Economy

“The next phase is not when to reduce rates, even though that’s where the markets are at. It’s about how long do we need monetary policy to remain restrictive in order to be assured that inflation is on that sustainable and timely path back to 2%,” Mester told the FT in an interview.”The markets are a little bit ahead. They jumped to the end part, which is ‘We’re going to normalize quickly’, and I don’t see that.” (This story has been refiled to say ‘interest rate cuts’ and not ‘interest rate rates’ in paragraph 1) More

LONDON (Reuters) – Multi-trillion dollar non-banking finance saw its first major retreat last year since the global financial crisis in 2009, with the shrinkage due to higher interest rates hitting asset valuations, a global watchdog said on Monday.Non-banks, such as investment funds and insurers, have come under closer regulatory scrutiny after the sector, less regulated than banks in parts, grew sharply after the financial crisis as money shifted from the more heavily regulated lenders.This shift raised worries about hidden pockets of leverage and “liquidity mismatches” at money market funds and elsewhere that could hit financial stability in a crisis through interlinkages between banks and non-banks.The Financial Stability Board (FSB), which groups officials, regulators and central bankers from the G20 economies, said the non-bank financial intermediation (NBFI) sector shrank 5.5% to $217.9 trillion in 2022 from the previous year.This reflected valuation losses, especially as investment funds’ portfolios were “marked to market” to reflect much higher interest rates which have hit the value of bonds.NBFI, which still accounts for 47.2% of global financial assets that total $461.2 trillion, also fell due to higher rates.”Banks continued to be net recipients of funding from the NBFI sector, although this funding has been decreasing since 2013. In contrast, some NBFI entities’ use of funding from banks has increased,” the FSB said in its annual update on the NBFI sector.”Enhancements in this year’s report reduced unspecified linkages across all non-bank entity types and were most notable in the case of pension funds, where identified linkages increased 25 to 30 percentage points with regard to both claims and liabilities,” the FSB said.The watchdog’s “narrower” measure of NBFI, which has an economic function such as providing loans and facilitating credit provision and post “bank-like” financial stability risks, also decreased, falling 2.9% to $63.1 trillion in 2022.”This decline can be almost entirely attributed to collective investment vehicles susceptible to runs,” the FSB said.Regulators have begun taking a closer look at whether assets held outside the banking sector properly reflect interest rates that have risen sharply from a prolonged period at historically low levels.Markets, however, have now begun pricing in interest rate cuts by central banks next year. More

The funds were part of a plan unveiled in October when China said it would issue 1 trillion yuan of sovereign bonds to enhance disaster-prevention infrastructure, the report said. The plan to help rebuild areas hit by this year’s floods and improve urban infrastructure to cope with future disasters has widened China’s 2023 fiscal deficit target to 3.8% of gross domestic product from the original 3%. The first batch of funds will support more than 2,900 projects, CCTV reported, including 107.5 billion yuan to help with rebuilding and disaster prevention and mitigation.Another 125.4 billion yuan will be used to subsidise high-standard farmland in the northeastern region and the Beijing-Tianjin-Hebei region, and 5 billion yuan will go to major natural disaster prevention and control system projects, CCTV added.”Once a batch of projects is confirmed, the funds will be allocated in a timely manner,” state media Xinhua reported on Monday, citing Wang Jianfan, the head of budget department at the finance ministry.”A total of 500 billion yuan under this year’s budget arrangement will be allocated as soon as possible based on project approvals,” according to Xinhua, while another 500 billion yuan will be carried over to next year. China’s finance ministry did not respond immediately to a Reuters request for comment on when it started issuing the bonds.China has grappled with weather extremes this year, from ultra-low temperatures in January to record rainfall and a blistering hot summer, in wild swings that scientists attribute to climate change.Temperatures in parts of China, including in provinces Shanxi, Hebei and Liaoning, hit their lowest levels since records began, CCTV said on Sunday, as a cold snap gripped large swathes of the country.Northern China, including the capital city of Beijing, were the hardest hit by floods after record rainfall from Typhoon Doksuri in July and August. Southern China, including economic powerhouses Guangdong and Fujian provinces, has been hit by two typhoons since September.($1 = 7.1274 Chinese yuan renminbi) More

