Economy

BENGALURU (Reuters) -High inflation will dog the world economy next year, with three-quarters of over 200 economists polled by Reuters saying the main risk is that it turns out higher than they forecast, suggesting interest rates will also remain higher for longer.Several central banks are still expected to begin cutting interest rates by the middle of 2024, but a growing number of economists surveyed are adjusting their views, pushing the more likely date into the second half of next year.This is a significant change from expectations at the start of this year. Then, some investment banks were predicting the U.S. Federal Reserve, which sets the tone for many others, would be cutting rates right around now.Despite broad success in bringing inflation down from its highs – the easier bit – prices are still rising faster than most central banks would prefer and hitting their inflation targets is likely to be tough. The latest Reuters poll of over 500 economists taken between Oct. 6 and Oct. 25 produced 2024 growth downgrades and inflation upgrades for a majority of the 48 economies around the world surveyed.A 75% majority who answered a separate question, 171 of 228, said the risk to these broadly-upgraded inflation forecasts was skewed higher, with only 57 saying lower.The results follow news on Thursday the U.S. economy unexpectedly grew nearly 5%, annualised, in the third quarter, underscoring how the strength of the world’s largest economy is setting it apart from most of its peers.The survey results also follow a warning from European Central Bank President Christine Lagarde, who said after the ECB snapped a 10-meeting tightening streak that “even having a discussion on a cut is totally, totally premature”.While many central banks, including the Fed and the ECB, have presented a “higher for longer” narrative on rates for the better part of this year, many economists and financial market traders have been reluctant to accept that view. “I think all of us have to keep an open mind that maybe policy isn’t restrictive enough,” said Douglas Porter, chief economist at BMO.”Our forecast is that the Fed has done enough and they don’t have to raise rates further, but I haven’t closed off the possibility we could be wrong and the Fed does ultimately have to do more.”While most economists still say the Fed will cut by mid-year, the latest poll shows just 55% backing that scenario compared with over 70% last month.The Reserve Bank of New Zealand, which often leads the interest rate cycle, was also forecast to wait until July-September 2024 before cutting.The majority backing no cuts until the second half of 2024 has also grown stronger for the Reserve Bank of Australia, Bank Indonesia and the Reserve Bank of India.Even the Bank of Japan, the outlier sticking to ultra-loose policy through this entire round of inflation, is now expected to abandon negative interest rates next year.Crucially, most economists agree the first easing steps will not be the beginning of a rapid series of cuts.Asked what would prompt the first cut by the central bank they cover, over a two-thirds majority, 149 of 219, said it would be simply to make real interest rates less restrictive as inflation falls.The remaining 70 said the first move would mark a shift towards stimulating the economy, suggesting only a minority expect a hard enough hit to demand and inflation hard to warrant monetary response.Global economic growth was forecast to slow to 2.6% next year from an expected 2.9% this year. “Central banks have had the highest rates in order to fight inflation … it’s certainly restraining activity, and it’s going to be a while before we get global growth above what has been its historical average,” said Nathan Sheets, global chief economist at Citi.(For other stories from the Reuters global economic poll:) More

NEW YORK (Reuters) – The U.S. Treasury is likely to boost the size of auctions for bills, notes, and bonds in the fourth quarter when it announces its financing plans this week to fund a worsening budget deficit, analysts said.Investors are playing close attention to this week’s quarterly refunding announcement as a sharp jump in long-term Treasury yields has been partly attributed to concerns about the U.S. fiscal deficit. Since the end of July, the 10-year yield has climbed more than 100 basis points. “The market has associated the rise in Treasury yields with deficit concerns and reflects worries about the sustainability of those deficits,” said Guneet Dhingra, managing director and head of U.S. rates strategy at Morgan Stanley in New York.The budget deficit is increasing due to several factors, including higher federal government borrowing costs arising from the Federal Reserve’s interest rate increases and quantitative tightening. Analysts at TD Securities expect the deficit to expand to $1.85 trillion in 2024 from $1.69 trillion this year and projects another $677 billion of bills that mature in a year or less coming to market and about $1.7 trillion in notes and bonds. So far this year, the Treasury has issued about $1.6 trillion of additional bills and roughly $1.04 trillion in longer-term debt.The spotlight will also be on Monday’s announcement of borrowing estimates for the fourth quarter and the first quarter of 2024. It was the announcement on July 31 of $1.007 trillion in funding needs for the third quarter that spooked the bond market, leading to the sharp increase in auction volumes.The Treasury will release its quarterly borrowing requirements on Monday at 3 p.m. ET (1900 GMT) and its refunding news on Wednesday at 8:30 a.m. ET (1230 GMT).The Treasury is also likely to announce a buyback program for a possible launch in January, aimed at improving bond market liquidity, analysts said. The last time it conducted a regular buyback program was in the early 2000s, and it ended in April 2002.SKEWING SHORT-ENDThe latest refunding could see the Treasury skew issuance to the shorter-term bills, while the increase at the long end could shrink due to concerns about the impact of additional supply on long-term yields, analysts said.That would be a divergence from the August refunding when the Treasury aggressively raised the auction sizes for notes and bonds, which have longer maturities, after largely relying on the sale of short-term bills to raise its cash holdings and finance its growing deficit amid the debt ceiling suspension in June.Morgan Stanley’s Dhingra, who expects the Treasury to rely on T-bills to finance its budget needs, said such a move could push the percentage of T-bills as a share of outstanding U.S. debt to around 22%. That is slightly higher than the 15% to 20% range adopted by the Treasury.Tom Simons, U.S. economist at Jefferies in New York, said the current market environment should support a more elevated T-bill percentage for some time because of a still-healthy appetite for shorter-term investments.The projected increase in longer-term deficits in the coming years, however, will keep Treasury raising auction sizes, analysts said.”But the government doesn’t want to lean too heavily on the longer end of the curve to finance the deficit,” said Zachary Griffiths, senior investment grade strategist at CreditSights in Charlotte, North Carolina, adding that there was a need for a “balance-of-risk approach. More

