larry Summers, is “a consequential macroeconomic policy error”. It smacks of earlier fiscal excesses around the Vietnam war and Reaganomics, both of which ended badly. Today the absolute deficit numbers are much bigger, as is the level of debt.The Congressional Budget Office projects that federal debt held by the public will rise from 103 per cent of gross domestic product at the end of 2021 to 106 per cent in 2031. This compares with less than 40 per cent at the time of the financial crisis. It will thus be difficult for the Fed to raise rates in response to inflationary pressure without causing markets to collapse and precipitating recession. Monetary tightening could beget a perpetual cycle of financial instability, followed by more quantitative easing to prop up markets and support the economy.Two questions arise. Is normalisation a chimera? And can the dollar’s role as the world’s pre-eminent reserve currency survive against a background of monetary instability and fiscal excess while the US continues to represent a declining share of global GDP?The proximate cause of the inflationary surge relates to supply. This highlights a strange asymmetry in central bankers’ relations with the supply side. On the one hand, Bank of England governor Andrew Bailey is right in saying that monetary policy cannot deliver more gas, more computer chips, more lorry drivers. On the other, ultra-loose monetary policy does have the power to create bubbles that cause mispricing of risk and misallocation of capital. This depresses productivity growth, which makes the task of debt reduction much harder.When US debt was last at 106 per cent of GDP back in 1946, it was brought down by a combination of growth and inflation. Today, it is clear that the underlying trend growth rate of the US economy is running at anaemic levels, well below those of the immediate postwar period. This raises the possibility that inflation will have to do more of the debt reduction work this time, which is a strange kind of normalisation.The way the requisite inflation will come about will be through what economists call second-round effects, most notably in tightening labour markets. This is already visible and will be exacerbated by demography as workforces around the world start to shrink and thus regain bargaining power.

US Treasuries are unrattled by the prospect that inflation may not be transitory and yield a negative real income after inflation. So a debt crisis is clearly some way ahead. So, too, with any potential decline in the dollar’s reserve currency role. With excess global savings there is an insatiable demand for so-called safe assets in the shape of the enormous outstanding liabilities currently being created by the US. So 60 per cent of central bank foreign exchange reserves are still in dollar assets, with the eurozone following up with just 20 per cent. As a new paper by Ethan Ilzetzki, Carmen Reinhart and Kenneth Rogoff points out, changes in the dominant global currency are rare. When they do occur, there is typically a long transition. Since the 1500s only Spain, the Netherlands, Great Britain and the US have seen their currencies reaching dominant status.The authors nonetheless note that, while demand for dollar-denominated safe assets has exploded, the tax base backing those assets has diminished. The demand for safe assets, they say, risks eventually overwhelming the US government’s fiscal capacity to back them, adding that there is no guarantee that insatiable demand for such assets will continue.In this debate the enduring question is, what are the alternatives to the dollar? With China set to overtake the US economy the renminbi, which commands just 2 per cent of global reserves, is clearly a contender. Yet many question whether a totalitarian state with weak institutions, fragile property rights and an interventionist way with markets can do the job.In practice, the bigger challenge here for Powell will come if China succeeds in making the transition to a more consumer-driven economy, which would cause global savings rates to fall and real interest rates to rise. That is one more reason for markets to wake up and recognise that US government IOUs are very unsafe assets. [email protected] More

TOKYO (Reuters) -Japanese Prime Minister Fumio Kishida is expected to urge the business sector to raise wages by around 3% in next year’s annual wage negotiations with labour unions, Kyodo news agency reported on Friday.The request will be part of Kishida’s initiative to distribute more wealth to households, and help ease the pain on consumers from rising oil and food costs.The proposal, to be made at a government panel to be held later on Friday, will be the first time in four years for the government to set a numerical target for businesses on the level of wage hikes.There is uncertainty, however, on whether companies will heed Kishida’s request for voluntary wage hikes as many of them have kept wage growth low to protect jobs and weather the hit from the coronavirus pandemic.”With economic uncertainty heightening, companies will be quite cautious about raising wages,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.”It will be pretty tough to achieve a 3% wage hike as the economy isn’t recovering as strongly as the government had expected.”Former Prime Minister Shinzo Abe had little luck boosting wages despite repeated requests for businesses to pass on huge profits they earned from his “Abenomics” stimulus policies.In last year’s wage negotiations to set salaries for 2021, Japanese firms offered the lowest wage increases in eight years as the pandemic hurt corporate profits.Slow wage growth has been among factors that kept the Bank of Japan from hitting its 2% inflation target, as it saps households’ purchasing power and discourages companies from charging more for their goods.Part of efforts to prop up a still-stagnant economy, Japan unveiled last week a record $490 billion spending package, bucking a global trend towards withdrawing crisis-mode stimulus measures.The package included funding to increase government-set wages for nurses and social care workers by 3%. More

The uptick in prices highlights the chance nationwide inflation will pick up in coming months as pressures from raw material shortages gradually pass through to retailers to consumers.The core consumer price index (CPI) for Japan’s capital, which includes oil products but excludes fresh food prices, rose 0.3% in November compared with a year earlier, government data showed.That marked the fastest year-on-year rise since July last year, when the index gained 0.4%, but was slightly weaker than a median market forecast for a 0.4% gain.The Tokyo index, which is considered a leading indicator of nationwide price trends, was pushed up by the biggest year-on-year jump in energy prices in over eight years as well as the fastest rise in fuel costs in more than four decades.It was also impacted by a 57.6% year-on-year increase in accommodation costs, which was flattered by the low base effects of various travel-related discounts offered by the government last year.The cost of tuna and other fresh fish also rose, likely due to soaring fuel costs as well as stronger domestic demand, a government official said, though they are not included in the core consumer price index.Nationwide consumer inflation in Japan has barely risen even as other major economies, such as the United States, are worrying about the risk of too-high inflation after their economies opened up from pandemic-induced lockdowns. More

While consumer inflation is hovering around zero, upward pressure is building partly due to the effect of rising oil and food costs, Nakagawa was quoted as saying.The BOJ, however, will maintain its ultra-loose monetary policy to achieve its 2% price goal, she added, according to the interview conducted on Wednesday and published on Friday.Nakagawa said there were benefits and drawbacks of a weak yen on Japan’s economy, as it boosts exporters’ profits but pushes up import costs for companies operating domestically, according to Bloomberg. More

In a report on digital trade to be published on Friday, the board, headed by trade minister Anne-Marie Trevelyan, said the government should look to strike digital trade deals and help shape global trade rules suitable for the modern world.”By addressing digital protectionism on the global stage and championing a free, open, and competitive digital economy, more UK companies will be able to export their innovative, high-quality services and goods globally,” Trevelyan said in a statement. In October, Britain helped broker a deal between the Group of Seven wealthy nations on principles to govern cross-border data use and digital trade in a first step to reducing barriers.The Board of Trade, a government body tasked with championing exports and inward investment, said Britain should aim to build on the G7 agreement by working with partners to pursue a wider international consensus on digital rules, norms and standards. Digital trade is broadly defined as trade in goods and services that is either enabled or delivered digitally, encompassing activities from the distribution of films and TV to professional services.The report said Britain should focus particularly on securing Free Trade Agreements with the fast-growing Indo-Pacific market and large, service-based economies, as well as rapidly progressing the UK’s accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).It should also seek a Digital Economy Agreement with Singapore, viewed as a global leader on digital, in order to demonstrate the potential for digital trade rules to others in the World Trade Organization, it said. More