Economy

(Reuters) – Investor Scott Bessent has spent his career in finance, working for macro investment billionaire George Soros and noted short seller Jim Chanos, as well as running his own hedge fund. Bessent will take his investing knowledge down a rarefied career path that only a few other prominent Wall Street luminaries have followed: running the U.S. Treasury. Other examples of U.S. Treasury secretaries who have come from finance include Steven Mnuchin, who served under Trump in his first term, and had worked at Goldman Sachs. Henry Paulson, who served as Treasury secretary under George W. Bush, was also a Goldman Sachs alumnus, where he had been chairman and CEO. Bessent has advocated for tax reform and deregulation, particularly to spur more bank lending and energy production, as noted in a recent opinion piece he wrote for The Wall Street Journal. The market’s surge after Trump’s election victory, he wrote, signaled investor “expectations of higher growth, lower volatility and inflation, and a revitalized economy for all Americans.” “Scott is one of the smartest and sharpest investors I’ve had the privilege to work for. Just like George Soros was, he too is typically multiple steps ahead of the market,” said Michael Oliver Weinberg, a Columbia Business School professor and investment advisor who previously worked under Bessent as a portfolio manager at Soros Fund Management.Bessent, 62, has said his success came after growing up knowing financial anxiety. He grew up in the fishing village of Little River, South Carolina, where Bessent has said his father, a real estate investor, experienced booms and busts.“I’ve known financial anxiety and I do not want that for any family,” Bessent told Trump ally Roger Stone in a recent interview on Stone’s radio show.Bessent attended Yale College and considered journalism but, after graduating in 1984 with a degree in political science, took an internship on Wall Street. He worked for Chanos in the late 1980s and then joined Soros Fund Management, Soros’ famed macroeconomic investment firm. He soon helped Soros and top deputy Stanley Druckenmiller on their most famous trade – shorting the British pound in 1992, which earned the firm more than $1 billion. In 2015, Bessent raised $4.5 billion, including $2 billion from Soros, to launch Key Square Group, a hedge fund firm that bets on macroeconomic trends. The firm managed approximately $577 million in overall assets, as of December 2023, according to a regulatory filing.  Bessent has said he has known the Trump family for 30 years through a friendship with Donald Trump’s late brother, Robert Trump. Bessent supported Donald Trump’s presidential run in 2016 but during this election cycle worked as a top economic advisor to the campaign in addition to being a top fundraiser.“I was all in for President Trump. I was one of the few Wall Street people backing him,” Bessent told Stone over the weekend.  More

The figure exceeds the 13.3 billion reais of spending announced in a previous report in September, according to a bi-monthly revenue and expenditure report from the Planning and Finance Ministries. The government also revised its 2024 primary deficit forecast to 28.7 billion reais, slightly up from the previously projected 28.3 billion reais. The new forecast remains within the fiscal target of a zero deficit for the year, which allows for a tolerance margin of 0.25 percentage points of GDP in either direction, permitting a shortfall of up to 28.8 billion reais.The 6 billion reais increase in the spending freeze came as the government projected higher mandatory expenditure for this year, which would have breached a legally established spending cap. The new fiscal framework approved last year by President Luiz Inacio Lula da Silva combines a primary budget result target with an overall spending cap, limiting expenditure growth to 2.5% above inflation this year.In practice, this means that when projections for mandatory spending increase, the government must freeze other expenses to remain within the cap.The rise in expenditure projections was primarily driven by higher social security benefits, the latest report said.The rapid growth of mandatory spending has fueled market concerns about the sustainability of Brazil’s fiscal framework, affecting long-term interest rates and the Brazilian real, which has weakened more than 16% against the dollar year-to-date.Finance Minister Fernando Haddad said a long-awaited package to curb mandatory spending is expected to be announced next week. The government had indicated that the measures would be unveiled after municipal elections held at the end of October, but a delay to present the package has dampened market sentiment.($1 = 5.8010 reais) More

