Economy

DAVOS, Switzerland (Reuters) – British industry and energy minister Sarah Jones said that meetings in Davos this week with CEOs considering where to make their next investment had been positive as the government took its growth mantra to the Swiss mountains.”People are enthusiastic with the message that they’re getting from the government … what people want to see is evidence that we mean it,” Jones told Reuters on the sidelines of the World Economic Forum annual meeting.Official data has shown Britain’s economy stagnated in the three months to September and the Bank of England has forecast that it flatlined again in the last three months of 2024, adding to pressure on the government, which faced a recent steep rise in borrowing costs as a result of a wider bond market wobble.”Of course businesses are interested in what’s happening with interest rates, what’s happening with taxation, all of these things,” Jones said, speaking on Thursday. “Regulation … just knowing what the rules of the game are, and understanding who to talk to as well, and how to navigate your way through investing in the UK.” Although Britain’s high-profile mission to Davos to rally support for its economic plans gave investors and financiers some encouragement, several told Reuters they needed to see the government deliver on growth rather than just talk about it.Senior bankers and executives, who spoke on condition of anonymity, said there was a worried mood in the business community and one way to make investment in Britain more attractive was by making it more appealing to entrepreneurs.One Davos attendee told Reuters that a change announced on Thursday to the rules around how wealthy, often foreign residents, pay tax on overseas income was “a small step in the right direction”.Concerns over Britain’s debt levels have shown up in the bond markets, adding to its borrowing costs at the start of the year before they eased more recently. Official data this week showed Britain ran a bigger-than-expected budget deficit in December, swelled by debt interest costs and a one-off purchase of military homes.”In the end, to make debt sustainable you’ve got to grow the economy,” finance minister Rachel Reeves told Reuters on Thursday. “We are taking out those barriers that have stopped businesses investing and growing in Britain,” Reeves said, adding: “I’m confident we can get those growth numbers up.” The worry for businesses is that Reeves may have little choice but to make more spending cuts to keep her fiscal pledges, piling more pressure on the economy, one executive said. More

WASHINGTON (Reuters) -U.S. existing home sales increased to a 10-month high in December, but further gains are likely to be limited by elevated mortgage rates and house prices, which are keeping many prospective buyers on the sidelines.Despite the bigger-than-expected rise reported by the National Association of Realtors on Friday, home sales in 2024 were the lowest in three decades. The median house price last year hit a record high of $407,500. While housing supply has improved, it remains below pre-pandemic levels.”With mortgage rates close to 7% and generally soft homebuying sentiment, strength in existing home sales is unlikely to be sustained,” said Alice Zheng, an economist at Citigroup (NYSE:C). “We do not expect much further upside for housing demand near-term.” Home sales rose 2.2% last month to a seasonally adjusted annual rate of 4.24 million units, the highest level since February. Existing home sales are counted at the closing of a contract, and December’s sales likely reflected transactions that took place at least three months earlier when mortgage rates were relatively low.  Economists polled by Reuters had forecast home resales would rise to a rate of 4.19 million units. Sales increased in the densely populated South, the West and Northeast, but fell in the Midwest. Sales surged 9.3% on a year-on-year basis, the largest gain since June of 2021, mostly driven by transactions for houses worth $500,000 and above. A total of 4.06 million previously owned houses were sold last year, the lowest number since 1995.A survey from mortgage finance agency Fannie Mae (OTC:FNMA) on Wednesday predicted weak existing home sales in the first half of the year, noting that “new homes are now priced competitively with existing homes and are far more available.” It forecast the popular 30-year fixed-rate mortgage would average 6.7% in the first quarter and edge down to 6.6% in the second quarter.Mortgage rates increased late last year in tandem with U.S. Treasury yields, which have jumped amid economic resilience, especially in the labor