1. Futures edge higherU.S. stock futures inched higher on Monday, pointing to a possible extension in a Christmastime rally that has been fueled by hopes for a Federal Reserve policy pivot next year.By 05:01 ET (10:01 GMT), the Dow futures contract had gained 73 points or 0.2%, S&P 500 futures had risen by 12 points or 0.2%, and Nasdaq 100 futures had inched up by 23 points or 0.1%.The main indices on Wall Street were mixed to end the previous week after New York Fed President John Williams noted that policymakers were not “really talking about” interest rate cuts “right now.” The comments served to temper hopes that the central bank would start to lower rates from more than two-decade highs as early as the spring.Last week, the Fed voted to keep borrowing costs steady at 5.25% to 5.50%. However, fresh quarterly projections showed that members, buoyed by signs of cooling inflation and resilient economic growth, were pricing in 75 basis points in cuts in 2024. The announcement helped lift the benchmark S&P 500, 30-stock Dow Jones Industrial Average, and tech-heavy Nasdaq Composite to their seventh consecutive week of gains. U.S. Treasury yields, which move inversely to prices, also slipped.2. Gold shinesThe Fed’s dovish outlook has also driven a jump in gold prices, putting the yellow metal on pace for its first annual increase since 2020.According to Investing.com’s Fed Rate Monitor Tool, investors now see a roughly 65% chance that the bank will unveil a quarter-point rate reduction as soon as March next year, up from just under 42% in the prior week. The probability that the Fed will roll out a further cut in May stands at around 58%, well above last week’s mark of about 24%.These expectations have dented the appeal of holding zero-yield bullion. A slide in the U.S. dollar has also burnished gold, making it less expensive for overseas buyers. The dollar index, which tracks the greenback against a basket of other currencies, shed 1.3% last week.At 05:01 ET on Monday, spot gold prices had risen by 0.2% to $2,023.13 per troy ounce.3. Illumina to divest GrailIllumina has said it will divest cancer-screening start-up Grail, as the gene-sequencing device maker looks to appease antitrust regulators in both the U.S. and Europe.In a statement on Sunday, San Diego-based Illumina noted that divestiture will be executed through a “third-party sale or capital markets transaction.”Illumina acquired Grail in 2021 in an agreement that valued the seller of a blood test designed for the early detection of cancer at $7.1 billion. However, the agreement has faced heavy scrutiny, particularly after it was completed without the formal approval of the European Commission. The divesiture of Grail would be “consistent” with an order from Brussels, Illumina noted.The troubled deal has also faced pushback from the U.S. Federal Trade Commission, which flagged that Illumina could deny crucial inputs into cancer-detecting blood tests offered by Grail’s rivals.On Friday, a federal appeals court found that while the FTC was right to issue the challenge, it must conduct a new review of the purchase. Illumina said it would not appeal the ruling.Shares in Illumina edged higher in premarket trading in New York on Monday.4. SenseTime shares slip after AI firm announces death of co-founderShares in SenseTime Group (HK:80020) slumped on Monday, touching an all-time low, after the Chinese artificial intelligence business announced that founder Tang Xiao’ou had died.SenseTime (HK:0020) said over the weekend that Tang had died of an unspecified illness on Friday. He was 55 years old, CNBC reported.Tang, a professor at the Chinese University of Hong Kong, set up SenseTime in 2014. Its AI-based content generation and facial recognition technology have since received strong demand from both the public and private sectors.But the firm has also been blacklisted by U.S. authorities since 2019. Washington has alleged that SenseTime aided Beijing in running state surveillance of Uyghur minorities in China’s Xinjiang region.5. Oil choppyOil prices were volatile on Monday, as traders weighed Russian export reductions and jitters over attacks on commercial vessels in the Red Sea with weak business morale data out of top European economy Germany and a fresh forecast from Goldman Sachs.By 06:23 ET, the U.S. crude futures traded 0.5% higher at $72.17 a barrel, while the Brent contract climbed by 0.6% to $76.99 per barrel. Both benchmarks posted limited gains last week, stemming seven straight weeks of declines, thanks in large part to hopes for Fed rate cuts next year.Crude prices received support from Russia, which said on Sunday that it would deepen oil export cuts in December by around 50,000 barrels per day. Additionally, concerns are growing over the potential for disruption to global supplies as a number of shipping firms said they would avoid the Suez Canal given the increase in assaults on commercial vessels in the Red Sea by Houthi militants in Yemen.However, according to figures from the Ifo Institute, the mood amongst German companies unexpectedly worsened in December, with energy-intensive industries “having a particularly tough time.” The survey said that firms were “more skeptical about the first half of 2024.”Also impacting sentiment was a decision by Goldman Sachs to trim its price expectations for Brent crude in 2024 by $10 per barrel to between $70 to $90. The bank said strong U.S. output could mitigate possible upward pressure on oil prices. More

