Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is head of macro research at BNP Paribas Asset ManagementInflation remains the number one topic for investors. Understanding what is happening to inflation is the key to forecasting what central banks will do, and hence how bonds and equities will perform. But we do not all look at inflation in the same way and right now that makes a big difference to the conclusions drawn about the economy, monetary policy and markets.National statisticians publish data on consumer prices at a monthly frequency. That much is common. In Europe, when we talk about inflation, we compare how prices have changed over the past year, and for a very simple reason. Many prices exhibit a clear seasonal pattern which can obscure the underlying rate of inflation that we are interested in. It does not make much sense to say we start each year in deflation just because there are always sales after Christmas and the prices of many items tend to fall between December and January.Comparisons against a year ago circumvent this problem. However, they do so at a cost. Macroeconomic circumstances can change over the course of the year, and hence so too can the underlying rate of inflation. The change on a year ago measure will inevitably be slow to capture a sudden, significant change in that underlying trend. They do things differently in the US. The statisticians estimate and then remove the seasonal trend from the data. Now we can track the underlying rate of change of prices from one month to the next. We can assess whether prices are consistently rising too fast each month or not — or, in the jargon, whether high inflation is proving persistent.We could do the same in Europe. Seasonal adjustment can be as simple as a click of a button in a software package. The European Central Bank publishes seasonally adjusted data for those who do not want to get their hands dirty.Nevertheless, the focus in Europe remains on how unadjusted prices have changed over the past year. From this perspective, inflation is falling but is still too high. No surprise then that many commentators insist that interest rates must stay high to squeeze inflation out of the system.You get a completely different impression if you focus on the recent trend in the seasonally adjusted data. The pace of disinflation is more dramatic, and the current rate of inflation looks far less worrisome. Indeed, the ECB data suggest that core inflation turned negative in the eurozone in the last month for which we have data. Even if the latest data turns out to be erratically weak, the trend is clear. It is a similar story in the UK. Prices are rising at a much more manageable rate from one month to the next, but the punchy pace of increases earlier in the year means that the change on a year ago measure is still elevated. Core consumer prices were up 5.1 per cent on a year ago in November, well below consensus forecasts. More importantly, seasonally adjusted core prices were essentially flat on a month agoWe have a similar story with wages. The Bank of England’s favourite measure of private sector pay was increasing at an extremely rapid rate in the spring. Wages are up a lot relative to where they were a year ago. But the rate at which wages are rising from one month to the next has slowed dramatically since the spring. In fact, pay actually fell in the last month for which we have data. Again, that could be noise, but the signal is clear.  It is not hard then to understand why investors are increasingly confident that the hiking cycle is complete and rate cuts are coming soon. Prices are a lot higher than where they were a year ago. But the period of rapidly rising prices is retreating in the rear-view mirror. Inflation has not proved persistent. On the contrary, underlying inflation has cooled significantly in recent months. If you look at how wages and prices have changed over the past month, rather than over the past year, you will conclude that the inflation genie is already back in the bottle.It would take a brave economist to rule out the possibility of a reacceleration in wages and prices after the chastening experience of recent years. However, a significant and sustained pick up looks less likely now.  For now, interest rates will seemingly stay high as an insurance against that possibility. But with interest rates in restrictive territory, the question is increasingly whether the underlying trend in inflation will continue to cool in the coming months. It is not impossible that inflation will soon be too low for comfort. In that case, investors are still underestimating how many rate cuts are coming.  More

Vladimir Putin’s re-election campaign has prompted a fresh drive by Russian officials to curb inflation as disquiet grows over soaring prices for consumer goods and as technocrats move to rein in a weakening rouble.The Kremlin is increasingly resorting to ad hoc measures aimed at lessening the burden on ordinary Russians, with Putin trumpeting a return to growth nearly two years after his full-scale invasion of Ukraine prompted Russia’s biggest economic crisis in decades.Ahead of the president’s expected landslide victory in March, Russia’s inflation-fighting toolkit has included everything from hawkish central bank policy and a pause on exits from the country by western companies to what the Kremlin called “energetic measures” to lower the cost of eggs. Pressures on consumers were a central feature of Putin’s telethon last Thursday, the first time he had held his usually annual press conference or phone-in since ordering the invasion in 2022 — and, since “eggs” are slang for testicles in Russian, he could not pass up an opportunity for a crude joke.“I asked the minister of agriculture how his eggs are. He said they were fine. And I replied: ‘Well, our citizens have some problems,’” Putin said, to audible gasps in the studio.Fielding several complaints on the issue live on air, he apologised for the price of eggs and blamed the government, which he said had “not approved imports in time”.Within hours, Russia’s agriculture ministry announced it would abolish import taxes on eggs and step up bringing stocks in from “friendly” countries that have not joined western sanctions imposed over the war.By Monday, the Kremlin was saying Putin’s telethon had had an “accelerating effect” on bringing down egg prices, which are up 43 per cent this year. Central bank data showed egg prices had risen faster in the week to December 18 than a week earlier, however, increasing by more than 4.6 per cent.“It is obvious that the authorities have tried to paint a picture of growth and prosperity ahead of Putin’s renomination for the upcoming elections,” said Alexandra Prokopenko, a non-resident fellow at the Carnegie Russia Eurasia Center in Berlin.Record spending on defence and rising prices on energy exports are fuelling GDP growth, which Putin crowed would reach 3.5 per cent this year after a contraction of 2.1 per cent last year.A billboard at a bus stop in St Petersburg promoting next year’s Russian presidential election More

