Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Container shipping lines are struggling to cope with congested ports and shortages of ships as the crisis in the Red Sea drags into a third month, one of the sector’s most senior executives has warned.Jeremy Nixon, chief executive of Japan’s Ocean Network Express, said many shipping lines were facing scheduling problems. The issue has emerged since attacks by Yemen’s Houthis in December prompted most carriers to stop using the normal Asia to Europe route through the Red Sea and Suez Canal.This meant that vessels were frequently arriving at ports on days when they were not scheduled, Nixon said.“Everybody is struggling with schedule integrity and therefore we’re getting berthing clashes in a number of ports,” he told the Financial Times.Diversions to a route round the Cape of Good Hope have added 10 days to two weeks to each voyage between Asia and North Europe and vastly complicated the task of serving some parts of the world.There was also extra pressure on major “hub” ports, Nixon said: “What we see is increased volumes into the hub ports in Asia and the hub ports in the Mediterranean.”He pointed to Singapore, Dubai and ports around the Gibraltar strait as having seen particularly sharp increases.However, he downplayed suggestions the industry had an overcapacity problem, adding that his line, which operates the world’s sixth-largest container ship fleet, had too few ships to maintain its normal, weekly services.Shares in Denmark’s AP Møller-Maersk, operator of the world’s second-largest container ship fleet, fell sharply this month after its chief executive warned that industry overcapacity would put the company’s earnings “under pressure”. World fleet capacity is expected to grow by about 8 per cent in 2024, faster than expected demand growth of about 3 per cent. Over-capacity depresses the rates that lines can charge customers.Nixon portrayed the issue as a short-term reflection of investments in ships that can run on cleaner fuels, ahead of new emissions rules expected from 2027.“I’m not so much of the view that there’s a huge oversupply in the container shipping industry,” Nixon said. “We’re building a bit ahead of ourselves so that we’ll have the greener vessels and greener investments in time.”During the current Red Sea diversions, he added, his line was short of vessels. The 102-day time required to complete a loop between Asia and North Europe and back via the Cape of Good Hope means a line needs to deploy 16 ships for a weekly service, instead of the normal 12.Nixon said ONE’s ships were going between 10 and 15 per cent faster to try to minimise delays. But this did not entirely compensate, he added.“There are simply not enough ships available globally . . . to cover these much longer extended transit times.”ONE was formed in 2018 through the merger of the container businesses of Japan’s NYK Line, K Line and Mol. Container ships mostly carry manufactured goods in steel boxes. More

The PBOC cut its five-year LPR, which is used to determine mortgage rates, to 3.95% from 4.20%. Analysts had expected a cut of 10 basis points to 4.10%. The one-year LPR was left unchanged at 3.45%. Tuesday’s move was somewhat unexpected, after the central bank kept medium-term lending rates unchanged over the weekend. But steadily worsening economic conditions in China had seen some investors positioning for more monetary easing in the country. The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending rates in the country.Tuesday’s move marks the PBOC’s first rate cut since August 2023, and brings the LPR further into record-low territory. While the bank has remained largely hesitant in trimming interest rates, due to concerns over more weakness in the yuan, consistently worsening economic conditions in China appear to have now forced its hand.The cut in the 5-year LPR also appears to be directed largely towards the struggling property market, which was battered by a slew of high-profile bankruptcies over the past two years as home sales dried up and house prices plummeted.The Chinese economy barely grew more than targeted in 2023, and was grappling with a pronounced deflationary trend towards the end of the year. Business activity readings for January also showed little signs of improvement.While Tuesday’s cut is expected to provide more monetary support to the economy, investors have called for more targeted, fiscal stimulus measures from Beijing in recent months, to shore up growth. More

