Economy

SYDNEY (Reuters) – Asian shares rallied for a fourth straight session on Monday after markets moved to price in earlier rate cuts in the United States and Europe, bullish wagers that will be tested by a swarm of central bank speakers this week.Battered bond markets also enjoyed a welcome recovery as a benign U.S. payrolls report and upbeat productivity numbers suggested the labour market was cooling enough to obviate the need for further rate hikes from the Federal Reserve.”This year’s better-than-expected U.S. supply-side performance raises hopes for a soft landing,” said Bruce Kasman, head of economic research at JPMorgan.”By encouraging disinflation, strong productivity and labour supply gains might allow for job growth and low inflation to coexist,” he added. “This, in turn, would open the path for early Fed easing.”Futures markets swung to imply a 90% chance the Fed was done hiking, and an 86% chance the first policy easing would come as soon as June.Markets also imply around an 80% probability the European Central Bank will be cutting rates by April, while the Bank of England is seen easing in August.Central bankers have their own chance to weigh in on this dovish outlook with at least nine Fed members speaking this week, including Chair Jerome Powell. Also on the docket are speakers from the Bank of Japan, BoE and ECB.An odd man out is Australia’s central bank, which is considered likely to resume hiking rates at a policy meeting on Tuesday as inflation stays stubbornly high.Elsewhere, hopes for lower borrowing costs helped MSCI’s broadest index of Asia-Pacific shares outside Japan gain 0.5%, having already rallied 2.8% last week and away from one-year lows. Japan’s Nikkei rose 1.8%, after jumping 3.1% last week. S&P 500 futures and Nasdaq futures were both flat.BOND RELIEFTwo-year Treasury yields paused at 4.86%, after falling 17 basis points last week. Yields on 10-year notes stood at 4.59%, some way from October’s painful peak of 5.021%.”Our view remains that rate cuts from the Fed, ECB and BoE will come a little sooner than is priced by markets and, in the initial phases, is likely to be bolder in terms of size,” wrote analysts at NatWest Markets in a note.”We look for the Fed Funds rate to fall to 3-3.25%, the ECB depo rate to 3% and BoE Bank Rate to 4.25% by end-2024.”The retreat in Treasury yields pulled the rug out from under the dollar, which was pinned at 105.110 having slid 1.3% last week to the lowest since late September.The euro was firm at $1.0728, having surged 1% on Friday to its highest in two months. The dollar even lost ground to the ailing yen to stand at 149.46 and some way from its recent top of 151.74. [FRX/]The drop in the dollar and yields helped underpin gold at $1,990, within striking distance of the recent five-month peak of $2,009. [GOL/]Oil prices edged higher, after shedding 6% last week, drawing support from confirmation Saudi Arabia and Russia would continue their additional voluntary oil output cuts.In the Middle East, Israel on Sunday rejected growing calls for a ceasefire in Gaza, with military specialists saying that forces are set to intensify their operations against Palestinian Islamist group Hamas.Brent added 32 cents to $85.21 a barrel, while U.S. crude climbed 46 cents to $80.97 per barrel. [O/R] More

(Reuters) -Australia’s Westpac Banking (NYSE:WBK) Corp on Monday slightly missed expectations while posting a 26% rise in annual profits due to growth across its key markets, though the lender warned challenges in its operating environment would continue into fiscal 2024. Westpac also said it had started an A$1.5 billion ($975.60 million) share buyback. Shares in Westpac, which have been trading higher for a fourth-straight session, rose 1.7% to A$21.86 by 2328 GMT, their highest level since Sept. 18. The move tallies against a 0.4% jump in the broader benchmark. The company joins its smaller peer Macquarie Group (OTC:MQBKY), which announced an A$2 billion share buyback on Friday, in wanting to return excess capital to investors, making the two Australian banks look more financially attractive. The company said it had reaped the benefits of operational improvements and growth in its key markets, including deposits, mortgages and institutional banking.A rapid surge in interest rates since May last year has benefited Australian lenders’ margins significantly, however, there have been increasing uncertainties on whether interest rates will stay higher for longer and impact the bank’s net interest margin. For fiscal 2023, the company’s net interest margin was up 2 basis points (bps) to 1.95% due to higher return on capital and a surge in deposit spreads, excluding certain significant items. Westpac, however, said a tighter loan spread on the back of “intense competition” and an increase in low-returning liquid assets capped gains for its margins during the year. In its update, Westpac flagged potential headwinds for its revenue in fiscal 2024, blaming the “lagged” effects of lending competition and a “modest” balance sheet growth during the year.The company also said it expects more pressure on its cost base in fiscal 2024, as the bank foresees persistent inflation as an obstacle. Even as operating expenses of A$10.69 billion during the financial year were 1% lower, the company said its impairment charges increased to A$648 million in the same period. Westpac said it intends to lower its cost-to-income ratio in comparison to its peers”We’re broadly positive about the economic outlook over the next year and Westpac is in a strong position to grow its business and support customers who need help,” Westpac CEO Peter King said. Westpac, the country’s fourth-largest lender in terms of market value, reported net profit attributable of A$7.20 billion for the year ended Sept. 30, compared with A$5.69 billion last year. That missed an LSEG estimate of A$7.41 billion. It declared a final dividend of 72 Australian cents per share, up from 64 Australian cents a year earlier. ($1 = 1.5373 Australian dollars) More

