Economy

(Reuters) -U.S. stock index futures were lackluster on Monday in the run-up to an action-packed week that includes the Federal Reserve’s interest rate meeting and inflation data, both of which will test investor optimism about a soft landing for the economy. The upbeat sentiment around stabilizing interest rates and robust quarterly earnings caused equities to rebound towards the end of the year, with the benchmark S&P 500 within hailing distance of its highest intra-day level of the year at 4,607.07 points, earlier hit in July. The S&P 500 and Nasdaq also notched their highest closing since early 2022 on Friday, after data showed nonfarm payrolls were higher than expected, underscoring hopes that the world’s largest economy could control inflation without slipping into recession. Focus now shifts to the Consumer Price Index (CPI) data due on Tuesday, which is expected to show headline inflation remaining unchanged in November, and the Fed’s last interest rate decision of the year, due on Wednesday.While money markets have almost fully priced in a rate-hike pause in the upcoming meeting, bets of a rate cut next year have been seeping in, with traders seeing a 40.2%% chance of at least a 25-basis-point cut in March 2024 and a 50.6% chance in May, according to the CME Group’s (NASDAQ:CME) FedWatch tool. However, analysts say markets have pinned their hopes on an overly optimistic scenario. “We think that the market is right not to expect a rate hike in December, but too many rate cuts are discounted next year in the market,” said RBC Wealth Management’s Frédérique Carrier, head of investment strategy in the British Isles.”There are some signs that the labor market might be losing steam a bit, but there isn’t that weakness, which in our view, would be necessary for the Fed to be a lot more aggressive in its rate cuts.”Elsewhere, the European Central Bank and the Bank of England, among others, are also scheduled to deliver their interest rate decisions later this week. Pressuring futures tracking Nasdaq, megacap stocks, including Alphabet (NASDAQ:GOOGL), Tesla (NASDAQ:TSLA) and Amazon.com (NASDAQ:AMZN), edged lower between 0.3% and 0.9% before the bell. At 7:13 a.m. ET, Dow e-minis remained unchanged, S&P 500 e-minis were down 2.5 points, or 0.05%, and Nasdaq 100 e-minis were down 20.25 points, or 0.13%.Among other movers, Macy’s (NYSE:M) soared 18.3% after an investor group consisting of Arkhouse Management and Brigade Capital made a $5.8 billion offer to take the department store chain private, according to a source familiar with the matter. Peers Kohl’s (NYSE:KSS) and Nordstrom (NYSE:JWN) also rose about 4.5% and 3.2%, respectively. Cigna (NYSE:CI) jumped 11.9% after the health insurer ended its attempt to negotiate an acquisition of rival Humana (NYSE:HUM), according to sources, and announced plans to buy back $10 billion worth of shares.Crypto stocks like Riot Platforms (NASDAQ:RIOT), Coinbase (NASDAQ:COIN) and Marathon Digital (NASDAQ:MARA) slid between 3.3% and 5.0% as bitcoin fell to a week’s low. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Trade Secrets newsletter. Sign up here to get the newsletter sent straight to your inbox every MondayWelcome to the penultimate Trade Secrets newsletter of 2023. Next week I’ll do a review of the year, immediately creating a hostage to fortune that something will pop up in the remaining two weeks of December to change the narrative. (It’s happened before, in fact twice in the same year.) Speaking of struggling negotiations, today I’m having a look at the politics surrounding the EU-China summit, and also dip my toe into the turbid waters at the WTO and ask where those talks on controlling fisheries subsidies have got to. Charted Waters shows how Russia has bypassed G7 controls on its oil exports.Get in touch. Email me at [email protected] has trade and trust deficits with ChinaIt’s been a while now since anything like a solid outcome (the ghastly term “deliverable” is banned round here, sorry) has been teed up at an EU-China summit. Last week’s low-key meeting in Beijing didn’t produce any. Over the past five or six years, the relationship has followed an arc from hope towards disappointment and mutual suspicion.Noah Barkin at the German Marshall Fund nicely frames the EU’s failing hopes of a mutually constructive trade partnership since 2017 through the classic five stages of grief — denial, anger, bargaining, depression and acceptance — though that cycle is taking longer to complete for some (Emmanuel Macron) than others (Ursula von der Leyen).China continues to shed allies in the EU thanks to its perceived pursuit of unfair trade, whose latest manifestation is the