Economy

(Reuters) – A look at the day ahead in Asian markets. China’s latest inflation figures are out on Thursday, and they could not be coming at a more fascinating – some might say alarming – time for global bond markets.Long-term yields around the world are shooting higher as investors bet that sticky inflation will force the U.S. Federal Reserve and other central banks to dial down or even halt their rate-cutting cycles.The 30-year UK gilt yield is the highest since 1998, the 30-year U.S. Treasury yield is a whisker from 5%, and the U.S. ‘term premium’ – the risk premium investors demand for lending long to Uncle Sam rather than rolling over shorter-term debt – is the highest in a decade.If this is a reflection of investors’ fears that the inflation genie has not been put back in the bottle and central banks are losing control over the long end of the bond curve, policymakers should be worried.Fed Governor Christopher Waller seems relatively relaxed though, saying on Wednesday he still thinks inflation will fall toward the Fed’s 2% target, allowing for further rate cuts. But minutes of the Fed’s policy meeting last month showed policymakers are wary, particularly around the impact of policies expected from the incoming Trump administration. Money markets are pricing in only 40 basis points of Fed easing this year, and year-on-year oil price rise is the highest in six months. Investors’ inflation fears are bubbling up.The global outlier is China, where policymakers are fighting deflation. As Jim Bianco at Bianco Research points out, it is the only major bond market in the world where yields are falling. Annual producer inflation has been negative every month since October 2022, indicating that price pressures across the economy remain deflationary. Annual consumer inflation is close to zero, and hasn’t been above 1% for nearly two years.China’s producer and consumer price inflation figures for December will be released on Thursday. According to the consensus forecasts in Reuters polls, economists expect annual PPI inflation shifted slightly to -2.4% from -2.5% in November, while annual CPI inflation cooled to just 0.1% from 0.2%. This is the context in which Chinese bond yields are tumbling to their lowest-ever levels. The 30-year yield is already below the 30-year Japanese Government Bond yield, and the 10-year yield is now less than 50 basis points away from going below its 10-year JGB equivalent.HSBC analysts on Wednesday slashed their year-end 10-year Chinese yield forecast to 1.2% from 1.8%. The yuan remains under heavy selling pressure and on Wednesday slipped to a fresh 16-month low. It is now poised to break the September 2023 low of 7.35 per dollar, a move that will take it to levels last seen in 2007.Here are key developments that could provide more direction to markets on Thursday:- China PPI, CPI inflation (December)- Australia retail sales (November)- Taiwan, Australia, Philippines trade (December) More

ORLANDO, Florida (Reuters) -China, the global growth engine for the last 20 years, now boasts lower long-term bond yields than Japan, the former poster child for deflationary economic stagnation. This may signal that the “factory to the world” faces the real risk of “Japanification.”China’s bond yields have plunged to their lowest levels on record, with the two-year yield about to break below 1.00%, having been 1.50% only a few months ago. Remarkably, China’s 30-year yield recently fell below the Japanese Government Bond (JGB) yield for the first time ever.That phenomenon looks set to hit the 10-year tenor, with China’s bond yield now less than 50 basis points above its JGB equivalent.It’s a situation that would have scarcely been believable to any observer of the global economy over the past 30 years. But here we are.    The collapse in Chinese yields is a reminder that the deflation, bad debt dynamics and troubling demographic trends plaguing Asia’s largest economy today are strikingly similar to those that hobbled its fiercest regional rival for three decades.CAPITAL FLIGHTJapan has recently begun to free itself from its decades of deflation, sluggish growth and negative interest rates, enabling the Bank of Japan to begin gradually “normalizing” rate policy.     Meanwhile, Beijing is struggling to reflate an economy slammed by COVID-19 pandemic shutdowns and a property sector bust. Deflation, lackluster consumer demand and capital flight forced Beijing to announce unprecedented stimulus and liquidity measures late last year.    Investors initially cheered Beijing’s pledges, but the optimism has faded quickly. Chinese stocks are down 5% so far this year and are underperforming their regional and global peers. The country’s foreign exchange reserves also tumbled $64 billion in December, representing nearly 2% of China’s total stash. This was the biggest monthly fall since April 2022 and one of the steepest since the yuan slide and capital flight of 2015-2016. Analysts at JP Morgan reckon the sharp drop was a result of Beijing’s efforts to mitigate capital outflows in December, which they believe neared $80 billion.    China’s plight is exacerbated by the very real risk of another U.S.-Sino trade war once President-elect Donald Trump officially begins his second term in the White House later this month.     And if UBS economists are right, China’s economy will grow just 4.0% in 2025 compared with 4.9% last year. Apart from the pandemic-ravaged years of 2020 and 2021, that would be China’s lowest growth since it emerged as a global economic force in the 1990s.     Those with a decent memory will recall that it took decades for Japanese property and equity prices to recover their pre-crash peaks following the country’s real estate bust in the early 1990s. It’s too early to know if a similar fate awaits Chinese assets, but investors right now are unquestionably pessimistic.’TACTICALLY NEUTRALISING’Consequently, many are reevaluating their relative exposure to these two Asian powerhouses.    Societe Generale’s asset allocation team said at the end of last year that it was “tactically neutralising” the Chinese equity allocation in its portfolio from overweight, as it increased its exposure to Japan. This week, analysts at HSBC slashed their year-end forecast for China’s 10-year yield to 1.2% from 1.8%.    The generally pessimistic and optimistic consensus outlooks for China and Japan, respectively, are obviously not without risk.     Perhaps Japan won’t “normalize” as quickly as many expect. The country has not seen interest rates as high as 0.5% in nearly 20 years, which helps explain Japanese policymakers’ caution. Indeed, economists at Barclays (LON:BARC) recently pushed out their forecast for the next BOJ interest rate hike to March from January and the timing of the subsequent increase to October from July.     In the short term, the inverse correlation between Chinese and Japanese bond yields may fizzle out or even reverse, simply because it has been too powerful in recent months to be sustainable. But longer term? Beijing has its work cut out.(The opinions expressed here are those of the author, a columnist for Reuters.) (By Jamie McGeever; Editing by Paul Simao) More

