Economy

(Reuters) – A look at the day ahead in Asian markets.China’s latest purchasing managers index figures dominate the market agenda in Asia on Friday, offering investors the first glimpse into how the troubled economy fared in February as they await next week’s National People’s Congress. The new month kicks off with markets across the region and beyond in fairly buoyant mood after in-line U.S. inflation figures on Thursday extended the global equity rally and pushed U.S. Treasury yields lower.Some recent inflation readings had come in above forecast, but not this one. The S&P 500, Nasdaq and MSCI World indexes climbed back up toward their recent all-time highs, with the MSCI World sealing a fourth monthly rise, its best run since mid-2021.Asian markets take the baton on Friday, the first trading day of the month, after the MSCI Asia ex-Japan rose 4% and Japan’s Nikkei hit all-time highs in February. Some froth has understandably come off these moves in recent days, especially in Japan, after a central bank official said inflation was heading toward the bank’s 2% target, paving the way to leave behind negative rates and yield caps. The yen, for example, on Thursday registered one of its strongest rallies this year, pushing the dollar below 150.00 yen and further from its recent historic lows and territory Japanese officials might intervene to prevent further weakness. Figures on Friday are expected to show that unemployment in Japan held steady at 2.4% in January, while PMI data are likely to show yet another month of shrinking manufacturing activity. It is a similar story in China, where the official NBS manufacturing PMI is also expected to show another month of contracting activity also. The unofficial Caixin PMI, however, has been more upbeat and is expected to show a fourth month of expansion in manufacturing.Chinese stocks ended the month with a bang on Thursday – the CSI 300 and the Shanghai Composite both jumped nearly 2% to register monthly gains of 9.4% and 8%, respectively, their best months since November 2022.Of course, they were rebounding from five-year lows and lifted by a series of measures and new rules from Beijing to revive investor confidence and put a floor under the market. Among the latest moves, China’s securities regulator said it will tighten scrutiny of derivative businesses in the stock market and announced punishment of a hedge fund company for excessive, high-frequency trading in share index futures. Many investors, however, will want to see more aggressive and fundamental policies put in place to support longer-term economic growth and returns before deciding that China is an ‘investible’ destination again. All eyes will turn to next week’s NPC, where Beijing will set the annual growth target and – crucially – a plan for achieving it. Here are key developments that could provide more direction to markets on Friday:- China PMIs (February)- Australia, India, Taiwan manufacturing PMIs (February) – Japan unemployment (January) (By Jamie McGeever; editing by Josie Kao) More

Immigrants aided the pandemic recovery and may be crucial to future needs. The challenge is processing newcomers and getting them where the jobs are.The U.S. economic recovery from the pandemic has been stronger and more durable than many experts had expected, and a rebound in immigration is a big reason.A resumption in visa processing in 2021 and 2022 jump-started employment, allowing foreign-born workers to fill some holes in the labor force that persisted across industries and locations after the pandemic shutdowns. Immigrants also address a longer-term need: replenishing the work force, a key to meeting labor demands as birthrates decline and older people retire.Net migration in the year that ended July 1, 2023, reached the highest level since 2017. The foreign-born now make up 18.6 percent of the labor force, and the nonpartisan Congressional Budget Office projects that over the next 10 years, immigration will keep the number of working Americans from sinking. Balancing job seekers and opportunities is also critical to moderating wage inflation and keeping prices in check.International instability, economic crises, war and natural disasters have brought a new surge of arrivals who could help close the still-elevated gap between labor demand and job candidates. But that potential economic dividend must contend with the incendiary politics, logistical hurdles and administrative backlogs that the surge has created.Visits to Texas on Thursday by President Biden and his likely election opponent, former President Donald J. Trump, highlight the political tensions. Mr. Biden is seeking to address a border situation that he recently called “chaos,” and Mr. Trump has vowed to shut the door after record numbers crossed the border under the Biden administration.Since the start of the 2022 fiscal year, about 116,000 have arrived as refugees, a status that comes with a federally funded resettlement network and immediate work eligibility. A few hundred thousand others who have arrived from Ukraine and Afghanistan are entitled to similar benefits.The foreign-born labor force has rebounded stronglyThe number of workers in the United States as a share of how many there were in February 2020, by worker origin