SINGAPORE (Reuters) – The yen was pinned near a three-month low against the dollar on Tuesday as sticky U.S. inflation bolstered the case for higher-for-longer interest rates, contrasting with a recession in Japan and market doubts about a near-term exit from its easy policy. In Asia, China’s loan prime rate (LPR) decision takes centre stage, where it is widely expected to trim its benchmark mortgage reference rate to shore up the country’s faltering economic growth.Ahead of the outcome, the offshore yuan edged marginally lower to 7.2143 per dollar. The greenback last bought 150.25 yen, having already surpassed the psychological 150 per dollar level for six straight sessions and prompting warnings from Japanese officials in a bid to stabilise the currency.Higher-than-expected U.S. producer prices and consumer prices data last week further scaled back market expectations of how soon, and by how much, the Federal Reserve could ease interest rates this year, with futures pointing to just about 90 basis points worth of cuts in 2024, down from about 160 bps at the end of last year.On the other hand, Japan’s economy, which unexpectedly slipped into a recession in the final quarter of last year on sluggish consumption and capital expenditure, has prompted investors to rethink the chances of a near-term exit by the Bank of Japan (BOJ) from its ultra-loose monetary policy.”At the moment, the data coming in from Japan is telling us that it’s not as rosy as what the BOJ would like to see in order to begin moving away from negative interest rates,” said Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:NABZY) (NAB).In the broader market, the dollar edged higher, though moves were largely subdued due to Monday’s holiday in the United States for Presidents’ Day.Against the greenback, the euro fell 0.09% to $1.0770, while sterling dipped 0.06% to $1.2588.The New Zealand dollar eased 0.11% to $0.6143.”We’re still stuck in these ranges to some extent, and waiting for more meaningful or material data to swing us one way or the other,” said NAB’s Catril. “So for that, data coming from the U.S. remains paramount.”In the bond market, U.S. Treasury yields ticked higher in response to last week’s inflation data and the repricing of Fed expectations. [US/]The benchmark 10-year yield rose about 2 bps to 4.3166%, while the two-year yield steadied at 4.6565%.The dollar index, a measure of the greenback against major peers, rose 0.03% to 104.33.Down Under, the Australian dollar fell 0.14% to $0.6531.Minutes of the Reserve Bank of Australia’s February meeting out on Tuesday showed policymakers considered hiking rates by another quarter-point, but decided to hold steady given progress had been made on inflation and the labour market was loosening faster than expected. More

While the bank ultimately left its official cash rate target unchanged at 4.35%, the minutes of the RBA’s February meeting showed that some members had raised the case for a hike of 25 basis points.The RBA had struck an unexpectedly hawkish tone during the meeting, warning that interest rates could still rise further if inflation remained stickier than expected in the near-term. This notion was a key driver of considerations for another rate hike, although the bank chose to hold on what it perceived as easing risks over inflation not returning to its 2%-3% annual target range within a “reasonable timeframe.”Recent data showed that Australian consumer price index inflation had eased substantially by end-2023. But it still remained well above the RBA’s target.The RBA expects inflation to only reach its target range by mid-to-late 2025, and that inflation will reach the midpoint of the target range only by 2026. The central bank also expects further cooling in the economy and an uptick in unemployment. Still, the minutes of the RBA meeting showed that the bank was also on guard to reduce interest rates if the Australian economy were to weaken more than initially expected. “Increasing the cash rate target now would not prevent the Board from easing monetary policy if the economy were to weaken more sharply than envisaged,” the RBA minutes said. The bank noted continued uncertainty over the Australian economy in the coming months, especially as global economic conditions worsened and the path of inflation remained uncertain. The Australian dollar fell 0.2% after the release of the minutes. More

Minutes of its Feb. 5-6 Board meeting out on Tuesday showed the Reserve Bank of Australia (RBA) considered hiking rates by another quarter-point, but decided to hold steady given progress had been made on inflation and the labour market was loosening faster than expected.Still, “Members noted that it would take some time before they could have sufficient confidence that inflation would return to target within a reasonable timeframe,” the minutes showed. Given considerable uncertainty about the economic outlook and the high costs of inflation proving stubborn, the board agreed it was appropriate not to rule out a further increase in the cash rate. Members did note the labour market and consumer spending had been weaker than previously expected, and there was a risk that consumer spending weakens more sharply than it had to date. The RBA has raised interest rates by a whopping 425 basis points since May 2022 to 4.35% to tame runaway prices, lifting mortgage payments by thousands of dollars a month. Markets are confident the tightening cycle is over but only see a modest easing of 36 basis points for 2024, most likely in the second half of the year.A first cut is not seen likely until August or September.Consumer price inflation ran at 4.1% in the fourth quarter, down from a peak near 8% but still far above the RBA’s target range of 2-3%.The tightening has led to a loosening in the job market, with the unemployment rate hitting a two-year high of 4.1% in January, while consumers have curbed spending on discretionary goods. Governor Michele Bullock has said inflation did not need to be in the band for the central bank to start cutting rates and there would be an opportunity to ease if consumption slows more quickly than expected. The RBA expects inflation to return to the target band of 2-3% in late 2025, and slow to the mid-point of 2.5% in 2026. The Board deemed the forecasts, which assumed no further increase in the cash rate, were “acceptable”, the minutes showed. More

