Economy

Cookies on FT Sites

We use
cookies
and other data for a number of reasons, such as keeping FT Sites reliable and secure,
personalising content and ads, providing social media features and to
analyse how our Sites are used. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The US central bank will hold off on interest rate cuts until at least July 2024 and deliver less relief than financial markets expect, according to leading academic economists polled by the Financial Times. While most of those surveyed thought the rate-raising phase of the Federal Reserve’s historic monetary tightening campaign was now over, almost two-thirds of the respondents thought the central bank would only begin to cut its benchmark rate by the third quarter of 2024 or later.Three-quarters of the economists, polled between December 1 and December 4, also expect the Fed to lower the federal funds rate from its current 22-year high of 5.25-5.5 per cent by just half a percentage point or less next year.That is a much later and smaller move than Wall Street is wagering, with traders in futures markets ramping up bets that the Fed will begin to cut as early as March and will lower the federal funds rate to about 4 per cent by the end of the year — more than a full percentage point below its current level.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 survey of 40 economists, carried out in partnership with the Kent A Clark Center for Global Markets at the University of Chicago Booth School of Business, underscores the divergence of views about the Fed’s grip on inflation amid fresh signs that the world’s largest economy is beginning to slow down.Officials at the Fed and other central banks in advanced economies are now grappling with how long to keep interest rates high to restrain demand from households and businesses — and when they can start reducing borrowing costs.“I still see a lot of momentum for the economy, so I don’t see a need for lowering rates right away, and I don’t think the Fed plans to do that either,” said James Hamilton, a professor of economics at the University of California in San Diego who participated in the survey.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Robert Barbera, director of the Center for Financial Economics at Johns Hopkins University and another respondent, said the Fed would need to see both steady improvements in inflation and a more significant cooling in labour demand before it considered cuts.For the past five months, the US economy has added an average 190,000 new jobs a month — a pace Fed governor Christopher Waller recently noted was near the 10-year average since 2010 but still higher than needed to absorb all the workers entering the labour force. New data released on Friday is expected to show an increase of 180,000, according to Refinitiv, compared with 150,000 in October.Laura Coroneo, an economist at the University of York, said that aside from a “still tight” labour market keeping wage growth elevated, she was also concerned about the potential of an oil price shock to affect how quickly inflation would fall. The Opec+ cartel recently agreed to make cuts to crude output in 2024 in a bid to boost oil prices. The ongoing war in Ukraine and escalating conflict in the Middle East have also bred fears of further inflation in energy costs.Most of the economists surveyed thought it unlikely that the Fed’s preferred inflation gauge — the personal consumption expenditures price index, once food and energy prices are stripped out — would remain above 3 per cent by next December, but they did expect it to exceed the central bank’s 2 per cent target at that point. Their median estimate for the end of 2024 stood at 2.7 per cent. The gauge registered a 3.5 per cent annual pace in October.According to the median estimate, the economists predicted US gross domestic product growth once inflation is factored in of 1.5 per cent next year, well below the clip so far this year.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.In addition to keeping interest rates elevated for an extended period, the economists also do not expect imminent changes to the Fed’s plans to shrink its nearly $8tn balance sheet. More than 60 per cent of the economists polled reckoned the central bank would not slow its quantitative tightening programme until the third quarter of 2024 or later. As part of its efforts to tighten financial conditions in the economy and damp demand, the Fed has since September 2022 aimed to cut up to $95bn a month from its asset holdings.Most of the economists did not think there was a high chance of a recession starting next year, while a little over half said there was at least a 50 per cent chance that a recession would start in the third quarter of 2025 or later.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 participants were roughly split on the outlook for the unemployment rate, with a slim majority expecting it could hit 5 per cent or more over the next three years. The remaining 46 per cent expected it would stay below that level. The employment rate has defied expectations of a sharp rise over the past year, nudging up only marginally, to stand at 3.9 per cent. More

JOHANNESBURG/BENGALURU (Reuters) – Most emerging market currencies will recover 2023 losses and trade modestly higher against the dollar next year as bets on interest rate cuts from the U.S. Federal Reserve increase, a Reuters poll found.A fall in the U.S. dollar last month after soft U.S. inflation data and dovish remarks from the Fed drove a 2.6% rise in the emerging markets currency index since the start of November – a trend set to continue into next year.However, with risks U.S. interest rates stay higher for longer investors will remain cautious, leading to a slow and steady pace of gains in EM currencies against the dollar.More than half of the EM currencies polled on, especially from Asia, were forecast to extend gains next year and some were predicted to recoup all of their 2023 losses, according to the Dec. 1-5 Reuters poll of 45 strategists.The Korean won and the Thai baht were expected to erase this year’s losses and gain around 0.2% and 1.3% respectively. China’s yuan was forecast to gain nearly 2% in the next 12 months.”Near term, we think the EM story is mixed in that we cannot dismiss the risk of U.S. rates moving a little higher into year-end… However, on a six-month view, short-dated U.S. yields should be substantially lower and generating a clear dollar decline,” said Chris Turner, head of FX strategy at ING. The Turkish lira and South Africa’s rand which lost around 35% and 10% respectively this year were not predicted to recover losses anytime soon.Rate cut expectations for the Fed and widening interest rate differentials meant a majority of analysts, 34 of 45, who answered an additional question said emerging market carry trades will remain attractive in 2024.”Because we think the dollar will decline, emerging market currencies should at least hold their value, if not appreciate. And generally in an environment of the Fed easing normally you see lower levels of foreign exchange market volatility,” Turner added. “Carry trading” is when investors borrow in currencies where interest rates are low, like Japan, to invest where yields are high like Brazil.Those trades have buoyed EMFX this year especially in Latin America for Brazil, Mexico and Colombia on higher interest rates that were ushered in much earlier to fight inflation compared to developed markets.”As next year progresses, we also see the potential for more pronounced U.S. dollar weakness than previously…Amid that backdrop, we would also expect many emerging Asian and Latin American currencies to perform well as next year progresses,” noted Nick Bennenbroek, international economist at Wells Fargo. (For other stories from the December Reuters foreign exchange poll:) More

