Economy

(Reuters) -Social media company X CEO Linda Yaccarino told employees that “data will tell the real story” about its efforts to battle antisemitism, according to a note to employees, amid growing outrage over the issue. X, formerly Twitter, lost several major advertisers including IBM (NYSE:IBM) and Comcast (NASDAQ:CMCSA), and owner Elon Musk was blasted by the White House after he agreed with a post on the platform Wednesday.The post falsely claimed Jewish people were stoking hatred against white people. On Thursday, and media watchdog group Media Matters said it had found that ads for major brands had appeared next to posts that touted Nazism. “While some advertisers may have temporarily paused investments because of a misleading and manipulated article, the data will tell the real story,” Yaccarino said in the Sunday night note to employees seen by Reuters, adding that X has been clear about its efforts to fight antisemitism and discrimination. Six major brands that said they have or have been reported to have paused ads – Apple (NASDAQ:AAPL), IBM, Sony (NYSE:SONY), Disney, Comcast and Paramount – collectively represented 7% of X’s U.S. ad revenue so far this year, according to data from market intelligence firm Sensor Tower. X did not immediately respond to a request for comment regarding Sensor Tower’s data. Over the weekend, Musk posted on X that his company would file a “thermonuclear” lawsuit against Media Matters for what he said was a “fraudulent attack” on the platform. An X representative confirmed that the company would sue the nonprofit organization, possibly as early as Monday.In a response on Monday, Media Matters President Angelo Carusone, said, “Far from the free speech advocate he claims to be, Musk is a bully who threatens meritless lawsuits in an attempt to silence reporting that he even confirmed is accurate. Musk admitted the ads at issue ran alongside the pro-Nazi content we identified.” The controversy comes amid a surge in antisemitism in many countries, including the United States, since the Oct. 7 attack by Hamas on southern Israel and the subsequent bombardment and invasion of the Gaza Strip by the Israeli military. After buying Twitter in October 2022 for $44 billion, Musk laid off thousands of employees, including many who worked to moderate content on the platform. More

(Reuters) – A look at the day ahead in Asian markets from Alden Bentley, U.S. Breaking News Editor for Finance and Markets.A question for Asia traders on Tuesday looks to be: Does the Nikkei have the oomph to reclaim the three-decade high set Monday before profit taking kicked in, amid a reluctance to overextend before market liquidity dries up for the holidays at the end of the week. The rise of the benchmark Japanese share index to its highest intraday level since March 1990 on Monday crowned an 8% rally so far this month and the Nikkei is on track for its heftiest monthly gain in three years thanks to strong earnings and offshore demand. Meanwhile, the resurgent yen in U.S. trade firmed to a 6-1/2-week high against the dollar at 148.10 after last week’s rally pulled dollar/yen down to its lowest since early October. Chinese blue chips .CSI300 eked out a 0.2% gain as the country’s central bank held rates steady as expected, but set a firm fix for the yuan that saw the dollar slip under 7.2000 CNY=CFXS to a three-month low. It stayed soft during U.S. trading, where it last was quoted midmorning at 7.1680 yuan. Asia awakens to another solid advance on Wall Street, notably tech stocks and a record high for Microsoft (NASDAQ:MSFT) after CEO Satya Nadella said OpenAI chief Sam Altman is set to join the company to lead a new advanced AI research team.On Friday, the main U.S. stock indexes posted gains for the third week in a row as evidence of easing U.S. inflation supported bets that the Fed was done raising interest rates.The benchmark S&P 500 is now less than 2% away from its highest level this year that was reached in July. Treasury yields ticked lower on a solid 20-year note auction and anticipation that inflation will decelerate allowing the Fed to cut interest rates next year.There are few potential U.S. market moving events this week, besides Tuesday’s day early release of the minutes from the Federal Open Market Committee’s last meeting. U.S. markets are closed Thursday for Thanksgiving and Friday stocks and bonds will trade abbreviated sessions. Exchanges will also be closed in Japan on Thursday.Later in the week the Reserve Bank of Australia releases minutes of its Nov. 7 policy meeting and Bank Indonesia is expected to keep its key interest rate on hold at 6.00%. Japan releases consumer price data on Friday, arguably the data highlight for the week. Here are key developments that could