Economy

LONDON (Reuters) – Central banks are on the brink of victory in the fight to bring the global surge in inflation back under control, the Bank for International Settlements said on Monday.There was cause for “cautious optimism”, according to the latest quarterly report from the BIS, which is often dubbed the central bankers’ central bank due to its regular behind-closed-doors meetings of the world’s top monetary policymakers.”Central banks have taken decisive action and thus prevented inflation from becoming entrenched,” the BIS’s Monetary and Economic Department head Claudio Borio told reporters. “At the same time, economic activity has been remarkably resilient and the financial system has held up well.”The BIS has been gradually becoming more hopeful about the outlook. At the end of last year it said progress in beating back inflation had been encouraging, but stressed at that point that central banks were not out of the woods.While there was the usual caution that risks remain, Borio noted this time how the “daylight” had narrowed significantly between when markets expect interest rates to start falling again and what the big central banks have been signalling. “The fact that financial markets have converged on central bank views suggests that, on this occasion at least, central banks had a better appreciation of the risks,” Borio said.The report also looked at the stubbornness of inflation and what neutral borrowing rates where they are neither too loose or too restrictive – or “r*” in economist speak – were likely to be in the wake of the COVID-19 pandemic and as deglobalisation and aging populations reshape economies.It concluded that inflationary pressures could become more stubborn as services industries increase their weight in economies, while r* could now be higher, although gauging it was fraught with uncertainty. It was such a “blurry guidepost” in the current context that “it is going to be very difficult to utilize it in a very concrete way when we conduct monetary policy,” Hyun Song Shin, the BIS’s Head of Research, added.There was a partial warning too about the turbo-charged rise in heavyweight tech stocks, especially those linked with the rise of artificial intelligence. U.S.-listed Nvidia (NASDAQ:NVDA), which makes the chips that power AI software, has seen its shares surge another 66% this year following a near 240% leap in 2023. Meta, which owns Facebook (NASDAQ:META), is up nearly 140% over the last 15 months too.”Whenever you have big changes or prospective changes in technology you get these huge runs of enthusiasm that propel the market to extreme height. We may be seeing that again,” Borio said.With many other markets also rallying sharply this year, though, investors were seeing “a very, very soft landing ahead” for the big economies, he added. More

BANGKOK (Reuters) -Thailand’s economy is in a “critical situation” that requires urgent stimulus measures and a potential rate cut, officials from the prime minister’s office said on Monday, as the country pushes to draw new investments from the likes of EV maker Tesla (NASDAQ:TSLA).Prime Minister Srettha Thavisin, who took power last August, has been pushing to revive Southeast Asia’s second-biggest economy, which has suffered from weak exports and a slow recovery from the pandemic compared with regional peers.”Figures show we are not in good shape,” Prommin Lertsuridej, chief of staff to the prime minister, told reporters, outlining a series of challenges ranging from low industrial capacity utilisation to ballooning household debt.The economy unexpectedly contracted in the fourth quarter of 2023 and policymakers have downgraded the growth outlook for this year, adding to pressure on the central bank to give in to the prime minister’s near-daily demands for an interest rate cut.Prommin, a veteran political strategist, said there was room to reduce rates, which would help struggling households by putting more money in their hands, but said the government would not intervene in the central bank’s decision making.Srettha has outlined ambitions to make Thailand a regional hub for several sectors including electric vehicles (EVs), aviation, finance and the digital economy. He has also urged lawmakers to boost Thailand as a food, wellness and tourism hub.”We are doing everything we can,” Prommin said, referring to measures including visa-free tourism, policies to address household debt, and support for the critical agriculture sector.A key election promise to give away 10,000 Thai baht ($279) to 50 million Thais to spend in their local communities was still in the pipeline, with implementation likely by late May, he said.Critics have cautioned that the government’s raft of measures – especially a $14 billion “digital wallet” handout scheme – may not be fiscally viable and could stoke inflation.TALKS WITH TESLAThailand is continuing talks with auto major Tesla for a potential investment in the country, an official from the prime minister’s office said.The government has offered the EV maker access to 100% clean energy for a facility in Thailand that could encompass EVs and battery production.”It is up to Tesla right now,” Supakorn Congsomjit said, declining to provide further details.Late last year, Tesla surveyed potential locations in the country, he added.Long dominated by Japanese carmakers such as Toyota Motor (NYSE:TM) and Honda (NYSE:HMC) Motor, Thailand has seen a wave of investment by Chinese EV makers, including BYD (SZ:002594) and Great Wall Motor, amounting to more than $1.44 billion.In a bid to draw more foreign investment, Prommin said the government was working on multiple fronts, including easing visa regulations, amending laws for improving ease of doing business and upgrading physical and digital infrastructure. ($1 = 35.8100 baht) More