MEXICO CITY (Reuters) – U.S. Treasury Secretary Janet Yellen said on Tuesday that economists who predicted that high U.S. unemployment would be needed to tame inflation are “eating their words” as the economy experiences little weakness in the labor market and consumer demand with prices moderating.”We’re not seeing the usual signs of a weakening labor market that would make you fear a recession,” Yellen told reporters on a trip to Mexico City. More

BENGALURU (Reuters) -The dollar will loosen its grip on other G10 currencies in 2024, with a dimmer outlook for the currency as the U.S. Federal Reserve was expected to start cutting interest rates next year, a Reuters poll of FX strategists found.Dominating currency markets since mid-2021, the dollar stayed relatively strong for the better part of this year but lost momentum after a few Fed officials made dovish comments last week.Erasing all of its yearly gains, the dollar index fell 3.0% in November, its biggest monthly drop in a year.Much of the greenback’s strength was down to the U.S. economy’s superior performance compared to its peers. The world’s largest economy expanded at an annualized rate of 5.2% last quarter, the fastest pace since Q4 2021.While analysts expected the currency’s weakening trend to continue into next year, median predictions in the Dec. 1-5 Reuters poll of 71 analysts showed a majority of the falls coming in the later part of 2024.”We are looking for the dollar to weaken further next year, but we think the weakness will be more in the second half of next year,” said Lee Hardman, senior currency strategist at MUFG.”In the first half of the year, we’re still relatively cautious about predicting a bigger dollar sell-off because we think the global growth story outside of the U.S. still remains very, very weak and challenging.”While predictions showed the dollar will remain resilient in the first six months of 2024, there was no clear consensus on what will drive the currency’s performance.Among analysts who answered an additional question, 20 of 47 said interest rate differentials, 17 said economic data and seven said safe-haven demand. The remaining three gave varied reasons.”We are at that turning point in the global economy and central bank policy that maybe it is creating more uncertainty over what’s going to be the key drivers for FX markets over the next six months,” added MUFG’s Hardman.But beyond that time period, economic growth and currency valuations were likely to dictate currency moves.”From Q2 onwards … we do think cyclical conditions globally will begin to improve and that should lead to markets moving away from being driven primarily by rate dynamics and move towards cyclical dynamics and valuations where the likes of EUR/USD and USD/CAD will all of a sudden look cheap on that basis,” said Simon Harvey, head of FX analysis at Monex Europe.The euro, which is up 1.0% for the year was expected to end December at $1.08, around the same level it was seen trading on Tuesday.It was then forecast to change hands at $1.09, $1.10 and $1.12 in three, six and 12 months gaining 0.4%, 1.5% and 3.6% respectively.The Japanese yen, the worst performing major currency this year, has lost about a third of its value in the past three years and was expected to gain 7.4% to trade at 137/dollar in a year.Sterling, already up over 4.0% for the year was predicted to gain 1.7% to $1.28 in a year.(For other stories from the December Reuters foreign exchange poll:) More

BUENOS AIRES (Reuters) -Argentine economist Santiago Bausili is set to become the governor of the country’s central bank after President-elect Javier Milei takes office on Dec. 10, according to three people with direct knowledge. Bausili – a close ally of the incoming Economy Minister Luis Caputo – was undersecretary of finance under Mauricio Macri’s administration between 2016 and 2017, and he later became the finance secretary until Dec. 2019. His selection for the central bank will create a strong front of mainstream conservative economists alongside market-friendly Caputo, that could help moderate President-elect Milei’s more radical libertarian propositions.Bausili’s latest role was as a partner of Anker, a Buenos-Aires based consultancy firm, alongside Caputo, which he joined in Oct. 2020.Bausili previously worked for Deutsche Bank as a debt origination director, first in New York and then in Buenos Aires. He worked for over a decade at JPMorgan focused on capital markets and derivatives marketing covering Argentina, Chile and Peru.Caputo and Bausili were pictured earlier on Tuesday arriving at the hotel where Milei is staying in downtown Buenos Aires.Milei has proposed eradicating the central bank as a signature campaign pledge.Still, his libertarian coalition has a limited number of seats in Congress and no provincial governors. Milei’s team did not immediately respond to a request for comment. More