COLOMBO (Reuters) -The International Monetary Fund (IMF) approved the third review of Sri Lanka’s $2.9 billion bailout on Saturday but warned that the South Asian economy remains vulnerable.In a statement, the global lender said it would release about $333 million, bringing total funding to around $1.3 billion, to the crisis-hit nation. It said signs of an economic recovery were emerging.The country still needs to complete a $12.5 billion bondholder debt restructuring and a $10 billion debt rework with bilateral creditors including Japan, China and India to take the programme forward, the IMF said. The IMF bailout secured in March last year helped stabilise economic conditions after cash-strapped Sri Lanka plunged into its worst financial crisis in more than seven decades in 2022. Staying in line with tax revenue requirements and continuing reforms of state-owned enterprises will remain crucial to hitting a primary surplus target of 2.3% of gross domestic product next year, said IMF Senior Mission Chief Peter Breuer, wrapping up a delegation visit to the capital Colombo. “The authorities have committed to staying within the guardrails of the programme,” Breuer said. “We have agreed on a package for them to achieve their priorities and objectives and as soon as that is submitted to parliament it will then be possible to go ahead with the fourth review process.”An interim budget is expected to be presented to parliament in December, Sri Lanka’s new president, Anura Kumara Dissanayake, said this week. He hopes to complete the debt restructuring by the end of December. During Sri Lanka’s crisis, a severe dollar shortage sent inflation soaring to 70%, its currency to record lows and its economy contracting by 7.3% during the worst of the fallout and by 2.3% last year. In recent months, the rupee has risen 11.3% and inflation disappeared, with prices falling 0.8% last month.The island nation’s economy is expected to grow 4.4% this year, the first increase in three years, according to the World Bank. More

“Fed officials are unlikely to pause rate cuts before reaching 4% policy rates absent a pickup in inflation,” Citi said in a note. “Whether rate cuts slow at that point will depend on whether or not the labor market – which is continuing to soften – stabilizes.”The Fed appears to be mapping out a two-phase framework for rate cuts as part of a path toward bringing rates down to the neutral rate — one that neither boosts nor drags on economic growth. “In the first phase, policy rates that are clearly in restrictive territory need to be reduced to neutral as the Fed desires no further loosening of the labor market.” Citi said. “The second phase would involve moving more slowly once rates are in the “plausible range” for neutral,” it added.After starting its rate-cut cycle in September, the Fed is two cuts deep into the cycle, with rates still widely estimated to be in restrictive territory suggesting further room to ease. “A tightening of labor markets and/or a sustained pickup in inflation,” would point to rates above neutral. But neither looks likely, it added.Core inflation has been “somewhat stronger” over the last two months, Citi said, though believes that it is likely to slow again in November and December allowing the Fed to persist with ongoing rate cuts. “In our base case, cooling inflation and rising unemployment will keep Fed officials cutting rates at a pace of at least 25bp per meeting until reaching 3%,” Citi added.In the near term, the bar remains high for a pause at the Fed’s December meeting and would require an upside surprise in November jobs and inflation. Looking further ahead, a pause is possible, however, if the unemployment rate stabilizes around current levels. But this would be “contrary to our expectations,” Citi said, expecting the “unemployment rate to resume its transit higher in November.” More

According to UBS strategists, this could manifest through aggressive tariff measures targeting countries with substantial trade deficits with the US, particularly China. The policy focus is likely to extend to sectors considered critical to national security and economic interests.UBS identifies three potential tariff scenarios under a second Trump presidency. The first involves universal tariffs, which carry a 25% probability. This scenario envisions blanket tariffs on all US imports, such as a proposed 60% on Chinese goods and 10-20% on other countries.While such measures could generate revenue to offset tax cuts via Congressional reconciliation, UBS notes the political and logistical challenges. A universal tariff approach would harm both the US and global economies more severely and could spark widespread retaliation, leading to an escalating trade war.“In our view, President Trump would prefer to go the congressional route to achieve universal tariffs, although he has not yet publicly endorsed the idea. However, we believe that Congress will be unwilling to go along with it,” UBS strategists said.“If Congress is unwilling to impose universal tariffs, the Trump administration can try to implement them using executive authority. However, there is no precedent for this, and it remains to be seen whether such a move would hold up against legal challenges,” they added.Selective tariffs, with a 65% probability, are considered the most likely scenario. These would target specific goods or sectors using executive authority under existing trade laws.UBS expects this approach would likely revisit the 2020 Phase 1 trade deal with China while addressing contentious issues with the EU and Mexico.The bank highlights three factors that could soften the blow of selective tariffs on Asia, including China’s fiscal and monetary policies, stronger intra-regional trade, and rising US market share in the region.The third scenario, a brokered deal to avoid tariffs altogether, is seen as unlikely, with just a 10% probability.UBS points out that tariffs under Trump 2.0 would also have inflationary implications. Universal tariffs are expected to cause short-term price spikes, with UBS estimating a 10% tariff on all imports raising US price levels by up to 1.7% if corporate profit-led inflation amplifies the effects.Selective tariffs, on the other hand, could have a more limited impact on inflation and economic activity.These targeted measures would primarily focus on specific goods or sectors, allowing for trade rerouting to minimize disruptions.“While bilateral trade between the US and partner countries may decline because of the tariffs, actual rebalancing of international trade or reshoring of economic activity back to the US would likely be negligible,” UBS’s report states. More

