Aurelia Butler

BENGALURU (Reuters) -New Zealand’s central bank will raise rates for the second meeting in a row on Wednesday and continue with its tightening spree next year as it tries to put a lid on rising inflation and cool an overheated housing market, a Reuters poll found.Large amounts of fiscal and monetary stimulus injected to alleviate pandemic pain have helped the economy recover strongly and pushed inflation to its highest and the jobless rate to its lowest in over a decade.That has prompted financial markets to price in a series of interest rate rises through next year that economists have mostly matched in their forecasts.All but two of 23 economists in a Nov. 15-19 Reuters poll predicted the Reserve Bank of New Zealand (RBNZ) would raise the official cash rate by 25 basis points to 0.75% at its Nov. 24 policy meeting. Markets are fully pricing in a 25 basis point rise too.The two dissenters expected a 50 basis point increase.”Unlike other central banks, the RBNZ doesn’t have the luxury of time on its side. They are on a hiking cycle for sure; we have seen one rate rise, we will get another one next week and I think they will raise in every meeting into next year,” said Jarrod Kerr, chief economist at Kiwibank.”The economic climate is much hotter than the RBNZ envisioned … the decision to lift interest rates is in part due to the excesses seen in the housing market.”Ben Udy, an economist at Capital Economics, forecasts a 50 basis point hike from the RBNZ on Wednesday, which if realised, would bring rates back to their pre-pandemic level of 1.00%.”The fact that every measure of underlying inflation which the bank monitors is now around or above the top end of the bank’s target, it’s obvious that more monetary tightening is needed,” Udy said.Medians predict the official cash rate (OCR) reaching 1.75% by the end of next year and 2.0% by end-2023. Still, that is below what it was in 2014 after the RBNZ last delivered four consecutive quarter-point rate rises.New Zealand’s annual inflation rose to 4.9% in the third quarter, the fastest pace in more than a decade, driven by housing-related costs and other supply constraints.The RBNZ also warned that more persistent inflationary pressures and any increase in inflation expectations https://www.reuters.com/article/newzealand-economy-inflation/update-1-new-zealand-inflation-expected-to-rise-in-q4-rbnz-survey-idINL1N2S904F, coupled with weaker growth, could lead to a sudden tightening in financial conditions.On the other hand, the jobless rate https://www.reuters.com/business/cop/new-zealand-unemployment-rate-drops-record-low-q3-2021-11-02 fell to 3.4% in the third quarter, matching its lowest on record from December 2007. That was around the same time that the U.S. economy fell into a deep recession after the housing bubble burst.New Zealand’s sizzling housing market will also figure prominently in the monetary policy decision of the central bank, which recently said house prices were above their sustainable level and that increased the chance of a correction.House prices have nearly doubled in the last seven years and are the most unaffordable https://www.reuters.com/world/asia-pacific/growing-supply-will-bring-down-new-zealand-house-prices-says-rbnzs-orr-2021-11-01 among OECD nations due to a chronic housing shortage, historically low interest rates and cheap access to capital from the government’s pandemic-driven stimulus spending.”The labour market is the tightest it has ever been and inflation pressures are intense, but on the other hand the housing market cycle is looking very mature, and there’s the small matter of COVID spreading its way around the country,” said Sharon Zollner, chief economist at ANZ. “On balance, the case for tighter monetary conditions is clear.” More

Hello and welcome to the working week.The main diary item for Americans will be the Thanksgiving holiday on Thursday — for those flying to see family, the FT has an airport restaurant guide. This coming Sunday will also feature the start of celebrations for Hanukkah, the Jewish Festival of Lights, and the Christian season of Advent, both of which have themes of gratitude.Thanksgiving is followed by the consumer frenzy that is Black Friday, now an international event, providing an indication of the health of the retail sector. Here, too, the economic and corporate news gives us much to be thankful for, from early Christmas shopping trips and rising consumer confidence in the UK to Airbnb reporting an increase in bookings. With consumer confidence data due for EU nations this week, we will see whether the joy can be found across Europe.Londoners that find themselves out late will be welcoming the return on Saturday of parts of the Night Tube — suspended at the start of the UK’s first pandemic lockdown. London relies on good public transport, as the mayor Sadiq Khan noted in this FT op-ed. Revellers will no doubt be pleased about the Night Tube’s return, but so will those who just need to get between places at night and find the service a safer