Aurelia Butler

TOKYO (Reuters) – Japan’s economic stimulus package will require fiscal spending worth 40 trillion yen ($350 billion), the Nikkei business daily reported on Friday, and a draft of the spending plan reviewed by Reuters features steps to ease the pain of rising oil prices.Prime Minister Fumio Kishida, with his position strengthened by an election win last month, has vowed to compile a stimulus package “worth several tens of trillion yen” on Nov. 19 to spur the world’s third-largest economy, which is reeling from the coronavirus.The spending is likely to be financed by some new debt, adding to the industrial world’s heaviest public debt at more than twice the size of Japan’s economy, as Kishida prioritises recovery from the pandemic over fiscal reform.Analysts were surprised by the bigger-than-expected spending plan.”The spending is far bigger than the output gap of 22 trillion yen. (Kishida) must be coming under pressure to boost spending ahead of next summer’s upper house election,” said Saisuke Sakai, senior economist at Mizuho Research and Technologies. “This looks like nothing but pork-barrel spending.”Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui (NYSE:SMFG) DS Asset Management, said despite higher spending, the impact would be limited on markets as the Bank of Japan would keep borrowing costs low under its yield curve control policy. Surging global crude oil prices, as well as a chip shortage and supply-chain constraints, undermined a trade-reliant economy seen to have shrunk in the third quarter as pandemic curbs and supply bottlenecks hurt consumption and output.”We will prepare flexible measures on soaring energy costs in the coming stimulus package,” Economy Minister Daishiro Yamagiwa told reporters earlier on Friday.”Steps will focus on sectors such as agriculture, forestry and fisheries as well as logistics firms, who cannot make a living without using fuel.” Other measures to be included in the package are steps to ramp up domestic production of semiconductors as well as a 10 trillion yen ($87.5 billion) fund aimed at giving universities more resources to boost science and technological research, the draft showed.The spending plan will also get a boost from cash payouts to citizens aged 18 or younger, which would cost about 2 trillion yen, and to small firms hit hard by the pandemic, to total some 3 trillion yen, the Nikkei reported. It includes resumption of tourism promotion to stimulate demand after the pandemic. ($1 = 114.0500 yen) More

(Reuters) – European shares were largely muted on Friday, but were on course to mark their sixth straight weekly gains, with luxury stocks flying high on the back of strong earnings from Cartier-owner Richemont.The pan-European STOXX 600 index was flat after hitting a fresh record high earlier in the trading session.Richemont surged 8.6% after beating profit estimates in the first half of the fiscal year and saying it is seeking investors for its loss-making Yoox (MI:YNAP) business, in a move widely expected to appease shareholders.The luxury sector also got a boost from France’s LVMH, which gained 0.9% on news that Louis Vuitton was planning to open its first duty-free store in China.French blue-chip shares were at all-time highs, with carmaker Renault (PA:RENA) jumping 3.7% after Morgan Stanley (NYSE:MS) upgraded its stock. “The earnings season is confirmation to markets that the underlying growth and demand picture is still very strong, even though there are companies talking about supply issues and margin pressures going forward,” said Seema Shah, chief strategist at Principal Global Investors.”But you’re probably going to get to a point where returns get smaller and you see more volatility – investors will have to make that adjustment in their minds.”The STOXX 600 has seen fresh record highs in November, buoyed by dovish central bank messages, upbeat earnings reports and signs of post-pandemic economic revival. However, ECB policymakers admitted on Friday that euro zone inflation may decline more slowly than earlier thought, partly due to supply chain bottlenecks that were more persistent than previously expected.Further, Europe has become the epicentre of COVID-19 again, with Germany, France, and the Netherlands experiencing a surge in infections, and prompting some governments to consider re-imposing lockdowns, according to fresh data.Oil and mining stocks led losses in the STOXX 600, dipping 0.8% each as crude and metal prices were dented by a firmer U.S. dollar owing to market bets of an earlier-than-expected Federal Reserve rate hike. Italian infrastructure firm Atlantia rose 0.5% after raising its 2021 forecast, while Dutch oil and chemical storage group Vopak also advanced 1.2% after beating estimates for quarterly profit. More