market, and investor worries that President Donald Trump’s plans for tax cuts, broad tariffs and mass deportations could fan inflation.The Federal Reserve has scaled back its projected interest rate cuts for this year to only two from the four it estimated in September, when it launched its policy easing cycle. The average rate on a 30-year fixed-rate mortgage is just below 7% having risen from as low as 6.08% at the end of September.The U.S. central bank’s cautious approach to rate cuts this year was underscored by a separate report from S&P Global showing a rise in inflation in January, with businesses paying higher prices for inputs and passing on the increased costs to consumers. Consumers’ inflation expectations also jumped in January, a report from the University of Michigan showed, amid fears of higher prices for goods should the Trump administration press ahead with tariffs on imports.Consumers’ one-year inflation expectations rose to an eight-month high of 3.3% from 2.8% in December. Long-run inflation expectations climbed to 3.2% from 3.0% last month. Progress lowering inflation to the Fed’s 2% target has virtually stalled, though underlying price pressures subsided in December.AFFORDABILITY HEADWINDS U.S. stocks were trading slightly lower. The dollar slid against a basket of currencies after Trump said on Thursday his conversation with Chinese President Xi Jinping last week was friendly and he thought he could reach a trade deal with China. Trump has, however, promised tariffs on Canadian and Mexican goods in February. U.S. Treasury yields declined.”Inflation data make it unlikely that the Fed will cut rates at the March meeting and the probability of a cut in May is a coin flip,” said Jeffrey Roach, chief economist at LPL Financial (NASDAQ:LPLA). “As rates remain elevated, housing affordability will be a major headwind for potential homebuyers.”While the stock of houses on the market has improved compared to 2023, entry-level homes remain scarce. That is keeping home prices elevated.The median existing home price shot up 6.0% from a year earlier to $404,400 in December. It increased 4.7% to a record high of $407,500 in 2024. Most of the single-family homes sold in December were in the $250,000-$750,000 price range. Housing inventory fell 13.5% to 1.15 million units last month, which is typical in winter. Supply increased 16.2% from one year ago. Inventory needs to rise by roughly 30% to return to pre-pandemic levels. At December’s sales pace, it would take 3.3 months to exhaust the current inventory of existing homes, up from 3.1 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.Properties typically stayed on the market for 35 days in December, compared to 29 days a year ago. First-time buyers accounted for 31% of sales versus 29% a year ago. They made up a record low of 24% in 2024. Economists and realtors say a 40% share is needed for a robust housing market.All-cash sales constituted 28% of transactions last month, down from 29% a year ago. Distressed sales, including foreclosures, represented only 2% of transactions, unchanged from last year.”The upshot is that buying activity should remain stagnant,” said Ruben Gargallo Abargues, an assistant economist at Capital Economics. More

NEW YORK (Reuters) – Foreign investors added $273.5 billion to their emerging market equity and debt portfolios last year, nearly $100 billion more than in 2023, according to a bank trade group’s preliminary data published on Friday.The $273.5 billion of inflows for 2024 topped the $177.4 billion in 2023 though it was below the $375 billion average between 2019-2021, according to the report from the Institute of International Finance.Almost all the inflow was money put into fixed income last year with $219 billion added to debt outside China and $54.2 billion to Chinese debt. The picture was more split in stocks, where Chinese equities raked in $11.3 billion while those elsewhere in the developing economies world lost $11 billion, the data show. U.S. growth and the strength of the dollar were headwinds to investing in emerging markets most of the year, and the Federal Reserve itself has downgraded its expectations for rate cuts in 2025 – which in turn provides yet more support to the dollar. Signs of a looser monetary policy in the U.S. would be supportive of EM assets in general.”Throughout 2024, the strong dollar and elevated U.S. yields created significant headwinds for EM equities and certain debt markets, a trend that may reverse if the Fed begins signaling rate cuts in the coming months,” said IIF economist Jonathan Fortun in a statement.”While Fed dovishness would provide a much-needed