(Reuters) – A look at the day ahead in Asian markets.China’s credit downgrade warning from ratings agency Moody’s (NYSE:MCO) on Tuesday may have come as a surprise to some and a shock to few, but has fired up the debate for everyone around the darkening growth and market outlook for Asia’s economic powerhouse.The market fallout was immediate – blue chip stocks in Shanghai and Hong Kong’s benchmark Hang Seng index slumped nearly 2%, and while the onshore yuan held up reasonably well the offshore yuan fell sharply too.The CSI300 equity index slumped to its lowest since February 2019, and Chinese markets will likely be fragile again on Wednesday.The main event on the Asian and Pacific calendar is the release of Australian third quarter GDP figures, a day after the Reserve Bank of Australia left interest rates on hold at a 12-year high of 4.35% until at least February.The Aussie dollar was one of the biggest losers on global currency markets on Tuesday, falling 1% for its biggest daily loss since Oct. 12, as traders viewed the RBA’s statement as less hawkish than expected and less hawkish than the previous one.The Reuters poll consensus forecast is annual GDP growth slowed in the July-September period to 1.8% from 2.1%. This would be the slowest rate of growth since the first quarter of 2021, and fit with a dovish view on the RBA and Aussie dollar.Investors will also be looking out for the latest inflation data from Taiwan and Japan’s latest ‘tankan’ surveys of manufacturing and non-manufacturing activity in the country.The annual rate of inflation in Taiwan is expected to have slowed in November to 2.8% from a 15-month high of 3.05% in October. Figures on Monday showed that inflation in South Korea and Japan’s capital Tokyo last month was cooler than expected.Asian markets open on Wednesday against a backdrop of rapidly declining global bonds yields, the latest trigger being an exclusive Reuters interview with influential European Central Bank policymaker Isabel Schnabel.Falling rates and bond yields may not be enough to brighten sentiment in Asia though, after Moody’s lowered the ‘outlook’ on China’s A1 debt rating to “negative”.According to Moody’s, the amount of money Beijing likely needs to provide to support debt-laden local governments and state firms poses “broad downside risks to China’s fiscal, economic and institutional strength.”Rival ratings agency S&P Global warned that growth could slow to below 3% next year if the country’s property crisis deepens further.Growth that low in China is in many ways difficult to fathom. But if it is indeed on the looming horizon, it helps explain why foreign investors in China are pulling money out, and why those not already in China are reluctant to put their cash in.Here are key developments that could provide more direction to markets on Wednesday:- Australia GDP (Q3)- Japan tankan surveys (December)- Taiwan inflation (November) (By Jamie McGeever; Editing by Josie Kao) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Nearly one in five council leaders in England have said they are likely to declare de facto bankruptcy this year or next as a result of a lack of government funding, according to the Local Government Association.A survey by the LGA, the national membership body for local authorities, found almost half of England’s 317 councils believed they would not have enough money in 2024-5 to ensure the delivery of essential services. More than 60 said they were at risk of having to issue section 114 notices, whereby a local authority signals its inability to fulfil a legal duty to balance the books, next year.  “While councils have worked hard to reduce costs, find efficiencies and transform services, the easy savings have long since gone,” LGA chair Shaun Davies said.The LGA has previously warned that councils face an overall funding gap in the next two years of £4bn. It said that because no money had been provided for councils in the chancellor’s Autumn Statement last month, steep cuts would be required. The body added that councils would be confronted with the tough choice of whether or not to raise taxes in April amid a cost of living crisis. The survey, released on Wednesday, was timed to coincide with levelling up secretary Michael Gove’s appearance before a cross-party committee of MPs to answer questions on financial distress in local authorities. The number of councils forced to issue section 114 notices has risen sharply in recent years. As many as nine have issued notices since 2018 — including Birmingham, Woking and Nottingham this year.In areas where authorities have gone bust, central government has typically overseen a rise in council tax and a further reduction in public services.  In the Autumn Statement, the government announced plans to relieve pressure on local authorities that provide temporary accommodation to people at risk of homelessness by lifting a cap on housing benefits. However, nearly two-thirds of council leaders said there was nothing in the chancellor’s statement that would help their financial position. The Department for Housing, Levelling up and Communities said councils had received a 9.4 per cent increase in funding worth £5.1bn in the last year. The department was ready, it added, to “talk to any council that is concerned about its financial position”.Some councils have issued section 114 notices partly as a result of their own financial mismanagement, but the LGA underlined that all councils were now under acute strain.Separately, more than 60 council leaders and chief executives called for a new “covenant between central and local government” to prevent millions of people living in bankrupt boroughs next year.  In a report by the Local Government Information Unit think-tank, also released on Wednesday, many leaders said they “felt that the level of challenge they were dealing with right now was unlike anything they had seen in their careers to date”.Essential programmes that determined the quality of life for millions of people each day were at risk, said LGIU chief executive Jonathan Carr-West, adding that “the link between funding and need is completely broken”.  More