Economy

In the minutes of the meeting held on October 31-November 1, when the bank cut the benchmark interest rate by 50 basis points to 12.25%, it said that its rate-setting committee was unanimous in its assessment that the increased uncertainty in the global scenario calls for caution.One of its members stressed that this scenario introduces an asymmetric upward bias in the balance of risks for inflation.”There has been significant disinflationary progress, in line with what the Committee had anticipated, but there is still a long way to go to anchor expectations and return inflation to the target,” it said.Last week, policymakers emphasized an “adverse” external backdrop for emerging economies, but still anticipated further cuts of the same size for the next meetings.The central bank deliberated in the minutes on the various ways in which higher U.S. interest rates could impact the Brazilian economy, highlighting potential effects on interest rates, forward premium in the interest rate curve, external demand, exchange rates, neutral interest rates, and commodity prices.Following the outbreak of the Israeli-Hamas conflict, the bank noted that the exchange rate and the oil price have had moderate changes so far, despite the severity of such events and “the substantial movement in the prices of international assets”.”When incorporating the multiple transmission channels into a more uncertain environment, (rate-setting committee) Copom evaluates as appropriate to adopt a more cautious stance in face of the risks involved,” the minutes said.Policymakers also pointed out higher uncertainty related to Brazil’s fiscal target, which led to an increased risk premium, reaffirming the importance of firmly pursuing such goal.President Luiz Inacio Lula da Silva recently said his government did not need to erase its primary budget deficit next year, as previously proposed to Congress under new fiscal rules, triggering a negative reaction from local markets amid concerns that the country’s public debt might grow more than expected. More

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NEW YORK (Reuters) – Some Americans who have been priced out of the tight residential real estate market are turning to prefabricated homes, helping to power a nascent recovery in sales of a far less expensive home-buying option.Shipments of manufactured homes were up for five months in a row through August, the most recent month for which data is available, according to the Census Bureau. They have risen by 7% to a seasonally adjusted annualized rate of 89,000 from 83,000 in March, the lowest since May 2020. A combination of high mortgage interest rates and high prices for both new and existing properties has put purchasing a home beyond the reach of many prospective buyers. That appears to be boosting demand in the prefabricated housing market, a sector that has lost market share in the past decade. “Interest rates are pushing people who are on the cusp of being able to afford building a new custom home out of the running right now,” said Brian Abramson, CEO of Method Homes, a higher-end modular homes builder. “There’s going to be continued interest in prefabricated homes because it’s a window to building.” Unlike homes built on site, Abramson said factory-built homes don’t require nearly as much on-site labor and don’t face the project cost-escalations common to “stick-built” houses.Method Homes saw a 10% increase in incoming business this year through the third quarter on the heels of no growth in 2022, Abramson said.OVERCOMING STIGMAElevated rates on home loans in response to the Federal Reserve’s rate-hike cycle have cut into buyer affordability, with the average mortgage payment for a new home loan taken out in September costing 11% more than last year’s average of $1,941, according to the Mortgage Bankers Association. The average contract rate on a 30-year fixed mortgage rose to 7.90% last month, the highest in over two decades.As of May, the most recent month for which data is available, the average price of a prefabricated home was $129,900, according to Census data. Even after factoring in the cost of a typical building lot of nearly $110,000, a pre-fab home comes in about 40% cheaper than new or existing site-built homes.But even with such a large price differential, the prefabricated industry has struggled to regain market share after the 2007-2009 financial crisis due in large part to consumer concerns that the cheaper price point translates to lower quality, said Danushka Nanayakkara, assistant vice president of forecasting at the National Association of Homebuilders (NAHB). “There’s a stigma attached to modular panelized construction because people tend to think of it as mobile homes,” said Nanayakkara. “At the same time there are real challenges in terms of transportation, finding factories that can produce these quantities, and the timeframe for moving these large buildings. Building codes in some cities that also limit this off-site production play a part.”Most modular construction factories are concentrated in the Mid-Atlantic and Southeast, where modular market share outpaces the national average of 2%, said Devin Perry, executive director of business improvement programs at the NAHB. “As certain pain points increase in the traditional on-site construction world, chiefly shortage of labor and materials, as those constraints rise, people start looking at alternative methods,” said Perry. “This is providing opportunities for modular to grab more market share.” More