Euro-area inflation, which peaked at 10.6% in October 2022, is projected to fall to 3.1% this month. This aligns closely with the ECB’s 2% goal as per recent economic forecasts. In light of these developments, commercial lenders have promptly adjusted rates on mortgages and loans. However, savers have seen less impact from these changes.Vujcic further noted that Croatian banks haven’t significantly raised deposit interest rates like their German counterparts. Instead, they are providing cheaper mortgages and loans in the euro area’s newest member country. He expressed confidence in achieving the ECB’s 2025 inflation target.President Lagarde anticipates no immediate hikes and expects steady borrowing costs until 2024. This comes as part of the ECB’s strategy to manage falling inflation and a lending slump after implementing various measures.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Evergrande had been working on an offshore debt restructuring proposal for more than a year-and-a-half, but its plans were thrown off course last month when billionaire founder Hui Ka Yan was confirmed to be under investigation for suspected criminal activities.The judge could order the company be liquidated, or adjourn the case for more new information. A liquidation of Evergrande, which listed total assets of $240 billion as at end-June, would send further shockwaves through already fragile capital markets, but is expected to have little immediate impact on the company’s operations, including its many home construction projects.Evergrande did not respond to request for comment.The world’s most indebted property developer with more than $300 billion of total liabilities, Evergrande defaulted its offshore debt in late 2021 and became the poster child of a debt crisis that has since engulfed China’s property sector.Evergrande revealed the investigation into its founder and one of its main subsidiaries last month, and it was barred by mainland regulators from issuing new dollar bonds, a crucial part of the restructuring plan. It also cancelled creditor votes originally scheduled for late last month.Top Shine, an investor in Evergrande unit Fangchebao, filed the winding-up petition in June 2022 because it said Evergrande had not honoured an agreement to repurchase shares the investor bought in the unit. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Australian retail sales is the only event on the Asian and Pacific economic calendar on Monday, but whatever the reading, it will be the quiet before the storm in what looks like a huge and potentially volatile week for world and Asian markets.Monetary policy decisions from Japan and Malaysia, purchasing managers index reports from all over Asia, inflation data from South Korea, Indonesia and Vietnam, and GDP growth figures from Taiwan and Hong Kong are the regional highlights of the week. China’s embattled property developer Evergrande will be under the spotlight again following media reports last week that it has held talks with creditors who opposed its restructuring plan. Asian markets on Monday will also give their initial reaction to news over the weekend of an expected U.S.-Sino summit between presidents Joe Biden and Xi Jinping next month. Tech and chip stocks could be particularly sensitive. On top of that, the U.S. earnings season rolls on, Japan’s corporate reporting floodgates open, and month-end flows across all asset classes could be powerful. Oh, and there is the Federal Reserve’s interest rate decision on Wednesday too.Investors in Asia wade into that sea of event risk in slightly better shape than might immediately appear to be the case, having been hit hard by the surge in U.S. bond yields and widespread tightening of tightening of financial conditions. But the MSCI emerging market index and Asia ex-Japan index’s falls of around 0.6% last week were notably shallower than the MSCI Work index’s 2% slide. Their falls in October are both on track to be around 3.5%, not quite as bad as the MSCI World’s and S&P 500’s respective declines of 4.2% and 5.4%. Perhaps a period of relative outperformance for Asian and emerging market assets lies ahead?China’s recent economic and market signals, at least, are brightening a little.China’s economic surprises index is its highest in over five months – rising from a very low base, admittedly – while the CSI300 index of blue chip stocks rose on Friday and on the week.The benchmark index is up four days in a row, its best run since June, and its 1.5% rise last week was its biggest in seven weeks.Japan’s bonds and currency remain under intense scrutiny ahead of Tuesday’s Bank of Japan decision and guidance. The yen rebounded around 0.5% against the dollar on Friday for its best day in three weeks, and the 10-year Japanese Government Bond yield eased a couple of basis points.But the yen and JGBs go into the meeting very much on the weak side. The BOJ is inching closer to ending negative interest rates and phasing out ultra-accommodative monetary policy, but probably not this week, even though inflation in the capital Tokyo unexpectedly accelerated in October.Here are key developments that could provide more direction to markets on Monday:- Australia retail sales (September)- Bank of Japan two-day policy meeting starts- Germany GDP (Q3) (By Jamie McGeever; Editing by Diane Craft) More

