Economy

NEW YORK (Reuters) -Annual home prices in October rose again, pointing toward continued recovery of the housing market, data on Tuesday showed.A Federal Housing Finance Agency (FHFA) report showed home prices grew 6.3% on a yearly basis, up from a revised 6.2% the month prior. Annual price growth began to accelerate in June after declining steadily since February 2022. Prices increased moderately by 0.3% on a month-to-month basis after climbing by 0.7% the month before.Rates on the most common home loan neared 8% in October, reaching a two-decade high on the back of the Federal Reserve’s rate hike cycle.The Fed left its policy benchmark interest rate unchanged for three consecutive meetings, bolstering expectations of a closing rate hike cycle and stoking a rally in the bond market.The average rate on a 30-year fixed-rate mortgage fell below 7% in December, as yields on mortgage-backed securities headed down. Existing home sales have risen moderately since then, gaining 0.8% in November and indicating softening rates may draw sellers from the sidelines and open up inventory to prospective buyers, a National Association of Realtors report released in December showed.”The lack of inventory in the housing market has continued to affect the sector and has reduced the effects of higher mortgage rates,” said Eugenio Aleman, chief economist at Raymond James. “This decline in mortgage rates is likely to push future HPI readings higher as more buyers enter the market and the supply of homes remains limited.”A separate national price index released by S&P Core Logic/Case-Shiller showed home prices gained by 4.8% on a yearly basis in October, the largest rate this year. The Mid-Atlantic and New England regions experienced the largest gains in October, of 9.9% and 9.7%, respectively, according to the FHFA report. On a city basis, Detroit and San Diego posted the largest annual growth in home prices, the Case-Shiller data showed. More

The increase is lower than the 3.7% growth Mastercard forecast in September, and has slumped from last year’s 7.6% as higher interest rates and inflation pressured consumer spending.In the United States, Amazon.com (NASDAQ:AMZN) and Walmart (NYSE:WMT) have ramped up promotions through November to entice bargain-hunting shoppers, but analysts have said the discounts were not as deep as the prior year, when retailers were saddled with excess stock.Some of those discounts were rolled back starting December, when customers had expected to buy last-minute gifts and household goods on the Saturday before Christmas – dubbed “Super Saturday”.Ecommerce sales grew at a slower pace of 6.3% from last year’s 10.6% as the popularity of online shopping came off pandemic highs, the report showed.Sales in the apparel and restaurant categories rose 2.4% and 7.8%, respectively, during the holiday shopping period, according to the Mastercard SpendingPulse report, while sales of electronics fell 0.4%.Mastercard SpendingPulse measures in-store and online retail sales across all forms of payment. It excludes automotive sales. More

MUMBAI (Reuters) -India’s current account deficit narrowed more than expected in the July-September quarter largely due to a lower merchandise trade deficit while services exports also grew, the central bank said in a statement on Tuesday.The current account deficit stood at $8.3 billion, or 1% of GDP, in the second quarter of fiscal 2023/24 compared with $9.2 billion or 1.1% of GDP in the preceding quarter. The CAD had been at $30.9 billion or 3.8% in the same quarter a year ago.The median forecast in a Reuters poll of 18 economists was for a deficit of $9 billion.”Following the expansion in the merchandise trade deficit in October 2023, we expect the CAD for the ongoing quarter to widen appreciably, to around $18-20 billion,” said Aditi Nayar, Chief Economist, Head – Research at rating agency ICRA, adding that the Q2 number was well below their forecast of $13 billion. “Nevertheless, we now foresee the FY2024 CAD in a range of 1.5-1.6% of GDP, unless commodity prices chart a sharp rebound.”Merchandise trade deficit narrowed to $61 billion in the quarter, from $78.3 billion in the year-ago quarter.”Services exports grew by 4.2% on a y-o-y basis on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and on a y-o-y basis,” the central bank said.India’s merchandise trade deficit narrowed sharply to $20.58 billion in November from the previous month’s record levels as imports of gold, petroleum and electronic goods moderated, latest data showed. Private transfer receipts, which are mainly remittances by Indians employed overseas, rose 2.6% to $28.1 billion on year.The country’s balance of payments recorded a small surplus of $2.5 billion in the September quarter, compared with a deficit $30.4 billion a year ago. The surplus, however, narrowed sharply on a sequential basis from $24.4 billion in the June quarter. More

While the pace of growth slowed, spending stayed strong because of robust job growth and strong wage gains.Despite lingering inflation, Americans increased their spending this holiday season, early data shows. That comes as a big relief for retailers that had spent much of the year fearing the economy would soon weaken and consumer spending would fall.Retail sales increased 3.1 percent from Nov. 1 to Dec. 24 compared with the same period a year earlier, according to data Mastercard released on Tuesday. The credit card company’s numbers are not adjusted for inflation.Spending increased across many categories, with restaurants experiencing one of the largest jumps, 7.8 percent. Apparel increased 2.4 percent, and groceries also had gains.The holiday sales figures, driven by a healthy labor market and wage gains, suggests that the economy remains strong. The Federal Reserve’s campaign to rein in high inflation by raising interest rates over the last few years has slowed the economy, but many economists believe a so-called soft landing is within reach.