WASHINGTON (Reuters) – The U.S. Federal Reserve started 2023 on a grim note, with staffers calling a recession “plausible,” and policymakers penciling in growth near stall speed and rising unemployment as the costs of quashing inflation with rapid-fire interest rate increases.But it ends with the Fed registering faster-than-expected progress on inflation that occurred with virtually no rise in the jobless rate and an economy that grew fully five times faster than the 0.5% policymakers anticipated a year ago. Rate cuts are now in the offing.“We were very fortunate,” over the course of the year, Atlanta Fed President Raphael Bostic told Reuters last week.What just happened?Over the year a series of things turned the Fed’s way, sometimes unexpectedly and not necessarily due to monetary policy. Just as 2022 was a year of bad forecasts and bad breaks, including war in Europe, the 2023 economy began looking more normal after pandemic-era excesses. It redeemed, to some degree, early Fed thinking that high inflation would ease over time without the central bank squelching growth altogether.Actions taken by the Fed included an emergency lending program for banks that helped ease financial sector tensions at a key point. There were also legitimate surprises like a rise in productivity, and other developments tied to the economy’s underlying performance, like the increase in the labor force.“Institutions have evolved and opportunities have become sufficiently attractive that people have come back in strong. I was not expecting that. That’s very positive,” Bostic said.The forecasts still weren’t great through an uncertain and volatile period. But this time the surprises were mostly to the good.MONEY FOR NOTHING, CHIPS FOR A FEEFed Chair Jerome Powell stopped using the word “transitory” to describe inflation long ago, but last week he described, without saying it, why that belief took hold. The pandemic had dumped trillions of dollars of aid into consumers’ hands, stoking demand that hit a wall as the global goods supply chain became stilted by that same pandemic. Shortages of basic industrial goods like computer chips kept inventories bare and allowed rising prices to ration what was available.This year saw supply pressures unwind as inventories rebuilt, perhaps to excess. Goods prices began to drag headline inflation lower, as was often the case before the pandemic.Labor supply also surprised to the upside. After concerns early in the pandemic that women’s ability to work had been permanently scarred, the number of women in the workforce hit a record high. Rising immigration helped even out what had been a historic mismatch between the number of open jobs and the number of people looking for work. The boost in the labor force and drop in job openings have helped slow wage growth that some top economists worried was on the verge of driving inflation higher. HOUSEHOLDS HOLD THE FORTWhile the gusher of pandemic aid may have helped push up prices from high demand, the financial buffers built by households and local governments had more staying power than many economists expected. Over 2023, long after pandemic benefit programs had ended, there were still estimates of hundreds of billions of dollars left to spend. That showed up in consumer spending that consistently beat expectations. Though recent data suggests demand has finally begun slowing, the surprising resilience of household spending was a key reason the Fed’s initial growth forecasts proved low.A PRODUCTIVITY BONUS All things equal, that unexpectedly strong jump in gross domestic product should be inflationary. The Fed estimates the economy’s underlying growth potential is around 1.8% annually, so 2023’s estimated 2.6% expansion seems out of kilter.But “potential,” at least for now, may have been lifted by a jump in worker productivity. Rising productivity is manna for central bankers, allowing faster growth without inflation because each hour of work yields more goods and services at the same cost. It is also something they are reluctant to predict or rely on. In this instance, however, it helped Powell drop what had been steady references to the “pain” needed to subdue inflation through rising unemployment and instead talk more openly of the relatively pain-free disinflation apparently underway.Today’s unemployment rate is 3.7% versus 3.6% when the Fed began raising interest rates. It has been below 4% for 22 months, the longest such run since the 1960s, and roughly what prevailed just before the pandemic, a period Powell heralds frequently.THE BANKING CRISIS THAT WASN’T A final surprise is how contained the spring’s round of bank failures proved to be after the rapid collapse of Silicon Valley Bank. Those tremors prompted new caution among Fed policymakers about the speed of further rate increases, and led to