Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The IMF has agreed to disburse $4.7bn to Argentina despite the country’s failure to meet the terms of its $43bn loan in recent months, offering a crucial lifeline to new libertarian President Javier Milei as he pursues ambitious reforms.The money includes a $3.3bn tranche of the loan that had been due to be disbursed in November, which was delayed by Milei’s inauguration in December, and $1.4bn that the IMF agreed to disburse ahead of schedule.Argentina’s hard currency reserves have been virtually wiped out amid its most severe economic crisis in two decades. The government is relying on the IMF’s disbursements to pay the fund back for money lent earlier in the programme — which was first launched in 2018 and refinanced in 2022 — with repayments worth more than $2.7bn coming due by February 1. Entering into arrears would destabilise markets and deepen the crisis.The decision by the fund’s technical staff on Wednesday must be reviewed by its board, which will take several weeks.Milei has long pledged that his austerity measures would be more drastic than those demanded by the IMF. He has sought to draw a contrast with the previous left-leaning Peronist government, which fell far short on fund targets on fiscal balance, reserve accumulation and curbing money printing.The “shock therapy” economic plan Milei began implementing last month includes spending cuts and tax increases aiming to reach a primary budget surplus this year, which would overshoot the 2024 fiscal deficit target of 0.9 per cent of gross domestic product approved by the fund last year. Fund officials who visited Argentina this week said in a statement on Wednesday that Milei’s team had “moved quickly and decisively to develop and begin to implement a strong policy package to restore macroeconomic stability and are fully determined to bring the current program back on track”.The delay of November’s disbursement had forced Milei’s new government to take out a bridge loan from the Caracas-based CAF to make another $900mn repayment in December. A multibillion-dollar credit line from China tapped by the previous government has not been renewed since Milei’s election, according to local media.The IMF stopped short of negotiating a wider refinancing of the programme that could have provided extra cash to support Argentina during its reforms — a prospect some in the president’s team had floated during the campaign. Milei’s spokesperson said on Monday that he was not seeking new funds from the IMF, which is deeply unpopular in Argentina.Instead, analysts said the IMF opted to continue with disbursements in order to avoid destabilising the economy without increasing its exposure.“The fund will want to see first if Milei’s aggressive austerity plan is socially and politically sustainable, which is so far unclear,” said Sebastian Menescaldi, associate director at the EcoGo economics consultancy. He pointed to planned anti-austerity protests and the uncertain fate of Milei’s reforms in congress.“I don’t think either party has an incentive to look for a new agreement now. The situation is: let’s stabilise the economy first and in 2025 we’ll talk again.” More

WASHINGTON (Reuters) – The International Monetary Fund’s executive board on Wednesday approved a new $1.2 billion, four-year loan program to support Jordan’s economic reforms, replacing a previous program that was set to expire in March 2024, the fund said.The decision gives Jordan immediate access to an initial disbursement of about $190 million, with the remaining amount to be phased over the program, subject to program reviews, the IMF said.The IMF reached a staff-level agreement with Jordan on the new reform program on Nov. 9, sending what Finance Minister Mohamad Al Ississ called a signal of confidence to investors.Board approval of the new Extended Fund Facility comes amid growing concerns that the Israel-Gaza war could expand to become a bigger regional conflict.The IMF said the new program would build on Jordan’s “consistently strong performance under the previous program” to support the Middle Eastern country’s work on maintaining macro-stability, further building resilience and accelerating structural reforms.It said the funds would allow Jordan to continue its gradual fiscal consolidation while protecting social and capital spending, improving the financial viability of the electricity sector, and safeguarding the exchange rate peg.“Jordan has weathered well a series of shocks over the past few years, maintaining macro-stability and moderate economic growth thanks to adept policy making and sizable international support,” said IMF Deputy Managing Director Kenji Okamura.Jordan needs to make further progress in improving the business environment and attracting private investment to foster job-rich growth, the IMF said.”In this regard, strengthening competition, further reducing red tape, and pressing ahead with labor market reforms to increase flexibility, lower youth unemployment, and enhance female labor participation are critical,” Okamura said.The IMF noted that donor support remained essential to help Jordan navigate the “challenging external environment, host the large number of refugees, and maintain the reform momentum.” More