alternative to walking the streets or hailing a cab in the small hours.Giving thanks will also be the theme for a more sombre occasion. In the UK, mourners will reflect on the significant contribution of public service made by David Amess, the Southend West MP who was killed at a constituency surgery meeting last month. A civic service will be held at Westminster Cathedral on Tuesday.I am very thankful for your comments — emailed to [email protected] — so please keep them coming.Economic dataIt might be the start of the holidays, but we are at the tail-end of the earnings season. That means that this week’s statistical and events calendar is a little thin. Highlights are likely to be the flash purchasing managers’ index surveys that will enable comparisons in the relative health of G7 nations and a run of surveys in Europe and the UK. In the US, there will be data for residential property sales and a revised Q3 GDP figure.CompaniesAs has been noted, the next few weeks should be a blessing for online retailers such as AO World, which reports interim results on Tuesday. However, the UK-based household appliances specialist has already warned that sales have been hit by driver shortages and supply chain disruption brought on by the pandemic, as well as competition from larger rivals, such as Amazon.We all want to move beyond the pandemic, even Zoom. The video conferencing platform, which reports quarterly numbers on Monday, needs to broaden its scope given that employees are returning to the workplace and less reliant on screen-based meetings. The collapse of Zoom’s bid to buy cloud computing business Five9 might have been a blessing, according to the FT’s Lex column, but the company will need to reassure investors about the viability of alternative plans on its earnings call this week.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayChina, policy rate decisionEU, flash consumer confidence figuresThailand, Q3 employment data and household debt figuresUK, CBI monthly industrial trends surveyResults: Intuit Q1, Zoom Q3TuesdayCanada, speech by deputy governor of the Bank of Canada, Paul Beaudry, to the Ontario Securities Commission on risks to Canada’s financial systemCRH Q3 trading updateEurozone, France, Germany, UK, US: IHS Markit flash composite purchasing managers’ index dataGermany, Q3 GDP figuresNigeria, monetary policy committee sets interest ratesUK, HMRC publishes monthly property transactions dataResults: AO World H1, Best Buy Q3, Compass Group FY, Dell Technologies Q3, HP FY, Medtronic Q2, Severn Trent H1WednesdayNew Zealand, Reserve Bank of New Zealand gives monetary policy statementSweden, Riksbank holds its monetary policy meetingUS, Federal Open Market Committee meeting minutes, Q3 GDP estimate plus consumer spending and residential sales figuresResults: Deere & Company FY, Johnson Matthey Q2, Lukoil Q3, United Utilities H1, Virgin Money FYThursdayEU, European Central Bank governing council meeting minutesGermany, consumer confidence and Q3 GDP figuresMexico, GDP figuresUK, energy trends and prices data, estimates of young people who are not in education, employment or training, plus BoE capital issuance statisticsResults: Rémy Cointreau H1FridayFrance, consumer confidence figuresChina, monthly property data for Hong KongSwitzerland, Q3 GDP figuresUK, Office for National Statistics excess winter mortality data for England and Wales plus Nationwide house price indexUK, Bank of England chief economist Huw Pill gives a speech on the economic outlook, hosted by the CBI North EastWorld eventsFinally, here is a rundown of other events and milestones this week. MondaySwitzerland, general council of the World Trade Organization meets in GenevaUK, CBI annual conference, which is this year being held online, beginsTuesdayUK, funeral service for MP David Amess at Westminster CathedralWednesdayDubai, FIDE World Championship of Chess beginsThursdayCuba, Fifth anniversary of Fidel Castro’s deathUK, NHS vacancy statistics for England plus Home Office immigration statisticsUS, Thanksgiving holidayFridayBlack Friday, so called because of sales enabling retailers to go into the blackSaturdayThailand celebrates its annual monkey festivalUK, London’s Night Tube will be returning in time for the busy Christmas periodSundayHanukkah, the Jewish Festival of Lights, beginsHonduras holds a general electionUK, first Sunday in AdventUS, Hollywood Christmas Parade held in Los Angeles More