warnings of a deep financial fracture as banks took stock of the fact their holdings of government and mortgage securities had lost value due to Fed rate hikes. Certainly there was stress. But it didn’t evolve into a broader crisis and stayed in line with what the Fed was trying to do anyway: Tighten credit to cool the economy. Indeed, following what proved to the Fed’s last rate increase in July, markets began doing some of the central bank’s work for it by driving borrowing costs higher than the Fed anticipated doing with its own rate.Market rates are now falling, some dramatically, as the Fed pivots towards rate cuts. Will the markets go too far? Fed officials are conscious of the time it takes for changes in financial conditions to work into the real economy. Recent weeks have seen increases in loan delinquencies and other signs of household stress, while there was also worry about the amount of corporate debt that needs to be refinanced, and the trouble that could cause companies if rates are unaffordable.The Fed’s “soft landing” scenario won’t be assured unless the central bank, as Powell noted, doesn’t “hang on too long” to its current restrictive policy.”We’re aware of the risk,” Powell said last week.WILL THE GOOD NEWS CONTINUE?Powell also said he thought some of the forces working in the Fed’s favor, particularly supply improvements, have “some ways to run.”Inflation for the past half year has only been about 2.5%, with strong arguments for it continuing to fall.In the Fed’s most recently released policy documents, officials tucked in a subtle statement about their faith in the economy’s return to normal. An index of risk sentiment fell towards a more balanced view, with inflation even seen by a number of officials as more likely to fall faster than to move higher. More

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The financial world has been debating if market appetite for buying U.S. debt is near a limit. The ramifications for funding government priorities are immense.Typically, the esoteric inner workings of finance and the very public stakes of government spending are viewed as separate spheres.And bond trading is ordinarily a tidy arena driven by mechanical bets about where the economy and interest rates will be months or years from now.But those separations and that sense of order changed this year as a gargantuan, chaotic battle was waged by traders in the nearly $27 trillion Treasury bond market — the place where the U.S. government goes to borrow.In the summer and fall, many investors worried that federal deficits were rising so rapidly that the government would flood the market with Treasury debt that would be met with meager demand. They believed that deficits were a key source of inflation that would erode future returns on any U.S. bonds they bought.So they insisted that if they were to keep buying Treasury bonds, they would need to be compensated with an expensive premium, in the form of a much higher interest rate paid to them.In market parlance, they were acting as bond vigilantes. That vigilante mindset fueled a “buyers’ strike” in which many traders sold off Treasuries or held back from buying more.The basic math of bonds is that, generally, when there are fewer buyers of bonds, the rate, or yield, on that debt rises and the value of the bonds falls. The yield on the 10-year Treasury note — the benchmark interest rate the government pays — went from just above 3 percent in March to 5 percent in October. (In a market this large, that amounted to trillions of dollars in losses for the large crop of investors who bet on lower bond yields earlier this year.)Since then, momentum has shifted to a remarkable degree. Several analysts say some of the frenzy reflected mistimed and mispriced bets regarding recession and future Federal Reserve policy more than fiscal policy concerns. And as inflation retreats and the Fed eventually ratchets down interest rates, they expect bond yields to continue to ease.But even if the sell-off frenzy has abated, the issues that ignited it have not gone away. And that has intensified debates over what the government can afford to do down the road.Federal debt compared with the size of the U.S. economy neared peak levels during the pandemicFederal debt held by the public — the amount of interest-generating U.S. Treasury securities held by bondholders — relative to gross domestic product