LONDON (Reuters) – Wasn’t surging inflation supposed to undermine the U.S. dollar?Be that as it may, the opposite happened this week as news of a surprise spike in U.S. inflation and inflation expectations to their highest in decades sent the U.S. dollar soaring against currencies around the world. The dollar’s main index zoomed to its highest for the year as the euro and sterling, which make up 58% and 12% of that index respectively, slumped to 2021 lows.For some, this made little sense.There’s a long-standing narrative out there that over-easy Fed money and seemingly endless creation of new dollars via Fed bond buying will eventually fuel inflation and undermine the greenback as the kingpin of the world financial system.All things equal, higher consumer inflation should be bad for a currency as it means people can buy fewer goods and services for their coin. Allowed to fester, spiralling prices and resulting hyperinflation have in the past rendered national currencies effectively worthless. Fear of so-called ‘dollar debasement’ has been the stuff of gold bulls for decades, and many have been demanding a return to the gold standard ever since it was abandoned 50 years ago. Lately, cryptocurrency evangelists have taken up the cudgel.Yet, the failure of bitcoin or ethereum to get excited by Wednesday’s U.S. inflation shock underscored just how patchy the argument for buying crypto as an inflation hedge remains.And even though gold rose this week, it remains in the red for the year. Long-standing gold bugs and Fed critics, such as Euro Pacific Capital’s Peter Schiff, were left scratching their heads as to why the dollar was rising. “Today’s dollar rally makes no sense,” Schiff tweeted on Wednesday. “The fact that the dollar is losing purchasing power much faster than expected doesn’t make the dollar more valuable.” So what gives? Prosaicly, it’s all just relative. Even if faith in the Fed is in question, foreign exchanges dictate that any loss of the bank’s credibility only matters if it’s more or less than any other central bank out there.And more posaically still, that all comes down to the basics of where you expect U.S. interest rates and inflation to be relative to those of their major peers a year from now.DOLLAR IN YOUR POCKET?This week’s slide in the world’s pivotal euro/dollar pair to its lowest since July 2020 came as the one-year interest rate gap in favour of dollars surged after the inflation data. It’s now added almost 20 basis points to 0.9% in just three weeks.The Fed is now priced to hike policy rates at least twice by the end of next year, starting as soon as July. The European Central Bank barely has one smaller hike priced, but ECB officials loudly insist a rate rise next year is very unlikely.Whether these rate premiums cover expected inflation differentials is less obvious. They are shy on a one-year horizon – but they do seem to comfortably cover the risk on a 5-10 year view, judging by the relative inflation swaps market.And more immediately, U.S. economic data is surprising consensus forecasts more positively than the still deeply negative surprises seen in the euro zone. In fact, the gap between U.S. and euro economic surprise indices compiled by Citi is more positive in favour of the United States than at any other point since October last year.Even though Fed critics like Schiff doubt the Fed will be willing to tighten to the extent the market now thinks, more mainstream investors feel the Fed will react next year and there is much more room to reprice those expectations higher than there is for other central banks.Leander Galli, senior portfolio manager at Amundi’s global fixed income team, thinks the market is neither fully priced yet for higher U.S. inflation longer-term nor for the degree to which the Fed will act to contain it.”The more the Fed waits, the faster it will have to go eventually.”So is spiky inflation today the beginning of a big ‘debasement’ or the spur for more handsome returns?There are myriad arguments back and forth as always.What it does recall is the sometimes tedious debate over the U.S. Treasury’s presumed ‘strong dollar’ policy – a clipped mantra that ‘a strong dollar is in the U.S. interests,’ which former Treasury Secretary Robert Rubin repeated in the 1990s to bat away questions about whether Washington weakened the dollar for trade advantage.Subsequent Treasury secretaries often tied themselves in knots over the wording – often unwisely nuancing the statement around whether it simply meant a strong dollar in your pocket via low inflation or strength on world currency markets.This week at least, it’s most certainly the latter. (by Mike Dolan, Twitter (NYSE:TWTR): @reutersMikeD; Editing by David Clarke and Steve Orlofsky) More

