Aurelia Butler

TOKYO (Reuters) – Investors on Friday ratcheted up bets for a super-sized Federal Reserve interest rate cut next week, after media reports suggested the decision would be a closer call for officials than previously thought.Traders raised bets back to 39% for a 50-basis point reduction on Sept. 18, according to LSEG data, from about 28% before articles in the Financial Times and Wall Street Journal appeared.”This is yet another twist in the (Fed rate cut) debate,” said Tony Sycamore, an analyst at IG, noting the tug-of-war being played out in bond futures and the dollar-yen rate in particular.”Everybody thought we were back on track for 25 basis points, and now 50 is suddenly back on the table.”The dollar dropped 0.42% to 141.22 yen as of 0020 GMT, heading back towards Wednesday’s low at 140.71, the weakest level this year.The dollar index, which measures the currency against the yen and five other major rivals, dropped to a one-week trough.Gold hovered just below Thursday’s all-time high of $2,560.01, last changing hands at $2,558.55.Equities were mixed though, with Japan’s Nikkei losing 0.7% under the weight of a stronger yen, while South Korea’s Kospi edged marginally lower. Australia’s benchmark climbed 0.75%. Chinese markets had yet to open.Japan, mainland China and South Korea are all heading into long weekends, with Tokyo back on Tuesday, China on Wednesday and South Korea not until Thursday.U.S. stock futures pointed up slightly following gains on Thursday in the cash indexes. S&P 500 futures were 0.1% higher.Crude oil continued to climb following gains of around 2% overnight as producers assessed the impact on output in the Gulf of Mexico after Hurricane Francine tore through offshore oil-producing areas.U.S. West Texas Intermediate crude futures rose 0.5% to $69.32 per barrel, building on Thursday’s 2.5% rally. Brent crude futures added 0.4% to $72.26, after a 1.9% jump in the previous session. More

Holiday retail sales are likely to rise between 2.3% and 3.3% in the November 2024-January 2025 period, totaling up to $1.59 trillion, data report said, from a 4.3% growth to $1.54 trillion last year.Sales grew 3.1% in 2018.WHY IT’S IMPORTANTHoliday season sales generally account for more than half of U.S. retailers’ annual revenue.A shorter season this year – with only 27 days between Thanksgiving and Christmas – has pushed retailers into launching higher promotional discounts earlier in the season.CONTEXTConsumers across all income brackets have been hit by lower personal savings, which dipped to about 3.4% in the recent months, compared to an average of 3.8% in June this year, according to the report.Customers are expected to begin bargain hunting early, looking for additional discounts across categories including groceries and homegoods, as they tighten their purse strings.BY THE NUMBERSDeloitte expects e-commerce sales to rise in the 7%-9% range in the 2024 holiday season, totaling up to $294 billion, compared with the 10.1% increase to $270 billion last year.In-store sales are expected to rise between 1.3% and 2.1% to up to $1.3 trillion in the upcoming holiday season, compared to a rise of 3.1% to $1.27 trillion, a year ago.KEY QUOTES”Rising credit card debt and the possibility that many consumers have exhausted their pandemic-era savings will likely weigh on sales growth this season compared to the previous one,” said Michael Jeschke, leader of Deloitte Consulting’s Retail & Consumer Products.”Our forecast indicates that e-commerce sales will remain strong as consumers continue to take advantage of online deals to maximize their spending.” More