provide more direction to markets on Tuesday:- FOMC Minutes – Chinese Q3 earnings: Baidu (NASDAQ:BIDU).com, iQiyi, Kingsoft Cloud, Kuaishou Technology, Tongcheng Travel Holdings More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Investors have cheered the victory of radical libertarian Javier Milei in Argentina’s presidential election despite worries about a rocky government transition and huge economic challenges ahead.Argentine stocks and bonds rose in trading outside the country after the television economist, whose insurgent campaign strategy borrowed from Donald Trump and Jair Bolsonaro, outperformed expectations by winning 56 per cent of the vote in Sunday’s election.But Milei fell far short of a majority in October’s congressional election and faces 143 per cent a year inflation, crushing levels of domestic and foreign debt and an empty treasury.“Everything points to this being the roughest [presidential] transition in at least a decade,” said Fabio Rodríguez, associate director at M&R Asociados consultancy in Buenos Aires. “There are many, many problems, and all of them are urgent.”Milei’s pledges to take a chainsaw to the Argentine state, privatise wherever he can and enact economic shock therapy have delighted investors and businesspeople who have despaired of the country’s inability to capitalise on its vast natural resources.Before Sunday’s second-round vote, Milei retreated on some contentious ideas — such as legalising the sale of human organs. But he declared in his victory speech that there was “no room for gradualism”. He has previously promised to scrap the peso for the US dollar, abolish the central bank and shrink the number of government ministries from 18 to just eight. Milei has also called for reductions to government spending, currently about 38 per cent of gross domestic product, by up to 15 percentage points of GDP. Argentina’s dollar bonds rose about 5 per cent on Monday to their highest level since September, although they remained far below their face value. Bonds due in 2030 were still only trading at 32.3 cents on the dollar.The Buenos Aires stock market was closed for a public holiday, but US-listed shares in state-controlled energy company YPF SA — which Milei has promised to privatise fully — rose almost 40 per cent. US-listed shares in banks Banco Macro and Grupo Financiero Galicia gained 20 per cent and 17 per cent, respectively. Within Argentina, Milei and his defeated rival, Peronist economy minister Sergio Massa, sparred over who should take responsibility for the broken economy in the three weeks before the December 10 presidential inauguration.Economists say there is a risk of economic collapse unless measures are taken swiftly to restore confidence. At present, international reserves are exhausted and the government is reduced to borrowing on local markets at triple-digit interest rates. Milei declined to name an economy minister on Monday, saying it would be tantamount to putting his nominee “in the electric chair”, because of attempts by Massa to blame the country’s travails on the incoming government.“Milei will take office as the weakest president in Argentina’s history, despite his clear victory in the second round,” said political analyst and consultant Sergio Berensztein. The president-elect’s insurgent party, La Libertad Avanza, will hold just 39 seats in the new lower house out of 257 and has an even worse position in the country’s senate. He himself was only elected to congress two years ago and lacks executive experience. Centre-right former president Mauricio Macri has offered his support but analysts said Milei will need to reach further across the political aisle to cobble together a legislative majority.“The first question for governability will be the system of alliances and pacts which Milei will construct,” Berensztein said. More

Chicago Fed President Austan Goolsbee conveyed a sense of hope on Monday, suggesting the economy may be navigating a “golden path” towards reducing inflation without plunging into a significant recession. While Goolsbee refrained from providing specific forecasts or discussing future interest rate schedules, he acknowledged the market’s inclination towards anticipating rate cuts, with a 28% probability by March and 58% by May.The potential easing of monetary policy is backed by recent inflation trends, which show a decline to 3.2% in October, down from June’s peak of 9.1%. This progress inches closer to the Fed’s target of below 2%, marking a significant turnaround from last year’s heightened levels. The current benchmark short-term interest rate stands at around 5.4%, following eleven consecutive raises over the past eighteen months. These increases have influenced borrowing costs across consumer and business loans.Similarly, Susan Collins of Boston’s Federal Reserve recognized encouraging patterns in inflation control on the previous Friday but advised patience for additional data before making policy adjustments. Although further rate hikes have not been ruled out, they are not Collins’ primary expectation at this time.Investors and policymakers alike will continue to monitor economic indicators closely as they navigate the delicate balance between curbing inflation and sustaining economic growth.