WASHINGTON (Reuters) – Republicans who control the U.S. House of Representatives said they do not expect to move forward this week on a stopgap funding measure to keep federal agencies open, even with a possible government shutdown just 10 days away.Instead, House Speaker Mike Johnson was due to present at least three options for a stopgap known as a continuing resolution, or “CR,” to lawmakers at a closed-door Republican conference on Tuesday morning, the lawmakers said.Funding for government operations is due to expire on Nov. 17 unless Congress agrees on a temporary spending measure that President Joe Biden can sign into law before the deadline. Otherwise, federal agencies will have to close their doors for an indefinite period. But with this week already shortened by a Veterans Day observance on Friday, three Republican lawmakers who spoke on condition of anonymity said the House was unlikely to approve a CR this week. One lawmaker said a Republican policy of waiting three days before voting on legislation left little time to act this week.House Republicans are due to focus the agenda for the week on passing their own partisan appropriations bills for 2024. Another lawmaker said Republicans are considering at least three options for structuring a CR, including a “laddered” option that would assign separate deadlines in December and January by which time the House and Senate would hammer out compromise legislation on specific 2024 appropriations bills. Details were uncertain. Republicans will also consider a more conventional CR that would run to a Jan. 19, leaving December for lawmakers to work on appropriations bills and supplemental funding requests including Israel, Ukraine and other priorities.The lawmaker said a third option would be to negotiate with the Democratic-led Senate on a CR that can pass both chambers quickly.The House has passed seven of 12 appropriations bills for 2024 and will try to pass another two this week, aimed at funding transportation, housing and urban development; and financial services. The Senate has passed three appropriations bills in a package known as a minibus.While the Senate legislation enjoys strong bipartisan support, the House has passed only partisan Republican measures opposed by Democrats. Only one category of appropriations legislation, covering military construction and veterans benefits, has passed both chambers in markedly different forms. More

The U.S. Federal Reserve, European Central Bank and the Bank of England dramatically hiked interest rates over the last 18 months in a bid to tame runaway inflation.
All three kept rates on pause at their most recent meetings, and market pricing suggest varying quantities of cuts by the end of 2024 despite policymakers’ cautious tones.

A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, July 26, 2023.
Brendan McDermid | Reuters

The world’s major central banks paused their interest rate hiking cycles in recent weeks and with data suggesting economies are softening, markets are turning their attention to the first round of cuts.
The U.S. Federal Reserve, European Central Bank and the Bank of England dramatically hiked rates over the last 18 months in a bid to tame runaway inflation.

The Fed on Wednesday held benchmark interest rates steady at a target range of 5.25%-5.5% for the second consecutive meeting after ending a string of 11 hikes in September.
Though Chairman Jerome Powell has been keen to reiterate that the Fed’s work on inflation is not yet done, the annual rise in the consumer price index (CPI) came in at 3.7% in September, down from a pandemic-era peak of 9.1% in June 2022.
Yet despite Powell’s refusal to close the door on further hikes in order to finish the job on inflation, markets interpreted the central bank’s tone as a slightly dovish pivot and rallied on the back of the decision.
The market is now narrowly pricing a first 25 basis point cut from the Fed on May 1, 2024, according to CME Group’s FedWatch tool, with 100 basis points of cuts now expected by the end of next year.
Since last week’s decision, U.S. nonfarm payrolls came in softer than expected for October, with job creation below trend, unemployment rising slightly and a further deceleration in wages. Although headline inflation remained unchanged at 3.7% annually from August to September, the core figure came down to 4.1%, having roughly halved over the last 12 months.