coming wave of electric vehicles to the European market. Giorgia Meloni, proving that not all flavours of Italian right-wing populism are the same, last week ended the country’s membership of China’s Belt and Road Initiative, which was agreed in 2019 by Italy’s then coalition government of the Five Star Movement and the League. Affection for Moscow among EU politicians has often been accompanied by softness on Beijing, but Geert Wilders, whose hard-right PVV party came top in the recent Dutch election, manages to combine his notorious record as a Vladimir Putin fan-boy with antagonism to China.Von der Leyen’s moderate framing of “de-risking” from China is intellectually neat but won’t necessarily prevent heavy-handed confrontation. It’s not good that Brussels has picked up the economically illiterate US talking point of focusing on China’s bilateral surplus with the EU in the context of trade policy (current account imbalances are mainly about policy on macro, not trade, and anyway the EU as a whole is heading back into trade surplus). The anti-subsidy investigation into EVs, which initially looked set to produce only modest tariffs of around 10 per cent, could be calibrated upwards by finding a higher degree of injury to EU producers or adding an anti-dumping action.The most important factor for EU-China wasn’t openly discussed at the summit and isn’t even currently in power: Donald Trump. A second Trump term will no doubt be incredibly aggressive on trade in wildly unpredictable ways. Unlike Joe Biden, Trump has a serious animus against the EU as well as China. Brussels doesn’t want to ally itself so strongly with the US that it follows Trump into some crazed trade war against Beijing, but Trump might also flip and try to do one of the deals he seems to enjoy with fellow strongmen, in this case Xi Jinping. The EU and China could end up implicit allies against Trump, or rivals for his favour, or both. No wonder the Brussels-Beijing relationship’s in a holding pattern for the moment.A WTO fisheries deal is starting to flounderLast week was “Fish Week at the WTO”, and that should be a phrase to gladden anyone’s sole (sorry). In reality — and bearing in mind this was the eighth Fish Week of 2023 — it wasn’t a jolly affair.WTO members have been searching with increasing desperation for something that can be presented as a success at February’s big meeting of ministers in Abu Dhabi. Fleshing out the interim deal from the previous ministerial in 2022 to reduce damaging fisheries subsidies was a possible. But this reckoned without the dysfunctionalities of the WTO negotiating process. Last week the talks made little progress. Former WTO staffer Peter Ungphakorn, who has followed this issue closely, has all the detail here. Typically for the WTO, India is one of the biggest obstacles. In 2022 it sought to weaken the agreement by punching huge loopholes for developing countries like itself and for supposedly small-scale “artisanal fishing”, its definition of which is exceedingly elastic. More recently it has published proposals seemingly seeking to reopen some issues supposedly already settled.It is now seriously unlikely there will be a more complete subsidies deal for ministers to sign off in February. In fact even the interim deal isn’t in effect yet, 18 months after signing. Only about half the number of WTO members needing to ratify it before it starts to apply have done so. Even a soi-disant WTO enthusiast like the UK is only just getting round to it. India hasn’t either, though landlocked Switzerland and Botswana have, so that’s good.The fishing subsidies agreement hitting a stalemate would be a real shame. Overfishing is one of the canonical global market failure problems of negative externalities (carbon emissions being another obvious one) which we should have international rules to fix. The WTO isn’t the only or even the obvious place to create them, since this is about environmental stewardship rather than international commerce as such. But it would be an excellent way of repurposing the organisation to fix global issues where it does have rules and expertise, namely trade-distorting subsidies. Fingers and fins crossed for progress soon, but this isn’t going well.Charted watersFurther to the issues of Russian oil exports evading the G7 price cap that I wrote about in last week’s Trade Secrets column, my FT colleagues have done a terrific piece on just how those controls have been bypassed. This chart shows how Russia constructed a “shadow fleet” of oil tankers outside the G7’s control.Trade linksIn an interview with the FT, EU trade commissioner Valdis Dombrovskis sounds bullish and determined about getting the Mercosur