tailwind, sustained recovery in EM equities will likely require further clarity on global growth prospects and targeted policy measures in key markets like China,” he said.JPMorgan warned on Thursday of a sudden stop of flows to emerging markets as a strong U.S. economy keeps investors away from developing nations seen as riskier.Yet idiosyncrasies will continue to dictate flows, as seen by equity inflows in December to India, Brazil, Saudi Arabia and Taiwan. The breakdown of IIF data by month showed non-residents added a net $14.4 billion to emerging market portfolios in December, with stocks posting net overall outflows.Regionally, Latin America led inflows with $6.6 billion followed by Emerging Asia with $5.3 billion, while Africa and the Middle East, and Emerging Europe pulled in $1.7 billion and $1.1 billion respectively. More

BUENOS AIRES (Reuters) – Brazil’s central bank will raise its benchmark interest rate by 100 basis points on Jan. 29, with more to increases follow, taking the cost of borrowing to the highest in nearly two decades by mid-year, a Reuters poll showed.The expected increase on Wednesday, firmly signalled by policymakers in recent weeks, would be Banco Central do Brasil’s (BCB) second full percentage point rise after it surprised the markets in December with an increase of that size.As concern mounts in many countries over inflation, Brazil’s rates are now expected to end significantly higher than thought just once month ago.This month’s decision will be the first under newly-appointed bank governor Gabriel Galipolo, who faces rising domestic challenges as well as heightened global volatility.Brazilian policymakers, known as Copom, are expected to raise the benchmark Selic by 100 basis points more to 13.25% from 12.25% on Jan. 29 in view of inflation expectations, according to the median estimate of 38 economists polled Jan. 21-24.Apart from its importance to Latin America’s No.1 economy, Brazil’s Selic has gained relevance as a guide for global monetary policy trends, potentially giving an indication of the future direction of U.S. rates.The BCB first hiked the Selic in March 2021 from a low during the pandemic, preceding a similar shift in the United States by a year. Then, it began easing in August 2023 – again, a little more than a year ahead of the start of the Federal Reserve’s latest rate cuts.THIRD 100 BPS INCREMENT EXPECTEDAll 30 economists who answered extra questions on the bank’s next move said they expected a third 100 basis points increment in March to 14.25%, the highest since Sept. 2016. No Copom meeting is scheduled in February.”BCB has already made clear in its guidance the need to raise the Selic rate by at least another 200 basis points, with 100 basis points coming at the January meeting and 100 more in March,” said Tomas Goulart, economist at Novus Capital.The median forecast from the poll shows the Selic rate peaking at 15.00% next quarter. That would be the highest since June 2006, when it stood at 15.25%.In a December poll, the Selic had been expected to peak at 13.50% in the second quarter, slightly below its 2023 peak of 13.75%.Consumer prices in Brazil are forecast to rise an annual 5.08% at the end of 2025 in the latest weekly survey by the central bank among private economists, advancing further above an official inflation target of 3% +/- 1.5 percentage points.Novus Capital’s Goulart was one of the economists to foresee a bigger inflation challenge for the central bank. “In order for inflation projections to converge, the Selic rate needs to reach at least 15.75% under current conditions, and Copom is saying it will do everything it can to make this happen,” Goulart said.(Other stories from the Reuters global economic poll) (Reporting and polling by Gabriel Burin in Buenos Aires; editing by Barbara Lewis (JO:LEWJ)) More

It held interest rates at 21% in December, surprising the market which had been bracing for another hike to as high as 23%. Inflation in 2024 was the fourth highest rate in the last 15 years at 9.52%, compared to 7.42% in 2023 and well above the bank’s 4% target. The central bank’s survey of almost 15,000 companies showed that businesses, when forming plans for 2025, accounted for annual inflation of 10.7% on average. Credit conditions remained tight in January, the report said, and the central bank said it would take elevated inflation expectations into account when it next meets to set rates on Feb. 14. Companies’ expectations for the change in prices of their goods over the coming three months remained steady in January after rising for four consecutive months, the survey showed. The central bank also said that its business climate indicator was at its lowest monthly level in January for two years. More