NEW YORK (Reuters) – Seemingly endless demand for U.S. top-rated corporate debt has created unease among some investors who think a selloff could be on the cards if liquidity conditions worsen later this year.Expectations of a benign outcome for the U.S. economy despite high interest rates have fuelled a search for yields and supported demand for credit. So far this year investment-grade rated companies have raised record amounts of debt while credit spreads, or the premium companies pay over U.S. Treasuries for issuing bonds, are at their tightest in years.Yet some in the market suspect optimism around the asset class could make it vulnerable to a repricing once the Federal Reserve’s efforts to tighten financial conditions start biting into bank reserves left so far unscathed because of excess liquidity in the financial sector.Inflows into the Fed’s overnight reverse repo facility, a proxy for excess cash in the financial system, have been declining sharply over the past year. Once cash drains from the reverse repo facility, bank reserves at the Fed are expected to start falling, tightening overall financial system liquidity and potentially hitting demand for risk assets such as stocks and credit.Daniel Krieter, director of fixed income strategy at BMO Capital Markets, said he has observed a strong relationship between the level of excess bank reserves and investment-grade credit spreads, which tend to tighten when reserves rise.”The level of excess reserves in the system, we think, matters for risk,” said Matt Smith, investment director at Ruffer. “Liquidity is going to tighten from here, and on top of that everything is very expensive … a sharp selloff is something we expect and are positioned for,” he said.Estimates vary as to when the reverse repo facility will be depleted. Some analysts expect it to happen between May and July this year, even though benign market conditions in U.S. funding markets in recent weeks suggest the process may take longer. ‘FROTHY’ MARKETSTo be sure, expectations that demand for credit would wane have been proven wrong over the past few years, with the risk of corporate debt defaults fading as the economy showed surprising resilience despite interest rates at their highest in decades.Investment-grade rated companies have raised a record $395 billion so far this year, and order books on new bonds have been on average three to four times oversubscribed, allowing companies to pay little to no spread premium on any new bonds, according to Informa Global Markets data.”The combination of Treasury yields still at relatively high levels and conservatively managed corporate balance sheets, is driving liquidity into high quality bonds,” said Jonathan Fine, head of investment-grade syndicate at Goldman Sachs.Barring any unexpected event, credit spreads could widen should the economy slow down but that is likely to happen gradually. “Risks on the horizon are in fact incentivizing corporate issuers to raise debt now rather than later,” he said.For Mark Rieder, CEO at La Mar Assets, a credit hedge fund, “frothy” credit markets did not mean exiting credit completely.”Just build a margin of safety at a time when tight credit spreads make future returns more challenging,” he said, adding investors should put on interest rate hedges, upgrade the quality of their portfolio and build cash.Still, even in case of continued economic strength, lower liquidity when interest rates remain high could accelerate a decline in bank reserves as investors have more incentive to park money in high-yielding cash, worsening a possible selloff, said Smith at Ruffer.He said he saw the potential for a “1987-style market crash, so it’s not one where we think there are big problems in the economy, it’s more like an endogenous event.””It could be quite quick, but that doesn’t seem impossible to us.” More