(Reuters) -Republican U.S. presidential candidate Donald Trump said on Thursday that he will end all taxes on overtime pay as part of a wider tax cut package, if he is elected in the Nov. 5 election.”As part of our additional tax cuts, we will end all taxes on overtime,” Trump said in remarks at a rally in Tucson, Arizona. “Your overtime hours will be tax-free.”Trump, who faces Democratic Vice President Kamala Harris in what polls show to be a tight race, has previously said he would seek legislation to end the taxation of tips to aid service workers. Harris has made a similar pledge.”He is desperate and scrambling and saying whatever it takes to try to trick people into voting for him,” a Harris campaign spokesperson said in response to Trump’s proposal on Thursday. At a campaign event this month with union workers, Harris accused Trump of “blocking” overtime from millions of workers during his 2017-2021 presidency.In 2019, the Trump administration issued a rule increasing the eligibility of overtime pay to 1.3 million additional U.S. workers, replacing a more generous proposal that had been introduced by President Barack Obama, Trump’s Democratic predecessor.The Trump administration raised the salary level for exemption from overtime pay to $35,568 a year, up from the long-standing $23,660 threshold. Workers’ rights groups criticized the move, saying it covered far fewer workers than the scheme introduced under Obama.Under Obama, the Labor Department proposed raising the threshold to more than $47,000, which would have made nearly 5 million more workers eligible for overtime. That rule was later struck down in court.Overtime pay at these income levels overwhelmingly benefits blue-collar workers, such as fast-food workers, nurses, store assistants and other low-income employees.”The people who work overtime are among the hardest working citizens in our country and for too long no one in Washington has been looking out for them,” Trump said on Thursday.Under Labor Department rules, eligible workers must be paid at least time-and-a-half for hours worked above 40 hours in a single work-week.As of last month, American factory workers in non-supervisory roles put in an average of 3.7 hours of overtime a week, data from the Bureau of Labor Statistics shows. Not taxing overtime would result in less government revenue, at a time when Trump’s plan to permanently extend the tax cuts he passed as president would expand the U.S. deficit by $3.5 trillion through 2033, according to the non-partisan Congressional Budget Office. The U.S. budget deficit in the first 11 months of this fiscal year is $1.9 trillion.It’s unclear how much revenue the government receives from taxes on overtime pay.Trump’s proposal would be a first for the federal government. Alabama this year became the first state to exclude overtime wages for hourly workers from state taxes as a temporary measure that won legislative support in part to help employers fill jobs in a tight labor market. The exemption is for 18 months only. More

(Reuters) – A tight U.S. presidential election race has unnerved investors in emerging markets, who fear a return of former President Donald Trump to the White House could hurt emerging markets just as they were poised to shine.The prospect of lower interest rates in the United States has brightened the outlook for EM assets, which have lagged their developed peers in the last few years.But analysts are now concerned that under a second Trump presidency trade barriers could be buttressed, spurring a rebound in inflation and thereby interest rates, lifting the dollar and eventually weighing on emerging markets again.”Normally this would be a good macro backdrop for emerging markets: resilient growth, continued disinflation and a weak dollar,” Arun Sai, senior multiasset strategist at Pictet Asset Management, told the Reuters Global Markets Forum (GMF).”But we have two issues to contend with,” Sai said – China remains a drag on the global economy, and then there is the threat of stronger tariffs and disruptions to world trade.”EM will bear the brunt,” he said.Trump has said he would consider 60% tariffs on Chinese exports, a move Barclays’ economists estimate could knock two percentage points off China’s GDP in the first 12 months.For other U.S. trading partners, a far lower 10% universal tariff has been proposed.Such tariff levels could slash U.S.-China bilateral trade by 70% and lead to hundreds of billions of dollars’ worth of trade being eliminated or redirected, Oxford Economics noted.Investors have found it difficult to say when China’s economy will turn the corner, Straits Investment Management CEO Manish Bhargava said.”EM risk should come with a premium, but that’s not happening … India is good but expensive, China is cheap but has its own problems.”In their first face-to-face debate, Democratic candidate Kamala Harris likened Trump’s tariff plan to a sales tax on the middle class. Nonetheless her campaign supports Biden-era tariffs, even signalling “targeted and strategic tariffs” in the future.”A Harris administration would likely keep using tariffs too, but she would prefer to use them along with other tools like investment in clean energy sectors,” said Rachel Ziemba, founder of advisory firm Ziemba Insights.SILVER LININGTrump’s new proposed tariffs could be set lower than the threatened levels, for China and other trading partners, noted Mark Haefele, CIO of UBS Global Wealth Management.On the other hand, Washington’s push for “friendshoring” – replacing China’s role in supply chains with friendly nations – could boost U.S.-aligned EMs.India and key Southeast Asian economies such as Indonesia and Malaysia could benefit if supply chain diversification accelerates again, Haefele said.”India is the best structural story in EM based on four pillars,” Malcolm Dorson, senior portfolio manager and head of EM strategy at Global X ETFs told GMF.Working in India’s favour are attractive demographics, the potential for long-term growth, a market-friendly government, and “being in the right place at the right time” to benefit from the China+1 trade, Dorson said.(Join GMF on LSEG Messenger for live interviews: ) More