“Core PCE, which is the Fed’s preferred inflation metric, is even lower at 2.5% (3-month, annualized),” noted analysts at DBRS Morningstar.
“The lagged effects of a cooler housing market should reinforce the disinflationary trend over the next few months.”
But despite the dovish data points, short-term U.S. Treasurys reversed course to sell off on Monday, which Deutsche Bank’s Jim Reid chalked up to investors beginning to “wonder if last week’s narrative about rate cuts was overdone. The U.S. economy is also proving more resilient than the U.K. and euro zone.
“For instance, market pricing for the Fed now implies a 16% chance of another rate hike, up from 11% on Friday,” Reid said in an email Tuesday.
“Moreover, the rate priced in by the December 2024 meeting was up +12.4bps to 4.47%. So there was a clear, albeit partial unwinding of last week’s moves.”
Reid also highlighted that this is the seventh time this cycle that markets have notably reacted on dovish speculation.
“Clearly rates aren’t going to keep going up forever, but on the previous 6 occasions we saw hopes for near-term rate cuts dashed every time. Note that we’ve still got above-target inflation in every G7 country,” he added.
The ECB
The ECB late last month ended its run of 10 consecutive hikes to keep its benchmark interest rate at a record high of 4%, with euro zone inflation falling to a two-year low of 2.9% in October and the core figure also continuing to decline.
The market is also pricing almost 100 basis point of cuts for the ECB by December 2024, but the the first 25 basis point cut is mostly priced in for April, with economic weakness across the 20-member common currency bloc fueling bets that the central bank will be the first to start unwinding its tight policy position.
Gilles Moëc, group chief economist at AXA, said October’s inflation print confirmed and amplified the message that “disinflation has come in earnest to Europe,” vindicating the ECB’s “new-found prudence.”

“Of course, the current disinflation does not preclude the possibility that a ‘line of resistance’ would be found well above the ECB’s target. Yet, the confirmation that the euro area was flirting with recession last summer reduces this probability,” Moëc said in a research note Monday.
After the October meeting, ECB President Christine Lagarde batted away the suggestion of rate cuts, but National Bank of Greece Governor Yannis Stournaras has since openly discussed the possibility of a cut in the middle of 2024 provided inflation stabilizes below 3%.
“This implicitly advocates a forward-looking version of monetary policy which takes lags into consideration to calibrate its stance. In clear, waiting for inflation to reach 2% before cutting rates would be ‘overkill,'” Moëc said.
“There is no doubt in our mind that the current dataflow is clearly favouring the doves, but the hawks are far from having given up the fight.”
The Bank of England
The Bank of England on Thursday kept its main policy rate unchanged at 5.25% for a second consecutive meeting after ending a run of 14 straight hikes in September.
However, minutes from last week’s meeting reiterated the Monetary Policy Committee’s expectations that rates will need to stay higher for longer, with U.K. CPI holding steady at 6.7% in September. Despite this, the market on Monday was pricing around 60 basis points of cuts by December 2024, albeit starting in the second half of the year.
BNP Paribas economists on Thursday noted an “eye-catching” addition to the MPC’s guidance, which said its latest projections indicated that “monetary policy was likely to need to be restrictive for an extended period of time.”

“Governor Andrew Bailey’s comments at the press conference indicated that this guidance was not intended as push-back on the market-implied policy rate path that underpins its latest forecasts, where a 25bp cut is not fully priced in until the second half of 2024,” they said.
“Instead, the intention was to indicate that cuts are not likely to feature as part of the conversation any time soon.”
In Thursday’s press conference, Bailey emphasized the upside risks to the Bank’s inflation projections, rather than entertaining any suggestion of cuts on the horizon.
“While we don’t think it is necessarily indicative of a high risk of further hikes in the near term, we read it as a further sign that the MPC is not considering rate cuts and will not do so for a while,” BNP Paribas added. More