The Korea Federation of Banks, which represents 23 financial institutions including Kookmin Bank and Woori Bank, said of the total, 1.6 trillion won will be used as cash refund for interest payments borrowers made, to help them cope with the rising costs of living as interest rates climb. Pressure has been building on local lenders to share their profits, with the country’s four largest commercial banks’ combined profits from lending activities at almost 33 trillion won last year, up more than 20% on the year. “Small business owners have been hit hardest due to factors including rising interest rates, even before things got better from the COVID-19 pandemic,” said Kim Joo-hyun, chairman of the country’s regulator Financial Services Commission, adding the banks’ plan to offer financial support will help mom-and-pop businesses. ($1 = 1,303.1700 won) More

(Reuters) – A look at the day ahead in Asian markets.Investors in Asia go into Thursday’s trading session on the defensive, after a late slide on Wall Street took the shine off figures that earlier showed global inflationary pressures cooling further.The regional economic and policy highlights on Thursday are the Indonesian central bank’s latest policy decision, consumer price inflation and trade figures from Hong Kong, and producer price inflation data from South Korea.A far steeper decline in UK inflation last month than anticipated hammered gilt yields on Wednesday and strengthened the growing view that major central banks have substantial room to cut interest rates next year.With figures also showing a jump in U.S. consumer confidence to a five-month high, the ‘Goldilocks’ and ‘soft landing’ juiced the global risk rally until the last hour of trading on Wall Street triggered a sharp reversal.World stocks, which were up 10 days in a row and on course for their longest winning streak in nearly three years, slumped 0.7% and chalked up their biggest decline in two months. The three main U.S. indexes, at or near record highs this week, also registered their biggest daily losses since October.If that negativity spills over into Asia into Thursday, the long-standing underperformance of emerging market and Asian markets – and Chinese markets, in particular – is likely to continue.The Shanghai blue chip CSI 300 index fell more than 1% on Wednesday. It is on course for a sixth straight weekly loss, which would be its worst weekly run in 12 years, and a record fifth consecutive monthly loss.The big picture remains challenging – deflation is taking hold, the huge property sector is imploding and the growth outlook is questionable at best.It’s a different story in Hong Kong, at least as far as inflation is concerned. Consumer price inflation has been rising lately, and reached a year-high of 2.7% in October while the month-on-month rate rose to a two-year high of 1.0%.Economists in a Reuters poll expect figures on Thursday to show that annual inflation held steady at 2.7% in November.Bank Indonesia, meanwhile, is expected to keep its benchmark seven-day reverse repo rate steady at 6.00% for a second month – inflation has been within its 2% to 4% target range for six months and the rupiah has gained nearly 2% since a surprise rate hike in October, easing pressure on imported prices.Economists polled expect the first rate cut to be in the third quarter of 2024. But with inflation well-behaved, the rupiah ticking up, and the Fed forecast to start cutting U.S. rates pretty soon, BI may move well before that.Here are key developments that could provide more direction to markets on Thursday:- Indonesia central bank policy decision- Hong Kong consumer price inflation (November)- South Korea producer price inflation (November) (By Jamie McGeever; Editing by Josie Kao) More

