Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The European Central Bank will not begin cutting rates for at least “the next couple of quarters”, its president Christine Lagarde has said.Lagarde told the Financial Times Global Boardroom conference on Friday that eurozone inflation would come down to its 2 per cent target if interest rates were kept at their current levels for “long enough”.But she added: “It is not something that [means] in the next couple of quarters we will be seeing a change. ‘Long enough’ has to be long enough.”The ECB last month left its benchmark deposit rate unchanged, ending a series of 10 consecutive increases that has taken it from a record low of minus 0.5 per cent last year to an all-time high of 4 per cent in an attempt to tame inflation.Markets are now pricing in a 75 per cent probability of a rate cut by the ECB by April, up from a 30 per cent chance in early October. Lagarde said eurozone inflation could still rebound from its recent two-year low, especially if there is another supply shock from the energy sector.Inflation in the 20-country single currency bloc slowed to 2.9 per cent in October, down from its peak of 10.6 per cent a year earlier. But core inflation, which strips out volatile energy and food prices, remained at 4.2 per cent — more than double the ECB’s target.“We should not assume this 2.9 per cent respectable headline rate can be taken for granted,” Lagarde said. “Even if energy prices were to remain where they are, there will be a resurgence of probably higher numbers going forward and we should be expecting that.”Already halfway through her eight-year term after replacing Mario Draghi in 2019, Lagarde has had to deal with a series of shocks that have exposed the fragility of the eurozone economy, including the coronavirus pandemic and Russia’s full-scale invasion of Ukraine.Criticised for being too slow to tackle the biggest surge in inflation for a generation, Lagarde has overseen the most aggressive increase in interest rates in the history of the ECB. Now she is trying to pull off a delicate balancing act: keeping borrowing costs at an elevated level for long enough to be sure that price pressures have been tamed, without causing a destabilising recession or a renewed debt crisis in the region. The eurozone economy ground to a halt this year, with gross domestic product shrinking 0.1 per cent in the three months to September after growing only 0.2 per cent in the previous three quarters. Some economists think it could contract again in the fourth quarter.Lagarde said: “We are in this fascinating race against time where the calibration of our monetary policy has to be sustainable and subtle at the same time.”Asked about the financial sustainability of some highly indebted eurozone members, such as Italy — where debt levels have risen above 140 per cent of GDP — she said: “Many countries have taken advantage of very low interest rates to extend the maturity of their debt.” Lagarde pointed out that the average debt service cost of eurozone countries was only 1.7 per cent. “But it is a fact that there will be refinancings coming up as redemptions come along, and the cost of financing will be increasing,” she added.Lagarde said she was “a little bit reassured” by early signs that the finance ministers of Germany and France had this week moved closer towards agreeing on new fiscal rules for EU countries, which she said was “critically important” to achieve.The EU’s Stability and Growth Pact, which governs national spending and borrowing and is widely seen as unworkable, has been suspended since the pandemic hit in 2020 but is due to come back into force next year unless a reform is agreed before then. More

SINGAPORE/LONDON (Reuters) -The dollar was on track for its best week against the yen in three months on Friday, after Federal Reserve Chair Jerome Powell and other officials said the central bank may have to hike rates again.Fed policymakers, including Powell, said on Thursday they are not sure that interest rates are high enough to finish the battle with inflation. Investors saw the comments as hawkish, pushing bond yields and the dollar higher.The dollar traded at 151.40 yen, not far off recent one-year highs. It was on track for a weekly gain of 1.39% against the yen, its biggest increase since August. “Powell’s speech was quite hawkish, and that just really hit sentiment,” said Tina Teng, market analyst at CMC Markets (LON:CMCX).The yen’s weakness has kept traders on alert for signs the Japanese government will intervene to support the currency. Authorities intervened twice last year in response to a slump in the yen.”It does raise the risk of the BOJ stepping into the (forex) market to strengthen the yen, but I think markets are expecting no intervention unless dollar/yen moves to about 152,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY).The dollar index, which tracks the currency against six major peers, was a touch softer at 105.81 on Friday. It was on track to gain 0.7% this week, and set for its biggest weekly rally since Sept.10.The dollar dropped last week when the Federal Reserve held interest rates steady at 5.25% to 5.5% and some weaker-than-expected U.S. economic data weighed on Treasury yields. Meanwhile, the euro edged higher and was last trading at $1.0683, after falling 0.4% on Thursday.European Central Bank interest rates kept at a record high for long enough could return inflation to the bank’s 2% target, ECB President Christine Lagarde said on Friday.Sterling was steady at around $1.2219, after data showed the UK economy stagnated in the third quarter.Bitcoin, the world’s largest cryptocurrency, held near an 18-month high and last bought $36,075, having peaked at $37,978 in the previous session, its highest level since May 2022.Prices of the digital assets have surged after speculation of an imminent approval of BlackRock (NYSE:BLK)’s spot bitcoin ETF, with the asset management giant also having registered to create an ethereum trust.A spot crypto ETF would make the sector “more accessible for institutional investors to enter the crypto space, likely boosting demand and subsequently prices,” said Carl Szantyr, managing partner of digital asset hedge fund Blockstone Capital.The Norwegian crown jumped after data showed Norway’s inflation was stronger than expected in October, boosting market rate hike expectations. The dollar was last down 0.9% at 11.127 crowns to the dollar. More