LONDON (Reuters) – Interest rate cuts from major central banks are well underway, with the European Central Bank on Thursday delivering its second quarter-point cut of the year.Half of the 10 big developed market central banks tracked by Reuters have now started easing policy, and the U.S. Federal Reserve is likely to join the club next week.Here’s where major rate setters stand and what traders expect next. 1/ SWITZERLAND The Swiss National Bank, the first among Western peers to lower borrowing costs in March, cut rates again in June to 1.25%. It has signaled it intends to keep going. Futures markets view another cut on Sept. 26 as certain, with 28% odds of a 50 basis point (bps) move, after annual inflation dropped to 1.1% in August. Outgoing SNB chair Thomas Jordan believes a stronger franc threatens exports. 2/ CANADAThe Bank of Canada implemented its third consecutive cut on Sept. 4 to 4.25% and another 25 bps reduction in October is almost fully priced. Canada’s economy is slack, strong population growth has helped lift unemployment to 6.6% and the BoC has mused about inflation undershooting its 2% target. 3/ SWEDENSweden’s Riksbank, which started cutting rates in May after its successive hikes crushed inflation but weakened the economy, is tipped to lower borrowing costs by at least another 25 bps on Sept. 25.Swedish rates stand at 3.5% but annual inflation has steadied at below the Riksbank’s 2% target. 4/ EURO ZONE The ECB cut rates again on Thursday as euro zone inflation slows and the economy falters. It provided almost no clues about its next step, even as investors bet on steady policy easing in the months ahead.Money markets priced in roughly 40 bps of further easing by year-end and a roughly 42% chance of another 25 bps cut in October.5/ BRITAINThe Bank of England is expected to keep benchmark borrowing costs at 5% on Sept. 19, following its first cut of this cycle in August. Stubborn services inflation suggests the BoE will ease more slowly than the Fed and the ECB. Markets price just one more quarter point cut in 2024, probably in November. 6/ NEW ZEALAND A convention for quarterly instead of monthly GDP and inflation data has baffled New Zealand’s central bank and domestic market watchers. The Reserve Bank of New Zealand in August cut rates for the first time this cycle to 5.25%, a year earlier than its own projections had stated. Markets forecast another quarter point drop in October. 7/ UNITED STATES The next Fed rate decision is on Sept. 18 and markets are gripped by the prospect of the first U.S. rate cut since 2020.Policymaker comments signal a cut is coming without suggesting one is needed because the economy is teetering on recession. Money markets reckon a 25 bps reduction next week is more likely than a bigger 50 bps cut after data on Wednesday showed some stickiness in underlying inflation.Traders price roughly 100 bps of easing by year-end while economists polled by Reuters forecast 75 bps worth.8/ NORWAYNorway’s central bank, which meets next week, is in the hawkish camp.It left rates on hold at a 16-year high of 4.5% in August and said a tight stance would likely be needed for “some time” to curb inflation, still running above the bank’s 2% target.Markets only fully price in a first rate cut in December, meaning Norway’s easing cycle will likely start well after peers.9/ AUSTRALIA The Reserve Bank of Australia has held rates at 4.35% since last November and believes inflation is still sticky, although data suggests the economy is struggling.Markets do not see more than 50% odds of a rate cut until December. 10/ JAPAN The Bank of Japan is the outlier, raising rates twice this year as inflation rises.Its July rate increase caught markets off guard, exacerbating a sell-off in Japan’s stocks and a surge in the yen. The BoJ says it will tread carefully to ensure volatile markets do not hurt businesses. It is expected to leave rates unchanged at 0.25% next week. Markets and economists anticipate another increase by year-end. More

