Economy

TOKYO (Reuters) – The dollar was under pressure on Thursday after the Federal Reserve’s latest economic projections indicated that the interest-rate hike cycle has come to an end and lower borrowing costs are coming in 2024.Both the euro and Japanese yen jumped in response, with the European Central Bank (ECB) preparing to announce its policy decision later on Thursday and the Bank of Japan coming up next week.Fed Chair Jerome Powell said at Wednesday’s Federal Open Market Committee (FOMC) meeting that the historic tightening of monetary policy is likely over, with a discussion of cuts in borrowing costs coming “into view.” Policymakers were nearly unanimous in their projections that borrowing costs would fall in 2024.”This is a huge development for markets as we head into the new year and provides much-needed clarity. And clarity in this instance meant risk-on,” said Matt Simpson, senior market analyst at City Index.The news from the FOMC meeting will likely overshadow upcoming economic data before personal consumer expenditures data is published next week, leaving room for “further downside potential for the US dollar,” he added.The U.S. dollar index, which measures the greenback against a basket of currencies, was last 102.87 after dipping as low as 102.77 overnight.Markets are now pricing in around a 75% chance of a rate cut in March, according to CME FedWatch tool, compared with 54% a week earlier. While recent economic releases have strengthened expectations that the Fed can achieve a soft landing for the U.S. economy, Powell kept open the option to act again if needed, noting that “the economy has surprised forecasters.”Market focus now shifts to a parade of central bank decisions, including the ECB and the Bank of England (BoE), Norges Bank and Swiss National Bank. With the ECB expected to hold rates steady, there will be more focus on forecasts for GDP and inflation, “and whether and how convincingly (ECB President Christine) Lagarde pushes back on pricing for cuts, with 100 (basis points) priced by September,” National Australia Bank (OTC:NABZY) Senior Economist Taylor Nugent wrote in a note.The euro was mostly flat at $1.0882 after surging on Wednesday. Sterling was last trading at $1.2623. The Norwegian central bank is considered to be the only bank that could potentially raise rates. There is also a risk the SNB could dial back its support for the Swiss franc in currency markets.Elsewhere, the yen sat significantly higher around 142.80 yen per dollar following the greenback’s overnight tumble. Expectations that the Bank of Japan (BOJ) could end negative interest rates at its monetary policy meeting on Dec. 18-19 caused the Japanese currency to jump last week, but those hopes have largely died down after Bloomberg reported on Monday that BOJ officials see little need to rush. Pressure will be on BOJ Governor Kazuo Ueda next week when he’s expected to keep alive prospects of an exit while dampening anticipation of an imminent move.In cryptocurrencies, bitcoin was up at $42,904. More

LONDON (Reuters) – The Bank of England looks set to keep interest rates at a 15-year high later on Thursday, but investors are most focused on whether policymakers will push back against growing market bets on a string of rate cuts next year.The BoE has held its main interest rate at 5.25% since August, after 14 back-to-back rate rises starting in December 2021, and Governor Andrew Bailey has repeatedly said rates will need to stay high “for an extended period”.With other central banks suggesting that cuts to borrowing costs are coming, the BoE has stuck to its hard line against such talk for Britain.While inflation is down from the 41-year high of 11.1% which it hit in October 2022, at 4.6% it is still more than double the BoE’s target, higher than in other rich countries, and forecast to fall only gradually over the next two years.However, data this week has come in weaker than expected, raising the possibility of a faster fall in inflation and that the BoE may have to change course sooner than it has suggested.Britain’s economy shrank by 0.3% in October, the first drop since July and one which suggests that it – like some countries in the euro zone – is at risk of recession.Wage growth also slowed more than expected – though at 7.3% in the three months to October, it is still close to the record high of 7.9% set over the summer and remains the principle source of the BoE’s inflationary angst.The central bank has finance minister Jeremy Hunt’s Nov. 22 budget update to consider too, which laid the ground for tax cuts in the run-up to a national election expected in 2024.Financial markets on Wednesday priced in a full percentage point of cuts by the BoE during 2024, with the first quarter-point reduction probably taking place in May.But this week’s soft economic data may not change the BoE’s view that returning inflation to its 2% target will be a slow job.Last month the central bank set out a gloomy prognosis for Britain’s economy: growth would be zero next year, but mismatches in the labour market created in part by COVID-19 and Brexit left it more vulnerable to persistent inflation than the United States or the euro zone. “Markets