Economy

SYDNEY (Reuters) -The head of Australia’s central bank on Thursday said the strong third-quarter inflation report was around policymakers’ expectations, and they were still considering whether it would warrant a rate rise. Reserve Bank of Australia Governor Michele Bullock warned earlier this week that the central bank will not hesitate to raise interest rates further if there is a “material” upward revision to the outlook. “We are still analysing the numbers … We have to look at whether or not it’s material enough to change our views on monetary policy,” Bullock said on Thursday in her first appearance before lawmakers since assuming the role of governor in mid-September. “Given the information that have come in since then, particularly the monthly CPI indicator, we thought it was going to be about where it came out.”The Australian dollar dipped to a fresh 11-month low of $0.6285, and futures rose slightly but still imply a 60% chance that the RBA would resume the tightening cycle in November after four rate pauses.Bullock noted that goods inflation is coming down as desired, but services inflation is higher than what policymakers were comfortable with. The third quarter inflation was higher than what the central bank had forecast in August, which raised concerns about whether the RBA can get inflation back to the target band of 2-3% in late 2025, an already protracted path compared with other major economies. It will release its updated economic forecasts in early November.”When we go through our process of looking at our forecasts after the most recent news, we will again be making a judgment about how long do we think we can stay outside of the band in thinking what our monetary policy should be,” said Bullock. More

The deal, subject to approval by union members, could ease the way for deals with General Motors and Stellantis and end a growing wave of walkouts.Negotiators for the United Automobile Workers and Ford Motor have agreed on terms of a new four-year labor contract, people briefed on the talks said Wednesday, nearly six weeks after the union began a growing wave of walkouts against the three Detroit automakers.The deal includes a roughly 25 percent pay increase over four years, those people said. Any agreement would be subject to the approval of the U.A.W. council that oversees relations with Ford, and then ratification by the company’s union workers.The union continues to negotiate with General Motors and Stellantis, whose brands include Chrysler, Jeep and Ram.Two weeks ago — when it said it had reached the limit of what it could afford without hurting its business — Ford offered to increase wages 23 percent, adjust pay in response to inflation and cut the time for new hires to rise to the top wage, to four years from eight. The other companies have made similar offers.But the U.A.W. and its president, Shawn Fain, have pressed for greater concessions, ratcheting up the walkouts and aiming them at factories producing some of the automakers’ most profitable models.Altogether, about 45,000 workers at Ford, G.M. and Stellantis are on strike across the country, including 8,700 workers at Ford’s Kentucky truck plant in Louisville, the company’s largest, and almost 10,000 others at Ford factories in Illinois and Michigan.The tentative deal with Ford could increase pressure on the other companies to reach an agreement with the union. In the past, once the union reached a deal with one automaker, tentative agreements with the others quickly followed. But that history may not be as relevant now because the U.A.W. had never struck all three companies simultaneously until this year.The companies are investing billions in a transition to battery-powered vehicles, which they say makes it harder for them to pay substantially higher wages. Last week, Ford’s executive chairman, William C. Ford Jr., said the union’s demands risked damaging the ability of Detroit automakers to compete against nonunion companies like Tesla and foreign rivals.“Toyota, Honda, Tesla and the others are loving the strike, because they know the longer it goes on, the better it is for them,” he said. “They will win, and all of us will lose.”The U.A.W. makes a different case: that success in its contract battle with the Big Three will give it momentum to organize autoworkers at other companies as well.The U.A.W. began its walkouts when the companies’ union contracts expired in mid-September. It won immediate support from President Biden, who called on the automakers to “ensure record corporate profits mean record contracts” and briefly joined workers on a picket line at a G.M. plant near Detroit late last month.The union initially demanded a 40 percent wage increase over four years — an amount that union officials have said matches the raises the top executives at the three companies have received over the last four years. Those raises are also meant to compensate for more modest increases the autoworkers received in recent years and concessions the union made to the companies beginning in 2007.In addition, the union has called for an end to a system that pays new hires just over half of the top wage of $32 an hour. It has been seeking cost-of-living adjustments that would nudge wages higher to compensate for inflation. And it wants a reinstatement of pensions for all workers, improved retiree benefits and shorter work hours.G.M. and Stellantis faced the most recent escalation of the U.A.W. walkouts when the union called out 6,800 workers at a large Ram pickup truck plant in Michigan on Monday and 5,000 workers at a G.M. plant in Arlington, Texas, that makes large sport utility vehicles including the Chevrolet Tahoe, the GMC Yukon and the Cadillac Escalade.On Tuesday, G.M. reported a third-quarter profit of $3.1 billion, a 7 percent decline from the same period last year, owing in part to the ongoing strike. Ford is scheduled to announce its third-quarter earnings on Thursday. More