SINGAPORE/GDANSK (Reuters) -The dollar fell on Friday, on track to log its worst week in more than a year, after U.S. President Donald Trump suggested a potentially softer stance on tariffs against China which added to uncertainties around U.S. trade policies.The yen pared initial gains against the dollar after the Bank of Japan hiked rates on Friday and revised up its inflation forecasts, but offered few clues on the timing and pace of future rate hikes.Investors have sold the dollar in the wake of Trump’s inauguration after his widely expected tariff announcements did not immediately materialise, unlike his threats during his campaign.In an interview with Fox News that aired on Thursday evening, Trump said he would rather not have to use tariffs over China and that he thought he could reach a trade deal with the world’s second-largest economy.”This seems to feed into the growing sense that Trump is underdelivering on protectionism compared to pre-inauguration remarks, and that ultimately some of those tariff threats may not materialise as long as some concessions are made on trade,” said Francesco Pesole, currency strategist at ING.The Chinese yuan got a lift on the back of Trump’s remarks, with the onshore unit rising to its strongest level in eight weeks at 7.2370 per dollar.The U.S. president also said on Thursday that he wants the Federal Reserve to cut interest rates. Trump’s remarks came just days before the Fed’s first policy meeting to be held during his administration, with very broad expectations officials will leave rates unchanged.The dollar index, which measures the greenback against a basket of currencies, was on track for its biggest weekly fall since November 2023, set to lose more than 1.6% on the week. The index hit a one-month trough of 107.27 on Friday, and was last down 0.5% at 107.6.The euro, meanwhile, was up 0.65%, having touched its highest since Dec. 17 at $1.0515. The single currency was headed for a roughly 2% weekly gain.Data showed on Friday that euro zone business began the new year with a modest return to growth, as stable services activity in January was complemented by an easing of the long-running downturn in manufacturing.Sterling advanced 0.5% to $1.2417 and was similarly poised for a rise of 2% for the week, snapping three straight weeks of losses.BOJ HIKESThe Bank of Japan raised rates by 25 basis points at the conclusion of its two-day policy meeting, in a move that had been well telegraphed by policymakers prior to the outcome.The yen rose to 154.845 per dollar following the policy decision, but pared gains after Governor Kazuo Ueda’s press conference, where he said that a rise in underlying inflation was “moderate” and the central bank was not “seriously behind the curve”, suggesting no rush to tighten policy again.The yen was last unchanged at 156 per dollar.”There’s more than just the Japanese economy and wages that determine when the next BOJ rate hike can come, and the global uncertainties from Fed’s slowing rate cuts and the risk of tariffs in the new Trump administration remain out of Ueda’s control,” said Charu Chanana, chief investment strategist at Saxo. Earlier on Friday, data showed Japan’s core consumer prices rose 3.0% in December from a year earlier to mark the fastest annual pace in 16 months.In cryptocurrencies, bitcoin was last 2.2% higher at $105,435.Trump on Thursday ordered the creation of a cryptocurrency working group tasked with proposing new digital asset regulations and exploring the creation of a national cryptocurrency stockpile, making good on his promise to quickly overhaul U.S. crypto policy. More

Trump said he would “promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide” as part of a broader crypto strategy that he sketched out in an executive order issued on Thursday.Cipollone said this would help lure even more customers away from banks and strengthen the case for the ECB to launch its own digital currency in response. “I guess the key word here (in Trump’s executive order) is worldwide,” Cipollone told a conference in Frankfurt. “This solution, you all know, further disintermediates banks as they lose fees, they lose clients…That’s why we need a digital euro.”Stablecoins work similarly to money market funds in that they offer exposure to short-term interest rates in an official currency – nearly always the U.S. dollar.A digital euro, by contrast, would essentially be an online wallet guaranteed by the ECB but operated by companies such as banks.It would allow people, even those who don’t have a bank account, to