Source: Bureau of Labor StatisticsBy The New York TimesImmigrants are more likely to be workingThe labor force participation rate for foreign-born U.S. residents rebounded faster than it did for those born in the United States

Source: Bureau of Labor StatisticsBy The New York TimesWork permits are finally flowing for humanitarian migrantsThe number of employment authorization documents granted to immigrants seeking protection in the United States

Note: Data includes permits granted to refugees, public interest parolees, as well as those with a pending asylum application, Temporary Protected Status and people who have been granted asylum.Source: U.S. Citizenship and Immigration ServicesBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected.
Headline PCE, including the volatile food and energy categories, increased 0.3% monthly and 2.4% on a 12-month basis, also in-line.
Personal income rose 1%, well above the forecast for 0.3%. Spending decreased 0.1% versus the estimate for a 0.2% gain.
Initial jobless claims totaled 215,000 for the week ended Feb. 24, up 13,000 from the previous period and more than the 210,000 estimate.

Inflation rose in line with expectations in January, according to an important gauge the Federal Reserve uses as it deliberates cutting interest rates.
The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected according to the Dow Jones consensus estimates. The monthly gain was just 0.1% in December and 2.9% from the year prior.

Headline PCE, including the volatile food and energy categories, increased 0.3% monthly and 2.4% on a 12-month basis, also as forecast, according to the numbers released Thursday by the Commerce Department’s Bureau of Economic Analysis. The respective December numbers were 0.1% and 2.6%.
The moves came amid an unexpected jump in personal income, which rose 1%, well above the forecast for 0.3%. Spending decreased 0.1% versus the estimate for a 0.2% gain.
January’s price rises reflected an ongoing shift to services over goods as the economy normalizes from the Covid pandemic disruptions.
Services prices increased 0.6% on the month while goods fell 0.2%; on a 12-month basis, services rose 3.9% and goods were down 0.5%. Within those categories, food prices accelerated 0.5%, offset by a 1.4% slide in energy. On a year-over-year basis, food was up 1.4% while energy fell 4.9%.
Both the headline and core measures remain ahead of the Fed’s goal for 2% annual inflation, even though the core reading on an annual basis was the lowest since February 2021. While the Fed officially uses the headline measure, policymakers tend to pay more attention to core as a better indication of where long-term trends are heading.

CHICAGO, ILLINOIS – FEBRUARY 13: Customers shop at a grocery store on February 13, 2024 in Chicago, Illinois. Grocery prices are up 0.4% from December and 1.2% over the last year, the slowest annual increase since June 2021. (Photo by Scott Olson/Getty Images)
Scott Olson | Getty Images News | Getty Images

