Economy

SYDNEY (Reuters) -Australia’s sovereign wealth fund has cautioned against expecting rate cuts in Australia or the U.S. anytime soon after reporting on Tuesday a rebound in its performance in the final quarter of 2023 buoyed by the rally in global equity markets.The A$212 billion ($139 billion) Future Fund, returned 8% in the year ended Dec. 31, narrowly missing its target return of 8.4%. In the December quarter it returned 3.2% versus a target of 1.9%.Chair Peter Costello, who retires next month, said while there were signs inflation in Australia was beginning to moderate, it was too early to call a peak in interest rates.”We think equity markets have priced in a peak and maybe a fall in interest rates already and they may have done that a little too early,” Costello, who was Australia’s Treasurer from 1996 to 2007, said on a call with reporters.Markets are wagering Australia’s interest rates have peaked but do not forecast rate cuts until November, expecting total easing this year of a modest 34 basis points.CEO Raphael Arndt said the fund did not expect rate cuts in the U.S. “anytime soon” and had increased its allocation to floating rate credit to just over 10% of the fund as a result.The above target December quarter gains followed a choppy patch for the sovereign wealth fund, which has repeatedly missed its return targets, in part due to being positioned for interest rates to stay higher for longer.Arndt said the fund had made A$70 billion worth of portfolio changes over the past 18 months in line with its view set out in 2022 that an era of “stagflation”, or slow growth and high inflation, similar to the 1970s was possible.Designed to cover pension liabilities for public servants, the Future Fund was set up in 2006 with the proceeds from the privatisation of state telco Telstra (OTC:TLGPY) and today rivals Australia’s largest pension funds in size.($1 = 1.5223 Australian dollars) More

TOKYO (Reuters) – The Bank of Japan is widely expected to retain its ultra-easy monetary settings on Tuesday, as policymakers assess the progress made by the economy towards meeting the conditions for phasing out the decade-long accommodative policy.While the BOJ has its eyes set on ending negative interest rates, many in the bank likely prefer to spend more time determining whether wage increases will broaden enough to keep inflation sustainably at its 2% target, sources have told Reuters.None of the economists polled by Reuters expect the central bank to end its negative rate policy at the conclusion of its two-day meeting on Tuesday, though many see it happening as early as April.Traders are focusing on any clues provided by governor Kazuo Ueda on how soon the BOJ will pull short-term rates out of negative territory, which is seen as the next move Ueda will take in dismantling his predecessor’s radical stimulus programme.”The chance of Japan seeing a positive wage-inflation cycle kick off is heightening,” said former top BOJ economist Seisaku Kameda. “The question is whether that will be sustained, which is something the BOJ probably wants to scrutinise,” Kameda said, adding he expects negative rates to end in March or April.Markets widely expect the BOJ to maintain on Tuesday its short-term rate target at -0.1% and that for the 10-year bond yield around 0%. Ueda will hold a press conference after the decision, which usually starts around 0630 GMT.In a quarterly outlook report due after the meeting, the BOJ is likely to roughly maintain its forecast that an index gauging trend inflation will stay near its 2% target in coming years.The BOJ’s meeting precedes that of the European Central Bank on Thursday and the U.S. Federal Reserve next week, both of which aggressively tightened monetary policy last year and are now contemplating cutting interest rates ahead.Japan has seen inflation exceed the BOJ’s target for well over a year. But Ueda has stressed the need to hold off on raising rates until there is more evidence that inflation will durably stay around 2%, accompanied by solid wage growth.Surveys and comments from business lobbies have shown an increasing chance Japan’s spring wage hikes will be above last year’s 30-year high 3.58% for major firms – a key prerequisite set by the BOJ for exiting ultra-loose monetary policy.But the chance of success in meeting another prerequisite, which is a steady rise in services prices, remains uncertain.While services prices have crept up, the increases are concentrated on sectors benefitting from a rebound in inbound tourism or where labour shortages are acute.Japan’s decade-long history of stagnant wage growth has made it difficult for companies to pass on labour costs through price rises. A BOJ report showed some smaller firms in regional areas remain wary of hiking pay, keeping policymakers cautious of ending negative rates too soon.Recent soft data have added to the drag on Japan’s fragile economic recovery and heightened uncertainty on the timing of an exit. Service-sector activity slid 0.7% in November from the previous month, data showed on Monday, underscoring the weakness in consumption.Factory output is likely to take a hit from weakening demand in China and a production halt at Toyota Motor (NYSE:TM)’s small-car unit which is under investigation for misconduct over safety tests.Toru Suehiro, chief economist at Daiwa Securities, sees a growing chance Japan may have suffered two straight quarters of contraction in October-December on weak output and consumption.”It’s hard to be optimistic about Japan’s economy,” which means the BOJ probably needs to await October-December gross domestic product (GDP) data due in February, said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. More