deal done despite France’s objections.Bloomberg reports the EU is considering restarting its suspended WTO case against the US over steel tariffs, now that negotiations permanently to drop them are going to drag on for years. This sounds aggressive but might be compatible with the Trade Secrets house view (held also by other wise folk) that Brussels should avoid bringing the issue to a head before next year’s presidential election. The US can simply put any adverse WTO ruling into limbo by appealing to a non-existent appellate body, and get to look defiant standing up for American interests against overbearing foreign judges.Speaking of that dispute, if you want to read more folks from the Washington DC Democratic establishment quixotically trying to convince the EU that Biden’s green steel club is good for the environment and for the WTO, you can do so here. (Another attempt is here.)Alicia García-Herrero, chief economist for the Asia-Pacific at the investment bank Natixis and senior research fellow at the Bruegel Institute, argues in the FT that creeping renminbisation of the global financial system is progressing faster than you think.A great and disturbing long read from the FT’s Yuan Yang about the price paid by a labour standards whistleblower in China.Rick Scott, a Republican senator from Florida, has caused much innocent merriment among trade folk with his contention that imported Chinese garlic is a threat to US national security. This is, of course, where excessive use of the national security loophole to bypass trade commitments ends up.Trade Secrets is edited by Jonathan MoulesRecommended newsletters for youEurope Express — Your essential guide to what matters in Europe today. Sign up hereChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. 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Markets are confused over the risk of a recession hitting the U.S., and “somebody has got it wrong,” according to hedge fund manager David Neuhauser.
Falling oil prices and rising gold prices indicate growing recessionary fears — but 10-year Treasury yields jumped on Friday amid hopes of a soft landing.
The CIO of Livermore Partners said: “Somebody has it wrong here, is what I’m trying to tell you. … It’s hard to describe who has it [wrong] yet.”

Markets are confused over the odds of a U.S. recession, and “somebody has got it wrong,” according to hedge fund manager David Neuhauser.
The CIO of Livermore Partners told CNBC on Monday that many investors are hoping for a “Goldilocks” scenario, in which the economy doesn’t grow too quickly, or shrink too much.

“The outlook was, of course, that the Fed’s going to look to be cutting rates because they see a soft landing approaching. And it looks like, on the surface, it is,” he told “Squawk Box Europe.”
Recent jobs data and inflation figures have boosted hopes that a recession can be avoided in the U.S. Nonfarm payrolls outpaced expectations in November, and inflation figures for October also beat estimates, with consumer prices coming in flat on the previous month and up 3.2% from a year prior.
“But at the same time, underneath the surface, you’re seeing a lot of cracks,” Neuhauser added.
He identified weakness in the U.S. consumer and the global economy — China in particular — and in the fact that inflation numbers remain stubbornly high in a number of countries.
“It looks like the U.S. is the best spot to be in, and I think that today that’s true. Except I think that [the] forward path — are we going to see things start to fall off a cliff? Or are we going to, sort of, glide path down and corporate earnings are going to be sheltered from the storm?” he said.

“That’s the thing, I think, people don’t have a really good understanding of today, but they’re believing that that’s going to happen — that’s the narrative.”
Oil and gas markets, which Livermore Partners is invested in, are “telling a whole different story” when it comes to the economic outlook, according to Neuhauser.
“When you look at the oil … and you look at the gold market, that’s telling you recession is in the front,” he said. “But when you read the tea leaves in terms of what analysts are saying, economists are saying as far as the U.S. economy — that the soft landing is approaching. That’s what, actually, the 10-year [Treasury yield] is telling you.”
Brent crude futures with February expiry were trading around $75.67 per barrel early Monday, down over 20% from their peak of around $97 per barrel in September.
Spot gold prices have soared from their early October lows of around $1,810 per ounce. The commodity was trading around $1,991 an ounce Monday, off a record high above $2,100 per ounce seen last week.