“What we’re seeing during this holiday season is very consistent with how we’re thinking about the economy, which is that it’s an economy that is still very much expanding,” said Michelle Meyer, Mastercard’s chief economist.Solid job growth is allowing people to spend more. And even though consumer prices have risen a lot in the last two years, wages have grown faster on the whole.“We’re now entering the period, and we’re seeing it to some extent during the holiday season, where consumers have built up real purchasing power,” Ms. Meyer said.Still spending in categories like electronics and jewelry declined this season. And the rate of growth in spending has moderated from the last couple of years. In 2022, retail sales during the holiday season increased 5.4 percent, according to the National Retail Federation. In 2021, they rose 12.7 percent, the largest percentage increase in at least 20 years. Online sales growth has also slowed in 2023, increasing 6.3 percent compared with 10.6 percent from 2021 to 2022, according to Mastercard.While the economy is strong overall, Americans are being more mindful of how they’re spending, and that discretion shaped the shopping season.Some retailers had expressed concerns in recent months that shoppers appeared glum and fearful about the economy. Walmart and Target noted that shoppers seemed to be waiting for sales before buying, a change from recent years when they spent more freely.“The caution that they’ve taken on their spend and where they’re spending has been really noticeable in the second half of the year, where a lot of customers have been affected, especially lower-income and middle-income” people, said Jessica Ramírez, a retail research analyst at Jane Hali & Associates.In a return to some of the trends that prevailed before the pandemic, many retailers and brands offered promotions. Discounts were in the 30 to 50 percent range, Ms. Ramírez said. But the discounts were more targeted this year than last because fewer companies were saddled with gluts of inventory.Retail sales increased this holiday season compared with the same period a year earlier, though at a slower pace than last year.Maansi Srivastava/The New York TimesThe categories that have faced falling sales this year — like electronics, home furnishings and toys — saw some of the biggest discounts leading up to Christmas. Those goods had enjoyed booming sales during the pandemic.Alexan Weir, a 30-year-old mother in Orlando, Fla., said she was pleased to find deals on toys when she bought Christmas gifts for her daughters this month. Among the items she bought at Target were the Asha doll, based on the main character from the Disney movie “Wish”; an Elsa doll from “Frozen”; and a Minnie Mouse kitchen set. With discounts, the items together cost about half as much as their total list prices of $200.“As a parent you’re just trying to make your kids happy. You’re not trying to break the bank,” Ms. Weir said. “I spent a little bit more this year, but at least with the few sales that I received, I can say I was not heartbroken about how much I was spending.”Barbie — whose banner year was fueled by the blockbuster movie — sold particularly well in a year when there wasn’t a breakout toy. The doll and her many accouterments have been selling well at Mary Arnold Toys, a family-owned store on Manhattan’s Upper East Side. And overall sales at the shop have been steady, said Ezra Ishayik, who has run the store for 40 years.“It looks like it is about even with last year — not better, not worse,” Mr. Ishayik said. “The economy looks good to me. It’s decent, it’s OK, people are buying. We are on the high end of the industry so we don’t see any downtrend at all.”But the past few months have been more challenging for Modi Toys.Modi, an online retailer, sells plush toys and books based on Hindu culture and usually sees two sales bumps in the fourth quarter — one in the lead up to Diwali and another around Christmas.Normally the company brings in more than $100,000 in sales in the month before Diwali, which fell on Nov. 12, but this year sales dropped into the five-figure range. That was partly because the retailer launched a product too early and then had to offer hefty discounts to spur sales — something retailers try to avoid with new merchandise.“That’s when we knew that we really were going to have a challenging holiday season,” said Avani Modi Sarkar, a founder of the company.As she wraps up the year and looks toward 2024, Ms. Sarkar is testing new digital marketing strategies, including sending personalized email newsletters to customers and closely monitoring discounts.“We’re just trying to close the gap for us and not end the year with as big of a gap as we would have,” she said. “I know what we’re capable of, and I’m trying to not only get to that level again, but surpass it.”One clear sign that shoppers are being more careful about how much they spend comes from discount retailers. In November, Burlington, an off-price retailer, and the parent company of Marshalls and T.J. Maxx said they saw comparable store sales increase 6 percent.The online retailer ThriftBooks said its sales were also up this holiday season, by more than 20 percent in November and more than 24 percent this month compared with a year ago, according to Ken Goldstein, the company’s chief executive.“This was unprecedented,” Mr. Goldstein said. “This is beyond belief in terms of the volume that we’re doing. Because we’re a value product, I think a lot of people are putting their dollars to work.” More