Note: Gross federal debt held by the public is the sum of debt held by all entities outside the federal government (individuals, businesses, banks, insurance companies, state governments, pension and mutual funds, foreign governments and more.) It also includes debt owned by the Federal Reserve.Source: Federal Reserve Bank of St. LouisBy The New York TimesUnder current law, growing budget deficits increase the amount of debt the federal government must issue, and higher interest rates mean payments to bondholders will make up more of the federal budget. Interest paid to Treasury bondholders is now the government’s third-largest expenditure, after Medicare and Social Security.Powerful voices in finance and politics in New York, Washington and throughout the world are warning that the interest payments will crowd out other federal spending — in the realm of national security, government agencies, foreign aid, increased support for child care, climate change adaptation and more.“Do I think it really complicates fiscal policy in the coming five years, 10 years? Absolutely,” said the chief investment officer for Franklin Templeton Fixed Income, Sonal Desai, a portfolio manager who has bet that government bond yields will rise because of growing debt payments. “The math doesn’t add up on either side,” she added, “and the reality is neither the right or the left is willing to take sensible steps to try and bring that fiscal deficit down.”Fitch, one of the three major agencies that evaluate bond quality downgraded the credit rating on U.S. debt in August, citing an “erosion of governance” that has “manifested in repeated debt limit standoffs and last-minute resolutions.”Yet others are more sanguine. They do not think the U.S. government is at risk of default, because its debt payments are made in dollars that the government can create on demand. And they are generally less certain that fiscal deficits played the leading role in feeding inflation compared with the shocks from the pandemic.Joseph Quinlan, head of market strategy for Merrill and Bank of America Private Bank, said in an interview that the U.S. federal debt “remains manageable” and that “fears are overdone at this juncture.”Samuel Rines, an economist and the managing director at Corbu, a market research firm, was more blunt — laconically dismissing worries that a bond vigilante response to debt levels could become such a financial strain on consumers and companies that it sinks markets and, in turn, the economy.“If you want to make money, yawn,” he said. “If you want to lose money, panic.”Interest payments for Treasuries have increased rapidlyFederal spending on interest payments to holders of Treasuries

Note: Data is not adjusted for inflation.Source: U.S. Bureau of Economic AnalysisBy The New York TimesThe debate over public debt is as fierce as ever. And it echoes, in some ways, an earlier time — when the term “bond vigilantes” first emerged.In 1983, a rising Yale-trained economist named Ed Yardeni published a letter titled “Bond Investors Are the Economy’s Bond Vigilantes,” coining the phrase. He declared, to great applause on Wall Street, that “if the fiscal and monetary authorities won’t regulate the economy, the bond investors will” — by viciously selling off U.S. bonds, sending a message to stop spending at its heightened levels.On the fiscal side, Washington reined in spending on major social programs. (A bipartisan deal had actually been reached shortly before Mr. Yardeni’s letter.) On the monetary side, the Federal Reserve began a new series of interest rate increases to keep inflation at bay.The Treasury bond sell-off continued into 1984, but by the mid-1980s, bond yields had come down substantially. Inflation, while mild compared with the 1970s, averaged about 4 percent in the following years, a level not tolerable by contemporary standards. Yet interest payments on government debt peaked in 1991 as a share of the U.S. economy and then declined for several years.That sequence of events may be an imperfect guide to the Treasury bond market of the 2020s.This time around, the Peterson Foundation, a group that pushes for tighter fiscal policy, has joined with policy analysts, former public officials and current congressional leaders to push for a bipartisan fiscal commission aimed at imposing lower federal deficits. Many assert that “tough questions” and “hard choices” are ahead — including a need to slash the future benefits of some federal programs.But some economic experts say that even with a debt pile larger than in the past, federal borrowing rates are relatively tame, comparable with past periods.According to a recent report by J.P. Morgan Asset Management, benchmark bond yields will fall toward 3.4 percent in the coming years, while inflation will average 2.3 percent. Other analyses from major banks and research shops have offered similar forecasts.In that scenario, the “real” cost of federal borrowing, in inflation-adjusted terms — a measure many experts prefer — would probably be close to 1 percent, historically not a cause for concern.Adam Tooze, a professor and economic historian at Columbia University, argues that current interest rates are “not a cause for action of any type at all.”At 2 percent when adjusted for inflation, those rates are “quite a normal level,” he said on a recent podcast. “It is the level that was prevailing before 2008.”In the 1990s, when bond vigilantes helped prod Congress into running a balanced budget, real borrowing rates for the government were hovering higher than they are now, mostly around 3 percent. Government yields were historically low before recent riseThe inflation-adjusted rate for the 10-year Treasury note, a key market measure of “real” government borrowing cost, jumped well above its 2010s levels this year.