are going – ‘They’ve got to pivot’. I still think that’s premature and in some ways they have to be even more gung-ho about keeping rates in restrictive territory,” said Hetal Mehta, head of economic research at British investment manager St James’s Place. FED, BOE, ECB The BoE announcement at 1200 GMT will be sandwiched between those of the U.S. Federal Reserve, which on Wednesday signalled lower borrowing costs for 2024, and the European Central Bank, which is also expected to keep rates on hold at 1315 GMT.Markets see the Fed and ECB cutting interest rates earlier and faster than the BoE next year, largely because inflation is much nearer target in both the United States and the euro zone.The BoE has limited opportunity to fine-tune market rate expectations, as this month it has no quarterly forecast update or news conference scheduled.Indeed, some BoE policymakers have been making the case that rates still need to rise. Three of the BoE Monetary Policy Committee’s nine members voted for a quarter-point rate rise last month, and according to a Reuters poll of economists last week, they are likely to do so again.The only BoE policymaker to discuss the timing of a rate cut has been Chief Economist Huw Pill who shortly after November’s decision said the market expectation then for a first rate cut in August 2024 “doesn’t seem totally unreasonable”.Two days later, Bailey said it was “really too early” to discuss when rates might be cut.”The trend we’ve seen lately is that central bankers want to carry on talking tough until they are ready,” said Isabel Albarran, Investment Officer at Close Brothers Asset Management. “But it’s quite common that they cut rates at a more rapid clip than they raise them.” More

LONDON (Reuters) – Britain’s property market saw some recovery in November as a surge in mortgage rates eased, but surveyors remain cautious about the year ahead, an industry survey showed on Thursday, adding to other signs of a stabilisation in the market.The Royal Institution of Chartered Surveyors (RICS) said its measure of new buyer enquiries rose to a net balance of -14 last month from upwardly revised -25 in October. November’s reading was the least weak since +1 in April last year.A gauge of agreed sales ticked up to a net balance of -11% in November, up from -23% in October.Simon Rubinsohn, chief economist at RICS, said buyer enquiries were stabilising amid expectations that interest rates had peaked.However, surveyors were still cautious over the downbeat outlook for Britain’s flat-lining economy and the prospect of borrowing costs remaining elevated for some time. The Bank of England is expected to hold interest rates at a 15-year high of 5.25% on Thursday. Investors are almost certain that borrowing costs have peaked but BoE officials say it is too early to cut rates because inflation is not yet quashed.The signs of improvement in RICS’ survey echoed recent data from mortgage lenders Nationwide and Halifax which showed month-on-month rises in house prices after a run of falls.The RICS house price balance – measuring the gap between the share of surveyors seeing rises and those seeing falls – rose to -43, up from a revised reading for October of -61.A Reuters poll of economists had pointed to a much smaller recovery to -57.Survey respondents expected prices to face further downward pressure in the next three months but to be broadly stable in the year ahead. The outlook for sales activity in the year ahead was the most upbeat since January last year. In the lettings market, demand continued to rise although at the slowest pace since January 2021 and rents are projected to rise by around 4% over the year to come. More

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BRASILIA (Reuters) -Brazil’s central bank lowered its benchmark interest rate by 50 basis points on Wednesday for the fourth time in a row and signaled that it would keep cutting rates at that pace beyond its next meeting in January.Despite acknowledging cooling inflation and improvements in the global economy, the central bank held a steady outlook for its next steps, frustrating some economists who expected policymakers to open the door for bigger rate cuts.The bank’s rate-setting committee, known as Copom, unanimously lowered the Selic policy rate to 11.75%, in line with the forecast of all 41 economists polled by Reuters.The widely expected rate cut followed easing inflation, which the central bank recognized in its policy statement. “Headline consumer inflation, as expected, remains on a path of disinflation, and various measures of underlying inflation are closer to the inflation target in recent releases,” wrote policymakers.In the 12 months through November, inflation slowed to 4.68%, falling within the range of 1.75% to 4.75% targeted by the central bank for the year, but above the 3.25% center of the target. Still, Copom’s statement signaled a steady pace for rate cuts ahead, adding that board members “unanimously anticipate further reductions of the same magnitude in the next meetings.””The statement was conservative considering the changes we’ve seen in the scenario from the last meeting until now. There could be room for a larger cut