Both falling oil prices and rising gold prices indicate growing recessionary fears. At the same time, heightened expectations of a soft landing (following the strong jobs data) saw 10-year Treasury yields jump Friday. The 10-year yield was hovering around 4.254% early Monday.
“Somebody has it wrong here, is what I’m trying to tell you,” Neuhauser added. “It’s hard to describe who has it [wrong] yet. So I’m just really waiting and seeing to decipher what’s the right path to take.” More

NEW YORK (Reuters) – Bond investors are expecting the Federal Reserve this week to temper the market’s conviction that U.S. interest rates will be cut early next year, even as portfolios get positioned for lower yields later in 2024.Many portfolio managers have reduced long-duration bets to be more neutral on their bond positions, at least in the short term. Going long duration against a benchmark reflects expectations U.S. yields will fall because the Fed will cut rates.Investors widely expect the Fed to hold interest rates steady on Wednesday but do not expect it to signal a shift from its tightening policy stance. According to a Reuters poll of economists, the Fed will keep rates unchanged until at least July, later than earlier thought.In contrast, federal funds futures, the most straightforward measure of determining where traders believe the Fed’s benchmark overnight rate will be at any given time, lowered the odds of a rate cut in March on Friday, pricing in about a 46% chance, from 64% a week ago following a stronger-than-expected U.S. payrolls report.Futures traders still saw a 79% chance in May, according to the CME’s FedWatch, but that was also down from 90% a week earlier.Fed Chair Jerome Powell had said, in a Dec. 1 speech, that while the target rate is “well into restrictive territory,” the Fed is prepared to tighten policy further if deemed appropriate.”There’s a real disconnect between what the Fed says and what they would like to see in terms of tighter financial conditions and what the market is doing,” said John Velis, head of U.S. macro strategy, at BNY Mellon (NYSE:BK) in New York.”What that means is that Dec. 13 is going to be a hawkish meeting. I don’t think the Fed will announce a pivot. You may see the dots push back against market pricing for early rate cuts,” referring to the Fed’s closely followed dot plot, which comes out four times a year and graphs policymakers’ rate projections.Recent U.S. economic numbers have shown a resilient economy despite aggressive rate hikes since March last year.Friday’s U.S. non-farm payrolls, for example, showed a still-robust labor market, creating 199,000 new jobs in November, beating consensus expectations and rising from the previous month. The unemployment rate also slipped to 3.7%.U.S. inflation is slowing but is still a ways away from the Fed’s 2% inflation target. BIG BOND RALLYWith investors anticipating Fed rate cuts, investors bought Treasuries, pushing 10-year yields 78 basis points (bps) lower since November, and two-year yields down roughly 49 bps.The rapid decline in yields has made “financial conditions looser than they otherwise would have been,” said James Camp, managing director of fixed income and strategic income, at Eagle Asset Management.That was a reversal from late October when the 10-year yield hit 5%. Market participants reckoned at the time that the Fed may not be as aggressive in raising rates because the bond market was doing the job for them by pushing yields higher.”We now have the mirror opposite of that,” Camp said. “It’s going to be interesting to see if there’s a hawkish dialogue from the Fed because I think they need to do that if they really want the economy to continue to slow.”FROM LONG TO NEUTRAL, FOR NOWWith asset managers betting on “higher-for-longer” rates at least until the summer, their portfolios have become more neutral or closer to their benchmark, from being long duration.Duration, expressed in years, measures how much a bond’s price will move when the Federal Reserve changes interest rates. “We were at the longest duration a couple of weeks ago,” said Andrew Szczurowski, head of agency mortgage-backed securities and portfolio manager at Morgan Stanley Investment Management.Szczurowski said with the 80-90 basis point drop in yields, “we’re getting closer to neutral.”The ultimate goal, however, is still to extend duration as the Fed will eventually cut rates. When the Fed embarks on an easing cycle, longer-duration securities tend to rally.”We see the beginnings of recession actually hitting in the second quarter and we expect the Fed to cut at the back half of the year,” said Eagle’s Camp. More