(Reuters) – A U.S. judge has blocked the U.S. Department of Justice from pursuing an administrative case accusing Elon Musk’s SpaceX of illegally refusing to hire refugees and asylum recipients. U.S. District Judge Rolando Olvera in Brownsville, Texas said in a written order late Wednesday that administrative judges at the Justice Department who hear cases involving anti-immigrant bias were not properly appointed.Olvera blocked the department’s case, which was filed in August, from moving forward pending the outcome of SpaceX’s September lawsuit claiming the administrative case violates the U.S. Constitution. The Justice Department and SpaceX did not immediately respond to requests for comment on Thursday. The Justice Department claims that from at least 2018 to 2022, the rocket and satellite company routinely discouraged asylum recipients and refugees from applying for jobs, and refused to consider or hire them.In job postings and public statements, SpaceX wrongly claimed that under federal regulations known as export control laws, it could hire only U.S. citizens and lawful permanent residents, known as green card holders, the Justice Department said.The department cited a June 2020 post on X, formerly called Twitter, by Musk that said: “U.S. law requires at least a green card to be hired at SpaceX, as rockets are advanced weapons technology.”SpaceX has denied wrongdoing and said that it has hired hundreds of non-U.S. citizens. In its lawsuit, the company claims that administrative judges are appointed by the U.S. attorney general but have powers that should be reserved only for officials appointed by the president.Olvera on Wednesday agreed. Because federal law does not give the attorney general the ability to review the judges’ decisions, the Constitution requires that they be appointed by the president and confirmed by the U.S. Senate, the judge said. More

The World Bank funds are designated for a deposit insurance scheme designed to protect small savers possessing less than 1.1 million rupees ($3,400), comprising 90% of deposits. This move comes as an effort to bolster confidence among savers and stabilize the nation’s financial system.Despite an anticipated economic contraction in 2023, there are signs of recovery in Sri Lanka’s economy. The inflation rate has fallen below two percent after peaking at nearly 70% during the height of the crisis over a year ago.Earlier this year, Sri Lanka secured a $2.9 billion bailout from the International Monetary Fund (IMF) over a period of 48 months. However, the disbursement of a $330 million installment has been delayed since September due to unresolved issues related to foreign debt restructuring. This delay underscores the ongoing challenges Sri Lanka faces in managing its foreign debt obligations and working towards economic recovery.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

