Economy

WASHINGTON (Reuters) -The U.S. State Department issued a “stop-work” order on Friday for all existing foreign assistance and paused new aid, according to a cable seen by Reuters, after President Donald Trump ordered a pause to review if aid allocation was aligned with his foreign policy.The cable, drafted by the Department’s foreign assistance office and approved by Secretary of State Marco Rubio, said waivers have been issued for military financing for Israel and Egypt. No other countries were mentioned in the cable.The move risks cutting off billions of dollars of life-saving assistance. The United States is the largest single donor of aid globally – in fiscal year 2023, it disbursed $72 billion in assistance.Just hours after taking office on Monday, Trump ordered a 90-day pause in foreign development assistance pending a review of efficiencies and consistency with his foreign policy but the scope of the order was not immediately known.The State Department cable said effective immediately, senior officials “shall ensure that, to the maximum extent permitted by law, no new obligations shall be made for foreign assistance” until Rubio has made a decision after a review.It says that for existing foreign assistance awards stop-work orders shall be issued immediately until reviewed by Rubio.”This is lunacy,” Jeremy Konyndyk, a former USAID official who is now president of Refugees International, said. “This will kill people. I mean, if implemented as written in that cable … a lot of people will die.””There’s no way to consider this as a good-faith attempt to sincerely review the effectiveness of foreign assistance programming. This is just simply a wrecking ball to break as much stuff as possible,” Konyndyk said.Trump’s order is unlawful, argued a source familiar discussions in Congress on the move. “Freezing these international investments will lead our international partners to seek other funding partners – likely U.S. competitors and adversaries – to fill this hole and displace the United States’ influence the longer this unlawful impoundment continues,” the source said on condition of anonymity.WAIVERS A USAID official, who requested anonymity, said officers responsible for projects in Ukraine have been told to stop all work. Among the projects that have been frozen are support to schools and health assistance like emergency maternal care and childhood vaccinations, the official said. Across the board, “decisions whether to continue, modify, or terminate programs will be made” by Rubio following a review over the next 85 days. Until then Rubio can approve waivers. Rubio has issued a waiver for emergency food assistance, according to the cable. This comes amid a surge of humanitarian aid into the Gaza Strip after a ceasefire between Israel and Palestinian militants Hamas began on Sunday and several other hunger crises around the world, including Sudan. But Konyndyk said emergency food assistance was just a minority of all humanitarian assistance, adding that nutrition, health and vaccination programs will have to stop, as would relief aid to Gaza and Syria as well as services to refugee camps in Sudan.”It’s manufactured chaos,” said a former senior official with the U.S. Agency for International Development (USAID), speaking on condition of anonymity. “Organizations will have to stop all activities, so all lifesaving health services, HIV/AIDS, nutrition, maternal and child health, all agriculture work, all support of civil society organizations, education,” said the official.The State Department cable also said waivers have so far been approved by Rubio for “foreign military financing for Israel and Egypt and administrative expenses, including salaries, necessary to administer foreign military financing.”Israel receives about $3.3 billion in foreign military financing annually, while Egypt receives about $1.3 billionOther states identified for such financing in 2025 include Ukraine, Georgia, Estonia, Latvia, Lithuania, Taiwan, Indonesia, the Philippines, Thailand, Vietnam, Djibouti, Colombia, Panama, Ecuador, Israel, Egypt and Jordan, according to a request to Congress from former President Joe Biden’s administration. That request also said foreign military financing would “also seek to bolster the Lebanese Armed Forces’ ability to mitigate instability and counter malign Iranian influence.”The Lebanese military is currently trying to deploy into the south of the country as Israeli troops withdraw under a ceasefire deal that requires Iran-backed Hezbollah weapons and fighters to also be removed from the area. More

“The upshot is that while an appreciating dollar is a headwind for the world economy in the short run, it is usually not as harmful as often suggested,” economists at Capital Economics said in a recent note. The U.S. dollar has appreciated by 7% in trade-weighted terms compared to a year ago, reaching a fresh record high. In real terms, the dollar is the strongest since the Plaza Accord in 1985.As most traded goods are priced in dominant currencies, chiefly the U.S. dollar, as the greenback strengthens, trade becomes more expensive globally.While a “strong dollar poses a headwind to trade through this ‘invoice channel’, the share of trade that is negatively affected tends to be overstated,” the economists added.Services trade, which accounts for a fifth of overall world trade, is much less affected by dollar strength. While falls in commodity prices, can mitigate increases in import prices, potentially dampening inflationary impacts.Financial conditions tightening from dollar strength, meanwhile, pose a smaller threat to emerging markets than in the past, the economists said, with currency risks at their lowest levels in decades. More

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