in the short term,” said Rafaela Vitoria, chief economist at Banco Inter, who forecasts 50 basis point reductions at each meeting until May. Daniel Cunha, chief strategist at BGC Liquidez, maintained his forecast for rates to end the easing cycle at 9.75%, emphasizing that the statement shows a “prudent and conservative” central bank, “choosing not to incur the risk of attracting additional volatility.” Central bank chief Roberto Campos Neto had previously indicated that policymakers saw no benefits in signaling future policy actions beyond their next meeting in January, for which they had already flagged another cut of 50 basis points.In public remarks, he called for caution in analyzing variables such as perceptions of a more challenging global outlook and progress in Congress on measures to stabilize the country’s public finances. President Luiz Inacio Lula da Silva’s government has stuck to a goal of erasing its primary deficit in next year’s budget bill, but several measures aimed at hitting that ambitious target still require approval from Congress.Following the U.S. Federal Reserve’s decision on Wednesday to hold rates and signal lower borrowing costs next year, Copom said the global environment “remains volatile and is less adverse than in the previous meeting.” More

FRANKFURT (Reuters) – The European Central Bank faces a difficult balancing act on Thursday as it likely slashes its forecasts for growth and inflation while trying to temper speculation about imminent interest rate cuts. The ECB is certain to leave borrowing costs at record highs, with the only possible policy change relating to the end of its last surviving bond-buying scheme – a legacy of the COVID-19 pandemic.But the central bank’s last meeting of the year will be anything but dull, with President Christine Lagarde under pressure to defend or ditch her guidance that rates will stay where they are for the next couple of quarters.Investor expectations now point to a first rate cut in the spring, which may make the ECB the first major central bank to reverse course after a global, concerted effort to bring down inflation since mid-2022.Lagarde is likely to push back against rate-cut bets after it took the ECB a year and a half, and 10 straight hikes, to steer inflation onto a convincing downward path. “We expect the ECB to acknowledge that inflation has declined more rapidly than expected but to be coy about declaring victory prematurely,” Deutsche Bank economists said.The Federal Reserve also signalled late on Wednesday that lower borrowing costs are coming next year, which may make any ECB pushback even harder. Lagarde will find little support in the ECB’s updated economic projections which are expected to downgrade both inflation and GDP forecasts, particularly for next year, bringing them closer to consensus estimates.Economists polled by Reuters see prices in the euro zone growing by 2.5% in 2024, 2.1% in 2025 and 2% in 2026 – closing in on the ECB’s target after an outsized 5.5% increase this year. The trouble for Lagarde and her Governing Council colleagues is that the ECB’s projections have often been wide of the mark – most significantly in 2021, when the central bank failed to anticipate the surge in inflation.”Given the track record of the last few years, the central bank simply can’t afford to anticipate what might happen, it will have to wait until it happens,” ING economist Carsten Brzeski said.Influential ECB board member Isabel Schnabel set the tone last week, when she took further interest rate hikes off the table given a “remarkable” fall in inflation.Lagarde is expected to echo her argument that policymakers should not guide for rates to remain steady through mid-2024, but instead focus on economic data.”We expect a clear shift of tone to emerge, with data dependency of any upcoming decision even more stressed than in the past,” Natixis economist Dirk Schumacher said.Money-market traders are betting on a possible reduction in borrowing costs as early as March and a slim majority of economists polled by Reuters think it will come by June.The Fed was also expected to cut in March or May at the latest.BOND RALLYThose expectations have been brought forward since November’s weaker-than-expected inflation data and Schnabel’s comments to Reuters. The ensuing bond rally has eased financing conditions, the opposite effect to the one the ECB has been trying to achieve via higher rates.But there is a silver lining. It should now be easier for the ECB to decide on the future of its Pandemic Emergency Purchase Programme.This was due to run until the end of next year but several policymakers have called for an earlier exit given bond markets show no sign of pandemic-era stresses.The ECB is likely to discuss whether to stop replacing bonds that mature although it could defer a decision until early next year.Anatoli Annenkov, an economist at Societe Generale (OTC:SCGLY), said the ECB may cap reinvestment at 10 billion euros ($10.8 billion) from March or April – down from 15-20 billion euros – with a view to ending purchases altogether by mid-year.($1 = 0.9268 euros) More