Analysts at Capital Economics suggest that while countries are likely to retaliate against the economic strain of U.S. tariffs, these responses will aim to limit further escalation and avoid significant domestic repercussions.Historically, every targeted country except Japan retaliated to U.S. tariffs during Trump’s first term. However, these retaliatory measures were calculated to minimize the risk of a spiraling trade conflict. For instance, nations imposed tariffs on politically sensitive U.S. exports, such as the European Union targeting Harley-Davidson (NYSE:HOG) motorcycles and Bourbon whiskey. This strategy sought to pressurize U.S. policymakers while safeguarding local economies from inflationary impacts.Countries also adjusted their approach over time. Instead of solely imposing counter-tariffs, they engaged in negotiations, offering concessions to the U.S. in exchange for tariff relief. Mexico and Canada managed to mitigate some trade restrictions through adjustments in the USMCA agreement, while nations like Japan and the EU negotiated market access and purchase commitments to ease tariff threats. These concessions often extended to sectors deemed politically or economically significant to the U.S., such as agriculture and manufacturing.Despite these efforts, retaliatory measures and concessions frequently failed to produce significant policy reversals from the U.S. under Trump. Additionally, exchange rate adjustments added complexity to the situation. When currencies weakened due to U.S. tariffs, the Trump administration accused countries of devaluation to counteract tariffs. This led to further threats, as seen with Turkey and South American nations like Brazil and Argentina.A second Trump administration could see a similar dynamic, though analysts warn of possible shifts in U.S. trade policy objectives. If tariffs are framed as a revenue-generating tool for domestic tax cuts, rather than leverage for trade negotiations, it may become more difficult for countries to strike deals. In such scenarios, many governments might opt for limited retaliatory measures while relying on currency adjustments as a buffer.Geopolitical alignments could further influence tariff policies. For instance, while the Biden administration rolled back tariffs on allied nations such as Japan and the EU, restrictions on adversaries like China and Russia were maintained or tightened. This trend suggests that alliances may dictate the likelihood of tariff relief or persistence.In the face of increased U.S. tariffs, nations are likely to retaliate with targeted countermeasures that maximize political pressure on the U.S. while minimizing broader economic disruption. Where feasible, they may seek alternative solutions through trade agreements or strategic compromises. However, there is a general lack of global enthusiasm for prolonged trade conflicts. More

Moody’s upgraded Cyprus’ long-term issuer and senior unsecured ratings to A3 from Baa2, citing a “material improvement” in fiscal and debt metrics that the rating agency expected to be sustained. It was the first time the island has been in the “A” category, considered upper medium grade, since 2011.”A prudent fiscal policy, stability in the financial sector and the constant reforms at the core of our policies is reaping positive results,” President Nikos Christodoulides said in a written statement.”This success is a collective effort, and primarily that of the Cypriot people,” he said.Cyprus’ credit ratings started tumbling in 2011 after a domino sequence of events from fiscal slippage, a massive munitions explosion and ever-increasing bank exposure to the debt crisis in Greece pushed the country into an international bailout in 2013. In return for financial aid, Cyprus was forced to wind down a major commercial bank and seize a portion of unsecured clients’ savings at another in a process known as a bail-in.Moody’s said Cyprus had significantly reduced its government debt ratio since its peak in 2020, ranking among the countries with the largest debt ratio reductions globally. More