LONDON/SINGAPORE (Reuters) – U.S. stocks looked set for a mixed to lower start on Friday, while the dollar was steady as hawkish comments from U.S. Federal Reserve Chair Jerome Powell dashed expectations of a peak in interest rates. At 1210 GMT, S&P 500 futures were flat while Nasdaq futures dipped 0.2%.Globally, mood music was sombre, with MSCI’s broadest index of world shares hovering near a one-week low of 659.86, down 0.4% and on track for a fourth session of losses and a weekly decline of about 0.5%. European stocks spent the session in the red with the STOXX 600 down 1% by 1215 GMT. Germany’s DAX dropped 0.8% while France’s CAC 40 and Britain’s FTSE both tumbled over 1%. Fed officials including Powell on Thursday expressed uncertainty about their battle against inflation and added that they would tighten policy further if need be.Powell’s comments along with a weak auction of $24 billion in 30-year Treasuries pushed yields higher, casting a shadow on equities and providing support to the dollar. [US/] “Weak demand for long US paper makes investors wonder if spiralling deficits could erode the effectiveness of monetary policy,” Kenneth Broux at Societe Generale (OTC:SCGLY) said in a note, adding this would be a main investor theme for 2024 as the United States prepares for presidential elections.Investors had looked for signs of a U.S. interest rate peak after the Fed held rates steady last week, a move that bolstered speculation that the tightening cycle was over, spurring a short-lived rally in risky assets. Some investors said Powell’s hawkish leaning on Thursday may have been the result of a recent softening of financial conditions after yields have tumbled in recent weeks.”The recent decline in U.S. yields has sparked questions about the necessity for the Fed to increase rates further, especially if market yields continue to adjust downward,” Bruno Schneller, managing director at INVICO Asset Management. The three major U.S. stock indices closed lower on Thursday, snapping the longest winning streaks for the Nasdaq and S&P 500 in two years as market bets on looser monetary policy faded. [.N] U.S. rate futures have priced in about 60% chance of a rate cut at the Fed’s June 2024 meeting, according to the CME’s FedWatch tool, compared to odds of about 70% before Powell’s speech. Traders would be keeping a close watch on interest rate volatility, said INVICO’s Schneller, who noted that recently the markets had seen significant fluctuations.”A primary cause for this volatility is the debate over whether the current Fed funds rate is overly high or insufficient,” he said. Asian stocks closed the day down as worries over the world’s second-biggest economy resurfaced after data on Thursday showed Chinese consumer prices dipped again. Tapas Strickland, head of market economics at NAB, said the data keeps the pressure on Beijing to continue with its incremental easing in monetary and fiscal policy.The yield on 10-year Treasuries stood at 4.6142%, having gained 12 basis points on Thursday, their largest one-day gain in three weeks.In currency markets, the dollar index tipped down 0.07% from its overnight gains and was last at 105.85. The dollar stood near a one-year high at 151.43 yen and touched one-week highs against the Australian and New Zealand dollars. [FRX/]Brent rose 95 cents to $80.96 a barrel while U.S. crude rose 90 cents to $76.64 a barrel, both up close to 1% on the day. The oil market has been reeling this week on demand concerns, with a fading war risk premium triggering a sell-off. [O/R]Spot gold dipped about 0.5% to $1,947.60 per ounce and was on track for its worst week in more than a month, down 1.8%, as elevated yield and stronger dollar weighed. In cryptocurrencies, bitcoin and ether held near multi-month highs, with renewed speculation over the imminent approval of an exchange-traded bitcoin fund breathing new life into the digital assets. More

(Reuters) – Palladium prices have tumbled to five-year lows below $1,000 an ounce this week, hastening a retreat triggered by expectations of surpluses due to the rapid spread of electric vehicles and automakers choosing cheaper platinum for their autocatalysts.Prices of the metal, used by automakers in engine exhausts to reduce emissions, have slumped 70% from all-time highs of $3,440.76 hit after Russia invaded Ukraine.Spot palladium was last down 4.3% to $948.93 per ounce. Down 45% so far this year, palladium is on course for its worst year of losses since 2008, when the financial crash hit demand.Top producer Russia’s Nornickel expects the palladium market to swing to a surplus of 300,000 ounces in 2024 from a 200,000-ounce deficit in 2023 due to supplies, boosted by recycling, outpacing demand.”Prices look set to collapse further below $1,000/oz with little support in a market driven lower by worsening demand,” said SP angel analyst John Meyer.Demand for palladium has also come under pressure from the drive to cut carbon emissions from cars with internal combustion engines (ICE) and the shift to battery-powered electric vehicles.”If…electric vehicle sales increase as a share of total vehicle sales from 14% in 2022 to 18% this year and more than 20% next year then this spells troubles for ICE vehicles and palladium demand,” said Marex analyst Edward Meir.Electric car sales globally are expected to surge 35% this year to 14 million units, according to the International Energy Agency’s annual outlook released in April.Also hanging over the market is the large combined inventory at fabricators and manufacturers.Consultancy Metals Focus forecasts above-ground palladium stocks of about 11.64 million ounces in 2023, compared with 12.35 million in 2022 and 12.89 million in 2021 – meaning ample supplies.In March 2022, palladium was trading at more than double the price of platinum, prompting a switch by automakers.”In the near-term, given investor short positions in CME futures (looking at the CFTC data as a proxy) look very extended and demand is improving… I would think that a rebound is likely. However, longer-term Metals Focus is quite bearish on palladium,” said Nikos Kavalis, managing director at Metals Focus. More