The staff facing exit at Prime Video and Amazon (NASDAQ:AMZN) MGM Studios in the Americas will be informed on Wednesday and in most other regions by the end of the week.The online retail behemoth last year cut more than 27,000 jobs as part of a wave of U.S. tech layoffs after the industry hired heavily during the pandemic. “We’ve identified opportunities to reduce or discontinue investments in certain areas while increasing our investment and focus on content and product initiatives that deliver the most impact,” Mike Hopkins, senior vice president of Prime Video and Amazon MGM Studios, told employees in a note seen by Reuters.The company has spent aggressively in recent years to bolster its media business, including the $8.5 billion deal for MGM and around $465 million on the first season of “The Lord of the Rings: The Rings of Power” on Prime Video in 2022.It is also set to roll out ads on Prime Video as well as a more expensive ad-free subscription tier in some market, similar to moves by rivals Netflix (NASDAQ:NFLX) NFLX.O and Walt Disney (NYSE:DIS) DIS.N.After widespread job cuts in 2022 and 2023, many companies are now targeting select projects and divisions as they re-priorities their resources. Amazon recently cut some jobs at its Alexa voice assistant division, while Microsoft (NASDAQ:MSFT) removed some staff at its LinkedIn professional network. Amazon’s Twitch service is set to lay off 500 employees, or about 35% of its workforce, according to a media report on Tuesday.Its shares, which surged more than 80% last year, were up 1.5% in afternoon trading. More

(Reuters) – A look at the day ahead in Asian markets.South Korea delivers its latest interest rate decision on Thursday with the main focus being policymakers’ signal as to when the rate-cutting cycle begins, while Japanese stocks continue to ride the crest of an increasingly bullish wave.The latest figures for Thai consumer sentiment, Malaysian industrial production, Australian trade and Japan’s foreign exchange reserves are also out on Thursday, ahead of the most significant event for global markets this week – U.S. inflation.Japanese markets, if not the rest of the region, are poised to open on a strong footing on Thursday after yet another solid performance on Wednesday.Japan’s Nikkei 225 index surged to a fresh 34-year high above 34,000 points as investors ponder whether the Bank of Japan will ‘normalize’ policy as quickly or dramatically as they were anticipating.The BOJ had already begun scaling back its ultra-easy policy by effectively lifting the ‘yield curve control’, paving the way to phase it out completely and end seven years of negative interest rate policy later this year. But recent data suggest inflation is falling back towards the BOJ’s 2% target and inflationary pressures are easing. If so, will the BOJ need to move so quickly, or even at all?The yen is weakening, making Japanese exports more competitive in the global marketplace and making it cheaper for overseas investors to buy Japanese assets. As a result, Japanese stocks are on a tear and outperforming their peers.The Nikkei is on course for its best week in three months and is up 3% this year, while the S&P 500 and MSCI World Index are essentially flat, the Euro STOXX 50 is down more than 1% and the MSCI Asia Pacific ex-Japan index is down 4%.Elsewhere in Asia on Thursday, attention shifts to Seoul and the Bank of Korea’s latest policy decision. The BOK is widely expected to keep its key policy rate unchanged at 3.50% for an eighth consecutive meeting, but with inflation easing, speculation around when the BOK pivots is bound to intensify, especially with the Fed, ECB and other major central banks widely expected to start cutting rates soon.Inflation is currently 3.2%, above the central bank’s 2% target but cooling once again, and the won is down around 2% against the dollar so far this year. BOK Governor Rhee Chang-yong said in a New Year speech the central bank would adopt a “policy mix” to bring down inflation and warned that keeping monetary policy restrictive for too long posed risks.Swaps markets currently point to a quarter-point rate cut by August and a strong probability of another by the end of the year.Here are key developments that could provide more direction to markets on Thursday:- South Korea interest rate decision- Australia trade (November)- Malaysia industrial production (November) (By Jamie McGeever) More