“Overall, [the report] is meeting the expectations, and some of the worst fears in the market weren’t met,” said Stephen Gallagher, chief U.S. economist at Societe Generale. “The key is we’re not seeing the broad nature of increases that we had been more fearful of.”
Wall Street reacted little to the news, with stock market futures up slightly and Treasury yields slightly lower. Futures markets where traders bet on the direction of interest rates also indicated little movement, with pricing tilted toward the Fed’s first rate cut coming in June.
Atlanta Fed President Raphael Bostic said the recent data shows the road back to the central bank’s 2% inflation goal will be “bumpy.”
“They’ve come in higher than people hoped, but if you look over the long arc, the line is still going down,” he told an audience at a banking conference in Atlanta. “That’s an important thing to keep in mind.”
Like Bostic, Chicago Fed President Austan Goolsbee, also speaking Thursday, said he expects rate cuts later this year but didn’t specify when. Bostic said he expects the first cut in the summertime.
Thursday’s BEA report also showed that consumers are continuing to dip into savings as prices stay elevated. The personal savings rate was 3.8% on the month, slightly higher than December but off a full percentage point from where it was as recently as June 2023.
In other economic news, a Labor Department report showed that companies are still reluctant to lay off workers.
Initial jobless claims totaled 215,000 for the week ended Feb. 24, up 13,000 from the previous period and more than the 210,000 Dow Jones estimate but still largely in keeping with recent trends. However, continuing claims, which run a week behind, rose to just above 1.9 million, a gain of 45,000 and higher than the FactSet estimate for 1.88 million.
The reports come as central bank officials mull the future of monetary policy following 11 interest rate increases totaling 5.25 percentage points. Running from March 2022 to July 2023, the hikes came as the Fed battled inflation that peaked at a more than 40-year high in mid-2022.
Officials have said in recent days that they expect to begin reversing the increases at some point this year. However, the timing and extent of the policy easing is uncertain as recent data has indicated that inflation could be more stubborn than expected.
“Hot January inflation data adds to uncertainty and pushes back rate cut expectations,” said David Alcaly, lead macroeconomic strategist at Lazard Asset Management. “But odds remain that this is a speed bump and that, while there may be additional short-term swings in market narrative, it will ultimately matter more how deep any rate cutting cycle goes over time than when it begins.”
January’s consumer price index data raised fears of persistently high inflation, though many economists saw the rise as impacted by seasonal factors and shelter increases unlikely to persist.
While the CPI is used as an input to the PCE, Fed officials focus more on the latter as it adjusts for substitutions consumers make for goods and services as prices fall. Where the CPI is viewed as a simpler price measure, the PCE is viewed as more representative of what people are actually buying.
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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief China economist at UBS Investment Research and author of ‘Making Sense of China’s Economy’In January, China reported official real gross domestic product growth of 5.2 per cent for 2023, but the Shanghai Composite index fell to its lowest level in five years. China’s property market has continued to fall and consumer spending is still lacklustre (notwithstanding record holiday travel and movie box office takings during the lunar new year holiday). Business confidence remains low and foreign direct investment has shrunk sharply. What can China do to boost confidence? While using national funds to buy blue-chip stocks might support equity markets in the short term, what is really needed are measures to revive the economy, raise corporate earnings and restore business and household spending. Next week’s National People’s Congress would be a good time to announce such measures.However, there is a lack of consensus in Beijing on the key factors behind the current weakness. Most think that China’s economy is in transition, moving from a growth model that relied heavily on property and debt-fuelled local government investment to one that will rely more on innovation and domestic consumption. This will be painful and slow, given the weight of the property sector, high local government debt, a falling population and the tech restrictions imposed by the US and its allies. There are also deeper causes of weak confidence: Chinese officials point to the decoupling pressures, while investors highlight earlier regulatory tightening and an uncertain policy environment.Market economists also point to shorter-term factors and the lack of macro stimulus. The property policy tightening in 2020-21 and Covid-19 helped trigger the property market downturn from its unsustainable levels of construction and debt. Fiscal policy tightened in most of 2023 as local governments cut general spending and were unable to increase debt to fund investment. Weak demand exacerbated excess capacity issues, leading to declines in price and earnings, which in turn weakened corporate investment.Both short-term macro policy support and medium-term structural policies are now needed to boost the economy and confidence. Stabilising the property market is key to restoring confidence and preventing more menacing spillover effects on the economy and financial system. Credit support to property developers will improve buyer confidence, as well as allaying defaults. A more co-ordinated, government-led property debt restructuring effort could also help limit the damage of the downturn. Further easing home purchase restrictions in mega cities, additional cuts in mortgage rates and minimum down payments, and further relaxation of the hukou system (household registration) in cities with more than 3mn people will help boost housing demand. To encourage domestic spending, the government may need to deploy a fiscal stimulus of 2 per cent of GDP or more to subsidise household consumption, increase social spending, and fund infrastructure investment. Further interest rate cuts and liquidity injections would help lower the mortgage and corporate debt service burden and, together with looser credit policies, drive credit demand. The Chinese authorities have been tentative in easing monetary policy due to the rise in US rates and depreciation pressures on the renminbi. But lowering rates together with a convincing economic support package would boost currency confidence. The benefit of rate cuts is likely to far outweigh the negative impact of modestly widening the US-China rate gap.  Given China’s transition away from its old growth model, the property market is unlikely to recover its past form and macro stimulus alone will not generate sustained growth. A successful transition to a new growth model will require structural reforms. Even if Beijing is hesitant to directly subsidise consumption, it could structurally increase healthcare spending to boost long-term confidence and household consumption. A deepening of hukou reform would increase labour mobility and rural migrants’ access to public services, increasing their spending power and housing demand. On the local government side, monetising state assets and finding sustainable financing for long-term spending, including on infrastructure, should be implemented together with debt restructuring. A more stable and transparent regulatory environment, lower barriers to entry and better legal protections for investors would also boost private sector involvement.China’s government has the tools at its disposal to overturn the current downturn, but its success will depend on timely action, policy co-ordination and political will.  More