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Africa’s second most populous country announced earlier this month that it intended to formally go into default, having been under severe financial strain in the wake of the COVID-19 pandemic and a two-year civil war that ended in November 2022.It had been supposed to make the payment on Dec. 11, but technically had up until Tuesday to provide the money due to a 14-day ‘grace period’ clause written into the $1 billion bond. According to two sources familiar with the situation, bondholders had not been paid the coupon as of the end of Friday Dec. 22, the last international banking working day before the grace period expires. Ethiopian government officials did not respond to requests for comment on Friday or over the weekend, but the widely-expected default will see it join two other African nations, Zambia and Ghana, in a full-scale “Common Framework” restructuring.The East African country first requested debt relief under the G20-led initiative in early 2021. Progress was initially delayed by the civil war but, with its foreign exchange reserves depleted and inflation soaring, Ethiopia’s official sector government creditors, including China agreed to a debt service suspension deal in November.On Dec. 8, the government said parallel negotiations it had been having with pension funds and other private sector creditors that hold its bond had broken down.Credit ratings agency S&P Global then downgraded the bond, to “Default” on Dec. 15 on the assumption that the coupon payment would not be made. More

The eurozone economy is set for only modest growth next year despite wages rising faster than inflation for the first time in three years, according to a Financial Times poll of economists.Almost two-thirds of the 48 economists surveyed by the FT said they believed the single currency bloc was already in a recession — usually defined as two consecutive quarters of gross domestic product shrinking from the previous quarter.“We would not describe this as a fully fledged recession; instead we would still characterise this as stagnation,” said Paul Hollingsworth, chief European economist at BNP Paribas. “What’s more, we continue to see a gradual recovery in 2024, rather than further deterioration.”Most respondents forecast that the current contraction would be shallow and shortlived, with mildly positive growth returning in the first quarter of 2024. However, they expected next year to bring only weak growth and warned that high interest rates, potential energy market turmoil and geopolitical instability could yet cause a deeper downturn.On average, the economists polled by the FT forecast that the eurozone economy would grow by just over 0.6 per cent next year. Most were more pessimistic than the European Central Bank and the IMF, which have forecast that the bloc’s economy will grow 0.8 per cent and 1.2 per cent next year respectively.Several economists said the potential election of Donald Trump as US president for the second time and the possibility of Ukraine losing its war against Russia were among the risks that could drag Europe’s single currency bloc into a period of even weaker growth. Vítor Constâncio, former ECB vice-president, said the big risks for Europe were a “recession in Germany or Italy and a Trump victory”.Holger Schmieding, chief economist at Berenberg, said a Trump victory was the main threat for Europe’s economic outlook. “If the US abandons Ukraine and threatens the EU with a trade war, Europe and the world would suffer more than the US,” he said.Mahmood Pradhan, head of global macroeconomics at Amundi Asset Management, said the biggest risk for the eurozone was a “prolonged restrictive stance of monetary policy — including a faster pace of balance-sheet unwinding — and less supportive fiscal policy, especially in Germany”.Two-thirds of those surveyed thought Germany’s economy would return to positive growth next year after it shrank for much of 2023. But Mark Wall, chief European economist at Deutsche Bank, said “significantly tighter fiscal policy in Germany”, after the country’s top court left the government with a €60bn hole in its budget, meant its economy would contract 0.2 per cent.More than half of economists thought there could still be another energy supply shock next year, even though Europe entered this winter with its natural gas storage tanks almost completely full and oil prices have fallen since the start of Israel’s war against Hamas in Gaza.“Europe remains supply-constrained when it comes to energy, so any concerns regarding energy supply could see a sharp rise in prices,” said Katharine Neiss, chief European economist at PGIM Fixed Income.Inflation in the eurozone is expected to fall close to the ECB’s 2 per cent target in less than two years, according to the economists. They forecast that consumer prices would rise on average by just over 2.5 per cent next year and slightly below 2.1 per cent in 2025.Those forecasts are slightly below those of the ECB, which earlier in December predicted euro area price growth would average 2.7 per cent next year and 2.1 per cent in 2025.Wage growth is expected to be just under 4 per cent next year in the eurozone, according to the average prediction in the FT poll, which is weaker than the 4.6 per cent forecast by the ECB but would still mean real household income grows for the first time in three years.Most economists are more gloomy on the outlook for the labour market next year than the ECB. On average, they forecast unemployment would rise from a record eurozone low of 6.5 per cent in October to 6.9 per cent at the end of next year. “Beyond political and geopolitical risks, the greatest endogenous threat to the eurozone economy would be a slump in the labour market,” said Sylvain Broyer, chief European Middle East and Africa economist at S&P Global Ratings. “In