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Bank of England governor warned on Monday it was too early to declare victory over inflation even after the weaker price growth reported this month, as he predicted UK monetary policy will have to stay restrictive for “quite some time yet”.Andrew Bailey argued in a speech that the squeeze on household incomes from higher food and energy prices might still be influencing wage demands, which risks perpetuating inflationary pressures.The Office for National Statistics last week reported a steeper than expected drop in the headline inflation rate, to 4.6 per cent in October, from 6.7 per cent in September.“Inflation remains too high, and we need to make sure we get it all the way down to the [BoE’s] 2 per cent target,” Bailey said at an event organised by the National Farmers’ Union. “This also means being on watch for further signs of inflation persistence that may require interest rates to rise again.”With the BoE Monetary Policy Committee holding interest rates at 5.25 per cent at its November meeting, the central bank has been stressing it is too soon to talk about reductions in borrowing costs given signs of stubborn inflation in the UK economy — a message that others including the US Federal Reserve and the European Central Bank have also been repeating. Nevertheless, many investors and economists are now debating how soon — and where — interest rates will start falling in 2024 as they concentrate on signs of weakening economic growth in developed countries. In his speech, Bailey pushed back against any talk of easing monetary policy in the wake of those figures, saying: “Let me be very clear: it is far too early to be thinking about rate cuts.” He added: “The MPC’s latest projections indicate that monetary policy is likely to need to be restrictive for quite some time yet.”Bailey stressed that while there had been some slowing in services inflation — a key variable being watched by the BoE as it gauges domestic pricing pressures — it remained “much too high and well above rates of services price inflation seen before the [Covid] pandemic”.And while the BoE expected food price inflation to retreat, there were risks ahead in the coming months and years given that “food inflation can be volatile in the best of days”, Bailey said.  Climate change was impacting weather patterns and increasing the risk of poor harvests, he added.Global economic fragmentation could also trigger price spikes, while the conflict in the Middle East had added “upside risks to energy prices and through that to the cost of food production”, Bailey said.  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.All the will-they-or-won’t-they chatter about December rate hikes has taken the spotlight another important Federal Reserve policy tool: Balance sheet run-off. This process is meant to be like “watching paint dry” etc — at least compared to the Bank of England’s misadventures with gilt sales. And it is understandable that short-term rates above 5 per cent (!!) are front of mind for investors. But aggressive shrinkage in the Fed’s balance sheet did create the conditions for the mess that hit repo markets four years ago. For now, at least, Goldman Sachs analysts don’t think there’s much to worry about. They predict the Fed will stop shrinking its balance sheet before bank reserves become scarce enough to cause a market mess. From a Sunday note that was just made public: The FOMC will likely aim to stop balance sheet normalization when bank reserves go from “abundant” to “ample”—that is, when changes in the supply of reserves have a real but modest effect on short-term rates. We expect the FOMC to begin considering changes to the speed of run-off around 2024Q3, to slow the pace in 2024Q4, and to finish run-off in 2025Q1.The determining factor for the Fed’s timeline will probably be the amount of reserves available to banks. To oversimplify a bit, when the Fed buys bonds it creates reserves at US banks, and bank reserves shrink when the Fed’s balance sheet does. But GS points out that most of the bank-reserve shrinkage happened last year. This year, more of that has drained from balances at the Fed’s reverse repo facility: GS explains, with our emphasis: . . . reserve balances have