The ECB has kept interest rates at record highs since September but talk has decisively shifted to cuts as price growth is now moving closer to target, even if some crucial areas like services and wage growth remain a concern.Inflation eased in France, Spain and many of Germany’s largest states, while labour market slack in Germany, the 20-nation euro zone’s biggest economy, increased a touch, potentially pointing to some easing wage pressures, national authorities said.The figures suggest that euro zone inflation, to be published on Friday, will show a slowdown to around 2.5% in February from 2.8% January, moving even closer to the ECB’s own 2% target.”Overall, today’s prints show that the disinflation process continues in the euro zone and suggest we will see a small decline in the February print,” Leo Barincou at Oxford Economics said in a note.In France, EU harmonised inflation dipped to 3.1% from 3.4% while in Spain, it slowed to 2.9% from 3.5%. In Germany, most states reported big dips, suggesting that a fall to 2.7% from 3.1% as expected by economists, was realistic.Still, ECB policymakers are likely to argue that lower energy prices are dragging down overall inflation and that is masking less favourable trends for underlying prices. In France, services inflation slowed to just 3.1% from 3.2% while core inflation in Spain was still 3.4%, uncomfortable readings that could point to a rebound in overall price growth further down the road. The ECB will next meet on March 7 and while no policy change is expected, the bank is likely to acknowledge the improved inflation outlook, which will eventually open the door to rate cuts, perhaps around mid-year.Thursday’s national data also offered some mild good news on the labour market, the single biggest risk factor for prices because wage growth is too rapid.The number of people out of work in Germany increased more than expected in February with the number of unemployed growing by 11,000 to 2.713 million.The change is minor, however, and the jobless rate remained stable at 5.9%, doing little to lift the euro zone’s own rate from a record low 6.4%. The tight labour market is an anomaly. The euro zone economy has stagnated for the past six quarters and unemployment would normally rise sharply in such an environment. But firms are hanging onto labour, thanks to healthy margins and because firms fear that finding labour will be difficult once the upswing starts. “Despite some mixed aspects, the (German) labour market data continue to be very resilient, given the weakness in overall growth,” JPMorgan economic Greg Fuzesi said. “High levels of labour shortages, weakness in the workweek and decent corporate positions may be contributing to this.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Clare Lombardelli, OECD chief economist, has been appointed a deputy governor at the Bank of England, putting her in charge of reforming its monetary policy when it is seeking to quell an inflationary outbreak it was slow to anticipate. The former Treasury official will succeed Ben Broadbent at the end of his term on July 1, the government said on Thursday. She will join the central bank at a key turning point, as it seeks to suppress the inflationary episode that took headline price growth to double-digits after Covid-19 lockdowns were lifted. Economists widely expect the BoE to start cutting rates this year, but it is still grappling with persistent elements of inflation, particularly domestically generated services price growth. Earlier this month, Lombardelli told the Financial Times that while inflation now appeared to be receding in big economies, “we are not out of the woods yet, and there is a fair way to go”. The UK inflation rate stayed steady at 4 per cent in January.Lombardelli took over her OECD role in May 2023. Before she joined the Paris-based organisation, Lombardelli was chief economic adviser to the Treasury and joint head of the Government Economic Service. “The challenge she faces is trying to shift the BoE’s approach to its core job of steering monetary policy,” said Neville Hill, co-founder of Hybrid Economics, a consultancy. “They need a fresh pair of eyes of thinking about how BoE thinks about inflation risks, how it expresses them, how it manages the difficulties of hitting its inflation target. We are in a world where inflation is likely to be more volatile than in the past,” he added. The appointment extends a trend of former top Treasury civil servants gaining senior posts at the BoE. Last year, the House of Lords economic affairs committee called for a review of the way senior BoE appointments are made, pointing out that three of the bank’s deputy governors previously worked at the Treasury, as did the recently retired Sir Jon Cunliffe.“While they are undoubtedly able, this does not strengthen the perception of independence,” the Lords said at the time. Lombardelli’s tasks on arriving at the bank will include implementing reforms following former Fed chair Ben Bernanke’s review of the BoE’s forecasting technique, which is expected to be published in April. The bank said in a statement that she will also be responsible for the BoE’s research agenda as well as a new data and analytics strategy. The appointment was made by chancellor Jeremy Hunt, who said: “Clare brings significant experience to the role tackling financial and economic issues both domestically and internationally.”Andrew Bailey, BoE governor, said: “Clare’s impressive career means she brings a huge amount of relevant experience and expertise to the Monetary Policy Committee, and the bank more broadly, at a time of great importance for the UK economy.”Lombardelli started her career at the BoE and has also worked at the IMF. She also served as an economic adviser to David Cameron when he was prime minister. Her appointment is for a term of five years. Broadbent, the current deputy governor for monetary policy, has served at the BoE since 2014. More