Of 27 respondents, 15 economists predict that Norges Bank will keep rates on hold at 4.25% on Dec. 14, while the remaining 12 participants forecast a hike to 4.50%.Markets are only pricing in a 10-15% chance of a hike, however, analysts said, as a dip in November inflation added to other recent weakness in the economy.The central bank last month kept its benchmark interest rate on hold and said it would likely raise the cost of borrowing in December unless its monetary policy makers become “more assured that underlying inflation is on the decline”.Consumer price data has since showed that October inflation exceeded expectations while prices in November were somewhat lower than expected.Core inflation stood at 5.8% year-on-year in November, down from 6.0% year-on-year in October, lagging analysts’ average expectation of 6.0% and the central bank’s 6.1% prediction but far exceeding the medium-term goal of 2.0%.The Norwegian currency has been weaker than expected by the central bank, however, which could again ignite consumer prices.A business survey commissioned by the central bank recently showed that Norway faces unchanged economic activity in the fourth quarter of 2023 and a likely decline in the first three months of 2024.All Norwegian industries expect economic developments to weaken in early 2024 compared to current activity, according to the survey, which is a key input for the central bank’s monetary policy committee.As a result, rates are likely to stay on hold, Handelsbanken wrote in a note to clients.”The growth signals for the economy have weakened, showing an economy on the brink of a technical recession; again, on the downside of Norges Bank’s expectations,” it said.The rate of 4.25% is also likely to mark the peak of the tightening cycle that began in September of 2021, while a first rate cut was seen in the fourth quarter of 2024, followed by additional reductions in 2025, the poll found.The European Central Bank, the Bank of England and the U.S. Federal Reserve are all expected to keep rates on hold this week. More

   Milei in his maiden speech warned he had no alternative to a sharp, painful fiscal shock to fix Argentina’s worst economic crisis in decades, with inflation heading towards 200%.   The announcements will be made by Economy Minister Luis Caputo, Adorni said in his first press conference after Milei’s Sunday inauguration, echoing the president’s “there is no money” speech.”The logic of spending more than you have is over, fiscal balance will be respected,” Adorni said. “Argentina is in a state of emergency. Inflation is the central issue worrying people.” More

The global economy is forecast to grow 2.9% this year, a Reuters poll of economists showed, and is expected to slow to 2.6% for the coming year.While the global economy may avoid a recession, Europe and the United Kingdom may still see its milder form, according to the poll.A soft landing for the United States is still on the cards, although uncertainty around the Federal Reserve’s monetary tightening path clouds the outlook. China’s growth is expected to weaken, as global companies look for alternative locations to reduce their reliance on the country for services such as manufacturing.Following are forecasts from major global banks:Real GDP growth forecasts for 2024 GLOBAL U.S. CHINA EURO UK INDIA AREA Goldman 2.60% 2.10% 4.80% 0.90% 6.3% Sachs 0.7% Morgan 2.80% 1.90% 4.20% 0.50% -0.1% 6.4% Stanley UBS 2.60% 1.10% 4.40% 0.60% 0.6% 6.2% Barclays 2.60% 1.20% 4.40% 0.30% 0.1% 6.2% J.P.Morg 2.20% 1.60% 4.90% 0.40% 0.2% 5.7% an BofA 2.8% 1.4% 4.8% 0.50% 0.1% 5.7% Global Research Deutsche 2.4% 0.6% 4.7% 0.20% 0.3% 6.0% Bank Citigrou 1.9% 1.1% 4.6% -0.20% -0.30% 5.7% p U.S. inflation (annual Federal funds Y/Y for 2024) target rate (Dec ’24) Headline CPI Core PCE Goldman Sachs 2.40% 2.50% 4.875% Morgan Stanley 2.10% 2.70% 