make payments. Holdings would likely be capped at a few thousand euros and not remunerated.Banks have expressed concerns that a digital euro would empty their coffers as customers transfer some of their cash to the safety of an ECB-guaranteed wallet.The euro zone’s central bank is currently experimenting with how a digital euro would work in practice. But it will only make a final decision on whether to launch it once European lawmakers approve legislation on the matter.Trump’s executive order also prohibited the Federal Reserve from issuing its own central bank digital currency (CBDC).Nigeria, Jamaica and the Bahamas have already launched digital currencies and a further 44 countries, including Russia, China, Australia and Brazil are running pilots, according to the Atlantic Council think tank. More

LONDON (Reuters) – Foreign investors are flocking to Turkey’s local debt markets, saying they are impressed by interest rate cuts and easing inflation and are hoping that a regional transformation could further boost their bets on the economy. Turkey’s central bank cut rates by another 250 basis points on Thursday to 45%, continuing an easing cycle it began just last month after an aggressive drive to end years of soaring prices and a tumbling currency. More than a year and a half after President Tayyip Erdogan’s re-election and pivot back to more orthodox economic and monetary policies, Turkey is back to being a mainstay of emerging market investors. “Turkey is one of the bigger success stories, one of the positive dynamics in our space that we like,” said Nick Eisinger, co-head of Emerging Markets with Vanguard. “The reform story and the macro story is very positive and still has runway to go.”Local bonds sucked in $1.24 billion of foreign investor cash in the week to Jan 17, the biggest such inflows in two months, bringing the 2025 tally so far to as high as $1.9 billion, central bank data show. Foreigners hold more than 10% of government debt, levels last seen in 2019. While that is a sharp increase from around 1% in 2022, it is still less than half of the 25% prior to August 2018, when the lira crisis started.Emerging from that crisis has been painful.Turkey for years opted for unorthodox fiscal and monetary policies that fuelled red-hot growth. It claimed the top spot for economic growth among larger emerging markets since the onset of the COVID-19 crisis, according to Oxford Economics. But those exposed to local bonds paid a hefty price: with inflation topping 85% in 2022 and touching 75% last year, and a lira tumbling to a series of record lows, a big chunk of investments were wiped out.DISINFLATIONThe more favourable recent backdrop has also seen Amundi, Europe’s largest asset manager, venture into domestic bonds.”We like Turkey from a local currency perspective,” said Yerlan Syzdykov, global head of emerging markets & co-head of emerging markets fixed income at Amundi. Easing inflation – which was lower than expected at 44.38% annually in December – coinciding with a fragile balance of payments situation that gave Turkey little wiggle room to allow the lira to slide further, was favourable to investors for now, said Syzdykov. “The pace of the disinflation should continue being higher than the pace of devaluation – so that’s the bet that we have as well.” A Reuters poll shows the central bank is expected to forge ahead with cuts that leave its key rate at 30% at year-end, when the bank itself expects inflation to slow to about 21%. While the government may be less inclined to push for high growth for now, recent regional developments – including the ousting of Syrian leader Bashar al-Assad and the Israel-Hamas ceasefire in Gaza – could add to Turkey’s growth momentum, analysts said. “Everything that’s happened in the Middle East is probably quite positive for Turkey,” said Magda Branet, head of emerging markets and Asian fixed income with AXA. “Turkey will probably be an actor in the reconstruction of the region and in the reconstruction of Ukraine… So on the growth outlook and the fiscal outlook there’s definitely some positive news.”Turkey still has to prove its orthodox pivot will last before it lures back so-called crossover investors: the major developed-market investors who also dabble in emerging markets. Often managing big pots of money, they have in recent months sought exposure to emerging economies, especially investment-grade rated sovereigns in the Gulf or Latin America.”From their perspective, it’s too risky to go into Turkey because of these factors… on the geopolitical side, but also because of the fragility of the institutional space,” said Amundi’s Syzdykov. More