Economy

For sure, key U.S. jobs data will test the exuberance, while Australia’s central bank could reinforce a view that rates have peaked.Here’s your week ahead in financial markets from Ira Iosebashvili in New York, Kevin Buckland in Tokyo, Naomi Rovnick and Marc Jones in London and Yoruk Bahceli in Amsterdam.1/ SANTA’S BEENChristmas has come early with global stocks posting their best monthly performance in three years in November and global investment-grade bonds returning almost 4% – the best month on record going back to 1997.Now, the early Santa rally risks running into a central bank Grinch. Markets price rate cuts as early as the first half of 2024. The U.S. Federal Reserve and the European Central Bank, wary of market euphoria loosening financial conditions, may start to push back.Whether equities and bonds can rise in tandem next year also feels doubtful. Stocks price in a benign economic scenario of lower borrowing costs and steady growth. Government bonds, which shine in recessions, have been boosted by signs that the impact of previous rate rises is starting to cause pain. Both cannot be right. 2/ GOLDILOCKS, WELCOMEWill Goldilocks stick around? That’s the question investors are pondering as they await the Dec. 8 U.S. jobs report after a rebound that has taken the S&P 500 within spitting distance of a fresh year high.The data will have to walk a fine line to satisfy the so-called Goldilocks narrative of cooling inflation and resilient growth that has boosted asset prices. Too strong a number would undercut bets that the Fed will begin easing monetary policy sooner than expected, presenting an obstacle to the searing fourth quarter rally in stocks and bonds.A weak number, on the other hand, could spark fears that the economy is beginning to roll over following 525 basis points of rate increases, potentially dulling risk appetite. Economists polled by Reuters expect the U.S. economy to have added 175,000 jobs in November, versus 150,000 in October.3/ A HAWKISH HOLD?    Cooler than expected consumer inflation has sounded the death knell for any expectations the Reserve Bank of Australia will hike rates on Tuesday.    But investors are wary of a hawkish hold, with prices still elevated and new Governor Michele Bullock increasingly seen as more of a hawk than her predecessor. Traders currently put odds for a hike at the following meeting in February at about 1-in-3.    Some hint of how soon the Bank of Japan can begin its own, much-delayed tightening campaign may come from the Tokyo CPI data, also on Tuesday.    Whether business and the economy could even weather a return of higher interest rates will also be clearer from the Tankan corporate sentiment surveys and GDP data on Wednesday and Friday.4/ TROUBLE AND STRIFEFirst political turmoil in Spain and Portugal and now upheaval in Germany and the Netherlands heralds fresh uncertainty ahead of a jam-packed 2024 election year.After November’s constitutional court blow, Germany faces a 17 billion-euro ($18.54 billion) hole in next year’s budget. No date has been set for the budget, so news from Berlin remains in focus and a fiscal correction means the economy is at risk of shrinking for a second straight year.And coalition talks are stumbling in the Netherlands after far-right, anti-EU Geert Wilders’s shock election win.Turmoil in two EU heavyweights is unwelcome just as the bloc seeks more cash from members and finance ministers meet to iron out new fiscal rules on Friday. Bond vigilantes are watching for a deal giving leeway for public investments while taking debt sustainability seriously. All this as the first EU-China summit in four years on Dec. 7-8 looms. 5/ RIDING TIGERSEmerging market investing sometimes gets likened to riding a tiger – a lot of fun while you are on it but the dismount can be deadly. November has certainly been the enjoyable part. EM stocks are up 7.5% for their best month since January. Bonds in both local currencies and dollars have made 6%, while a 10% rebound by Israel’s shekel and 5-6% rises from central European currencies have hoisted MSCI’s EM FX index to its highest since April 2022.Decembers have been generally kind too. That FX index has risen every December since a dip in 2015 and stocks have made decent gains in three out of the last four. It will depend on where bond yields and risk premia, or ‘spreads’, go from here of course, but many of the big investment houses are again sounding hopeful.     ($1 = 0.9168 euros) (Graphics by Pasit Kongkunakornkul, Vineet Sachdev,Riddhima Talwani and Prinz Magtulis; Compiled by Dhara Ranasinghe; Editing by Susan Fenton) More