WHITE PLAINS, New York (Reuters) -Federal Reserve Bank of New York President John Williams said Wednesday that it’s still too soon to call for rate cuts as the central bank still has some distance to go on getting inflation back to its 2% target. The policy maker also said that banking sector liquidity levels do not signal any near-term need for the Fed to stop the contraction of its balance sheet, a process which has complemented rate hikes aimed at bringing inflation back to 2%. “We have seen meaningful progress on restoring balance to the economy and bringing inflation down,” Williams said in a speech before the Bronx EDC and BICNY’s 2024 Regional Economic Outlook in White Plains, N.Y., while adding “our work is not done.” “I expect that we will need to maintain a restrictive stance of policy for some time to fully achieve our goals, and it will only be appropriate to dial back the degree of policy restraint when we are confident that inflation is moving toward 2% on a sustained basis,” Williams said. The official said the economic outlook remains “highly uncertain” and said decisions about monetary policy will be made meeting-by-meeting, based on “the totality of the incoming data, the evolving outlook, and the balance of risks.”Williams’ comments were his first of the year and followed a television appearance in late December that pushed back at the market view that the most recent rate-setting Federal Open Market Committee meeting had set the stage for rate cuts by spring. At the December gathering officials maintained their overnight rate target at between 5.25% and 5.5%, while penciling in a several rate cuts for this year amid expectations that softening inflation pressures would continue to ease back toward the 2% target. The meeting drove markets to price in a possible rate cut by March, a view investors still hold, even as a number of central bankers have argued over recent weeks that it’s too soon to say when a rate cut might happen. Speaking with reporters after his remarks, Williams declined to comment on the market’s bet on the near-term outlook for monetary policy. “Before we dial back on the restrictive stance of policy, I think it’s important that we’re confident that we’re moving toward 2% [inflation],” Williams said, adding that when it comes to lowering rates, “I’m not making a prediction” as to when that might take place. But he also said the Fed is in a “good place” to take in data and consider its next moves. The New York Fed president reiterated his view that over time monetary policy will need to bring rates down to track declining inflation, because keeping them in place in such an environment would create a rise in monetary policy restraint. Williams also declined to say how a broad easing in financial conditions that in theory adds lift to the economy will affect the Fed outlook. He noted markets have been very volatile but over the longer run, they have gotten tighter than they were. INFLATION ENDGAME IN SIGHT Williams said in his formal remarks the Fed has made considerable progress on lowering inflation, including in challenging areas like those for services. He sees inflation ebbing to 2.25% this year and to 2% next year. “We are clearly moving in the right direction,” Williams said, adding “we still are a ways from our price stability goal.” The New York Fed leader also said monetary policy will slow growth to about 1.25% this year and cause the unemployment rate, now at 3.7%, to rise to 4%. Williams also said the shrinkage of the Fed’s balance sheet, commonly referred to as quantitative tightening, has moved forward smoothly and there are yet to be any signs of liquidity issues that would cause the Fed to stop an effort that has shrunk its holdings by over $1 trillion. Williams did not give a time table for changing gears on the balance sheet, while noting that matter would be under debate by the Fed this year. The official told reporters recent money market volatility represents a normalization for that part of the market and said that it wasn’t affecting the Fed’s ability to control the federal funds rate. More

NEW YORK (Reuters) -Citigroup said it will book about $3.8 billion in combined charges and reserve builds when it reports fourth-quarter earnings on Friday, according to a filing on Wednesday.The bank said it will report a $1.3 billion reserve build for currency exposures outside the U.S., particularly in Argentina and Russia. It will also book $780 million in restructuring charges, include severance related to its sweeping reorganization.It also recorded a charge of about $1.7 billion to replenish a Federal Deposit Insurance Corp fund that was drained after the collapses of Silicon Valley Bank and Signature Bank (OTC:SBNY). Citigroup had previously estimated this charge at $1.65 billion, it said in the filing.”While we rarely provide information about the results of the quarter in advance of scheduled earnings announcement dates, we thought this was a prudent step in our commitment to building credibility and being transparent,” Mark Mason, the company’s finance chief, wrote in a separate statement. “The items we disclosed today do not change our strategy.”Citigroup also filed historical financial information in a new format that includes results for its five main businesses, for the quarters from March 2021 through September 2023 and annual reports for 2021 and 2022. The financial reports will allow comparisons with its fourth-quarter results. More

The consumer price index is projected to have risen 0.2% in the final month of 2023, or 3.2% for the full year.
There is a wide gap between what the Fed has indicated in terms of rate cuts and what the market is expecting.
The Fed’s central mission now is calibrating policy in a way that it doesn’t ease too much and allow inflation to return or hold policy too tight so that it causes a long-anticipated recession.

Consumers shop at a retail chain store in Rosemead, California, on Dec. 12, 2023.
Frederic J. Brown | AFP | Getty Images

Economists expect that inflation nudged higher in December, a trend that could call into question the market’s eager anticipation that the Federal Reserve will slash interest rates this year.
The consumer price index, a widely followed measure of the costs folks pay for a wide range of goods and services, is projected to have risen 0.2% in the final month of 2023, or 3.2% for the full year, according to Dow Jones.

At a time when the Fed is fighting inflation through tight monetary policy including elevated rates, news that prices are holding at high levels could be enough to disrupt already-fragile markets.
“The Fed did its policy pivot, and the data’s got to support that pivot,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “The market seems to have gotten excited that the Fed’s going to have to do more than what the Fed thinks in terms of rate cuts now. … The market got ahead of itself.”
There is certainly a wide gap between what the Fed has indicated in terms of rate cuts and what the market is expecting.
After months of insisting that easier monetary policy is still a ways off, central bank policymakers in December penciled in three quarter-percentage-point rate cuts by the end of 2024, effectively a policy pivot for this inflation-fighting era. Minutes from that meeting released last week did not indicate any discussion about a timetable for the reductions.
Markets hold a different view.