“I’ve been in China for 27 years, and this is probably the lowest confidence I’ve ever seen,” Shaun Rein, founder of the China Market Research Group, told CNBC Monday.
He forecasts that China will experience “another 3-6 months minimum of a very painful economy.”
The world’s second-largest economy has faced a slower-than-expected recovery in 2023 after exiting Covid-19 restrictions.

BEIJNG, CHINA – NOVEMBER 13: Illuminated skyscrapers stand at the central business district at sunset on November 13, 2023 in Beijing, China. (Photo by Gao Zehong/VCG via Getty Images)
Vcg | Visual China Group | Getty Images

Deflation may soon start biting into Chinese growth, as Beijing looks at another three to six months of a “very painful economy,” according to one analyst who covers the country.
“This is something investors need to be cautious of. The economy here is bad, it’s pretty … it’s really bad. I’ve been in China for 27 years, and this is probably the lowest confidence I’ve ever seen,” Shaun Rein, founder of the China Market Research Group, told CNBC’s “Squawk Box Europe” on Monday.

“So deflation is starting to wield its ugly head. Consumers are waiting for discounts. They’re very nervous.”
Linked to a decline in the prices of goods and services, deflation is generally associated with an economic slowdown — raising questions over the growth outlook for China, whose post-Covid-19 recovery has already fallen short of some expectations in 2023. In December, depressed prices for pork — which makes up around a fifth of China’s CPI basket — heralded the possible advent of deflation.
“Deflation is a serious issue, I know the Chinese government doesn’t want me saying it, but it’s an issue that we need to be worried about,” Rein stressed. “So I am kind of surprised that they kept the prime rates unchanged. You know, it would have been nice if they had lowered them to try to get some stimulus into the country.”
Earlier on Monday, the People’s Bank of China held its one-year and five-year loan prime rates at 3.45% and 4.2%, respectively, in line with forecasts. These are the pegs for most household and corporate loans in China and are one of many levers that the PBOC usually pulls in an effort to stimulate the economy.
The decision comes amid infectious expectations among investment banks that China’s economy will expand at a more sluggish pace in 2024. Beijing has set an official growth target of 5% this year, with Premier Li Qiang telling the World Economic Forum in Davos, Switzerland, last week that the Chinese economy swelled by a marginally higher 5.2% in 2023.

At the time, Li highlighted that China did not achieve its economic development through “massive stimulus” and “did not seek short-term growth while accumulating long-term risks.” “Rather, we focused on strengthening the internal drivers,” Li said.
Despite this, the International Monetary Fund in November outlined a forecast for China’s growth to slow in 2024 to just 4.6%. In a more recent Jan. 15 report, Moody’s assessed that China’s real GDP growth would hit 4% this year and in 2025, from an average of 6% between 2014 and 2023.