NEW YORK (Reuters) – Donald Trump was fined $10,000 on Wednesday after the New York judge overseeing his civil fraud trial said the former U.S. president for a second time violated a gag order barring him from disparaging court staff.Justice Arthur Engoron had imposed the order on Oct. 3 after Trump shared on social media a photo of the judge’s top clerk posing with U.S. Senate Majority leader Chuck Schumer, a Democrat, and falsely called her Schumer’s “girlfriend.”During a break on Wednesday in the case brought by New York Attorney General Letitia James concerning Trump’s business practices, Trump told reporters in a hallway, “This judge is a very partisan judge, with a person who’s very partisan sitting alongside of him, perhaps even much more partisan than he is.”Engoron, surmising that Trump was referencing his clerk, called the comments a “blatant” gag order violation.Trump’s hallway remarks came as Michael Cohen, his onetime lawyer and fixer, testified for a second day against him.Before being fined, Trump briefly took the witness stand and told Engoron he was referring to “you and Cohen” during his remarks. The judge rejected the idea, echoed by Trump’s lawyer Christopher Kise, that the “partisan” person Trump mentioned was Cohen.”The idea that that statement would refer to the witness, that doesn’t make sense to me,” Engoron said. “Don’t do it again or it will be worse.”Trump, the frontrunner for the Republican nomination to challenge Democratic President Joe Biden in the 2024 U.S. election, walked out of the courtroom after being fined.On Oct. 20, Engoron fined Trump $5,000 after finding he had not taken down a post disparaging the clerk, warning that future transgressions could bring “far more severe” sanctions including jail. In originally imposing the gag order, Engoron said comments against his staff were “unacceptable, inappropriate and will not be tolerated under any circumstances.”Engoron’s clerk has sat next to the judge during the trial, standard practice in a New York state court.Alina Habba, one of Trump’s lawyers, told Engoron she saw the clerk appear to roll her eyes during Cohen’s testimony, and that this was “completely inappropriate.”COHEN DEFENDS CREDIBILITYThe trial concerns allegations that Trump and his family business, the Trump Organization, unlawfully manipulated asset values and his net worth to dupe lenders and insurers. The case could break up Trump’s business empire. Cohen’s two days of testimony marked his first face-to-face encounters with Trump in five years. Trump “arbitrarily” inflated the value of real estate assets to secure favorable insurance premiums, Cohen testified on Tuesday.Since cutting ties and becoming one of Trump’s fiercest critics, Cohen has written two books and created a political podcast.Cross-examined by Habba on Wednesday, Cohen acknowledged having a financial incentive to criticize Trump, but defended his credibility. He rejected Habba’s contention that he has “made a career” of attacking Trump and embellishing criticism for personal gain.”The more outrageous your stories are about President Trump, the more money you make,” Habba said. “Is that accurate, Mr. Cohen?””No,” Cohen responded.A lawyer for Trump’s adult son Eric Trump – also a defendant in the case – asked Engoron to immediately enter a verdict in the defense’s favor based on what he called Cohen’s contradictory testimony. Cohen said on Tuesday Trump told him to inflate his asset values but said during 2019 congressional testimony he did not recall whether he received such a directive. Engoron denied the request, saying it would be “absurd” to rule in the defense’s favor midway through trial based on an “equivocal” statement by one witness. “There’s enough evidence to fill this courtroom,” Engoron said. Trump has denied wrongdoing in the case. Trump separately has pleaded not guilty in four criminal cases this year.Cohen’s testimony could bolster the attorney general’s case though his admitted record of deceit could undermine his credibility before Engoron, who alone will decide the outcome of the bench trial. In 2018, Cohen pleaded guilty to tax fraud, campaign finance violations and perjury and was sentenced to three years in prison.Before the trial’s Oct. 2 start, Engoron found that Trump fraudulently inflated his net worth, and ordered that companies that control crown jewels of his real estate portfolio, including Trump Tower in Manhattan, be dissolved. That ruling is on hold while Trump appeals. The trial largely concerns damages. James wants at least $250 million in fines, a permanent ban against Trump and sons Eric and Donald Jr. from running businesses in New York and a five-year commercial real estate ban against Trump and the Trump Organization. (This story has been refiled to replace the word ‘violence’ with ‘finance,’ in paragraph 23) More