(Reuters) – U.S. corporate debt markets continued to be peppered by new bond offerings on Wednesday as rising Treasury yields increased demand for debt and pushed companies to get their funding done now before any further increase in borrowing costs.The first seven days of the year has seen some $75 billion of investment-grade rated bond supply – the busiest through the first full week of a new year in history, said BMO Capital in a report. The tally is expected to grow with three more corporate and some eight sovereign and supranational bond offerings set to price on Wednesday, according to Informa (LON:INF) Global Markets data.”There is a rush among companies to get their funding done now to avoid increasing borrowing costs with Treasury yields rising consistently over the past week,” said Clayton Triick, head of portfolio management at Angel Oak Capital Advisors.Investment-grade rated bonds price at a spread premium over risk-free U.S. Treasuries. There are concerns that a sell-off in Treasuries and rise in the dollar that is sending shockwaves through financial markets could persist as uncertainty grows over U.S. President-elect Donald Trump’s policies and its influence on an U.S. interest rate easing cycle.Investor demand at higher yields however has been robust pressuring corporate credit spreads and in some way neutralizing the impact on funding costs due to higher yields. Typically, issuance volumes were expected to wane after a rush of supply which would push spreads wider but this time around with higher yields prompting more demand, spreads are expected to tighten back in, said Hans Mikkelsen, credit strategist at TD Securities.So rising yields and tightening spreads are expected to help both issuers and investors, and keep alive the current issuance frenzy which is expected to resume after a brief lull. An abbreviated session on Thursday in tribute to the late 39th U.S. President Jimmy Carter and release of jobs data on Friday are expected to slow issuance. Also, U.S. companies refrain from issuing bonds before releasing earnings that are expected to start trickling in later this week.Bankers are expecting anywhere between $175 billion to $200 billion to be raised from new bond offerings in January. If volumes reached $200 billion, it would mark only the fifth time in history that monthly issuance topped that number, according to Informa Global Markets data. More

$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More

Despite the anticipated fiscal measures, the political climate does not seem conducive to significant austerity, which could have reassured investors and addressed the fiscal issues more robustly, the firm said. The government’s piecemeal approach to fiscal tightening is predicted to keep the public debt-to-GDP ratio on an upward trajectory. Capital Economics expects that this approach is unlikely to ease the high risk premium currently embedded in Brazil’s financial markets, which suggests that the Brazilian real will continue to struggle. “We expect the real to end the year at 6.00/$, compared with its current level of 6.18/$ and 4.85/$ at the start of 2024,” Capital Economics said in the note. The firm also suggested that the GDP growth for this year is estimated at 2.3%, which, despite being slightly above the central bank’s consensus, would mark the weakest annual growth since the pandemic.Overall, the economic outlook for Brazil suggests that while a hard landing is unlikely, the country’s strong growth period is set to conclude, with quarter-on-quarter growth averaging around 0.4%. This is a decrease from the more robust average growth experienced last year.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