Economic slowdown is widely seen as a potential threat to Xi Jinping, whose Chinese Community Party has cultivated national political legitimacy through rapid growth. China’s status as the world’s second-largest economy has also solidified its international footing, making it and heavyweight energy exporter Russia the epicenter of the BRICS emerging markets group.
Yet Rein says that Beijing may stomach a “slight rough time” as long as the economy retains 5% growth, as the administration focuses on social transformation.
“The Communist Party of China doesn’t necessarily want a restructuring of the economy, they want a reform of society, so it’s a much bigger picture … Which is why I don’t think the government is going to want a major stimulus, so the new normal is going to be 4-5% growth over the next 3-5 years,” he said.
“I think you’re gonna deal with another 3-6 months minimum of a very painful economy, as China restructures, or as China, you know, transforms its economy towards a more slower-growth, fairer society.”
Among the more tremulous sectors of the Chinese economy, Rein identified the country’s once-bloated real estate market, which accounts for roughly a third of China’s economic activity and has been tumbling sharply since Beijing’s broad-stroke crackdown on the debt levels of mainland property developers. Real estate giants Evergrande and Country Garden have become key casualties of the clampdown.
“[Buyers] think housing prices might continue to drop, so even if there’s pent-up demand for housing, a lot of home buyers are telling us, we’re not going to buy this month, we’re not going to buy this quarter, because we’re scared prices are going to drop another couple [of] percent in the coming months,” Rein said Monday.
Such a consumer behavior could compound some expectations that China could take more than 10 years to liquidate the current overhang in its housing inventory. More

THE TAKEWith Tuesday’s New Hampshire primary possibly cementing former president Donald Trump as the inevitable Republican nominee, the Biden administration is gearing up to sell voters on the tangible results of its economic policies, including the $1.9 trillion in COVID relief funding approved by Democrats in Congress.The funds were awarded to New York’s Municipal Infrastructure Program, which provides competitive grants to local governments and internet service providers in an effort to build “last-mile” high-speed internet connections to tens of thousands of homes and businesses in underserved and rural communities.U.S. Treasury Secretary Janet Yellen plans to head to Chicago and Milwaukee later this week to make the case that the investments from Biden’s COVID relief, infrastructure, semiconductor and clean energy legislation are delivering more economic benefits than Trump’s 2017 tax cuts did. KEY QUOTES”This $228 million in federal funding, made possible by the American Rescue Plan, which I was proud to help pass in Congress, will allow our state to take a big step toward closing the digital divide and ensuring reliable internet access for New Yorkers in underserved communities,” said Representative Nydia Velazquez, a New York City Democrat.BY THE NUMBERSThe Treasury has approved over $9 billion in Capital Projects Fund awards since June, 2022, including $100 million last year for New York to connect over 100,000 low-income housing units to high-speed infrastructure. The department said states estimate that the funding so far will provide expanded internet access to over 2 million locations. More

As traders look ahead to the pivotal Federal Reserve policy meeting set for January 30-31, there is mounting speculation about a possible rate cut. Some market participants are even bracing for the cut to be announced as soon as March, indicating a shift in expectations that could influence financial markets.Gross expressed his concerns about the trajectory of the economy, hinting that the Fed’s current course might lead to unnecessary economic hardships. “The Fed should halt its balance sheet contraction,” said Gross, emphasizing the need for a proactive approach to monetary policy.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

(Reuters) – A look at the day ahead in Asian markets.The Bank of Japan’s policy decision – and perhaps more importantly, Governor Kazuo Ueda’s press conference – is the main focus for Asian markets on Tuesday, as the deepening slump in Chinese and Hong Kong markets continues to unnerve investors.While sentiment toward China’s economy and markets is clearly deteriorating, the spillover to the rest of Asia may be contained to a certain extent by the more upbeat mood globally.The S&P 500 on Monday hit a fresh record high for a second consecutive day while Japan’s Nikkei 225 registered another 34-year peak. This helped limit the downside in Asia on Monday, and the MSCI Asia ex-Japan index slipped 0.6%.The BOJ is not expected to alter policy, so the statement and Ueda’s guidance will be intensely scrutinized for signals of when and how the ‘normalization’ process and eventual move away from negative interest rates will unfold this year.Or if. Recent inflation data has been soft, taking pressure off the BOJ to act. With inflation seemingly gliding back toward the BOJ’s 2% target, traders are adjusting their rate expectations and Japanese assets are reacting accordingly.Stocks are up almost 10% this month, the yen is sliding back toward the 150.00 per dollar area, and bond yields are significantly lower than they were a few months ago, despite being dragged higher in recent days by the rise in global yields.The difference between investors’ outlook towards Japan and China is night and day. Both may be over-cooked right now, but market momentum in both countries is strong and showing little sign of reversing.China and Hong Kong shares slumped again on Monday. China’s bluechip CSI300 Index skidded 1.6% to its lowest closing level in five years, the Shanghai Composite Index sank 2.7% – its biggest fall since April 2022 – and in Hong Kong the Hang Seng Index fell 2.3% to its lowest level in 14 months.China’s central bank stood pat on interest rates on Monday, as expected. But many traders and investors will be wondering how much longer policymakers can sit on their hands. The longer it does, the longer the stock market selloff might go on. Beijing has said it will take more forceful and effective measures to support market confidence, state media CCTV reported on Monday, citing a cabinet meeting chaired by Premier Li Qiang.Also on Monday, China’s major state-owned banks moved to support the yuan, tightening liquidity in the offshore foreign exchange market while actively selling U.S. dollars onshore as equities slid, sources told Reuters.Here are key developments that could provide more direction to markets on Tuesday: – Japan monetary policy decision- South Korea PPI (December)- Australia business confidence (December) (By Jamie McGeever; Editing by Deepa Babington and Bill Berkrot) More