BENGALURU (Reuters) – The Bank of Korea will keep its key policy rate on hold for a ninth consecutive meeting on Feb. 22, according to all economists polled by Reuters, who stuck to their long-held view the first rate cut would come in the third quarter.Despite inflation declining to a six-month low in January, most Bank of Korea board members see the need for monetary policy to stay restrictive for some time to bring it down to the bank’s 2.0% target.Although BOK Governor Rhee Chang-yong said any premature rate cuts could reignite inflation expectations, a cumulative 300 basis points of hikes between August 2021 and January 2023 could pose a significant threat to highly indebted households.Still, the central bank will leave the base rate unchanged at 3.50% on Feb. 22, said all 38 economists in the Feb. 13-19 poll.”As inflation is still above the BOK’s 2% target and economic recovery is gaining momentum led by strong export growth, the BOK will not cut rates at this meeting,” Nomura economist Jeong Woo Park said.”For the rest of the year, however, I expect rate cuts to start in July as I expect a fear of recession to rise again,” he said. “The worsening housing market downturn would remain headwinds against private consumption.”Median forecasts showed interest rates would stay on hold until the end of June, in line with many regional central banks, followed by 25 basis-point cuts in both the third and fourth quarters, the same as expected in a January poll.Among economists who provided forecasts through September, a majority, 19 of 28 expected the key policy rate at 3.25%, eight saw it at 3.00% and one at 2.75%.”We forecast two base rate cuts in the second half of this year. Our projections are contingent on the U.S. Federal Reserve’s rate-cut cycle. Should the Fed move more swiftly than our forecast – we expect four cuts in 2024 – the BOK may respond by cutting rates further,” said Chong Hoon Park, head of research at Standard Chartered (OTC:SCBFF) Bank Korea.”Korea’s growth prospects for the year are not robust, given that the current interest rate level is deemed high for both consumption and investment.”The economy was expected to grow 2.1% this year, a January poll showed, picking up from a three-year low of 1.4% in 2023. More

(Reuters) – A look at the day ahead in Asian markets.Trading activity in Asia should return to normal on Tuesday with China back in business following its Lunar New Year break and U.S. markets open after the Presidents Day holiday, with attention turning mostly to China and Japan.Investors will be looking to see whether Chinese markets’ gradual climb out of the doldrums can continue, and whether Japan’s stocks and currency can break through to territory not seen in more than a third of a century.Tuesday’s economic calendar is pretty light. The Reserve Bank of Australia releases minutes of its last policy meeting and China’s central bank delivers its latest interest rate decision. The People’s Bank of China is expected to keep its benchmark one-year loan prime rate steady on Tuesday at 3.45% and cut its five-year rate, currently 4.20%, by 5-15 basis points to 3.95%. This latter rate influences mortgage rates.Chinese stocks returned on Monday with a fairly decent performance – the Shanghai Composite rose 1.6% and the CSI 300 rose 1.2% – although given that Asian shares gained 2% during Lunar New Year, perhaps it wasn’t all that impressive.Still, if the CSI 300 can close higher on Tuesday it will mark a sixth consecutive rise, something not seen since January 2023. Cautious optimism seems to be the prevailing mood, which Beijing will no doubt prefer to the outright gloom of late.Many countries in Asia are experiencing a tightening of financial conditions, especially those with large dollar-denominated external debt and exposure to U.S. bond yields. But not Japan. With stocks at the highest in 34 years, the yen near its weakest in 34 years, and domestic bond yields under 1%, financial conditions in Japan have rarely been looser.Goldman Sachs’ Japanese financial conditions index last week sank to a 34-year low. This underscores the sliding yen/booming stock market nexus, and would appear to be inflationary.The Bank of Japan might view this as reason to end negative interest rates soon and bring them into positive territory for the first time in more than eight years.But the economy just unexpectedly slipped into recession, losing its position as third-largest in the world to Germany. Domestic demand is weak, and it is unclear whether wage growth next year will be as strong as it will be this year.Will the BOJ move on rates soon? Or intervene on behalf of the Ministry of Finance to shore up the yen? It’s a tricky one to navigate. More focus than usual could be placed on Japan’s 20-year bond auction on Tuesday, after surprisingly strong demand from pension funds in a 10-year sale recently. A sale of 12-month bills on Monday, meanwhile, resulted in the first positive yield at auction since October 2014.Here are key developments that could provide more direction to markets on Tuesday:- Australia central bank minutes- China interest rate decision- Malaysia trade (January) (By Jamie McGeever) More

A median forecast of 13 analysts predicted that the annual headline inflation rate would settle at 4.70% for the first 15 days of the month, which would mark the continuation of a downward trend that was briefly interrupted at the end of last year.The expected rate of rising consumer prices, however, still hovers above the central bank’s target of 3%, plus or minus 1 percentage point.The closely watched core inflation index, which strips out volatile energy and food prices, is seen falling to 4.67% in early February, its lowest level since July 2021.The Bank of Mexico’s five-member board held the benchmark interest rate at 11.25% for a seventh straight time in the last meeting, while hinting a rate cut could be considered during upcoming meetings. The central bank, known as Banxico, began a rate hiking cycle in June 2021, but it has held the key borrowing rate at its current record-high level since last March.A recent Citibanamex survey showed that a large part of the market anticipates a rate cut at the next monetary policy announcement set for March 21. On a month-over-month basis, Mexico’s consumer prices were seen rising 0.15% in the first half of February, with core inflation up 0.28%.Mexico’s national statistics agency will publish official inflation data for the first half of February on Thursday. More