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(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Asia is poised to start this week as it finished last week, with risk assets and investor sentiment buoyed by growing confidence in the U.S. economic ‘soft landing’, and easing financial conditions from the slide in the dollar and U.S. bond yields.The regional economic and policy events calendar this week is jammed with top-tier releases which are sure to give local assets strong steers, especially from China.October’s import and export figures are released on Tuesday, and Thursday sees the release of bank lending and credit, money supply, producer price inflation and consumer price inflation, all for October also.China’s economic surprises index turned positive three weeks ago but despite stronger-than-expected third quarter GDP growth, that momentum has faded. This week’s ‘data dump’ will give a clearer picture of how the economy started the fourth quarter.Elsewhere in Asia, the main economic indicators this week will be the latest consumer inflation readings from Thailand, the Philippines and Taiwan, and third quarter GDP from the Philippines, Hong Kong and Indonesia.Indonesian GDP figures and Thai inflation figures are out on Monday.Indonesia’s quarter-on-quarter growth rate is expected to more than halve to 1.71% from 3.86%, according to a Reuters poll, and annual growth is expected to essentially hold steady just above 5%.The rupiah last week snapped an eight-week losing streak, picking itself up from a three and a half year low of almost 16,000 per dollar.The Thai baht, meanwhile, climbed 1.5% on Friday for one of its strongest rallies this year. Further progress on inflation could pave the way for it to move further away from last month’s one-year low around 37.20 per dollar.On the policy front, the Reserve Bank of Australia’s rate decision on Tuesday is the regional highlight of the week. Economists polled by Reuters expect the benchmark cash rate to be raised by 25 basis points to 4.35%, breaking a run of four meetings on hold as inflation proves surprisingly strong.Also on Tuesday the Bank of Korea publishes the minutes from its last policy meeting and on Thursday the Bank of Japan releases a summary of board members’ opinions from its Oct. 30 to 31 policy meeting.Japanese corporate earnings are in full flow this week, with banks and financial firms likely to come under particular scrutiny in light of the policy shift the BOJ is currently undertaking. With the yen still weak around 150 per dollar, could the Nikkei soon retest its recent 33-year high?While Asian and emerging stocks last week had their best weeks since July, gaining around 3%, they underperformed their U.S. and global peers, which gained 5% or more.Given the scale of the dollar’s and Treasury yields’ decline on Friday, there may be room for emerging and Asian markets to catch up and maybe even outperform this week.Here are key developments that could provide more direction to markets on Monday:- Indonesia GDP (Q3)- Thailand CPI inflation (October)- Japan services, composite PMIs (October) (By Jamie McGeever; Editing by Josie Kao) More