The index closed at 4,594.63 points, up 26.83 points, or 0.59%, and topping the close on July 31 at 4,588.96, which had been the prior high of 2023. U.S. stocks rebounded in November following three straight months of declines on better-than-expected earnings and as evidence of easing inflation boosted bets that the Fed was at the end of its monetary tightening campaign.On Friday the benchmark S&P 500 got another boost when Federal Reserve Chair Jerome Powell vowed to move “carefully” on interest rates, describing the risks of going too far with tightening as “more balanced” with risks of not controlling inflation. “Markets view today’s comments as inching toward the dovish camp,” said Jeffrey Roach, chief economist at LPL Financial (NASDAQ:LPLA) in Charlotte, North Carolina, in an email. “A few weeks ago, Powell said policy is restrictive but today, he believes policy is ‘well into restrictive territory.’ I think it’s fair for markets to latch on to that subtlety.” More

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(Reuters) – Investors seeking justification for breathtaking rallies in stocks and bonds are finding hope in the words of Federal Reserve Chair Jerome Powell, even as the central bank insists the fight against inflation has a long way to go.Signs of easing inflation have ignited bets that the Fed will begin loosening its restrictive monetary policy earlier than expected, driving the S&P 500 to its biggest monthly gain for more than a year in November. Yields on the U.S. benchmark 10-year Treasury, which move inversely to prices, saw their steepest decline in more than a decade. Some investors believe Powell may have signaled an incremental shift to a more dovish outlook on Friday, when he said the risks of moving too far with interest rate hikes have become “more balanced” with those of not moving high enough to control inflation.The S&P 500 climbed nearly 0.7% and was on pace to finish at its highest closing level of the year after the comments – which were made ahead of a quiet period before the Fed’s Dec. 12-13 monetary policy meeting. Two-year Treasuries, which are sensitive to interest rate expectations, fell nearly 15 basis points to their lowest level since June. The Fed chair reiterated that the fight against inflation was far from finished and said the central bank was ready to further tighten monetary policy if necessary. “He provided balanced comments, both dovish and hawkish, and the markets are very much ignoring the hawkish comments and grabbing onto the dovish comments that the Fed is essentially done,” said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest Wealth Management.Evidence of slowing inflation has piled up in recent weeks. On Thursday, data showed that the Fed’s preferred inflation measure, the core PCE price index, eased in October, complementing other reports indicating cooling consumer prices and softer economic activity. Trader bets on Fed rate cuts starting in the first half of 2024 gained steam this week after Fed Governor Christopher Waller, an influential and usually hawkish policymaker, suggested rates cuts by then could be needed to keep policy from becoming overly restrictive in the face of easing inflation.Federal funds futures, a widely used security for hedging short-term interest rate risk, imply a Fed funds rate of 4.533% by the end of July, versus 5.121% expected three months ago for that period, according to LSEG data.Investors see a strong chance of the central bank delivering a rate cut as early as March 2024, LSEG data show. “Powell is essentially saying that inflation is coming down faster than we expected and now we can just coast and see what happens. That’s the message. And as a market participant I will always take that message as something that’s dovish,” said Ed Al-Hussainy, a senior analyst at Columbia Threadneedle Investments, who is positioning for rates to fall further. Of course, the market has misread the Fed and economic conditions several times in recent years and may be doing so again. In late 2022, for example, many expected a recession would hit this year, forcing the Fed to loosen monetary policy. The economy proved resilient while monetary policy stayed tight.“Clearly they are in a no man’s land here and the market hears what it wants to hear,” said James St. Aubin, chief investment officer at Sierra Investment Management, who runs a tactical trend-following portfolio. “Powell is trying to take a very measured approach to guidance and not giving anyone too much on one side or the other.” More

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The topsy-turvy economic environment of the coronavirus pandemic sidelined those differences, turning U.S. Federal Reserve officials at first universally dovish as they sought to provide massive accommodation for a cratering economy, and then, when inflation surged, into hawks who uniformly backed aggressive interest rate hikes.Now, as Fed policymakers note improvement on inflation and some cooling in the labor market, the risks are seen as more balanced and the choices more nuanced.All 12 regional Fed presidents discuss and debate monetary policy at Federal Open Market Committee (FOMC) meetings that are held eight times a year, but only five cast votes at any given meeting, including the New York Fed president and four others who vote for one year at a time on a rotating schedule.The following chart offers a look at how officials currently stack up on their outlooks for Fed policy and how to balance their goals of stable prices and full employment. The designations are based