OTTAWA (Reuters) – Canadian Prime Minister Justin Trudeau is gathering his government and lawmakers this week to talk about crucial issues, including housing and food prices, as he seeks to claw back support ahead of a likely fourth election run next year.Conservative leader Pierre Poilievre would clobber Trudeau if an election were held today, according to an Angus Reid Institute poll published on Monday. Conservatives would take 41% versus 24% for Liberals, according to 1,620 adults surveyed on Jan. 16-17.”The Conservatives have maintained a double-digit vote lead since last September,” the Angus Reid Institute said. “The Liberals have much work to do to convince past supporters to return to the party.”Fewer than three-in-five (57%) of those who voted Liberal in 2021 say they would do so again, the pollster said.Trudeau’s cabinet is meeting in Montreal on Monday and Tuesday, and all the Liberal members of parliament are meeting in Ottawa on Wednesday through Friday. On Monday, Immigration Minister Marc Miller announced a two-year cap on international student permits as it seeks to rein in record numbers of newcomers seen aggravating a housing crisis.”This cabinet retreat is focused on issues as important as housing affordability and housing accessibility,” Public Safety Minister Dominic LeBlanc told reporters late on Sunday. “There’s a broader conversation around affordability.”The meetings come as interest rates hover at a 22-year high after 10 rate hikes to tame inflation, which is still running well above the central bank’s 2% target. Treasury Board President Anita Anand said this week’s meetings have nothing to do with poll numbers. “What we are here to do is to fight for Canadians every single day in terms of what is needed in times of high inflation and high interest rates,” she told reporters on Sunday.The meetings also come ahead of this year’s election in the United States, and the possible return of Donald Trump to the White House. While president, Trump forced the renegotiation of the North American trade pact, a vital agreement for the Canadian economy. The U.S. and Canada are top trading partners and their economies are closely linked.Industry Minister Francois-Philippe Champagne said the election would be part of their discussions, adding that the Liberal government has had valuable experience dealing with Trump in the past if he should win again.”We’ve negotiated the North American free trade (pact) and I think people should trust those who have done that,” Champagne told reporters. Last week, Trudeau said a second Trump presidency would be challenging and would reflect “a lot of anguish and fury.” More

The trading activities of Kaplan and Rosengren came under intense public scrutiny as they occurred while the Federal Reserve was implementing measures to stabilize financial markets during a period of economic uncertainty. The controversy surrounding their actions led to a loss of public confidence, which ultimately resulted in both officials retiring from their positions.In response to the situation and the subsequent public backlash, the Federal Reserve has since implemented changes to its ethics rules. These changes are designed to prevent such conflicts of interest and bolster public trust in the central bank’s integrity and commitment to transparency.The clearing of Kaplan and Rosengren by the inspector general closes a chapter on an issue that had raised concerns over the conduct of Federal Reserve officials during times of crisis management. The Federal Reserve’s efforts to amend its ethics policies reflect an ongoing commitment to uphold the highest standards of conduct for its officials and to maintain the confidence of the public.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More