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Beijing is expected to resist growing market pressure for much stronger stimulus to spur China’s economic recovery at its flagship annual political event this week, analysts have said, as President Xi Jinping focuses on turning the country into an advanced manufacturing superpower. Thousands of delegates will descend on Beijing for the opening session of the National People’s Congress, China’s rubber-stamp parliament. Xi’s number two official, premier Li Qiang, is expected on Tuesday to deliver a “work report” outlining targets for economic growth and military spending as well as policy priorities.The NPC will be scrutinised for signs of how the Communist party, which will celebrate the 75th anniversary of the People’s Republic of China this year, plans to deal with multiple geopolitical, demographic and economic challenges.These include a real estate crisis, deflationary pressure and flagging investor confidence — with record low foreign direct investment in 2023 and stock market falls this year — as well as growing European and US resistance to China’s exports, especially of electric vehicles.But in a break with precedent, Li will not hold a customary press conference as China’s premier has at the conclusion of the session every year since 1993, NPC spokesperson Lou Qinjian said on Monday. The press conference, though carefully staged, was one of the few opportunities for foreign and domestic media to engage China’s leadership. “The only [popular] channel to dialogue with the top leadership is now closed,” said a government adviser. “Pulling back on this practice for the first time in more than 20 years, at a time when there are great deal of questions about the prospects for China’s economy, and plans in the government for addressing concerns, does not exactly inspire confidence,” said David Bandurski, director of the China Media Project.Analysts will be closely watching Xi Jinping’s meetings with different gatherings of NPC delegates, including the representatives of the provinces and the military More

1. Futures mixedU.S. stock futures hovered around both sides of the flatline on Monday, with a white-hot rally in equities showing some signs of cooling prior to more cues on Federal Reserve monetary policy and fresh developments in the American presidential election.By 03:24 ET (08:24 GMT), the Dow futures contract had shed 60 points or 0.2%, S&P 500 futures had dipped by 3 points or 0.1%, and Nasdaq 100 futures had added 22 points or 0.1%.The main averages ended the previous trading week higher after weak economic data and comments from Federal Reserve officials supported hopes for an interest rate cut by the U.S. central bank later this year. A gauge of manufacturing activity in the world’s largest economy remained in contraction territory for the 16th consecutive month, while consumer surveys from the University of Michigan slipped by more than anticipated.Elsewhere, Fed Governor Christopher Waller said that the size of bank’s balance sheet did not influence its ongoing battle to corral inflation, feeding expectations for a potential future rate reduction.2. Jobs report, retail earnings ahead this weekFriday’s monthly jobs report is set to headline this week’s economic calendar, as investors try to assess the timing of the first Fed interest rate cut.Markets are currently betting that the central bank could start to ratchet borrowing costs down from more than two decade highs in June. But signs of continued strength in the labor market could make it harder for traders to shrug off concerns that inflation may be reignited if the Fed begins easing too soon.Economists are expecting the economy to have added 190,000 jobs in February after January’s blowout 353,000 gain, which was the largest in a year. The unemployment rate is projected to hold steady at 3.7%, while wage growth is seen moderating.On the earnings front, an ebbing flow of corporate results will include big-box retailers like Target (NYSE:TGT), Costco (NASDAQ:COST) and Kroger (NYSE:KR). The returns could help to flesh out the picture of U.S. consumer demand, which has been dented recently by high inflation and elevated interest rates.3. Investor group increases Macy’s takeover offerAn investor group consisting of Arkhouse Management and Brigade Capital hiked its offer to take department store chain Macy’s private, just months after the firm rejected an earlier offer.The group is now offering $24 in cash per Macy’s share, up from its earlier offer of $21 per share, it said in a press release late on Sunday. The offer is a 33% premium to Macy’s close on Friday, and values the chain at about $6.6 billion.Arkhouse said that the group was open to further increasing the takeover price. Macy’s said in a statement on Sunday that its board will review the new proposal.The increased offer is the second after a previous bid was rejected in November. It also comes after Macy’s announced a major restructuring drive that will see the firm slash costs, reduce inventory, and shutter 150 stores over the next three years.4. Super Micro Computer to join S&P 500Shares in Super Micro Computer spiked in premarket U.S. trading on Monday after S&P Dow Jones Indices announced that the seller of artificial intelligence-optimized servers is slated to join the benchmark S&P 500 later this month. Following the statement on Friday, Super Micro’s stock price jumped in after hours trading. Around $10 billion worth of shares in the firm exchanged hands, greater than tech giants Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).A provider of cutting-edge servers powered by AI chips designed by Nvidia (NASDAQ:NVDA), Super Micro has been a major beneficiary of surging enthusiasm around the possible applications of the nascent technology. Its stock price has soared by more than 217% so far this year, pushing its market capitalization above $50 billion.Along with Super Micro, athletic apparel firm Deckers Outdoor (NYSE:DECK) will also be added to the S&P 500. The two companies will replace home appliance group Whirlpool (NYSE:WHR) and Utah-based lender Zions Bancorporation (NASDAQ:ZION), respectively, on the index.5. Oil prices subduedCrude prices were largely muted in European trade on Monday, as support from a move by oil group OPEC+ to maintain its current pace of production cuts until the second quarter was tempered by calls from top U.S. officials for an immediate Israel-Hamas ceasefire.Oil markets were sitting on strong gains over the past two weeks, bolstered by expectations of tighter supplies this year, while optimism over an eventual decline in U.S. interest rates also aided sentiment.Weighing on some of the momentum was a call from U.S. Vice President Kamala Harris on Sunday for Hamas to immediately accept a six-week ceasefire. She also urged Israel to offer more aid to Gaza. Her comments were some of the strongest yet made by a senior U.S. official on the ongoing war, and potentially signaled diplomatic intervention by the country in the conflict.Brent oil futures expiring in May rose 0.1% to $83.67 a barrel, while West Texas Intermediate crude futures for May climbed by 0.1% to $79.17 per barrel by 03:16 ET. More