on comments and published remarks; for more on the thinking that shaped these hawk-dove designations, click on the photos in this graphic.Reuters over time has shifted policymaker designations based on fresh comments and developing circumstances – for an accounting of how our counts have changed please scroll to the bottom of this story.Dove Dovish Centrist Hawkish Hawk   Patrick Jerome Neel Michelle Harker, Powell, Fed Kashkari, Bowman, Philadelph Chair, Minneapol Governor, ia Fed permanent is Fed permanent President, voter: President voter: “My 2023 “Having come , 2023 baseline voter: “A so far so voter: economic decrease quickly, the “When outlook in the FOMC is activity continues policy moving continues to expect rate is forward to run that we not carefully, this hot, will need something as the risks that to that is of under- makes me increase likely to and question the happen in over-tighten if policy federal the short ing are is as funds rate term.” becoming tight as further.” Nov. 8, more we assume Nov. 28, 2023 balanced.” it 2023   Dec 1, 2023 currently is.” Nov. 7, 2023   Raphael John Lorie   Bostic, Williams, Logan, Atlanta New York Fed Dallas Fed President, Fed President, permanent President 2024 voter: “We , 2023 voter: “I are at, or voter: don’t near, the “We have think peak level seen some we’ve seen of the retraceme the full target range nt in effects of of the that restrictiv federal 10-year e policy.” funds rate.” yield and Nov. 29, Nov 30, 2023 financial 2023 condition s, and so I’ll be watching to see whether that continues and what that means for the implicati ons of policy,” Nov. 7, 2023     Philip Loretta   Jefferson, Mester, Vice Chair: Cleveland “We are in a Fed sensitive President period of , 2024 risk voter: management, “Monetary where we policy is have to in a good balance the place for risk of not policymak having ers to tightened assess enough, incoming against the informati risk of on on the policy being economy too and restrictive. financial ” Oct. 9, condition 2023 s.” Nov. 29, 2023     Christopher Thomas   Waller, Barkin, Governor, Richmond permanent Fed voter: “I am President increasingly , 2024 confident voter: that policy “If is currently inflation well is going positioned to flare to slow the back up, economy and I think get you want inflation to have back to 2%.” the Nov. 28, option of 2023 doing more on rates.” Nov. 29, 2023     Michael     Barr, Vice Chair of Supervision, permanent voter: The Fed is “at or near the peak” of interest rates.” Nov. 17, 2023     Lisa Cook,     Governor, permanent voter:  “I see risks as two-sided, requiring us to balance the risk of not tightening enough against the risk of tightening too much.” Nov. 16, 2023     Austan     Goolsbee, Chicago Fed President, 2023 voter: “It’s working through in the way we’ve anticipated. ” Dec. 1, 2023     Mary Daly,     San Francisco Fed President, 2024 voter: “I’m thinking about whether we have enough tightening in the system and are sufficiently restrictive to restore price stability. Discussions about interest rate cuts are not particularly helpful at the moment.” Nov. 30, 2023     Susan     Collins, Boston Fed President, 2025 voter: The Fed should be “patient and resolute, and I wouldn’t take additional firming off the table.” Nov. 17, 2023 Note: Fed policymakers began raising interest rates in March 2022 to bring down high inflation. Their most recent policy rate hike, to a range of 5.25%-5.50%, was in July.Most policymakers as of September expected one more rate hike by the end of this year, but recently many have expressed more confidence that none will be needed. Neither Jeff Schmid, who has been the Kansas City Fed’s president since August and will be a voter on the FOMC in 2025, nor Adriana Kugler, a permanent voter who was confirmed to the Fed’s Board of Governors in September, have yet made any substantive policy remarks. The St. Louis Fed has begun a search to replace its former president, James Bullard, who took a job in academia; the new chief will be a voter on the policy-setting committee in 2025. Interim St. Louis Fed chief Kathleen O’Neill Paese appears to lean hawkish. Below is a Reuters count of policymakers in each category, heading into recent Fed meetings.FOMC Date Dove Dovish Centri Hawkis Hawk st h Dec ’23 2 9 4 0 1 Oct/Nov ’23 0 2 7 5 2 Sept ’23 0 4 3 6 3 June ’23 0 3 3 8 3 March ’23 0 2 3 10 2 Dec ’22 0 4 1 12 2 More