Source: Federal Reserve Bank of ClevelandBy The New York TimesIn the broader context of the interest rate controversy, there is disagreement on whether to even characterize U.S. debt as primarily a burden.Stephanie Kelton, an economics professor at Stony Brook University, is a leading voice of modern monetary theory, which holds that inflation and the availability of resources (whether materials or labor) are the key limits to government spending, rather than traditional budget constraints.U.S. dollars issued through debt payments “exist in the form of interest-bearing dollars called Treasury securities,” said Dr. Kelton, a former chief economist for the U.S. Senate Budget Committee. She argues, “If you’re lucky enough to own some of them, congratulations, they’re part of your financial savings and wealth.”That framework has found some sympathetic ears on Wall Street, especially among those who think paying more interest on bonds to savers does not necessarily impede other government spending. While the total foreign holdings of Treasuries are roughly $7 trillion, most federal debt is held by U.S.-based institutions and investors or the government itself, meaning that the fruits of higher interest payments are often going directly into the portfolios of Americans.David Kotok, the chief investment officer at Cumberland Advisors since 1973, argued in an interview that with some structural changes to the economy — such as immigration reform to increase growth and the ranks of young people paying into the tax base — a debt load as high as $60 trillion or more in coming decades would “not only not be troubling but would encourage you to use more of the debt because you would say, ‘Gee, we have the room right now to finance mitigation of climate change rather than incur the expenses of disaster.’”Campbell Harvey, a finance professor at Duke University and a research associate with the National Bureau of Economic Research, said he thinks “there is a lot of misinformation” about current U.S. debt burdens but made clear he views them “as a big deal and a bad situation.”“The way I look at it, there are four ways out of this,” Mr. Harvey said in an interview. The first two — to substantially raise taxes or slash core social programs — are not “politically feasible,” he said. The third way is to inflate the U.S. currency until the debt obligations are worth less, which he called regressive because of its disproportionate impact on the poor. The most attractive way, he contends, is for the economy to grow near or above the 4 percent annual rate that the nation achieved for many years after World War II.Others think that even without such rapid growth, the Federal Reserve’s ability to coordinate demand for debt, and its attempts to orchestrate market stability, will play the more central role.“The system will not allow a situation where the United States cannot fund itself,” said Brent Johnson, a former banker at Credit Suisse who is now the chief executive of Santiago Capital, an investment firm.That confidence, to an extent, stems from the reality that the Fed and the U.S. Treasury remain linchpins of global financial power and have the mind-bending ability, between them, to both issue government debt and buy it.There are less extravagant tools, too. The Treasury can telegraph and rearrange the amount of debt that will be issued at Treasury bond auctions and determine the time scale of bond contracts based on investor appetite. The Fed can unilaterally change short-term borrowing rates, which in turn often influence long-term bond rates.“I think the fiscal sustainability discourse is generally quite dull and blind to how much the Fed shapes the outcome,” said Skanda Amarnath, a former analyst at the Federal Reserve Bank of New York and the executive director at Employ America, a group that tracks labor markets and Fed policy.For now, according to the Treasury Borrowing Advisory Committee, a leading group of Wall Street traders, auctions of U.S. debt “continue to be consistently oversubscribed” — a sign of steady structural demand for the dollar, which remains the world’s dominant currency.Adam Parker, the chief executive of Trivariate Research and a former director of quantitative research at Morgan Stanley, argues that concerns regarding an oversupply of Treasuries in the market are conceptually understandable but that they have proved unfounded in one cycle after another. Some think this time is different.“Maybe I’m just dismissive of it because I’ve heard the argument seven times in a row,” he said. More