Turkish annual consumer price inflation soared to 67.07% in February, the Turkish Statistical Institute said Monday, coming in above expectations.
The combined sector of hotels, cafes and restaurants saw the greatest annual price inflation increase at 94.78%, followed by education at 91.84%.
The strong figures are fueling concerns that Turkey’s central bank, which had indicated last month that its painful eight-month long rate hiking cycle was over, may have to return to tightening.

The Maslak financial and business center in the Sariyer district of Istanbul.
Ayhan Altun | Moment | Getty Images

Turkish annual consumer price inflation soared to 67.07% in February, the Turkish Statistical Institute said Monday, coming in above expectations.
Analysts polled by Reuters had anticipated annual inflation would climb to 65.7% last month.

The combined sector of hotels, cafes and restaurants saw the greatest annual price inflation increase at 94.78%, followed by education at 91.84%, while the rate for health stood at 81.25% and transportation at 77.98%, according to the statistical institute.
Food and non-alcoholic beverage consumer prices jumped 71.12% in February year-on-year and recorded a surprisingly large monthly rise of 8.25%.
The monthly rate of change for the country’s inflation from January to February was 4.53%.
The strong figures are fueling concerns that Turkey’s central bank, which had indicated last month that its painful eight-month long rate hiking cycle was over, may have to return to tightening.
“The stronger-than-expected rise in Turkish inflation to 67.1% y/y in February adds to our concerns given that it comes on the back of a large increase in inflation in January and the strength of household spending growth in Q4,” Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in a research note on Monday.

“Core price pressures continue to run hot and if this continues, the possibility of a restart to the central bank’s tightening cycle will only increase in the coming months,” he said.
Some analysts predicted an eventual fall in inflation down to around 35% by the end of this year. According to Capital Economics, the latest figures “highlight that inflation pressures in the economy remain very strong and suggest that the disinflation process has taken a setback at the start of this year.”
Turkish Finance Minister Mehmet Simsek was cited by Reuters as saying that the country’s inflation would remain high in the first half of the year “due to base effects and the delayed impact of rate hikes,” but that the print would come down in the next 12 months.
Persistently high inflation has been fueled by Turkey’s dramatically weakened currency, the lira, which is at a record low against the dollar. The lira was trading at 31.43 to the greenback around noon local time on Monday. The Turkish currency has lost 40% of its value against the dollar in the past year, and 82.6% in the last five years.
“Obviously a disappointing set of inflation prints this morning,” Timothy Ash, emerging markets strategist at BlueBay Asset Management, wrote in a note. The Turkish central bank, he said, “has been trying to wind down the protected FX-linked deposit accounts and the need to rebuild FX reserves.”
He added that this development has “continued to put downward pressure on the lira,” creating an inflation pass-through.
Analysts note that Turkey’s policymakers wanted to avoid raising rates again, especially ahead of the country’s local elections on March 31. But relentlessly rising inflation may force them to hike again after the vote. Turkey’s key interest rate is currently at 45%, following a cumulative increase of 3,650 basis points since May 2023.
“Hopefully favourable base period effects should begin to create a more virtuous cycle from mid year. The CBRT might though need to further hike policy rates after local elections,” Ash wrote. More