Inflation shot above 4% last month, more than twice the ECB’s 2% target, on soaring energy prices and industrial supply chain bottlenecks that are now proving to be bigger problems than thought even just a few weeks ago.Finnish central bank chief Olli Rehn and Lithuania’s Gediminas Simkus both suggested that these inflationary pressures could last longer but maintained the ECB’s view that the price surge is temporary so they pushed back on suggestions for policy tightening. “Euro area inflation is still mostly transitory even though some of its components are more persistent than previous expected,” Rehn told a Lithuanian conference.Supply chain bottlenecks are one of the factors that are proving to be more durable and Rehn argued that the bloc of 19 countries is unlikely to feel major relief until towards the end of 2022, which will also affect consumer price growth.Simkus also acknowledged that inflation is high but predicted a fall, even if somewhat slower than last predicted by the ECB.“Even if we have a certain increase or even higher inflation rate… it’s to return to lower than target levels in 2023,” he told the conference.The ECB in September projected inflation would fall back under 2% in 2022, but a host of forecasters from the private sector to the European Commission have already acknowledged that price growth will not return to below the ECB’s target until a year later.This now leaves the ECB in the tricky situation of managing a supply side shock while engineering a “gradual, prudent” reduction of stimulus, Rehn added.”The ECB leans on the side of patient and prudent approach in maintaining a rather accommodative stance going forward,” Rehn said. More

Whether December’s Bank of England meeting will be a “live” one may be determined by British data, especially on jobs. Finally, Turkey, defying near-20% inflation, seems set to cut interest rates again. 1/ HOUSING COSTSEleventh hour payments https://reut.rs/3HeXrE0 of overdue interest are helping China Evergrande squeak clear of default; the latest one has momentarily staunched bleeding in credit markets. It is cold comfort as investors count the cost of a crippled property sector on China’s economy. Demand worries have pounded iron ore prices but despite signs of economic slowdown, the hoped-for policy easing is yet to meaningfully arrive. https://www.reuters.com/article/china-economy-policy-idUSKBN2HT11VHome price data on Monday may show values stalled or even slowed last month. And the outlook isn’t bright, if desperate developers flood the market with discounted stock. It bodes ill for a sector comprising a quarter of the world’s No 2 economy. It’s also a bad omen for consumption, seen slowing down in figures due Monday. (China housing market feels squeeze from credit woes – https://tmsnrt.rs/3EWEhku) 2/ TWITTER FUN Tesla (NASDAQ:TSLA) shares, whipsawed after co-founder Elon Musk asked Twitter (NYSE:TWTR) users https://reut.rs/2YGCUac whether he should sell a 10% stake in the electric car firm, are in focus. Nearly 58% of respondents to the poll backed a sale of the shares and according to stock market filings, Musk has sold about $5 billion https://reut.rs/3Heg6Qw of shares over recent days.Tesla had an eye-watering run in October, its market value past $1 trillion. It accounts for about 2.1% of the S&P 500’s roughly $4 trillion market cap versus 1.8% when Tesla joined the index almost a year ago.Markets are also watching for news on whether Jerome Powell will be renominated as Federal Reserve chief. Powell and Fed Governor Lael Brainard, a possible successor, were recently spotted at the White House https://reut.rs/3Daklu2.  (Tesla in the S&P 500 – https://tmsnrt.rs/30bqV5h) 3/ DATA DEPENDENT After stunning markets https://www.reuters.com/world/uk/bank-england-defies-markets-keeps-rates-hold-2021-11-04 on Nov. 4 by not delivering a widely anticipated rate rise, the Bank of England said it wanted more evidence of labour market improvement. Two sets of data are due before its next meeting, the first on Tuesday.Following good numbers for September https://www.reuters.com/world/uk/uk-payrolled-employment-rises-by-another-207000-september-2021-10-12, October jobs data will show if unemployment rose after the Sept. 30 expiry of a pandemic-time wage subsidy scheme that one million people were estimated to be on.Inflation and retail sales data are out Wednesday and Friday respectively. A big inflation print alongside another retail sales https://www.reuters.com/business/retail-consumer/uk-retail-sales-fall-unexpectedly-september-2021-10-22 decline will force the BoE to choose whether to act against inflation or nurture the fragile economy. With an economy 0.6% smaller https://www.reuters.com/world/uk/uk-economy-grows-06-sept-after-weak-summer-ons-2021-11-11 below pre-pandemic levels and risks growing of a damaging confrontation with the EU https://www.reuters.com/world/uk/growing-expectation-uk-will-trigger-article-16-over-brexit-dispute-rte-2021-11-05, a rate rise is the last thing Britain needs. But 4%-plus inflation may leave the BoE no option. (UK Jobless rate – https://tmsnrt.rs/3D6W2gk) 4/ TURKEY AND THE CUTSTurkey’s central bank meets on Thursday. Although its currency has stumbled from record low to record low and inflation stands at around 20%, policymakers are expected cut rates further from https://www.reuters.com/world/middle-east/turkish-cenbank-cut-policy-rate-15-lira-hits-record-lows-2021-11-11 the current 16% level, prioritising growth over price pressures. Yet the sinking lira, flirting precariously with the 10 to the dollar level, could spell trouble for an economy heavily dependent on energy imports — with firms and the government having a chunk of outstanding hard currency debt.Turkey is a loner among global central banks that have already or are about to enter tightening cycles https://www.reuters.com/business/finance/ramping-up-rates-emerging-central-banks-feel-inflation-pain-2021-11-03. South Africa’s central bank, also meeting on Thursday, is seen embarking on hikes soon while Indonesia is expected to hold rates https://www.reuters.com/world/asia-pacific/bank-indonesia-hold-rates-until-late-2022-awaiting-economic-resurgence-2021-10-15 the same day. Hungary is seen shifting hikes up a gear on Tuesday. (Lira timeline November 2021 – https://tmsnrt.rs/3n6oOIm) 5/ WORLD VS COVIDThe war against COVID-19 is not over. Germany is battling https://reut.rs/3F68BZM record-high new cases, New Zealand is fighting off the highly infectious Delta variant and the Netherlands could soon impose a partial lockdown. However, the United States feels confident enough to ease travel restrictions https://reut.rs/30iV3eX. Japan on Nov. 7 recorded no daily COVID deaths for the first time in over a year https://www.reuters.com/world/asia-pacific/japan-has-zero-daily-covid-19-deaths-first-time-15-months-media-2021-11-08.Developed countries are already lining up to secure a new antiviral pill that shows promising efficacy https://reut.rs/3n3GhRY in some trials. Economists compiling 2022 economic forecasts will be watching closely. (World COVID-19 new daily cases – https://tmsnrt.rs/3krKgWw) More

LONDON/WASHINGTON (Reuters) -Glencore has offered assurances over the restructuring of Chad’s more than $1 billion commercial debt, paving the way for the International Monetary Fund to move forward on a lending program, sources familiar with the matter said on Thursday.The African country in January became the first country to request a restructuring of its external debt of $3 billion under a common framework agreed last year by China and other Group of 20 members and the Paris Club of major creditor countries.Chad’s state creditors and the IMF have agreed on a restructuring, but had insisted that Chad also reach comparable terms with other bilateral and private creditors.The IMF said late on Thursday it was working with Chadian authorities to bring a new lending program to the IMF’s board for approval after the country’s main private sector creditor committed to engaging in “good faith discussions” about restructuring the country’s debt. It did not name Glencore (OTC:GLNCY) specifically, but Chad has said the company accounts for more than 98% of its commercial debt, most of it in oil-for-cash deals dating back to 2013 and 2014.Abebe Aemro Selassie, director