WASHINGTON (Reuters) -The Biden administration on Friday issued-long awaited guidance that will limit Chinese content in batteries eligible for electric vehicle tax credits starting next year.In a win for automakers, the U.S. Treasury will temporarily exempt some trace critical minerals from new strict rules barring materials from China and other countries deemed a “Foreign Entity of Concern.” (FEOC)The new rules, required under an August 2022 law, are designed to wean the U.S. electric vehicle battery chain away from China and are being closely watched by automakers as they make investment decisions on producing batteries for their transition to electric vehicles.The FEOC rules come into effect in 2024 for completed batteries and 2025 for critical minerals used to produce them.The Alliance for Automotive Innovation, a group representing nearly all major automakers, said the decision to exempt trace materials for two years “was significant and well-advised” and without it could have made nearly all vehicles ineligible.Treasury said the few materials being exempted each account for less than 2% of the value of battery critical minerals.General Motors (NYSE:GM) said on Friday it believes it is “well positioned to maintain the consumer purchase incentive for many of our EVs in 2024 and beyond.”Ford Motor (NYSE:F) said in October it was awaiting the guidance to determine if its licensing agreement with Chinese battery maker CATL, as part of the automaker’s planned Michigan battery plant, would run afoul of the rules. Biden administration officials would not comment on whether that arrangement is permissible under the rules. Ford declined to comment.Republican Senator Marco Rubio said the guidance appears to allow the Ford CATL agreement to qualify. He criticized the decision, arguing the administration was putting “EV special interest groups ahead of America’s interests.”The Energy Department said a company would be deemed a FEOC if owned or controlled by a named foreign government. Companies will also be ineligible if an entity of concern holds 25% of that entity’s board seats, voting rights, or equity.Those countries include North Korea, China, Russia and Iran.The automaker group said “it appears that companies operating in China are considered FEOC. Chinese entities with specific ownership or governance structures might be permitted in certain circumstances.”The rules are expected to further reduce the number of electric vehicles eligible for EV tax credits. The law immediately made any vehicle ineligible if not assembled in North America. Earlier this year, new battery and mineral sourcing requirements took effect with price and buyer income eligibility caps from Jan. 1.Senator Energy Committee chair Joe Manchin blasted Treasury for allowing some trace critical minerals from China to qualify and vowed to take every opportunity “to reverse this unlawful, shameful proposed rule and protect our energy security.”Treasury said to allow compliant vehicles to qualify until the rules are finalized, it will have an expedited compliance method for automakers with clean supply chains. 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 storiesFor up-to-the-minute news updates, visit our live blogGood evening.The critical COP28 climate summit is now well under way in Dubai, where negotiators for the next two weeks will be haggling over the best way to limit global warming, phase out fossil fuels and determine who should help poorer countries pay for climate damage.The meeting began with news that five countries and the EU had pledged more than $420mn for a new “loss and damage” fund to help developing nations deal with climate change after it was proposed at last year’s COP27. This was followed by confirmation of yesterday’s FT story that the United Arab Emirates would put $30bn into a new fund that will invest in “global climate solutions”. However, as our Moral Money newsletter team in Dubai points out, the pledges from rich nations for the loss and damage fund fall well short of what is needed. Optimists will argue that the agreement is better than nothing, and that this should be regarded as seed capital ahead of far larger sums to follow, says Moral Money editor Simon Mundy. But no one has yet made clear how these initial hundreds of millions will lead to the hundreds of billions that are needed. (Premium subscribers can sign up here for Moral Money updates every week day during the summit)Critics have also pointed out the preponderance of bankers, consultants and other lobbyists among the estimated 80,000 strong attendees, as well as the fact that the summit host, COP28 president Sultan al-Jaber, is also boss of the Abu Dhabi National Oil Company. He vigorously defended himself on the eve of the conference against suggestions that he had used preparatory meetings to explore oil and gas deals. There is also near silence on the “polluting elephant” in the room, as columnist Gillian Tett puts it: the subsidies that governments currently provide for fossil fuels, for example by offering petrol or coal to consumers and companies at artificially cheap prices.Statistics meanwhile underline the need for action. The World Meteorological Organization said yesterday that a record-breaking 2023 — possibly the hottest year since measurements began — will be followed by more of the same in 2024FT columnist and COP veteran Pilita Clark offers a final note of hope. Despite starting too late and going too slowly, we understand better than ever what needs to be done, she writes. “Many of the remaining roadblocks are political and, for the first time, we are starting to see how they might eventually be overcome,” she concludes.Need to know: UK and Europe economyThere were more signs of stabilisation in the UK property market as house prices