been relatively flat in 2023, and the Fed’s liabilities declined largely because of lower RRP use. RRP balances declined by over $1.5tn to $936bn this year, as increased Treasury bill issuance and higher demand for funding by banks pushed money market funds away from the facility. Looking ahead, we expect RRP balances to continue declining and reach near-zero levels in 2024 as these dynamics continue. Lower RRP balances account for the bulk of the decline in the Fed’s liabilities that we expect over the next yearIn other words, bank liquidity is OK on aggregate, at least. There are plenty of caveats to this. Reserves are still more concentrated at certain banks (we would guess the big ones) than they were before the Covid-19 pandemic, and bank borrowing from Federal Home Loan Banks has picked up a bit recently after a spike during the regional-bank crisis earlier this year: And borrowing from the Fed’s BTFP facility has remained robust, even though banks haven’t done much discount-window borrowing. (If we remember correctly, the “other credit extensions” category is related to wrapping up banks that failed or were acquired earlier this year): © Federal Reserve, Goldman SachsBanks haven’t had to access the standing repo facility though, which is probably a good thing. Anyway, GS echoes some Fed economists and academics to estimate that the US central bank will stop balance-sheet roll-off when reserves make up 12 to 13 per cent of bank assets. They give their full projected timeline below: Our model suggests that short-term rates will start becoming more sensitive to changes in reserves around 2024Q3, and we expect the FOMC to begin considering changes to the speed of run-off at that point and then to slow the pace of balance sheet reduction in 2024Q4 by cutting the monthly run-off caps in half from $60bn to $30bn for Treasury securities and $35bn to $17.5bn for MBS securities.We expect run-off to finish in 2025Q1, when bank reserves are 12-13% of bank assets (vs. 14% currently), or roughly $2.9tn (vs. $3.3tn currently), and the Fed’s balance sheet is around 22% of GDP (vs. around 30% currently and 18% in 2019). As run-off progresses, we expect the spread of the fed funds rate to the IORB rate to rise by 5-10bp over the next year, from -7bp currently.There are risks, of course. There’s the uneven distribution of reserves highlighted above, which means smaller and midsized banks could start feeling strain and pushing up repo rates before their larger peers. Banks have more options for funding than other market participants (the standing repo facility, the discount window, the BTFP, etc). But that doesn’t necessarily mean the banks will use them even when needed (see SVB and the discount window).And of course, there’s always the issue of good old supply and demand:The key risk to our forecast is that the increased supply of debt that we expect in 2024 causes intermediation bottlenecks in the Treasury market that lead the Fed to stop run-off earlier. More

This month, China’s new finance minister Lan Fo’an told markets what they had been waiting to hear — Beijing would boost budget spending to support a delicate post-pandemic recovery in the world’s second-largest economy.China is to deploy an arsenal of local and central government bonds, including a new Rmb1tn treasury facility — which will push Beijing’s budget deficit up to a two-decade high of 3.8 per cent this year, Lan said, to “maintain fiscal spending intensity at an appropriate level”. But while the message was welcomed by investors, many analysts question just how much budgetary firepower Beijing really has to boost flagging confidence in the economy and drive stronger momentum for growth. With economic growth slowing and Beijing’s former investment-led development model losing steam, tax revenue is under pressure, analysts say. Beijing is reluctant to borrow more, given that it has huge pools of bad debt to resolve at the local government level.“This is the longer-running story — that fiscal policy has been constrained for the last three to four years,” said Logan Wright, director of China markets research at Rhodium Group. “[And] it’s becoming more and more constrained in terms of what it can actually do.”This year, as the economy struggled to rebound from a downturn wrought by zero-Covid controls in 2022 and a property slowdown, the government responded with incremental easing measures.  Beijing is reluctant to ramp up leverage as it did after the financial crisis in 2008, when it unleashed a Rmb4tn stimulus then worth 13 per cent of gross domestic product.  