Economy

By Rodrigo CamposNEW YORK (Reuters) -Investors who have been rewarded for their bets on Argentine President Javier Milei are doubling down on the country’s stocks and bonds even as they hit records, betting that an austerity crusade will pay further dividends.Milei won the presidential election a year ago with a mandate to reshape South America’s second-largest economy, pledging to take a chainsaw to government spending and slam the brakes on printing more pesos.A renegade campaign endeared him to Argentines fed up with the establishment, and with just enough legislative support to withstand a veto override, Milei pushed through a key reform bill that included steep spending cuts. The government recently marked its tenth consecutive monthly primary fiscal surplus. A tax amnesty has brought some $18 billion to local banks.Milei’s swift initial move to cut spending and stop printing cash was “one that investors can very easily buy into,” said Graham Stock, emerging markets senior sovereign strategist at RBC Global Asset Management.What is surprising, he said, “is that the population has bought into it, and that has meant that his popularity has held up pretty well. Given the scale of the spending cuts, it’s pretty remarkable that he remains as popular as he does.”A survey closely watched by markets from the Torcuato Di Tella university showed confidence in government, a proxy for Milei’s standing, rebounded in October after a September slip. Going back to 2003, only Peronist Nestor Kirchner and center-right Mauricio Macri scored better than Milei at this point of their term.Other surveys show Milei’s popularity and disapproval ratings at around 50-50.Argentina is in the second year of a recession, with the International Monetary Fund estimating a 3.5% contraction in economic output this year. At the same time its dollar bonds have returned almost 90% this year, and the local stock market is up 125%.But inflation remains at triple digits and the peso has weakened 19% this year, even if supported by currency controls, so most workers still struggle with the cost of living. More than half of Argentina’s 46 million people live in poverty.THIS TIME IS DIFFERENTMacri’s presidency also attracted investors to Argentina’s financial assets, with stocks hitting record highs starting in 2015 and buyers lining up for a 100-year bond issued in 2017. It ended in tears – and default – after the economy stalled and inflation surged, paving the way for the Peronists to return.But Argentina bulls insist history is not about to repeat itself.”I think there’s a lot of confidence that if there is a path towards normality, this is probably the only administration that could do it,” said Thomas Haugaard, portfolio manager of EM debt at Janus Henderson.”I’m not saying that they will be able to do it, but there is a shot at it, and they have proven it without too much unrest on the streets.”There have been some street protests, especially over cuts to university budgets and when an increase in pension pay was blocked. But the government’s focus on inflation has addressed a major popular concern. As monthly consumer prices decelerated in October, JPMorgan updated its end-2025 inflation target for Argentina at an annualized 29%, which would be the lowest since 2017.”I think it comes down to how fast Milei will be able to get the turnaround,” said Gordian Kemen, head of EM sovereign strategy (West) at Standard Chartered (OTC:SCBFF) Bank. “Will he be able to generate enough jobs, enough well-being for the electorate before it comes to the midterm election?”Argentina’s October 2025 midterms, which will decide half of the seats of the lower legislative Chamber of Deputies and a third of the Senate, will provide a key barometer of his chances of not just enacting his economic plan but becoming an established political force.”I’m not saying that Milei has to be at peak popularity at all times. I’m just saying that you don’t want to see him become unpopular for some reason,” said Shamaila Khan, head of fixed income for Emerging Markets and Asia Pacific at UBS Asset Management.”What we’re watching is that there is nothing that hinders or deviates from the policies that the country has been pursuing. The possibility that the country doesn’t need another restructuring is slowly starting to get priced in.”Some investors are hoping Argentina will get an additional market boost from the president’s newfound alliance with U.S. President-elect Donald Trump, whom Milei met in Florida last week. He was the first foreign leader to meet the Republican since he won the election.”There should be close policy alignment between the U.S. and Argentina, and that should translate into the U.S. supporting Argentina for various issues, including IMF renegotiations,” said Standard Chartered’s Kemen.Argentina’s payments to the IMF total just over $3 billion in 2025, and increase annually to near $9 billion in 2028. That should not be a problem for a $600 billion economy, but building up dollar reserves remains an issue.Yet investors take comfort from the approval of a $57 billion IMF program during the first Trump presidency.”They have huge financing needs coming up. They need more money from the IMF and at some point they need market access,” said Janus Henderson’s Haugaard.”In Argentina you’re getting more comfortable with the management of the country, but it is not ‘I buy Argentina, I put it in a drawer and I sleep’. This is, of course, something where dynamics can change quickly.” More