SEOUL (Reuters) – South Korea’s economy fared better than expected in the third quarter with the expansion underpinned by exports, backing the case for the central bank to keep rates on hold for the months ahead.Gross domestic product (GDP) grew 0.6% in the July-September quarter from three months earlier, data from the Bank of Korea showed on Thursday, the same pace as the prior quarter and beating a median 0.5% increase forecast in a Reuters survey.The report points to an economy that is still in a soft patch and undergoing an exports-based recovery after a cumulative 300 basis points of interest rate hikes since August 2021 weighed on indebted households and restrained spending. In the third quarter, exports expanded 3.5% after declining 0.9% in the preceding three months, while private consumption grew 0.3% after contracting 0.1% in the second quarter.Government spending grew 0.1%, and construction investment expanded 2.2% after contracting 0.8% in the second quarter. Facility investment has been a drag, contracting 2.7% on-quarter.On an annual basis, Asia’s fourth-largest economy grew 1.4% in the third quarter, after a 0.9% gain in the second quarter and beating a 1.1% rise expected by economists.South Korea’s central bank held interest rates steady for a sixth straight meeting last week, retaining a tightening bias on monetary policy as it warned of inflationary risks from the Israel-Hamas conflict and global oil prices.In a separate Reuters survey conducted early this month, South Korea’s economic growth was forecast to slow to 1.2% in 2023 from 2.6% in 2022. That is lower than the government and the central bank’s projection for 1.4%. More

SHANGHAI/SINGAPORE (Reuters) -Investors are making a tentative return to China’s beaten-down stock markets as the government opened the stimulus taps, including pressing a national fund for support, but they remain mindful the economy and sentiment are still fragile.China’s benchmark CSI300 Index staged a moderate rebound from 4-1/2-year lows this week, after state fund Central Huijin Investment started buying exchange-traded funds (ETFs) on Monday, adding substance to the central bank’s pledge over the weekend to fend off financial risks. Investors were also excited by Tuesday’s approval of an additional 1 trillion yuan ($136.76 billion) of sovereign bond issuance.Drawing investors back into China’s $10.5 trillion stock market, particularly the foreign buyers that have fled in droves this year, would stem further slides in a market which fell to its lowest since 2019 earlier this week. The policy efforts could also halt capital outflows and ease the yuan’s depreciation and a stronger market could help fund a rejuvenation of the world’s second-largest economy. The fiscal stimulus “is injecting some confidence to an extremely pessimistic market that saw no hope in the economy,” said Huang Yan, fund manager of Shanghai QiuYang Capital Co.QiuYang added some positions this week for short-term bets, but remained defensive as “the market needs time to find bottom”, Huang said.Still, the rebound in China stocks was modest and trading remained thin, underlining Beijing’s challenge in reviving confidence dented by a stop-go economic recovery, a deepening property crisis, and heightened geopolitical tensions. Huang is also wary of another selloff since further falls in stock prices could force leveraged investors to sell when they face margin calls. The CSI300 index is down 18% from its peak this year in January while China’s currency is down nearly 6% so far in 2023.This weekend the government gave a clear sign of market support when People’s Bank of China Governor Pan Gongsheng said China would prevent risk contagion in the stock, bond and foreign exchange markets, and ensure stability.”China’s central government is endorsing the stock market,” said Qi Wang, chief investment officer of UOB Kay Hian’s wealth management division in Hong Kong.”We see tactical opportunities” over the next few months, he said, citing some improvements in China’s economy, the Sino-U.S. relationship, and fresh stimulus. But “I dare not say we are already at the bottom.” Enlisting Huijin underscored the Chinese government’s seriousness about propping up the market after earlier piecemeal measures such as a cut in the stamp duty, reductions in trading fees, short-selling restrictions and curbs on share sales by listed companies’ large shareholders.That support showed in markets this week as several ETFs, including the PB CSI 300 ETF and E Fund CSI300 Index ETF saw heavy inflows after Huijin announced its purchases in a statement, adding it would continue to do so.China Asset Management Co (AMC) said Huijin bought an estimated 10 billion yuan ($1.37 billion) of ETFs on Monday, and continuous buying would “effectively ease liquidity shortage and help stabilise markets.”Huijin last bought ETFs during the 2015 stock market crash, and during the money market liquidity crunch in 2013. “The Shanghai stock indices were higher by more than 20% in three months both times”, analysts at Singapore’s United Overseas Bank (OTC:UOVEY) wrote.Even without the policy moves, some overseas investors are slowly coming back to Chinese stocks. UK-based M&G Investments, which manages about $385 billion for individual and profession investors, is adding to its Chinese investments and likes sectors including automotive, renewable and shipping, said Fabiana Fedeli, M&G’s global CIO for equities, multi-asset, and sustainability.”We do find opportunities in China, and opportunity is created by the fact that this market has been unloved for some time,” Fedeli said.Still, China’s stock markets have to overcome earlier heavy selling from foreigners, burnt by Xi’s previous crackdowns on internet companies and other sectors, and its earlier stringent zero-COVID policy. Goldman Sachs estimates forex outflows from China rose to $75 billion in September, 80% higher than in August and the biggest monthly amount since 2016. ($1 = 7.3149 Chinese yuan renminbi) More