SYDNEY (Reuters) – Australia’s red-hot rental housing market, supercharged by record migration and a chronic supply shortage, could be reaching a breaking point for affordability as tenants grapple with rising costs of living.Nationwide vacancies are at all-time lows and prices are up 30% over three years, forcing renters like Sydney office worker Lara Weeks into unenviable situations.With no way to afford stratospheric inner-city prices when her landlord decided to sell the apartment she lived in for 18 years, Weeks and her cat recently downsized from a two-bedroom to a one-bedroom farther from the city centre that costs 22% more.”I find it sad that I can’t stay in the area for similar money,” she said.Rent is now one of the country’s biggest drivers of inflation, which at an annual rate of 5.4% in the September quarter is well above the central banks’ targeted band of 2% to 3% and could lead to further interest rate hikes as early as next week. That in turn would push up the variable rate mortgages held by most Australian landlords who are typically private investors with one or a few properties rather than large corporations, pressuring them to lift rents further and forcing tenants to make tough decisions.”We’re already seeing people that are in houses move to units and then the next logical step is if a unit gets too expensive, you go into a share house,” said Cameron Kusher, chief economist at PropTrack under REA Group. NEARING THE PEAKMany tenants, particularly in the most expensive city Sydney, have already been priced out of houses. PropTrack data showing house rents nationally were unchanged at A$550 per week, or about A$2,380 ($1,508) per month, in the September quarter. Apartment rents nationally jumped 4% during the quarter, double the June quarter rate of increase, to an average of A$520 per week, making them almost as costly.Prices across Australia’s entire rental stock rose 7.6% in the third quarter from a year ago, the largest increase since 2009, according to official data, and similar to gains seen in the U.S. where rental costs have also surged. Rent inflation is expected to peak at an annual rate of 10% in the next few quarters before easing, Reserve Bank of Australia Governor Michele Bullock said at a Senate hearing on Thursday. Real estate agents say there are initial signs of cooling in some areas.     “Compared with the beginning of the year, it’s way quieter now,” said Christian Postiglione, an agent in Sydney’s expensive eastern suburbs, which include Bondi Beach. “We would have 40 to 50 groups per inspection around January and February… the volume is very kind of low now.” AFFORDABILITY CEILING The increase in rents has more than made up for the fall at the start of the COVID-19 pandemic when Australia shut its borders and there was a net outflow of people. By the year ended in June, net migration rebounded to a record 500,000 people. The housing supply is lagging far behind as the home building industry is being squeezed by high borrowing costs, a labour shortage and elevated raw material prices. Domain, a property website, estimates up to 70,000 new rentals are needed to balance out the market.Nationwide, the portion of income required to service new rentals rose to a record 31.4% in the June quarter, according to an ANZ CoreLogic Housing Affordability Report released in September. For low-income households, it was 52% as of April, its most recent published data, at a time when wage rises are lagging well behind rent increases.Tim Beattie, a 62-year-old former soldier, said he was priced out of the rental market in Western Australia and had to leave his job in community services. He now lives with his daughter in Adelaide and is looking for a room in a shared house that will cost him no more than A$200 a week.     “There used to be a such thing as a middle class, but now that’s gone,” Beattie said.($1 = 1.5780 Australian dollars) More

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The Securities and Exchange Commission (SEC) is examining the matter, Sunday’s WSJ report added, citing sources. The SEC declined to comment on the WSJ report when approached by Reuters. Two Sigma did not immediately respond to requests for a response. More