Recent episodes of liquidity strains, like that at the start of the pandemic notwithstanding, the Fed’s approach does reduce liquidity by removing incentives for banks to economize on their holdings of reserves at the central bank, which are by any measure the most liquid of any assets, Logan said in remarks prepared for delivery to a European Central Bank conference in Frankfurt.But the approach does not eliminate liquidity risk, she said, adding that “all players have work left to do to fully gain the benefits of these systems.”Logan, whose years of work managing the Fed’s bond portfolio in her prior job at the New York Fed mean that her views on the subject of liquidity will garner attention, did not touch on her economic or monetary policy outlook in her prepared remarks. But she did go through a number of ways that banks, the Fed and other market participants could minimize risks of liquidity strains, including requiring banks to maintain access to the Fed’s emergency lending facility, known as the discount window, and to test that access regularly. The Fed bought up trillions of dollars of Treasuries and mortgage-backed securities in March 2020 and afterwards to stabilize the financial system and to protect the economy from a disastrous collapse. The Fed is now in the process of reducing those holdings, and Logan said it’s important to continue doing so. “Our primary economic challenge is not a deep recession but rather too-high inflation,” Logan said. “In this environment, it is important to remove economic stimulus by returning our assets to the level needed to supply ample — not abundant — reserves.” More

(Reuters) -Wall Street futures were listless on Friday after Federal Reserve Chair Jerome Powell’s hawkish commentary stifled hopes of interest rates having peaked, with investors awaiting key economic data next week for cues on the monetary policy path.Powell on Thursday said central bank officials “are not confident” that interest rates are yet high enough to finish the battle with inflation and would not hesitate to tighten policy further if needed.The hawkish comments ended a strong run of gains on Wall Street which had been driven by expectations that the Fed was done with its hiking cycle after the central bank kept rates unchanged at its last meeting.The S&P 500 and the Nasdaq snapped their longest winning streak in two years in the previous session.”With markets having been remarkably jittery in the wake of Powell’s appearance, the market confidence seen of late clearly stands on relatively unstable presumptions,” said Joshua Mahony, chief market analyst at Scope Markets.However, with inflation likely to continue its downward trend, “there is a strong chance that we see rates remain steady from here on in,” Mahony adds.Traders have priced in an about 60% chance of a rate cut by the Fed at the June meeting, compared with expectations of a cut in May before Powell spoke, according to the CME Group’s (NASDAQ:CME) FedWatch tool. While this week has been light in terms of economic data, investors will get reports on consumer and producer prices as well as retail sales next week, which will further shape interest rate expectations ahead of the Fed’s December meeting.The University of Michigan is set to issue a preliminary reading on its consumer sentiment index for November at 10 a.m. ET. At 7:02 a.m. ET, Dow e-minis were up 36 points, or 0.11%, S&P 500 e-minis were down 2 points, or 0.05%, and Nasdaq 100 e-minis were down 33 points, or 0.22%. The yield on 10-year Treasury note stood at 4.6539%, extending gains from the previous session after a weaker-than-expected 30-year bond auction and Powell’s remarks. [US/]Megacap growth stocks Alphabet (NASDAQ:GOOGL), Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA) fell between 0.5% and 1.2% in premarket trading. Among other stocks, gaming software maker Unity Software and hydrogen fuel-cell firm Plug Power (NASDAQ:PLUG) plunged 14.9% and 32.0% respectively, on missing third-quarter revenue estimates.Illumina (NASDAQ:ILMN) shares dropped 10.5% premarket as the gene-testing company trimmed its full-year profit forecast for the second straight quarter. More