4.375% UBS 2.70% 2.75% Wells Fargo 2.50% 2.60% 4.75%-5.00% Barclays 2.70% 5.25%-5.50% J.P.Morgan 2.50% 2.50% 4.50% BofA Global 2.80% 4.50%-4.75% Research Deutsche Bank 2.10% 3.63% Citigroup 2.60% 4.50% The Fed’s main rate currently stands at 5.25%-5.50%.S&P 500 US 10-year EUR/USD USD/JPY USD/C target yield NY target Goldman Sachs 4700 4.55% 1.10 150.00 7.15 Morgan Stanley 4500 1 140 7.5 UBS 4600 3.60% 1.15 130 7.15 Wells Fargo 4600-480 4.75%-5.25 1.08-1.1 136-140 0 % 2 Barclays 4.25% 1.09 145 7.20 J.P.Morgan 4,200 3.75% 1.13 146 7.15 BofA Global 5000 4.25% 1.15 142 6.90 Research Deutsche Bank 5100 4.10% 1.10 135 Societe 4750 3.75% 1.15 Generale Citigroup 4.30% 1.02 135 7.25 5100 As of 1126 GMT on Dec. 11, 2023:S&P 500: 4604.37US 10-year yield: 4.2602%EUR/USD: 1.0763USD/CNY: 7.1760USD/JPY: 146.31 More

BRUSSELS (Reuters) -Hungary said on Monday it would not bow to pressure from other European Union states to give the green light for accession talks with Ukraine, setting the stage for a showdown at an EU summit this week.Ukraine’s foreign minister said it would be “devastating” for his country and the EU if the Dec. 14-15 summit did not the go-ahead for membership talks and more financial and military aid for Kyiv to defend itself against Russia’s invasion.Hungarian Prime Minister Viktor Orban, who boasts about his ties with Russian President Vladimir Putin, has threatened to veto the aid and enlargement talks.Other EU states, including richest member Germany, have said they back starting negotiations with Kyiv on the long process of joining the bloc, but Budapest dug in its heels.”A majority of European politicians want to make such important decisions which are entirely unprepared and lack strategic agreement on the future of Europe,” Foreign Minister Peter Szijjarto wrote on Facebook (NASDAQ:META) before a meeting of EU foreign ministers in Brussels that will help prepare the summit.”We will not give in to any pressure … irrespective of where that is coming from, from whom, and what kind of blackmail it is or promise.” Hungary is not at odds with its EU partners for the first time. It watered down sanctions against Russia and last December vetoed a deal to grant Ukraine 18 billion euros ($19.4 billion) in 2023.Budapest eventually allowed that assistance through after haggling for days over EU aid to Hungary, which had been blocked over concerns of democratic backsliding under Orban.”I want to believe that the Europeans will be united … and we will today send clear messages to our Hungarian counterpart so it can be so,” French Foreign Minister Catherine Colonna said.Lithuanian Foreign Minister Gabrielius Landsbergis described it as “a clash of ideologies, between those who want Europe to be strong and those who don’t want the EU at all.”‘DEVASTATING CONSEQUENCES’ Ukrainian Foreign Minister Dmytro Kuleba, who took part in the EU foreign ministers’ meeting, said failing at this week’s summit to agree on open accession talks would show the EU is unable to follow through on historical commitments. “I cannot imagine, I don’t even want to talk about the devastating consequences that will occur shall the (European) Council fail to make this decision,” he said, calling it “the mother of all decisions”. Securing new financial assistance from Europe is critical, and doubts are also growing over future U.S. support for Kyiv as President Volodymyr Zelenskiy heads to talks in Washington.     All these decisions – as well as another on what would be the EU’s 12th package of sanctions against Russia since Moscow’s full-scale invasion in February 2022 – require the unanimous backing of all the bloc’s 27 countries.As the EU finds itself again seeking to win Orban’s support for Ukraine, the executive European Commission is expected to unlock Budapest’s access to 10 billion euros this week.     Diplomats said related attempts by Georgia and Bosnia to advance their hopes of joining the EU – backed by Orban – would fall through if Hungary vetoed talks with Ukraine, but some also said a compromise was still possible.Those expecting Orban to budge described a possible compromise throwing the start on negotiations with Ukraine to March once final conditions are met. Others say it is possible Orban may not be persuaded. More