Several members of Chancellor Angela Merkel’s conservative bloc said on Sunday that federal and state governments should introduce compulsory vaccinations soon as other efforts to push up Germany’s low inoculation rate of just 68% have failed.”We’ve reached a point at which we must clearly say that we need de facto compulsory vaccination and a lockdown for the unvaccinated,” Tilman Kuban, head of the youth wing of Merkel’s Christian Democratic Union (CDU), wrote in Die Welt newspaper.Germany’s seven-day coronavirus incidence rate rose to the highest level since the pandemic began for the 14th consecutive day on Sunday, reaching 372.7 nationwide.In some regions, it has surpassed 1,000 with some hospitals already reporting full intensive care units. The record in the third wave of the pandemic last December was 197.6.Overall, there have been 5.35 million coronavirus infections reported in Germany since the start of the pandemic in February 2020. The overall death toll stands at 99,062.Bavarian State Premier Markus Soeder called for a quick decision to make COVID-19 vaccinations compulsory while Schleswig-Holstein State Premier Daniel Guenther said authorities should at least discuss such a step to increase the pressure on unvaccinated citizens.Danyal Bayaz, an influential member of the Greens and Finance Minister in the southwestern state of Baden-Wuerttemberg where infection rates are very high, said it would be a mistake at this point of the pandemic to rule out compulsory vaccination.The Greens are currently in talks with the centre-left Social Democrats (SPD) and the libertarian Free Democrats (FDP) to form a three-way coalition government on the federal level.The three parties are in the final stages of sealing a coalition agreement which would pave the way for outgoing Finance Minister Olaf Scholz from the SPD to succeed Merkel as chancellor in the first half of December.Scholz has said he wants a debate about whether to make vaccination compulsory for health care workers and geriatric nurses. FDP members have voiced their objections to such a step as the party puts a bigger emphasis on individual freedom.Neighbouring Austria this week announced a plan to make vaccines compulsory next year. More

The Bank of England will have to raise interest rates if the economy evolves as expected, but the situation is “febrile”, with data giving a mixed picture, according to the central bank’s governor.Andrew Bailey’s comments over the weekend suggest a rise in interest rates at December’s meeting of the Monetary Policy Committee is not yet a done deal, despite data last week that showed employment had continued to rise after the end of the UK’s coronavirus furlough scheme, while inflation hit its highest level in a decade.Investors were taken by surprise when the BoE held off raising interest rates this month, but are now betting that policymakers will move in December, with a small initial increase — the first since 2018 — taking borrowing costs from a historic low of 0.1 per cent up to 0.25 per cent.Huw Pill, the BoE’s chief economist, said on Friday that the “burden of proof” had now shifted so that policymakers would have more explaining to do if they left interest rates unchanged than if they raised them. “I’m looking perhaps for reasons not to hike rates,” he told a conference in Bristol — adding that while it might be “convenient” to raise rates to a multiple of 0.25 per cent, the MPC could still choose a different scale of tightening if they thought it more appropriate. In an interview with the Sunday Times newspaper, Bailey said the key issue for the BoE would be whether a tight labour market led to higher wage demands that could keep inflation persistently above target.“A, activity in the economy is slowing. B, the proximate cause of many of these inflation issues is on the supply side, and monetary policy isn’t going to solve these directly . . . It doesn’t get more gas, more computer chips, more lorry drivers”, he said, in reference to surging energy prices and supply chain shortages.He continued: “And C, however the concern for us is what they classically call ‘second-round effects’, particularly in wage bargaining and the labour market . . . If the economy evolves in the way the forecasts and reports suggest, we’ll have to raise rates.”But Bailey also warned said that even if the BoE had persistently underestimated the strength of inflation over the past year, the risks to its forecasts were now “two-sided”, adding: “You’re in a fairly febrile world . . . There are risks both ways. Obviously, our concern would be that if it gets into second-round effects, it [inflation] could be elevated for longer.”The BoE’s latest forecasts show economic growth slowing in the final quarter of the year, owing to supply chain disruption and higher inflation curbing consumer spending.But data published in the past week pointed to resilience in retail sales and an improvement in consumer confidence — along with a broad-based rise in inflation and further evidence that the end of wage subsidies has not led to a sudden wave of job losses.Andrew Goodwin, at the consultancy Oxford Economics, said last week’s labour market data had been “unambiguously strong” and that “a repeat of this strength in next month’s release, which will be published two days before the MPC’s decision, could easily be enough to generate a majority for a pre-Christmas hike”. More