such a case, the rise in real incomes on which the soft landing script hinges could vanish into thin air.”Residential house prices will fall a further 1.6 per cent next year, the economists forecast on average, reflecting sluggish growth and significantly higher mortgage rates across Europe. Nearly half of respondents also said they were anxious about a potential crisis brewing in the commercial property sector, while a quarter said this was not a concern.How did last year’s predictions fare?Not bad. A year ago Europe was still getting to grips with the energy crisis caused by Russia’s full-scale invasion of Ukraine, which helps explain why most economists polled by the FT were slightly too pessimistic on both growth and inflation.On average, they forecast the eurozone economy would shrink just under 0.01 per cent this year and inflation would average slightly above 6 per cent. Thanks to a swift shift away from a heavy reliance on Russian gas imports to other sources of energy, the bloc has not performed quite as badly as many feared. The ECB forecast this month that growth would be 0.6 per cent and inflation would be 5.4 per cent this year. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a financial journalist and author of ‘More: The 10,000-Year Rise of the World Economy’In most Hollywood horror movies, the monster is incredibly hard to kill. Not until the final moments of the film will it be dispatched and, even then, enough doubt will be created to leave room for a sequel.So it has been with the great speculative era on the financial markets. A pandemic, a Russo-Ukraine war and even substantially higher interest rates have not finished off the risk-taking bonanza.Take the technology sector as a starter. Much of its value lies in the future profits companies are expected to earn because of their superior growth potential. When bond yields rise as they have this year, investors should in theory use a higher rate to discount those future profits taking into account the time stocks have to be held to receive them. That means valuations should fall, not rise. But the price/earnings ratio of the US technology sector is well above its three-year average and the sector’s shares have jumped more than 50 per cent so far this year.Second, take the overall market valuation, as measured by the cyclically adjusted price/earnings ratio, or Cape. This averages profits over 10 years to allow for the economic cycle. In March 2022, as the US Federal Reserve started to push up interest rates, the Cape was 34; on the latest figures, the ratio has dropped only to 31, still well above the historical average. And markets have continued to rally in December.Then there is bitcoin. The late, lamented Charlie Munger, the long-term colleague of Warren Buffett, said that investing in cryptocurrencies was “absolutely crazy, stupid gambling”. As if to prove his point, the past 18 months have seen the collapse of the crypto exchange FTX, and Binance — one of its biggest competitors — suffering a $4.3bn fine for money laundering and the forced departure of its founder. There could not be more alarm bells sounding if the entire New York City fire department was racing, with sirens blazing, past investors’ doors. But the bitcoin price has more than doubled this year.One explanation for the continuation of investors’ risk appetite is that, while nominal interest rates have risen over the past couple of years, they have been outpaced by inflation; the real returns on cash and bonds have not been attractive. That has maintained the allure of risky assets.Now inflation has fallen, real interest rates are mildly positive in the US, making cash and bonds theoretically more appealing. But investors do not expect this to last. The stock market rally in November was driven by the widespread expectation that the Federal Reserve would be able to start cutting rates in 2024.But there is more to the frenzy than the prospect of a change in monetary policy. Surveys show that American voters are not happy with their economy, even though it has actually been doing remarkably well. In the third quarter, gross domestic product grew at an annualised rate of 5.2 per cent. The economy has been supported by fiscal policy, with the budget deficit running at about 5.7 per cent of GDP in the current year. In other words, American pocketbooks are sufficiently flush that they can afford a little gamble.So what could finally bring the speculative era to an end? In any individual asset class, a collapse usually arrives when investors lose confidence in the fundamentals that have been driving prices higher. For tech stocks, this could occur if regulation (or geopolitical tensions) severely damage their profits outlook, For cryptocurrencies, regulation is also a risk, as is the collapse of an exchange that results in big losses for institutional investors. However, it does not seem as if the boom in tech stocks and crypto is being driven by the use of large amounts of leverage. Historically, the trigger for a more general collapse in risk appetites has been a tightening in credit conditions. That was the reason for the plunge in mortgage-backed securities in 2007 and 2008, which then filtered through to concern about the health of the banking system. So it might be that a sharp fall in tech stocks or cryptocurrencies would simply cause speculators to switch to another asset class. A more general collapse in risk appetite may require a really dramatic geopolitical event, such as war between the US and China over Taiwan, or a central bank miscalculation in monetary policy, either by failing to contain inflation or being too tight for too long and causing a deep recession. These may seem like extreme outcomes but it usually takes an explosion to kill a movie monster.  More