You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.This time around, the central government has not leveraged what, on the face of it, is a relatively clean balance sheet, analysts say. Compared with local governments, which have debt worth about 76 per cent of GDP, the central government had only about 21.3 per cent last year, according to Wright. “We would argue Beijing has considerable fiscal resources at its disposal,” said Fred Neumann, chief Asia economist at HSBC. He said Beijing had room to add more debt worth about 20-30 percentage points of GDP, which would go a long way to solving local government debt problems. IMF analysts also said in a paper released in August that China’s net financial position, taking into account its assets such as equity holdings, was among the top 15 in the world, at 7.25 per cent of GDP, though this has been steadily declining and the valuation of the assets were subject to uncertainty because of factors including liquidity. Most analysts believe, however, that the central government’s real debt obligations are much bigger than the numbers suggest. Beijing acts as the ultimate backstop for the country’s total government debt, estimated by Rhodium’s Wright at 142 per cent of GDP last year, including that held by the central government, policy banks, local governments and local government financing vehicles (LGFV) — off balance sheet entities that raise their own funds.“In China, the boundaries are a bit blurred,” said Hui Shan, economist at Goldman Sachs, on how to calculate the government’s total debt liabilities. “At what point does an LGFV’s obligations end before they become the responsibility of the local government — it’s hard to draw that line.” You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Resolving local government debt problems has become one of the most urgent issues for Beijing. Upgrading China’s economic growth forecast for this year to 5.4 per cent from 5 per cent, the IMF said that Beijing still needed to “implement co-ordinated fiscal framework reforms”.Since September, Beijing has been asking state banks to lower interest charges and extend the tenure of local government loans, Gavekal Dragonomics wrote. Beijing has also been allowing provincial governments to issue bonds to repay LGFV debts. By early November, at least 27 provinces and one municipality had issued Rmb1.2tn of the bonds, which use quotas for local government bond sales that were allocated in previous years but not fully utilised. By bailing out local governments with another round of bond swaps — the last one was in 2015-18 — the central government was prioritising “preventing risk”, Gavekal said. That meant stopping damaging defaults in the bond market that could have a huge ripple effect. This comes at the expense of promoting a sense of moral hazard among local government borrowers. But there are signs Beijing is becoming less demanding on local governments over growth targets, which should lessen the need to overborrow in the future. “The message goes out to local government officials that ‘we’re not putting quite as much pressure on you as in the past to achieve exceptionally high rates of growth, so you don’t need the LGFVs as much as in the past’,” said Chris Beddor, deputy director of China research at Gavekal. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.But the central problem of inadequate government revenue generation will still remain, analysts say. Under reforms in 1994, the central government controls tax revenue while local governments are responsible for more services. Short of cash to meet all their obligations, many local governments have typically overborrowed. “The fiscal structure is really why we got into this mess. So there needs to be ultimately a change in political incentives, maybe a change in the fiscal structure in order to get us out of it,” said Beddor.But the other critical problem was that as China’s old debt-fuelled investment model switched towards a more consumption-based one, revenues from land sales and value-added taxes had fallen, particularly as the property market had imploded in recent years. Aggregate tax collection to GDP is down from 18.5 per cent in 2014 to 13.8 per cent last year, Rhodium’s Wright said.The Chinese Communist party could increasingly face stark choices about how to balance social and development needs with some of President Xi Jinping’s strategic objectives, such as developing high-tech industries or overseas infrastructure projects. “There’s a bigger problem of how do you maintain fiscal resources in the system,” Wright said. “And the point is, China faces very meaningful trade-offs between all of these adjustments.”  China could increase its fiscal deficit further but this was already high at an aggregate 7 per cent of GDP, Wright said. “Yes, you can ramp that up to 8-9 per cent, but then there’s almost nowhere to go,” he said. “It’s really hard to continue to expand.” More