The IMF has raised its forecasts for China’s economic growth, citing stronger policy support from Beijing, as Chinese regulators used a gathering of top Wall Street heads in Hong Kong to push back against investor gloom over the country.The fund said China’s gross domestic product would grow 5.4 per cent in 2023, upgrading its previous forecast of 5 per cent. It came as China released weaker than expected export data, adding to recent mixed readings on retail spending, manufacturing and consumer prices.“The authorities have introduced numerous welcome measures to support the property market,” the IMF’s first deputy managing director Gita Gopinath said in a statement. “But more is needed to secure a quicker recovery and lower economic costs during the transition.” Beijing has been battling to improve confidence in the economy, which has struggled to rebound after stringent Covid-19 lockdowns last year, a property sector meltdown and weakness in export industries.Foreign investors have dumped tens of billions of dollars worth of Chinese stocks and bonds this year, a trend exacerbated by much higher interest rates in the US.The IMF said it had also upgraded its forecast for China’s growth next year from 4.2 per cent to 4.6 per cent but cautioned that weakness in the property sector and subdued external demand would persist.Over the medium term, GDP growth was projected to decline gradually to about 3.5 per cent by 2028 because of weak productivity and an ageing population, said Gopinath.“A strategy to contain the risks from the ongoing property sector adjustment and manage local government debt is needed to lift sentiment and boost near-term prospects,” the fund said. “Supportive macroeconomic policies should complement these efforts.”But at a Hong Kong investor conference on Tuesday, one of the territory’s flagship events for the global financial community, China’s top officials said they were not “too” worried about the country’s economy. He Lifeng, China’s vice-premier and a powerful Communist party official overseeing China’s economic and finance affairs, said in a pre-recorded message that China would achieve its official growth target of 5 per cent this year.“You may ask me, are you worried?” said another official, Zhang Qingsong, deputy governor at the People’s Bank of China, who attended in person, on China’s economy. “Not too much,” he told the event, which was attended by some of the most powerful executives in global finance, including Morgan Stanley’s James Gorman, Goldman Sachs’s David Solomon, Citadel’s Ken Griffin and Mark Rowan of Apollo Global Management.Zhang said China’s economic fundamentals were stable and its government debt was “lower than [in] many other advanced economies”. Many of China’s largest developers have defaulted on their debts, prompting calls for a sector-wide bailout. But Zhang described this as “a natural selection and market-clearing process”.“Having said that, we need to carefully manage the pace to avoid a sharp downturn and unintended consequences . . . I prefer to let the market play its role, but do policy adjustments if necessary,” Zhang said. “We are quite optimistic about the future of China’s property market.” The positive messaging from regulators came after one-third of listed Chinese companies reported third-quarter results that fell short of expectations — the most in half a decade, according to an analysis by Morgan Stanley.China’s benchmark CSI 300 index has fallen more than 6 per cent this year.But Wang Jianjun, vice-chair of the China Securities Regulatory Commission, the market watchdog, said the domestic debt and equity markets were “full of opportunities right now”.“It’s never too late to catch the China train — you can still ride the dragon to heaven,” Wang said.China’s exports dropped 6.4 per cent in October compared with the same period a year earlier, the sixth consecutive month of declines and worse than a Reuters survey of analysts that forecast a 3 per cent fall. In one positive sign, however, China’s imports expanded year-on-year for the first time since February, rising 3 per cent.“The disappointing exports point to external headwinds to the still fragile recovery, while the much-better-than-expected imports suggest domestic demand could be bottoming out on policy support,” said Citi analysts in a note.Additional reporting by Chan Ho-him in Hong Kong and Tom Hale in Shanghai More