Food prices are a problem area but, other than that, inflation poses no challenge, economic affairs secretary Ajay Seth said at an event in New Delhi.Retail inflation in India soared to its highest level in 14 months in October, partly due to high prices of edible oils, onions and tomatoes.The Indian government’s infrastructure spending, critical to one of the world’s fastest economic growth rates, has been slow in the current year due to national elections. Between April and September, the government spent just over 37% of its budgeted target of 11.1 trillion rupees for 2024-25, compared with 49% of the previous year’s target, according to government figures. But Seth said the government saw no downside risks to its growth projection of 6.5%-7% for fiscal year 2024-25. More

In its Financial Stability Report for the second half of the year, the bank said households’ financial position continues to improve but remains below pre-pandemic levels.It said the local banking system had enough guarantees and capital to withstand severe shocks. Despite that, the bank said the main risk to domestic financial stability was posed by external factors.”Elevated levels of public and private debt in the world, along with high deficits, are the main worry,” the report said, noting this had led to high long-term interest rates.It added that rising geopolitical tensions over the past few months could have a negative impact on stability. Those most impacted would be groups the bank considers “most vulnerable”.On Tuesday the bank’s board voted unanimously to keep capital requirements for risk assets at the current level of 0.5%, a measure activated in May 2023 that obliges banks to set aside a cushion to absorb potential losses. More

BENGALURU/BEIJING (Reuters) – The United States could impose nearly 40% tariffs on imports from China early next year, a Reuters poll of economists showed, potentially slicing growth in the world’s second-biggest economy by up to 1 percentage point.The poll, the first on China’s economy by Reuters since Donald Trump’s sweeping election victory on Nov. 5, also predicts that the President-elect will resist starting off with blanket 60% tariffs on Chinese goods. Trump, who is due to take office in January, pledged during campaigning to slap hefty tariffs on Chinese imports as part of a package of “America First” trade measures, causing unease in Beijing and heightening growth risks for China.Not only are the threatened tariff rates much higher than the 7.5%-25% levied on China during his first term, the economy is also in a much more vulnerable position given the prolonged property downturn, debt risks and weak domestic demand.A poll of more than 50 economists by Reuters from Nov. 13-20 showed a strong majority, both in and outside mainland China, expects Trump to impose the tariffs by early next year, with a median estimate of 38% and projections ranging from 15% to 60%.Most respondents said they do not expect blanket 60% tariffs on Chinese goods in early 2025 as this could accelerate inflation within the United States.”We expect the new U.S. administration to bring back the original plan of Trump 1.0,” ANZ’s chief economist Raymond (NS:RYMD) Yeung said, estimating that the average tariff on Chinese goods could be raised by 32–37%. Chinese policymakers, who have ramped up stimulus to spur growth since late September, face increased pressure next year to spur domestic demand to offset an expected drop in exports – a key growth driver this year, analysts say.On the potential impact on China, the poll predicted that new U.S. tariffs would reduce China’s 2025 economic growth by around 0.5-1.0 percentage point.For now, however, most of the economists polled have maintained their median growth forecasts for this year and 2025 at 4.8% and 4.5%, respectively, consistent with projections made before the U.S. elections. Growth is expected to slow further to 4.2% in 2026. They are awaiting the Trump administration’s China trade policies, which could lead to potential downgrades in their outlooks.”Exports will be a key pillar of growth as global demand holds up, though new U.S. tariffs could shave up to 1 percentage point off GDP growth,” said Mo Ji, chief China economist at DBS. “Consumption will remain lacklustre due to wealth effects from falling property prices and rising unemployment. Infrastructure investment will drive a moderate fixed asset investment recovery, though private investment lags.”MORE STIMULUS EXPECTEDA strong majority of economists, or 19 of 23 who responded in the poll, said the recent fiscal and monetary stimulus measures announced by the Chinese government have had little impact on the economy and more stimulus is needed. Only four said that these measures would boost economic growth.Chinese authorities hope the burst of stimulus unveiled since late September would help the economy reach a government growth target of around 5% this year.China is likely to unveil fresh stimulus measures in the coming weeks to help cushion the economy from any trade tensions with the United States, say analysts, who expect the economy’s slowing trajectory will continue despite policy support.”We think the Chinese government still has time to monitor and react to the U.S. policy and its effect on China growth and then introduce policy responses at a later stage,” said Jian Chang, chief China economist at Barclays (LON:BARC).Economists polled by Reuters have also lowered their consumer price inflation forecasts to 1.1% for next year and 1.4% for 2026, down from the previously expected 1.4% and 1.6% in the October survey. The People’s Bank of China is expected to cut its key policy rate – the seven-day reverse repo rate – by 20 basis points to 1.30% early next year, with an additional 10 basis point reduction in the second half, according to the poll.(For other stories from the Reuters global long-term economic outlook polls package:)($1 = 7.2419 yuan) More