LONDON/NEW YORK (Reuters) -A sharp selloff in some of the world’s biggest government bond markets and a continued rise in the dollar sent shockwaves through financial markets, with the pain seen deepening as uncertainty grows over U.S. President-elect Donald Trump’s policies.On Wednesday, the 10-year Treasury yield, underpinning trillions of dollars in daily global transactions, jumped to above 4.7%, their highest since April, and UK peers hit their highest since 2008.Germany’s 10-year Bund yield rose on Wednesday as well to a more than five-month high amid accelerating euro zone inflation, and elevated bond supply. The yield, the euro zone benchmark, was last little changed on the day at 2.521%, after hitting 2.534%, its highest since July last year.This unleashed a fresh wave of selling in currencies against the greenback, including sterling, which slid more than 1% before slightly recovering, and the euro, which was headed closer toward the $1 mark. The S&P 500, which rallied post Trump’s win, has recently started to falter, although it has marginally recouped some of those losses.Trump, in a press conference at Mar-a-Lago on Tuesday, decried high U.S. interest rates despite the Federal Reserve being in the midst of an easing cycle.”Inflation is continuing to rage, and interest rates are far too high,” the president-elect said. Central banks all but declared victory over inflation in 2024, but a number of metrics show price pressures are rising again.Trump’s plans for higher trade tariffs, tax cuts and deregulation threaten to push up inflation and strain government finances, thereby also limiting the Federal Reserve’s scope to cut interest rates.”What it really boils down to is the term premium: 85% of the rise in yields that we have seen since mid-September is accounted for by the term premium,” said Chip Hughey, managing director of fixed income at Truist Advisory Services in Richmond, Virginia. “That is a reflection that fiscal policy uncertainty continues to climb as we head to the new administration being sworn in.” Term premium refers to the expected excess return that investors earn by holding longer-dated U.S. Treasuries versus rolling over T-bills.Hughey pointed out that the current term premium for the 10-year note is 54 basis points (bps), up from minus 29 bps in mid-September. This means that 10-year yields are 54 bps higher than what can be justified by Fed policy expectations. SUPPLY WAVEOther governments are busy repairing their own finances and shoring up their economies, while ramping up bond sales.Long-dated yields, which tend to be less susceptible to short-term swings in expectations for monetary policy, have hit multi-year highs globally, partly because of the tidal wave of new bonds this year. Europe’s bond markets are having to absorb heavy issuance to start the year, with Germany selling 5 billion euros of 10-year Bunds and Italy selling new 10-year and 20-year green bonds via syndication.Byron Anderson, head of fixed income at Laffer Tengler Investments in Scottsdale, Arizona, cited about $14.6 trillion of Treasury debt maturing over the next two years, which means there is a lot of debt to extend beyond one year.Traders say the incoming Trump administration will need to change the current focus on relying more on short-term debt. Thirty-year Treasury bond yields have risen 60 basis points in a month – the largest such increase since October 2023. They are now perilously close to 5%, a level rarely seen in the past two decades. This has pushed the premium of 30-year yields to two-year yields to its highest in nearly three years – a dynamic known as “curve steepening”.”There’s a big pipeline of bonds that needs to be sold, so that gives you a steeper curve as well as a higher term premium in longer bonds. I think that’s one of the main drivers,” said Danske Bank (CSE:DANSKE) chief analyst Jens Peter Soerensen.UK 30-year gilt yields have hit their highest since 1998 to around 5.4%, adding to worries about the impact of higher borrowing costs on the British government’s already shaky finances. More

(Reuters) -Jefferies Financial’s profit more than tripled in the fourth quarter as the investment bank earned higher fees from advising on deals and underwriting activity remained strong, it reported on Wednesday. Ebullient markets, falling interest rates and prospects for lighter regulation under the incoming Trump administration have boosted corporate sentiment toward mergers and acquisitions. Equity and debt offerings also jumped in the second half of 2024. Global investment banking revenue surged 26% to $86.8 billion in 2024, led by North America, which recorded a 33% increase, according to data from Dealogic. Jefferies earned the seventh highest fees across banks over the same period. “What will drive corporate activity, private equity activity and overall investment banking and capital markets activity will be M&A and IPOs,” Brian Friedman, president of Jefferies, told Reuters in an interview. “We are in a positive and increasingly attractive period.”In the fourth quarter, the company’s investment banking revenue soared nearly 73% to $986.8 million, while capital markets revenue rose 34% to $651.7 million. Bankers expect global deal volumes to surpass $4 trillion in 2025, the highest in four years, buoyed by U.S. President-elect Donald Trump’s pledge of less regulation, lower corporate taxes and a broadly pro-business stance. Last month, Goldman Sachs CEO David Solomon said at a Reuters industry conference that dealmaking in equities and M&A could exceed 10-year averages in 2025. Total (EPA:TTEF) revenue at Jefferies came in at $1.96 billion, up from $1.2 billion in the year-ago period. The New York-based bank’s net profit attributable to common shareholders was $205.7 million, or 91 cents per share, for the three months ended Nov. 30. That compares with $65.6 million, or 29 cents per share, a year earlier.Jefferies’ shares, which were up about 1% in trading after the bell, gained 94% in 2024, outperforming larger rivals Goldman Sachs and Morgan Stanley (NYSE:MS) as well as broader equity markets. Jefferies’ earnings are followed closely by analysts and investors as a precursor to big bank earnings, which kick off next week. More

This outlook is based on the anticipation that moderating petrol prices and a more stable naira will lead to a resumption in the disinflation process. However, the firm also cautioned that the CBN would remain cautious due to inflationary risks associated with the government’s fiscal policy.The inflation rate in Nigeria reversed its disinflation trend towards the end of 2024, with headline inflation climbing to 34.9% year-on-year in November, surpassing the peak of 34.2% observed in June. A significant factor in this increase was the over 70% hike in petrol prices since August, driven by fiscal pressures and resulting in broader impacts on consumer prices.The firm predicts that inflation could drop below 20% by the end of the year, which is more optimistic than the consensus estimate of 21.4%.Despite these factors, Capital Economics does not expect inflation to return to single digits in the near term, as it has remained above 10% since 2016. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More