of the IMF’s African department, said IMF staff aimed to submit a new Extended Credit Facility for Chad to the board for its consideration “as soon as possible,” but gave no specific timetable or additional details.One of the sources said the goal was to complete work on the new arrangement by the end of the year.Chad, Zambia and Ethiopia are the only countries that have sought debt treatment under the G20 Common Framework.Progress on Chad’s case could help encourage other countries in debt distress to seek help under the G20 program, IMF and World Bank officials have said.Glencore and a consortium of banks in October started talks with Chad over the restructuring of its commercial debt.The restructuring of Chad’s total debt, which the IMF has described as unsustainable, is a prerequisite for the Central African country to benefit from further financial support.Chad was thrown into political turmoil in April following the battlefield death of former President Idriss Deby, and its economic outlook has worsened due to the coronavirus pandemic, attacks by rebels in the north, and delays in financial support.Its debt has already been restructured twice, in 2015 and 2018. More

A surge in festive spending has boosted hopes that India will regain its title as the world’s fastest-growing large economy, even as analysts warn of deep challenges facing a country whose consumers and businesses are still bruised by the coronavirus pandemic.Sales over Diwali, the Hindu festival of lights that was celebrated last week, surged to a record Rs1.25tn ($16.8bn), according to Nomura, a 75 per cent jump from last year and well beyond the usual 20 per cent year-on-year growth.The surge underscores how economic activity has rebounded sharply, contributing to the bullish mood. This has been due in part to a big drop in daily Covid-19 cases to about 11,000, from 400,000 in May when a brutal wave of infections overwhelmed health systems.Other indicators, such as mobility and electricity demand, have also bounced back. But economists are divided over how sustainable the rebound is, as rising prices pinch consumers and a coal shortage threatens to eat into industrial output. “Cases are down . . . and because last year’s Diwali was quite subdued, everyone was out and about this time around,” said Shumita Deveshwar, senior director of India research at TS Lombard. “This is a short-term boost. I don’t know whether it’s going to turn into a long-term recovery.”The IMF expects India’s gross domestic product to grow 9.5 per cent in the year ending in March, compared with 8 per cent in China and more than any other large economy. That, however, reflects a correction after it shrank 7.3 per cent last year, and will leave the size of the economy little changed from two years ago.India on Friday will report its latest inflation and industrial production numbers, which are expected to highlight some of the challenges still facing the recovering economy.Industrial output growth has been slowing since the summer, exacerbated by factors such as steep cuts in car manufacturing forced by the global semiconductor shortage. The recent shortage of coal, India’s main electricity source, prompted the government to divert fuel from industries such as steel factories to the power system.Analysts said the power crunch threatened the output of metals and other core materials. “That would obviously have a spillover effect to other industries,” Aurodeep Nandi, an economist at Nomura, said. “I don’t think we’ve reached a stage where all of this is yet reflected in data.”

Retail inflation, meanwhile, has fallen from more than 6 per cent in June to 4.3 per cent in September. But sustained price increases have hurt consumers, which prompted the government to cut taxes on petrol and diesel this month.“We are seeing indicators that paint a mixed picture,” Nandi added. “That’s the challenge in understanding what’s happening with growth at this point.”Oxford Economics, a research group, said that further progress on vaccinating India’s population was needed to buttress the recovery.India has administered one Covid-19 jab to more than half of its population, with a quarter fully inoculated. Oxford expects 70 per cent of Indians to be fully vaccinated by the first quarter of next year.“There does seem to be some loss in growth momentum,” Priyanka Kishore, Oxford Economics’ head of India said. “It’s a soft patch . . . [but] I’m pretty optimistic on 2022.” More