BENGALURU (Reuters) – The U.S. Federal Reserve will trim interest rates next month but make shallower cuts in 2025 than expected just a month ago due to the risk of higher inflation from President-elect Donald Trump’s proposed policies, according to most economists in a Reuters poll.Prospects for a price resurgence based on his planned policies, including higher tariffs and tax reductions, led markets to nearly halve rate cut pricing to around 75 basis points by end-2025 over the past few weeks.Relentless economic strength, stubborn inflation and stock markets flirting with record highs have become barriers against hasty rate cuts. Fed Chair Jerome Powell said last week “the economy is not sending any signals that we need to be in a hurry to lower rates.”Still, nearly 90% of economists, 94 of 106, in the Nov. 12-20 Reuters poll expected a 25bp cut in December, taking the fed funds rate to 4.25%-4.50%. Twelve expected no change, compared to only three in last month’s survey.But market pricing showed there is now less than a 60% chance of a December cut. Until recently only a few were betting against such a move.”We’re still calling for a December cut. We think the data will behave. But you can see why markets kind of pricing another sort of coin flip…the economy is still very strong, inflation is still running above target,” said Stephen Juneau, a U.S. economist at Bank of America.”We’ll see deregulation, easier fiscal policy, more protectionist trade policy and a tighter immigration stance. They all kind of pose an upside risk to inflation…the Fed is unlikely to cut as deeply as we previously considered because they’re going to see inflation continue to be stuck above their target.”BofA recently upped its terminal fed funds rate forecast to 3.75%-4.00% from 3.00%-3.25%.The inflation outlook over the next two years was broadly upgraded from last month, poll medians showed, with personal consumption expenditures (PCE) inflation – the Fed’s preferred gauge – predicted to mostly remain above the Fed’s 2% target until at least 2027.An 85% majority, 57 of 67 respondents, said the risk of inflation resuming next year had risen.Most economists said Trump’s proposed tariffs would be implemented early next year, which according to a strong majority, 44 of 51 will have a significant impact on the U.S. economy.Tariffs on imports from China could shave up to 1 percentage point from Chinese economic growth next year, a separate Reuters poll showed.”A universal tariff… on all imported goods and even higher tariffs on Chinese goods are likely to lead to a rebound in inflation,” said Philip Marey, senior U.S. strategist at Rabobank.”Keep in mind unemployment is still relatively low and, especially with increased border security, it would not take long for wage pressures to creep back up. This only reinforces our long-held call the Fed’s cutting cycle will be cut short in 2025.” The Fed will deliver a 25bps cut in the first three quarters but then be on hold, poll medians showed, putting the fed funds rate at 3.50%-3.75% by end-2025, 50bps higher than last month’s projection. But there was no clear consensus.Nearly 30% of economists, 29 of 99, predicted the rate to be in a 3.75%-4.00% range or higher and 28 saw it at 3.50%-3.75%, higher than the Fed’s 2.9% current estimate of the neutral rate, which neither stimulates nor restrains the economy.Among 72 common contributors in this and last month’s poll, two-thirds, 48, lifted their end-2025 rate forecasts by around 50bps on average.The U.S. economy, which grew an annualized 2.8% last quarter, will expand 2.7% this year and 2% in 2025 and 2026, poll medians showed. That is faster than what Fed officials currently see as the non-inflationary growth rate of 1.8% over coming years.(Other stories from the Reuters global economic poll) More

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SYDNEY (Reuters) – The mandate for Australia’s sovereign wealth fund will grow to include domestic housing, energy and infrastructure in a major revamp unveiled on Wednesday that nudges the A$230 billion ($150 billion) fund towards government priorities.The changes add new mandates for investments that build more housing and infrastructure, or speed the carbon emission transition to net zero as long as they are “possible, appropriate and consistent with strong returns.” The fund’s return target will not change.”This will mean more investment where we need it most but not at the expense of returns,” Treasurer Jim Chalmers said in a statement.A domestic emphasis is common among sovereign wealth funds. Saudi Arabia’s Public Investment Fund increasingly invests at home, while Singapore’s state-owned investor Temasek holds a quarter of its assets domestically. However, months before an election, the decision is likely to draw criticism from opponents who see the changes as an extension of the centre-left Labor government’s political priorities.The former chairman of the fund, a long-time treasurer in previous conservative governments, warned last year against spending the fund on political projects.Chalmers said the fund’s board had been consulted on the changes.The Future Fund was set up in 2006 with proceeds from the sale of state telco Telstra (OTC:TLGPY) to cover unfunded pension liabilities and bolster the government’s balance sheet.Chalmers pledged to delay drawing on the fund until at least 2033 so it has more time to grow. By then the government expects it to hit A$380 billion in assets.($1 = 1.5326 Australian dollars) More

$1 for 4 weeksThen $75 per month. Complete digital access to quality FT journalism. Cancel anytime during your trial.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More