BENGALURU (Reuters) – The European Central Bank will first cut interest rates in June, according to a near two-thirds majority of economists in a Reuters poll, though they were split on the chances of the cut coming earlier or later than they expected.Inflation, which the ECB targets at 2.0%, moderated to 2.8% in January from a peak of 10.6% in October 2022 and is expected to drop further. But policymakers have made clear they are not yet ready to consider cutting rates, even as growth falters. Most members of the Governing Council, including President Christine Lagarde, are aligned with the view that more data, especially on the labour market, will be required before cutting the deposit rate from a record high 4.00%.Last week, Lagarde said negotiated wage data from Q1, due in May, will be especially important for the ECB. That makes June the most likely month to consider a first rate cut, an expectation shared by markets and economists.A near two-thirds majority of forecasters, 46 of 73, said the central bank will first reduce the deposit rate by 25 basis points to 3.75% in June. That consensus view has grown considerably stronger from around 45% in a January poll. “Why June? Because by then actual inflation will have come down a little bit more, we will also have the first quarter wage growth which should also show at least no new acceleration … So it more or less looks like a good moment to do the first rate cut,” Carsten Brzeski, global head of macro at ING, said.Only 17 expected an April cut and 10 said the ECB would wait until the second half of this year. None of the 73 economists in the Feb. 26-29 poll expected a rate cut at the March 7 meeting.Still, economists said it would not be the start of a substantial easing cycle. Medians showed 100 basis points of cuts this year, taking the deposit rate to 3.00% by end-2024, broadly in line with market pricing. While 32 of 73 economists saw the rate higher than that, 23 predicted it would be lower.”There is always a risk that as soon as the economy recovers just a tiny bit, inflation will come back so that argues against aggressive rate cuts,” added ING’s Brzeski.Despite a strong consensus around the first rate cut, economists were divided on the risks around their forecasts. When asked what was more likely around the timing of the first reduction, a roughly 55% majority of respondents, 17 of 31, said earlier than they expect. The rest said later.An early cut by the ECB could mean a weaker euro and risks of additional imported inflation as a similar Reuters poll found the U.S. Federal Reserve is also expected to reduce rates in June, with a significant risk of a later move.But unlike in the euro zone, growth in the world’s No. 1 economy remains resilient and U.S. recession fears are fast fading.”One of the transmission channels is the impact on EUR/USD when policies diverge,” Bas van Geffen, senior macro strategist at Rabobank, said.”That does not necessarily prevent the ECB from making the first cut before their U.S. peers do. However, if the ECB is the first to cut, we would expect them to be a bit more cautious with their next steps.”Inflation will average 2.3% in 2024 and 2.1% in 2025, according to the poll. Official preliminary data due Friday is expected to show prices rose 2.5% this month.Economic growth in the 20-country bloc was seen at 0.1% and 0.2% in Q1 and Q2, respectively, and average 0.5% this year and 1.3% next.(For other stories from the Reuters global economic poll:) More