If there’s one thing both Republicans and Democrats can agree on, it’s that China is America’s biggest long-term strategic threat. And yet US financial firms couldn’t be more bullish on the Middle Kingdom. Banks like Citigroup, Goldman Sachs and JPMorgan Chase are expanding their business there, as are asset managers like BlackRock. But what will happen when Wall Street’s aspirations for riches in China meet the political realities of Main Street America?It’s a question that has been put front and centre by the annual US-China Economic and Security Review Commission report, issued to Congress last week, which recommended a host of new limits on business between the two countries, not just on goods and labour, but also capital flows.The Commission, whose members are appointed by both minority and majority leaders in Congress, has a good record for predicting legislative and regulatory trends. It was the first to raise Huawei as an issue (in 2004), highlighted risks within crucial supply chains in areas such as pharmaceuticals as early as 2010, and put the issue of forced labour in Xinjiang on the political map.As the most recent report put it, not only is the Chinese Communist party using economic coercion and increasing state control to advance its own political model, “Chinese policymakers are courting foreign capital and fund managers as they work to make China’s capital markets serve as a vehicle to fund the CCP’s technology development objectives and other policy goals.”The 32 new recommendations for combating this include: limiting investments in variable interest entities (VIEs) linked to Chinese entities; empowering the Securities and Exchange Commission to require companies to disclose whether they are sourcing from or invested in companies that utilise forced labour in Xinjiang or are on the US Department of Commerce’s Entity List or Treasury’s Military-Industrial Complex Companies; and mandating that public US companies report whether there is a Chinese Communist party committee anywhere in their operations. There are also suggestions on limiting the use of cloud computing and data servicing operations owned by Chinese firms.The potential market implications should such rules become law are myriad. Consider just the idea of forcing “publicly traded US companies with facilities in China” to report on an annual basis “whether there is a Chinese Communist party committee in their operations and summarise the actions and corporate decisions in which such committees may have participated.” This may seem an extreme move, but the overlap between non-state firms and the Communist party in China has grown tremendously in recent years.Citing figures used by the CCP’s own Organisation Department (and also cited by western scholars), the report notes that “in 1998, a mere 0.9 per cent of non-state firms had CCP committees, a figure that rose to 16 per cent by 2008. By 2013, committee presence in non-state firms expanded to 58 per cent, and by 2017 it reached 73 per cent, accounting for 1.9 million firms.” Assuming these figures are accurate, it’s hard to imagine a western company or financial institution doing business in China that wouldn’t have a potential problem. It’s also hard to imagine that western financial institutions purporting to prioritise ESG concerns won’t come under increasing pressure to justify the hypocrisies of working with an autocratic government.On the flip side, the Commission is also recommending protections for US investors in Chinese assets. In particular, the report flags VIEs, which are used by Chinese companies to get around rules prohibiting them from having foreign investors. Such vehicles include the largest percentage of Chinese issues by value sold on US exchanges. But they are opaque; regulators like the SEC have raised concerns about the risks they pose for investors, who often don’t get the same amount of information as for typical listed firms, and don’t have any governing control in any case.Should it come to pass, the combination of regulating VIEs, index providers that have had a huge impact on the flow of funds into China, and approaching US-China capital flows as an ESG issue could be market moving. Indeed, I’d bet that capital will become the next front in US-China economic decoupling.Some will argue that this will increase geopolitical friction and harm the global economy. That may be true. But while Wall Street understandably wants to exploit the largest pool of new international investors, and Beijing needs capital to paper over its own homegrown debt problems, it’s hard not to see the rush of financial firms into China as reflecting a continued wilful blindness about the “one world, two systems” paradigm.It’s worth noting that the US China Economic and Security Review Commission itself was formed by Congress in 2000 as a way to monitor the evolution of relations between the two nations, even as China was en route to becoming a member of the World Trade Organization. There were high hopes — but also doubts, even back then — that China would get freer as it got richer. The doubts have, of course, proved well founded.Anyone who thinks that there won’t be more constraints on business between the two countries would be wise to read the report [email protected] More