BUENOS AIRES (Reuters) – Argentina’s annual inflation rate hit 161% in November, faster than expected and the highest monthly figure this year, laying bare the daunting challenges new President Javier Milei faces in navigating the country’s turbulent economic waters.The data is the first inflation readout since Milei took office last Sunday, promising to right Argentina’s flailing economy, including sky-high consumer prices that have sapped residents’ purchasing power and fueled rising poverty.Inflation is expected to climb faster in the months ahead after Milei’s government devalued the peso over 50% this week, part of a wider shock package he hopes will eventually stabilize the economy that’s mired in its worst crisis in decades.”This skyrocketing inflation is going to be tough for people,” said 46-year-old bricklayer Eduardo Casado as he worked in a home in Buenos Aires on Wednesday.”Last week I bought two kilos of potatoes for 800 pesos and this week it cost almost 1,200 pesos. I don’t know if next week we’ll be able to afford to buy the same groceries.”The monthly inflation was rate 12.8% in November alone, statistics agency INDEC said on Wednesday, above a Reuters poll that had expected an 11.8% monthly bump. That was a steep jump from an 8.3% rise in October.Milei took office promising a sharp, painful fiscal shock to fix Argentina’s economic crisis, and on Tuesday his government announced an initial policy push that includes a more than 50% devaluation of the local peso currency plus sharp spending cuts.Those measures, however, could supercharge inflation even higher in the near-term, with Milei having warned of tough times ahead and monthly inflation of 20-40% in the months ahead.Latin America’s No. 3 economy has been battling a prolonged economic crisis that has steadily eroded the value of the local currency while plunging two-fifths of the population into poverty.Casado, the bricklayer, said work was complex because prices of materials were constantly changing and it was hard to get by.”It’s been a while since we’ve been making ends meet,” he said, adding though that he was supportive – for now – of the government’s austerity measures, which he hoped could help.”I want to believe prices are going to slow down at some point.” More

This article is an on-site version of our Disrupted Times newsletter. Sign up here to get the newsletter sent straight to your inbox three times a weekToday’s top storiesThe Federal Reserve is widely expected to hold rates steady at a 22-year high when it announces its latest monetary policy decision at 2pm EST.German media group Axel Springer will allow OpenAI to train artificial intelligence models using content from its titles in a landmark deal for the global media industry.Mark Drakeford, the first minister of Wales, announced his resignation as leader of the country’s ruling Labour party, sparking a leadership contest ahead of the UK general election expected next year.For up-to-the-minute news updates, visit our live blogGood evening and welcome. I’m taking a turn in the DT chair while Darren continues a well-deserved end-of-year break.A deal was finally reached between this month’s COP28 attendee countries (albeit a day after an agreement was due), and it was a momentous one, pledging to transition away from fossil fuels to keep the 2050 net-zero target alive. The “global stocktake” text was no mean feat given that summit host United Arab Emirates is one of the biggest oil and gas-producing nations — COP28 president Sultan al-Jaber’s description of the deal as “historic” felt for once like an official giving a measured description of events. Now the really hard work begins.Countries will now be tasked with setting “ambitious, economy-wide” targets for emission cuts for all greenhouse gases over the next two years, taking into account the agreement on fossil fuels.A previous draft document caused outrage among European, Latin American and vulnerable island states after it dropped all references to phasing out fossil fuels and offered an “à la carte menu” of options countries “could” take. The final text was still not to the approval of Anne Rasmussen, lead negotiator for Samoa. “We see a litany of loopholes,” she said. “We cannot afford to return to our islands with the message that this process has failed us.” The FT’s reporters in Dubai round up the reaction to the deal.Developed nations will need to offer more support to help everyone meet their climate-related obligations. Simon Mundy notes in his Moral Money newsletter (sign up here if you are a Premium subscriber) that the final text made clear that climate finance — both to restrain climate change, and to respond to its impacts — will “need to increase manyfold”.Western governments also need to make it easier for industry to cut its carbon footprint. The Biden administration should untangle the red tape US companies face when trying to decarbonise their operations, writes US financial editor Brooke Masters.So a moment of relief, but perhaps save the champagne for Christmas. The FT view is that the COP28 deal is better than feared, but less than needed.Need to know: UK and Europe economyStagnation nation fears have resurfaced for the UK following a surprise drop in economic activity in the latest monthly GDP figures. The official report makes for grim reading, with declines in all three main sectors of the economy, fuelling concerns about the impact of recent sharp increases in the cost of living.