SYDNEY (Reuters) – Private credit lenders are increasing their footprint in parts of the Australian commercial property market, providing alternatives for borrowers as banks scale back higher-risk lending amid a slowdown brought on by elevated interest rates.The funds available for deals are growing as investors including pension funds, sovereign wealth and insurance firms look for meaty returns hard to find in today’s equity markets, especially in the beaten-down real estate sector.Australian real estate specialist Qualitas, whose backers include the Abu Dhabi Investment Authority, has nearly doubled funds under management to A$8 billion ($5.07 billion) since mid-2022, with roughly half the increase since this June.U.S.-based PGIM Real Estate expects to deploy a further $1 billion in the country over the next few years, said its head of Australian real estate Steve Bulloch. “Over the last 12 to 18 months we have seen a lot more institutional investor interest and many are seeing this as an attractive entry point to diversify their portfolios,” he said.The moves are part of the steady growth of non-bank lenders in a market where four banks, Commonwealth Bank, National Australia Bank (OTC:NABZY), Westpac and ANZ Group, still account for the bulk of all lending.At roughly 5% of all financial assets in 2022, non-bank lenders are a minnow in Australia compared to the International Monetary Fund’s estimate of 50% globally.But non-bank lending has been growing, reaching more than A$600 billion in assets last year, including lenders focused on retail credit. Lenders are expanding into residential and commercial construction as banks slow lending or exit, a March report from the Reserve Bank of Australia (RBA) said.JUICY RETURNSInvestors can expect returns from 9% to 11% with the added security of loans pledged against real assets like condos or warehouses, often with a 30% to 40% equity buffer, said Paul Notaras, executive director at Barings Real Estate Australia.The juicy returns mean higher costs for borrowers, with the RBA in March putting the spread over a major bank loan at about 200 basis points for business loans of all types. Yet non-bank lenders are a welcome source of credit at a time when banks have slowed lending to sections of the property sector historically seen as high risk like construction, Notaras said.Some 2,213 construction firms filed for insolvency last financial year, the highest on records going back to 2013, as builders are sandwiched between higher costs and fixed-price contracts.New commercial property lending by the four major banks has averaged 1% growth per quarter since June 2022, levels last seen during the pandemic, data from the prudential regulator shows, with exposure to offices and residential contracting.More prudential scrutiny and less risk appetite has led major banks to prioritise blue-chip property companies, Qualitas co-founder Andrew Schwartz said.”The traditional financiers have pulled back their loan-to-value ratios, narrowed the type of borrower that they’re wanting to deal with, it’s generally harder and you’re more likely to fall into the alternatives sector.”For build-to-rent residential projects, banks hesitate to lend more than 40% to 45% against a project’s value, while private lenders could go as high as 65%, Barings’ Notaras said.Bonds are out of reach for many unrated mid-market borrowers and property-related bond issuance is at record lows, with A$299 million raised the year to September, about a tenth of the decade average, according to Dealogic data. STILL CHOOSYEven for alternative lenders, the most beleaguered segments, such as office and retail, remain tough propositions as higher rates slash prices and home working and online shopping scramble the outlook for rental growth.Instead, financiers are drawn to companies building for Australia’s chronically undersupplied residential market, especially in the budding build-to-rent sector, and the resilient market for warehouses and industrial property.A A$1.45 billion partnership between Qualitas and the Abu Dhabi Investment Authority will focus on the residential sector.”We’ve had more office financing proposals presented to us than I can ever remember and I can only assume it’s because the banks don’t want to do them and big institutions have too much,” said Qualitas’ Schwartz.”We say office, interesting but less compelling.”($1 = 1.5815 Australian dollars) More

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The slower-than-expected US job growth in October and cooled wage inflation suggest softer labor market conditions, reducing the need for further Fed rate hikes. Meanwhile, the Bank of England maintained its 15-year peak rates, fostering some risk appetite. However, China’s services activity showed only modest expansion in October as sales growth hit a 10-month low and employment stagnated due to declining business confidence.Turning to South Africa, World Bank forecasts indicate that barring geopolitical escalations, fuel prices should remain stable during the festive season. This prediction is tied to an average global oil price of $90 per barrel in Q4, influenced by a drop in Brent crude prices from $91.86 to $88.72 per barrel due to a slowdown in global economic growth and increased production from non-OPEC+ producers.The recent minor R1.78 per liter cut in petrol prices driven by increased global oil inventories and the lifting of US sanctions on Venezuela is expected to eventually benefit both the logistics supply chain and retail pricing. However, consumers find this cut inadequate given the current prices of R23.90 per liter for 95 unleaded petrol and R23.44 for 93 unleaded petrol.The Absa Purchasing Managers’ Index, at 45.4 index points in October, indicates depressed demand for local goods due to high food and fuel prices, with the AA predicting the fuel price decrease to persist through the festive season. This comes amid a July 2023 price break and an 8.1% food inflation rate according to Stats SA figures, along with a R5.71 diesel price hike since June and a current Brent crude oil price of $87.25.Road Freight Association CEO Gavin Kelly noted a delayed logistics impact due to warehouse reserves while Debt Rescue CEO Neil Roets highlighted cost-of-living increases causing financial instability. UASA spokesperson Abigail Moyo advised prudent spending due to high fuel costs affecting travel and upcoming education expenses.Despite high living costs persisting for South Africans due to rising electricity and food prices, consistent interest rate hikes, and continuous petrol price increases, the anticipated stability in fuel prices should provide temporary relief for consumers. Experts recommend prudent travel arrangements during the festive season considering the upcoming financial pressures at the start of the new year.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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