A combination of government policies is finally succeeding in reversing a long decline in solar manufacturing in the United States.Six years ago, an executive from Suniva, a bankrupt solar panel manufacturer, warned a packed hearing room in Washington that competition from companies in China and Southeast Asia was causing a “blood bath” in his industry. More than 30 U.S.-based solar companies had been forced to shut down in the previous five years alone, he said, and others would soon follow unless the government supported them.Suniva’s pleas helped spur the Trump administration to impose tariffs in 2018 on foreign-made solar panels, but that did not reverse the flow of jobs in the industry from going overseas. Suniva’s U.S. factories remained shuttered, with dim prospects for reopening.That is, until now. Last month, Suniva announced plans to reopen a Georgia plant, buoyed by tariffs, protective regulations and, crucially, lavish new tax breaks for Made-in-America solar manufacturing that President Biden’s signature climate law, the Inflation Reduction Act, created.Solar companies have long been the beneficiaries of government subsidies and trade protections, but in the United States, they have never been the object of so many simultaneous efforts to support the industry — and so much money from the government to back them up.The combination of billions of dollars of tax credits for new facilities and tougher restrictions on foreign products appears to be driving a wave of so-called reshoring of solar jobs. Those efforts are succeeding where more modest approaches did not, although critics argue that the gains come at a high cost to taxpayers and may not hold up in the long run.In the year since the climate law was passed, companies have announced nearly $8 billion in new investments in solar factories across the United States, according to data from the Massachusetts Institute of Technology and the Rhodium Group, a nonpartisan research firm. That is more than triple the amount of total investment announced from 2018 through the middle of 2022.Suniva plans to reopen and expand a factory to make solar cells in Norcross, Ga., by spring. REC Silicon will restart this month a polysilicon plant in Moses Lake, Wash., that it shut down in 2019. Maxeon, a Singapore-based producer of solar cells and modules, will start work next year on a $1 billion site in New Mexico.In each of those cases, executives cited the incentives in the climate law as a driving factor in their investment decisions.In recent years, China overtook foreign competitors through huge government investments that allowed it to build factories 10 times as large as American ones.Gilles Sabrie for The New York Times“It was kind of exactly what we had in mind in terms of what would be needed, to pull these kinds of manufacturing initiatives forward,” said Peter Aschenbrenner, Maxeon’s chief strategy officer.China has loomed large over the industry for more than a decade. American demand for solar power has grown sharply since 2010 — by about 24 percent each year in that time, according to the Solar Energy Industries Association, a trade group. But much of that spending went to cheaper foreign solar panels, often made by Chinese companies or with Chinese parts. That raised concerns of American overreliance on China, which is restricting supplies of other key products and whose solar production has been troubled by human rights concerns.U.S. solar manufacturing employment peaked in 2016, with just over 38,000 workers. By 2020, nearly one-fifth of those jobs were gone.Factory solar jobs have begun to grow again.E2, an environmental nonprofit organization, estimated that new investments announced in the first year of the climate law would create 35,000 temporary construction jobs and 12,000 permanent jobs across the entire solar industry in the years to come. Thousands of those permanent jobs are related to manufacturing, including an expected 2,000 at Maxeon’s planned plant in New Mexico.Economists and executives said that surge was largely due to public subsidies that flipped the economics of the solar industry in favor of domestic production.Mr. Aschenbrenner said Maxeon’s cost of domestic solar manufacturing would fall roughly 10 percent, just through a new manufacturing tax credit in the climate law that targets the production of both solar cells and solar modules. That is enough to offset the higher wage and construction costs of American factories, he said.The law also includes credits for customers, like homeowners and utilities, that install solar panels and begin generating electricity from them. If the customer buys panels that are sourced from the United States, like the ones Maxeon is planning, the value of that credit grows 10 percent.Those incentives could be enough to build an American industry that, within a matter of years, could be large and efficient enough to compete with China even without subsidies, Mr. Aschenbrenner said.Others are more skeptical. Analysts at Wood Mackenzie, an energy consultancy, estimate that nearly half the solar module capacity announced by 2026 will not materialize, given that some manufacturers announce long-term plans to gauge feasibility and interest.The recent embrace of subsidies and tariffs by politicians of both parties also irks some economists, who say that while such programs can save or