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Thursday morning will see the release of the first estimate for third-quarter gross domestic product, which is expected to post a 4.7% annualized gain.
Policymakers, economists and markets will be focused more on forward-looking signals from an economy that repeatedly has defied expectations.
Since last year, the bond market has been sending a strong signal it thinks a recession is coming.

People shop along Broadway in Manhattan on July 27, 2023 in New York City.
Spencer Platt | Getty Images

The U.S. economy likely turned in another strong performance heading into the final part of the year, though what’s ahead could be significantly different.
Gross domestic product, or the sum of all goods and services produced in the U.S. economy, is expected to post a 4.7% annualized gain for the third quarter, according to a Dow Jones consensus estimate. The Commerce Department will release its first estimate of GDP at 8:30 a.m. ET.

If the projection is correct, it will be the strongest output since the fourth quarter of 2021, when growth was just shy of 7%.
However, policymakers, economists and markets will be focused more on forward-looking signals from an economy that repeatedly has defied expectations.
“We ought to look at whatever we print in the third quarter with a large degree of suspicion,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities America. “GDP doesn’t tell us where we’re going. We can feel all warm and fuzzy about a good number. But the real problem is what’s next.”
For much of the past two years, economists have been waiting for the economy to slow down and possibly enter a recession. In fact, the the Federal Reserve itself had been forecasting a mild contraction, but retracted that recently in the wake of resilient consumer that has kept growth afloat.
That’s expected to be the case again in the July-through-September period.

The consumer keeps consuming

The Atlanta Fed employs a growth tracker it calls GDPNow, which takes in data on a real-time basis and adjusts its projections accordingly. Over the past two years or so, the gauge has had a good track record, outperforming consensus nine of the past 10 quarters, according to recent research from Goldman Sachs.
For Q3, GDPNow is projecting growth of 5.4%, with more than half — 2.77 percentage points — to come from consumer spending. Exports are expected to contribute about 1 percentage point, while inventories are projected to add 0.7 point.
LaVorgna, a top White House economist under former President Donald Trump, thinks the consumer will be responsible for more than three-fourths of what he expects to be a 4.1% GDP gain. However, he thinks higher borrowing costs and a general expected pullback in demand for big-ticket items ahead finally could start putting a hit on demand metrics.

“The income side of the data shows the economy is much softer,” LaVorgna said. “To me, there’s a lot on the docket that suggests, as excited as we want to get for Q3, that definitely might be the last pop in growth that we see for a while.”
To be sure, the economy and its pivotal consumer component have been written off before.
Starting in early 2022, there had been a strong Wall Street consensus call that a recession was almost inevitable because of the lagged impact of higher interest rates. That expectation intensified during a brief banking industry crisis in March 2023 that the Fed expected would constrain credit enough to bring about a downturn.
But the Fed’s move to keep liquidity flowing in the sector, along with ambitious lending efforts from “shadow” nonbanks, helped get the economy through the crisis and keep growth afoot.
“This consumer feels comfortable spending money, they feel comfortable borrowing money,” said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA. “There is a lot of spending that is being done despite the interest rate environment. That comes from the fact that there is a tight labor market and people feel comfortable in their jobs.”