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The figures come a day after official numbers pointed to a softening labour market. Average pay growth grew 7.3 per cent excluding bonuses, or 7.2 per cent including them — a bigger than expected fall from a summer peak of 8.5 per cent.Britain desperately needs a growth strategy, writes chief economics commentator Martin Wolf, since the country is suffering from a poisonous combination of stalled productivity and high inequality.Paul Dales, chief UK economist at Capital Economics, said the surprisingly bad GDP numbers “may nudge the Bank of England a little closer to cutting interest rates”, though the BoE is expected to stick with the current 15-year high of 5.25 per cent when it announces its last interest rate decision of the year tomorrow. However, asset managers are snapping up sterling as expectations grow that the UK will be slower than other countries at easing up on the monetary policy pedal.Talking of rate movements, the European Central Bank will also make its last monetary policy decision of the year tomorrow. Doves looking for the start of a rate-cutting cycle now that inflation is at last falling will probably be disappointed here too. As FT economics commentator Chris Giles writes in his latest (Premium subscriber) central banks newsletter, the last mile is the hardest.Need to know: Global economyHigh interest rates and record debt levels risk ramping up debt servicing costs among some of the world’s poorest nations to “crisis” levels, according to the World Bank. Indermit Gill, the World Bank Group’s chief economist, said: “Every quarter that interest rates stay high results in more developing countries becoming distressed — and facing the difficult choice of servicing their public debts or investing in public health, education and infrastructure.”Meanwhile, US mortgage rates have fallen to their lowest level since July, in a sign that the economy is cooling. The 30-year fixed-rate mortgage fell to 7.07 per cent during the week ending December 8, from 7.17 per cent the previous week, the Mortgage Bankers Association said today. The 30-year rate was last at 7.07 per cent in early July.Argentina’s new libertarian government has announced that it will devalue the peso by about half, slash public spending and reduce energy and transport subsidies to contain the country’s economic crisis and spiralling inflation.Need to know: BusinessTesla has announced it will fix software for more than 2mn cars to improve safeguards in its Autopilot driver-assistance system after an investigation by US safety regulators following a series of fatal accidents.The shoe dropped for Zara owner Inditex, which reported a slowdown in sales growth, underscoring worries about weakening consumer spending in the fashion sector. Climate change may also have played a part, with analysts expressing concern that sales had been hampered by warm weather in the company’s key southern Europe region, meaning people were less likely to switch to winter purchases.Entain’s chief executive Jette Nygaard-Andersen has stepped down with immediate effect. It follows Financial Times reports that the UK bookmaker had three US activist funds among its top-20 shareholders and there was internal unrest over the Danish executive’s management of the company.British regulators plan to reintroduce a cap on card fees imposed on transactions between the UK and EU, in a blow to the Visa and Mastercard duopoly that raised charges on businesses more than fivefold since Brexit.Metro Bank has quietly shelved plans for risk models that it said previously would turbo-charge its profitability. The challenger had planned to lobby the Bank of England to use its own internal calculations to model for risk, but has halted this strategy, according to people familiar with the situation.Concerns have increased further about the financial health of Thames Water, with revelations that more than £1bn in debt repayments will come due during the next year, according to financial accounts filed last month.And is the party over for the world’s most profitable law firm? Read the Big Read about Kirkland & Ellis to find out.The World of WorkNobody joins the hospitality sector for a 9 to 5 work schedule, high pay or a stress-free life. But since the double shock of Brexit and the pandemic, the industry has had to become more flexible, both to recruit and retain good staff and raise morale. The FT’s Caroline Bullock asked several hospitality bosses to share their tips.More than 485,000 American workers went on strike in 2023 as US unions launched an estimated 317 work stoppages, more than any time in the past two decades, according to an analysis by Bloomberg Law. Labour organisers believe the political momentum has shifted in their direction after years of decline. But are they overplaying their hand?Some good newsBangladeshi home minister Asaduzzaman Khan Kamal, right, visits the country’s first batch of female firefighters at a training centre near Dhaka More