create jobs, they do so at an extremely high cost.A 2021 study by the Peterson Institute of International Economics of past industrial policy programs found that the Obama administration’s 2009 investment in Solyndra, a solar company that ultimately went bankrupt, cost taxpayers about $216,000 for each job created, more than four times prevailing industry wages. Other programs were even more expensive.REC Silicon, a Norwegian maker of polysilicon, entered into a deal with QCells to supply that company’s planned U.S. plants.Megan Varner/Reuters“With certain kinds of technology, you can subsidize and protect your way to having factories,” said Scott Lincicome, who studies trade policy at the Cato Institute, a libertarian think tank. “The question is always about at what cost?”In addition to the costs incurred to taxpayers, protections for the U.S. industry are making solar products more expensive in the United States than in other countries, Mr. Lincicome said. That slows the adoption of solar technology, in contrast to climate goals.Trends in the global solar industry have often been closely linked with government action. The industry started booming over a decade ago when Germany and Japan began offering subsidies for solar power.In recent years, China overtook foreign competitors through huge government investments that allowed it to build factories 10 times as large as American ones. Since 2011, China has invested more than $50 billion in the sector, ultimately capturing more than 80 percent of the global share of every stage in the manufacturing process, according to the International Energy Agency.Tariffs also shaped the industry’s evolution. The United States imposed levies on Chinese solar products in 2012. The next year, China retaliated with tariffs of up to 57 percent on U.S. polysilicon, a raw material for solar panels.That proved to be the death knell for the factory that REC Silicon, a Norwegian maker of polysilicon, was operating in Washington State, said Chuck Sutton, the company’s vice president of global sales and marketing. With few companies still standing outside China, REC Silicon “basically didn’t have any customers left,” he said.REC Silicon worked with the Trump administration to get China to commit to buying more American polysilicon as part of a 2019 trade deal. But China never followed through on those purchases.The turnaround for REC Silicon came, Mr. Sutton said, with the new tax credits this year. The manufacturer entered into a deal with QCells to supply its polysilicon to QCells’ planned U.S. plants. The deal allowed REC Silicon to reopen its Washington site, Mr. Sutton said.To compete with China, the industry needed “a whole-of-government approach,” Mr. Card of Suniva said, that included both tariffs and tax credits for domestic manufacturing.“They are not opposing forces,” he said. “They work together and make each other stronger.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Australia’s central bank has raised interest rates for the first time since June in response to persistent inflation.The Reserve Bank of Australia increased interest rates by a quarter of a percentage point to 4.35 per cent and raised its inflation expectations for 2024. It said that while inflation had peaked this year, it was still “too high” and was returning to a target range of 2 to 3 per cent — which it is now expected to reach in 2025 — more slowly than anticipated.The action by the Australian central bank, which raised interest rates 12 times between April last year and June to an 11-year high, runs contrary to decisions by global peers including the Bank of England, the Federal Reserve and the European Central Bank, which all opted to hold rates in the past month.The increase was the first under Michele Bullock, who replaced Philip Lowe as governor of the RBA in September. The tightening was widely anticipated after data showed inflation and consumer spending had risen over the past month.Bullock said growth in the Australian economy was below its historical trend but had been stronger in the first half of the year, with house prices rising and the labour market still tight.“If high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment,” she said in a statement.Analysts had put an 80 per cent chance on the prospect of an increase this time, but they were split over whether the RBA would raise rates again in December ahead of new inflation data in February.Paul Bloxham, chief economist for Australia and New Zealand at HSBC, said: “We see the RBA as now in ‘calibration mode’ . . . we expect that a follow-up hike in December is unlikely.”Citi’s Josh Williamson noted that the RBA had increased its inflation forecast and lowered its unemployment prediction despite the rise in interest rates, meaning it appeared comfortable with the economy running “even hotter” as long as productivity increases matched wage growth. Andrew McKellar, chief executive of the Australian Chamber of Commerce and Industry, said the return to tightening would add to the “tightrope” for businesses in the country as they sought to manage higher costs, maintain competitive pricing and cope with changes to industrial relations and laws. “Though the hike is intended to combat inflation, it adds another layer of stress on businesses grappling with high input costs and emerging wage pressures,” McKellar said. More