unexpectedly rose again in November, according to lender Nationwide. A revision to rent statistics, which will be used in official data from next March, pointed to slightly higher UK inflation.Eurozone inflation fell more than expected to 2.4 per cent in November, thanks to falling energy prices and slowing growth in food and services prices, raising hopes that interest rates could soon be cut. Washington is aiming to halve Russia’s oil and gas revenues by 2030, a US diplomat told the FT, arguing western sanctions would be needed for “years to come”.The US said it was “profoundly concerned” about Turkey’s role in facilitating Hamas’s access to international finance, highlighting how the war in the Middle East is fuelling tension among Nato allies.Need to know: Global economyThe Opec+ cartel agreed additional cuts in oil production next year to boost the market but crude prices still fell due to signs of strains within the group.Billionaires got more of their assets through inheritance than wealth creation this year for the first time in nine years of monitoring from Swiss bank UBS. A total of $141bn was amassed by 84 self-made billionaires, while $151bn was passed on to 53 heirs.Chinese manufacturing activity shrank for the second month in November, according to the country’s official manufacturing purchasing managers’ index.Venezuela is to hold a referendum on seizing an expanse of Amazonian jungle in Guyana. The Essequibo area, long-claimed by Caracas, is resource rich, including offshore oil deposits, and has helped make Guyana since 2019 the world’s fastest-growing economy. South African president Cyril Ramaphosa kicked off the country’s general election in an attempt to drum up enthusiasm for the ruling party that has been in power since the advent of democracy in 1994 but faces the real prospect of defeat.Need to know: businessSocial media site X is racing to revamp its advertising business after owner Elon Musk hit out at a boycott from big brands. Musk’s Tesla is also at the centre of a growing labour row over collective bargaining in Sweden.Activist investor Nelson Peltz launched a second proxy battle at Walt Disney after it rejected his push to join the board, setting off another bitter fight with chief executive Bob Iger. Global bank chiefs hit out at US regulators’ plans for new industry capital rules, warning that the proposals were “fighting yesterday’s war” while putting financial market liquidity at risk. A new Big Read tells the story of how China’s Huawei surprised the world by managing to develop a homegrown cutting-edge chip after being cut off from global semiconductor supply chains by the Trump administration.The death of the store has been forecast many times as online shopping advances, but two Scandinavian corporate behemoths — Ikea and Lego — are betting big on the continued relevance of bricks and mortar. Science round-upThe UK Biobank is to publish the largest-ever set of genetic sequencing data to boost the research and development of drugs to treat diseases, ranging from heart conditions to cancers. The £200mn project is a collaboration funded by the government, Wellcome Trust, Britain’s biggest biomedical charity, and four pharma companies. Researchers at Google DeepMind have discovered 2.2mn crystal structures that could lead to progress in fields from renewable energy to advanced computation. The theoretically stable but experimentally unrealised combinations are far larger than the number of such substances unearthed in the history of science.A new competition aims to encourage technological breakthroughs that will help people live longer and healthier lives. The X Prize, a US-based non-profit organisation, is offering $101mn for research teams that can show they can develop treatments that will restore key muscle, brain and immune functions for 65-to-80-year-olds.The first commercial long-haul flight powered by so-called sustainable aviation fuels — in this case a mix of waste cooking oil, animal fats and other unorthodox ingredients — took off from London for New York. Other potential sources include biomass which absorbed CO₂ when it was alive, while in the longer term, the aviation industry hopes to scale up nascent technology to create cleaner fuel by combining CO₂ sourced from the air with green hydrogen, using renewable electricity. The ineptitude of government ministers on display at the UK Covid inquiry gives a clear message, writes Anjana Ahuja: this must be the last generation of politicians that cannot get its head around science.A study of more than 2mn people’s internet use found no “smoking gun” for widespread harm to mental health from online activities such as social media and gaming.The Tech Tonic podcast series on superintelligent AI tackles the question: can chatbots think?Some good newsConservationists in South Africa have found and photographed for the first time a long-lost species of mole which scientists believed had disappeared forever. The golden mole, a small blind animal with an iridescent coat and super hearing powers, was found using environmental DNA and sniffer dogs More