Looking for easing

Traders in the fed funds futures market are pointing to a strong chance of an initial rate cut in March, to be followed by five more reductions through the year that would take the benchmark overnight borrowing rate down to a range of 3.75% to 4%, according to the CME Group’s FedWatch gauge.
If inflation data such as Thursday morning’s CPI release and Friday’s producer price index don’t show stronger inflation progress, that is liable to cause more volatility in a year when stocks have already gotten off to a rocky start.
“We’re going to see it across all markets, because it’s going to be that dynamic between what the Fed’s doing and what the market expects them to do,” McIntyre said of a likely volatile time ahead. “Ultimately, they’ve got to come together. It probably means that right now, the market needs to give back some of the rate cuts that they priced in.”

A smattering of public statements since the December meeting of the Federal Open Market Committee provided little indication that officials are ready to let down their guard.
Fed Governor Michelle Bowman said this week that while she expects rate hikes could be done, she doesn’t see the case yet for cuts. Likewise, Dallas Fed President Lorie Logan, in more pointed remarks directed at inflation, said Saturday that the easing in financial conditions, such as 2023’s powerful stock market rally and a late-year slide in Treasury yields, raise the specter that inflation could see a resurgence.
“If we don’t maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up and reverse the progress we’ve made,” Logan said. “In light of the easing in financial conditions in recent months, we shouldn’t take the possibility of another rate increase off the table just yet.”

The search for balance

Logan, however, did concede that it could be time to think about slowing the pace of the Fed’s balance sheet reduction. The process, nicknamed “quantitative tightening,” involves allowing proceeds from maturing bonds to roll off without reinvesting them, and has cut the central bank’s holdings by more than $1.2 trillion since June 2022.
The Fed’s central mission now is calibrating policy in a way that it doesn’t ease too much and allow inflation to return or hold policy too tight so that it causes a long-anticipated recession.
“Policy is too restrictive given where inflation is and likely where it’s going,” said Joseph Brusuelas, chief economist at tax consultancy RSM. “The Fed is clearly positioning itself to put a floor under the economy as we head into the second half of the year with rate cuts, and create the conditions for reacceleration of the economy later this year or next year.”
Still, Brusuelas thinks the market is too aggressive in pricing in six rate cuts. Instead, he expects maybe four moves as part of a gradual normalization process involving both rates and the rollback of the balance sheet reduction.
As for the inflation reports, Brusuelas said the results likely will be nuanced, with some gradual moves in the headline numbers and likely more focus on internal data, such as shelter costs and the prices for used vehicles. Also, core inflation, which excludes volatile food and energy prices, is expected to increase 0.3% on the month, equating to a 3.8% rate compared to a year ago, which would be the first sub-4% reading since May 2021.
“We’re going to have a vigorous market debate on whether we’re going back to 2% on a durable basis,” Brusuelas said. “They’ll need to see that improvement in order to set the predicate for modifying QT.”
Former Fed Vice Chair Richard Clarida said policymakers are more likely to take a cautious approach. He also expects just three cuts this year.
“The progress on inflation for the last six months is definitely there. … There’s always good news and bad news,” Clarida said Wednesday on CNBC’s “Squawk on the Street.” “Markets maybe are a little relaxed about where inflation is sticky and stubborn. But the data is definitely going in the direction that’s favorable for the economy and the Fed.”

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Two progressive lawmakers warned the Biden administration against creating a revolving door between industry and government as it prepares to hand out $39 billion in grants.Two Democratic lawmakers on Tuesday expressed concerns about ex-Wall Street financiers overseeing the Commerce Department’s distribution of $39 billion in grants to the semiconductor industry, saying the staffing raised questions about the creation and abuse of a revolving door between government and industry.In a letter to the Commerce Department, Senator Elizabeth Warren of Massachusetts and Representative Pramila Jayapal of Washington criticized the department’s decision to staff a new office overseeing grants to the chip industry with former employees of Blackstone, Goldman Sachs, KKR and McKinsey & Company.The lawmakers said the staffing decisions risked an outcome where staff members could favor past or future employers and spend taxpayer money “on industry wish-lists, and not in the public interest.”Commerce officials have rejected the characterization, describing the more than 200-person team they have built to review chip industry applications as coming from diverse backgrounds including investing, industry analysis, engineering and project management. In a statement, a Commerce Department representative said the agency had received the letter and would respond through appropriate channels.The criticism highlights the stakes for the Biden administration as it begins distributing billions of dollars to try to rebuild the country’s chip manufacturing capacity.More than 570 companies and organizations have expressed interest in obtaining some of the funding, and it is up to the Commerce Department to determine which of the projects deserve financing. Biden officials have said they will judge applications on their ability to enhance American manufacturing capacity and national security, as well as benefit local communities.We 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?  More