SINGAPORE (Reuters) – The dollar found a footing on Thursday as a sudden end to a strong rally for U.S. stocks had investors looking for safety and as an unexpected fall in British inflation hit the pound.Sterling suffered its sharpest drop in two months overnight after British inflation dived below forecasts to an annual 3.9% in October, its lowest for two years.Traders scrambled to price rate cuts by May and the currency dropped 0.7% to $1.2638. [GBP/]”The data suggests that inflation momentum in the United Kingdom is finally losing steam, allowing the Bank of England to join the global rate cutting cycle next year,” said analyst Marios Hadjikyriacos of brokerage XM.Elsewhere heavy selling in the final hour of equities trade on Wall Street sent a ripple of risk-aversion through markets, lifting what had been an under-pressure greenback from lows.The Australian and New Zealand dollars retreated from five-month highs. The Aussie was last at $0.6714, having touched its highest since July at $0.6779 a day earlier. The kiwi traded at $0.6257. [AUD/]The euro was stable at $1.0943. The yen found support at 143.5 per dollar, after having lost ground on Tuesday when the Bank of Japan left its ultra-easy policy settings unchanged.Currency markets’ next focus is on Friday’s release of the U.S. core personal consumption expenditure (PCE) index which is forecast by analysts to rise 0.2% in November with the annual inflation rate slowing to its lowest since 2021 at 3.3%.Analysts suspect the balance of risk is on the downside and the slowdown in inflation means the Fed will have to ease policy just to stop real rates from rising.But with 150 basis points of cuts already priced in next year, a massive rally in the bond market and the dollar index down more than 4% from an early November high, some signs of caution are creeping in.”Some adjustments in positions and paring back of risks ahead of (this) event…is only sensible,” said OCBC currency strategist Christopher Wong in Singapore.”Liquidity is getting thinner as we get closer to the festive season, thin liquidity can exacerbate price movements on any data surprises.”The dollar index, down 1% for the year so far, was steady at 102.37 in early Asia trade on Thursday. Ten-year U.S. Treasury yields hit a seven-month low of 3.847% in New York.China’s yuan slipped on the rising dollar in overnight offshore trade, and as traders see no let up in China’s accommodative monetary stance.It was steady at 7.1480 to the dollar on Thursday. [CNY/]Bitcoin leapt briefly above $44,000 on Wednesday and was steady at $43,667 on Thursday.========================================================Currency bid prices at 0045 GMTDescription RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar $1.0950 $1.0943 +0.06% +0.00% +1.0950 +1.0937 Dollar/Yen 143.4350 143.6750 -0.16% +0.00% +143.5550 +143.3700 Euro/Yen 157.02 157.07 -0.03% +0.00% +157.1200 +156.8700 Dollar/Swiss 0.8624 0.8626 +0.01% +0.00% +0.8627 +0.8627 Sterling/Dollar 1.2643 1.2639 -0.02% +0.00% +1.2643 +1.2636 Dollar/Canadian 1.3351 1.3371 -0.11% +0.00% +1.3370 +1.3356 Aussie/Dollar 0.6744 0.6731 +0.19% +0.00% +0.6745 +0.6720 NZ Dollar/Dollar 0.6259 0.6248 +0.20% +0.00% +0.6260 +0.6247 All spotsTokyo spotsEurope spots Volatilities Tokyo Forex market info from BOJ More

Earlier this week, Milei’s government eliminated so-called Leliq transactions, instead offering short-term peso-denominated assets in an effort to broaden the debt instruments available in investors.The auction marks the first such debt placement in the domestic market from the new government.The amount placed also totaled more than a third of the currency circulating in Argentina’s ailing economy, which suffers from surging triple-digit inflation as well as a growing poverty rate.The nominal value of the auction was about 2.5 trillion pesos, according to the ministry. More

Production of the new headset is at full speed at facilities in China and has been for several weeks, according to the report.The goal is for customer-bound units to be ready by the end of January, with the retail debut planned for the following month, the report added.The Vision Pro, priced at $3,499 launched in June and was expected to be available by early 2024 in the U.S. The company sent an email to software developers on Wednesday encouraging them to “get ready” for the Vision Pro by testing their apps with the latest tools and sending their software to Apple (NASDAQ:AAPL) for feedback, according to the report.Media reports in July suggested the iPhone maker had been forced to make major cuts to production forecasts for the headset due to design complexities.Apple did not immediately respond to a Reuters request for comment. More

Markets are pricing in a rate cut on Thursday, and 12 of 15 analysts in a Reuters poll forecast a 25 basis point reduction.The Czech central bank lifted borrowing costs by 675 basis points to more than two-decade highs between June 2021 and June 2022 as central European policymakers sharply tightened policy to battle inflation surging to double-digit rates.Since the middle of last year, though, under the new leadership of Governor Ales Michl it has held steady with its key two-week repo rate at 7.00% and maintained a cautious hold in recent months even as the Hungarian and Polish central banks eased policy.Michl said this month the bank was set to remain hawkish whether it cuts rates now or not.Central bankers have been wary of companies repricing their goods and services at the start of 2024, leaving an argument to wait until upcoming meetings in February or March before easing policy. A worry over renewed wage growth in what is one of the European Union’s tightest labour markets is another concern. But economic data has been sluggish. Household spending has dropped and the economy overall declined by 0.6% in the third quarter from the previous three months. It is forecast by the central bank to shrink 0.4% in the full year, and to eke out a 1.2% expansion in 2024. With global central banks like the U.S. Federal Reserve or European Central Bank calling an end to their own tightening cycles, analysts see the balance shifting to a cut now.”Global dovish repricing, weaker economic outlook, a lack of inflationary surprise in data since the November policy meeting and… tight balancing by many board members is a combination which speaks in favour of careful cut,” said Jakub Seidler, chief economist at the Czech Banking Association.The board voted 5-2 for unchanged rates in November, with the minority already seeking a cut.Others could join the call to begin loosening policy.Policymaker Jan Prochazka, who had backed stable policy in November, told Reuters last week that inflation risks that have prevented the start of easing have been gradually disappearing, and that a cut in December would also be sign of confidence that the January repricing will not be large, and that central bank believes it can deliver low inflation next year.Vice-Governor Eva Zamrazilova, another who had voted with the majority, told Bloomberg the December meeting was “50-50”.Headline inflation stood at 7.3% in November after hitting a peak of 18% in September 2022 and is forecast to fall back to the central bank’s 2% +/- 1 percentage point target range next year.The central bank will release the rate decision at 2.30 p.m. (1330 GMT) on Thursday and hold a news conference at 3.45 p.m.. More