The central bank is set to meet next week, with markets split between a 25 or 50 basis point cut. Some sticky inflation data released this week favored the prospect of a smaller, 25 bps cut, CME Fedwatch shows.But Timiraos said recent data provided mixed signals on the U.S. economy, and that the Fed’s outlook on the economy, provided at its meeting next week, could further complicate matters.Timiraos earned the moniker of “the Fed whisperer” from some publications and market participants after accurately predicting each of the Fed’s interest rate decisions since 2022, where the central bank raised rates to a two-decade high and kept them there for 14 months.Media reports suggested that the Fed had even leaked its planned decisions to Timiraos, who is the WSJ’s chief economics correspondent and leads the publication’s coverage of the Fed and U.S. economic policy. Timiraos said the Fed was “nervous” about keeping interest rates high for too long, amid mounting evidence that higher rates were cooling the economy as intended. The central bank was still vying for a soft landing, where inflation falls while the labor market remains resilient. He said that the quarterly economic projections released next week were likely to provide more cues on how many rate cuts officials expect this year, with two more meetings left after September. Markets expect the Fed to cut rates by over 100 bps this year, with any indications of a smaller reduction likely to increase the risk of a “market pullback,” Timiraos said.He noted that the central bank preferred to usually move rates by a margin of 25 bps. Despite uncertainty over the breadth of the cut, the Fed is still widely expected to begin cutting interest rates when it meets next week, following signals indicating as much from Chair Jerome Powell and several other officials.  More

(Reuters) – An interest rate cut from the Bank of England next week looks unlikely but investors will be watching its September meeting for clues about future moves, as well as a decision over the pace of its bond sales – a hot political topic.All 65 economists in a Reuters poll said the BoE will likely hold rates at 5.0% on Sept. 19, after cutting from a 16-year high of 5.25% in August.News on price pressures has been mixed. Wage growth cooled as members of the Monetary Policy Committee expected last month and the economy failed to grow in July.But the Decision Maker Panel – a business survey favoured by the MPC – showed wage growth expectations stopped falling, and data on Wednesday will likely show inflation above the central bank’s 2% target.Markets on Thursday priced in a roughly one-in-five chance of an interest rate cut next week, with a 0.25 percentage point reduction fully priced for November.With British wage growth and services inflation riding high, investors think the BoE will loosen policy by less than the U.S. Federal Reserve over the next year and similarly to the European Central Bank – although the ECB has already cut rates twice this year, including a day ago.Economists at Nomura said the BoE’s close 5-4 vote in August and healthy business surveys pointed to a hold next Thursday.”We see the MPC skipping this month’s meeting and cutting interest rates again only in November,” they said, adding that the MPC’s Swati Dhingra was likely to be the sole voice for a cut this time.QT TO THE CHASEBond investors are hotly anticipating Thursday’s annual decision on the pace of the BoE’s quantitative tightening (QT) programme – the reversal of hundreds of billions of pounds of British government bond purchases from past attempts to stimulate the economy.Last year the MPC voted to run down its stock of gilts by 100 billion pounds ($131 billion) through a combination of active sales and allowing bonds to mature.Lawmakers have criticised the QT programme because it brings forward losses sustained by the BoE, which purchased gilts in past years at much higher prices than their current sale value. Those losses are paid for by already-stretched taxpayers.Nonethelesss, the BoE could on Thursday announce an acceleration of its QT programme, reflecting the fact that it holds 87 billion pounds of gilts that are due to mature naturally over the next year, leaving little room for active gilt sales at the current pace.”The vote on the pace of QT could be the more important one,” Andrew Goodwin, chief UK economist at Oxford Economics consultancy, said.BoE Governor Andrew Bailey has said QT is needed to restore the central bank’s firepower if it has to stimulate the economy with bond purchases again.Goodwin and most other forecasters think the BoE is likely to keep QT running at 100 billion pounds per year, but he said an increase to 115-120 billion pounds was a plausible scenario.Given its impact on the state’s budget, finance minister Rachel Reeves will take a keen interest in Thursday’s QT decision. Last week she said QT was an operational matter for the BoE when pressed by lawmakers about the scale of taxpayer losses.Reeves will likely change Britain’s fiscal rules to exclude the impact of the BoE’s QT programme in her inaugural budget, due on Oct. 30, Goodwin said.”This change would increase her fiscal headroom considerably,” he said.($1 = 0.7648 pounds) More

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