Meanwhile, the Bank of Japan could finally hint at an end to its ultra-loose monetary policy. The road into 2024 for investors could be bumpy.Here’s your week ahead in markets from Lewis Krauskopf in New York, Kevin Buckland in Tokyo, Naomi Rovnick, Marc Jones and Amanda Cooper in London.1/ROLE REVERSAL        Speculation is rife the Bank of Japan (BOJ) may soon exit negative interest rates, again making it a global outlier as the focus at the Fed and others turns to when to cut rates.    A change likely won’t come as soon as the policy decision on Tuesday, but the BOJ meets again in January, and next week could be used to prepare the way for tightening.    That expected pivot, plus the Fed’s dovish tilt, has pushed the yen back to the stronger side of 141 per dollar for the first time since July.    A political scandal over suspected kickbacks could ironically provide a tailwind to ending easing, as Prime Minister Fumio Kishida clears his cabinet of pro-stimulus elements.    A reversal of politically unpopular yen weakness may help his sagging approval ratings, but the speed of yen strength could also be damaging. The Nikkei has lagged most other major stock indices this month.2INFLATION WANING?    Investors hope a key U.S. inflation gauge will show easing consumer price pressures, after the Fed signalled its campaign of interest rate hikes is ending and cuts may arrive next year.    The Dec. 22 release of November’s personal consumption expenditures (PCE) price index, which the Fed tracks, will be one of the last key pieces of data this year. Fed Chair Jerome Powell has said the historic tightening of monetary policy is likely over and discussion of rate cuts is coming “into view”.    Data on consumer confidence, as investors seek to gauge how much higher interest rates may be weighing on spending, is also due out. Whether the Fed has been able to engineer a soft landing for the U.S. economy is a key market theme as the calendar flips to 2024. 3/ GOLD STARGold is heading for its first annual increase since 2020, fuelled by a weaker dollar and by the view that interest rates and inflation are going one way and fast in 2024. Gold, which bears no interest, tends to perform better in an environment of falling real rates, those adjusted for inflation.Real U.S. 10-year yields have been rising non-stop since early 2022, but only turned positive in June, knocking gold back from a near-record. They are now at their highest in eight years, but this has been no barrier to gold vaulting above $2,000 an ounce. And yet the price is still some 20% below its inflation-adjusted all-time high above $2,500 in 1980.Investors are banking on a flurry of rate cuts next year, while political and economic uncertainty are on the rise – potentially heralding a sweet spot for gold investors. 4/ INFLATION NATIONUK inflation is running at more than double the Bank of England’s (BoE) 2% target. Latest data on Dec. 20 may confirm UK price pressures remain elevated compared to other major economies. The pound hit a three-month high against the euro this month after euro zone inflation dropped sharply, fuelling speculation the BoE will take longer to cut rates than the European Central Bank.But high rates could also tip the UK economy, which the BoE expects to flat-line in 2024, into recession, meaning sterling strength is not a one-way bet. The pound’s fate rests on whether the BoE keeps reacting to current inflation trends, or takes the longer-term view that economic weakness will dampen wages and prices. 5/DOWN THE NILEEgyptian President Abdel Fattah al-Sisi’s third straight election win should be officially confirmed on Monday. With little in the way of opposition, the former general has cruised this one, but faces a daunting list of challenges.War in Gaza is raging next door and Egypt is grappling with an economic crisis fuelled by near-record inflation and past borrowing sprees that mean its debt interest payments alone now eat up almost half the government’s revenues.Economists say that is unsustainable. At least $42.26 billion is due in 2024, including $4.89 billion to the International Monetary Fund.The first move after the election looks set to be another big currency devaluation. Egypt’s pound has already halved against the dollar since March 2022. A dollar now fetches about 49 Egyptian pounds on the black market versus an official rate of 31 pounds. FX forwards markets say the same. More