The economic ‘Energizer bunny’

Indeed, companies and the government continue to hire, putting upward pressure on growth and keeping the heat on the Fed to maintain higher rates to fight inflation. Central bank officials have raised rates aggressively while professing to not want to drag the economy into recession.
“The economy is like an Energizer bunny,” Ricchiuto said. “You have to find a way to stop it, and the Fed keeps on telling everybody they don’t really want to stop it.”
Markets, then, could interpret a strong GDP in a variety of ways.
They could see a beat as a sign that the Fed still has more work to do on inflation. Or they could view it as a sign that the economy can withstand higher rates and still grow. Or they could deem Thursday’s Commerce Department report as backward-looking and await more data for clues on the Fed’s next move.
Since mid-July 2022, the bond market has been sending a strong signal it thinks a recession is coming. Since that point, the yield on the two-year Treasury has eclipsed that of the 10-year note, a phenomenon called an inverted yield curve that has never failed to forecast a looming recession.

Now, the inversion has lessened sharply to the point where the curve is almost flat again — also a textbook sign that a recession is around the corner. That’s because after inverting, markets ultimately will start pricing in the slower or negative growth ahead through lower yields.
“The market is sending a message that a recession is coming and the Fed will have to lower rates,” said Quincy Krosby, chief global strategist at LPL Financial.
“What they’re trying to do is engineer a slowdown but keep the labor market intact,” she added. “Historically, that’s been difficult.”

Krosby expects markets to pay some attention to the GDP report but also focus on data Friday on consumer spending, sentiment and inflation, with the release of the Fed’s favorite gauge of price increases coming from the Commerce Department.
“Is the economy going to continue to defy historical trends, such as the unwinding of the inverted yield curve?” she said. “That’s the dilemma in this market.” More

The president has previously drawn down the Strategic Petroleum Reserve to ease price pressures, but that could be more difficult nowBiden administration officials, worried that a growing conflict in the Middle East could send global oil prices soaring, are looking for ways to hold down American gasoline prices if such a jump occurs.Those efforts include discussions with large oil-producing nations like Saudi Arabia that are holding back supply and with American oil producers that have the ability to pump more than they already are producing, administration officials say.A senior administration official said in an interview that it was also possible that President Biden could authorize a new round of releases from the nation’s Strategic Petroleum Reserve, an emergency stockpile of crude oil that is stored in underground salt caverns near the Gulf of Mexico. Mr. Biden tapped the reserve aggressively last year after Russia’s invasion of Ukraine sent oil prices skyrocketing, leaving the amount of oil in those reserves at historically low levels.The conflict in the Middle East has not yet sent oil prices surging. A barrel of Brent crude oil was trading for about $88 on global markets on Wednesday. That was up from about $84 earlier this month, shortly before Hamas attacked Israel and rattled markets. But analysts and administration officials fear prices could rise significantly more if the conflict in Israel spreads, restricting the flow of oil out of Iran or other major producers in the region.So far, American drivers have not felt a pinch. The average price of gasoline nationally was $3.54 a gallon on Wednesday, according to AAA. That was down about 30 cents from a month ago and 25 cents from the same day last year.Administration officials are wary of the possibility that prices could again jump above $5 a gallon, a level they briefly touched in the spring of 2022. Mr. Biden took extraordinary efforts then to help bring prices down — but those steps are likely to be far less effective in the event of a new oil shock.“They succeeded last year in the second half, but this year I think they’ve kind of run out of bullets,” said Amrita Sen, director of research at Energy Aspects.In part that’s because the administration did not refill the strategic reserve more aggressively when prices were lower, Ms. Sen said. That could undercut its ability to counteract rising prices now.“They got a little overconfident that prices would stay low,” she said. “In some ways, they’ve missed the boat.”

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Crude oil in the strategic petroleum reserve
Note: Levels are as of end of each week.Source: Energy Information AdministrationBy The New York TimesMr. Biden released a record 180 million barrels of oil from the strategic reserve, flooding the market with additional supply. His administration replenished just six million barrels when prices dipped this year, leaving the reserve at its lowest level since the 1980s. The Energy Department announced plans last week to continue refilling in the months ahead, but only if prices drop below $79 a barrel.Administration officials insist that tapping the reserve again remains an option. It still holds more than 350 million barrels of oil. That’s more than enough to counteract a disruption in oil markets if one occurs, energy analysts say.The U.S. economy is also less vulnerable to a price spike than in previous decades because the country has become less dependent on foreign oil. The United States produced more than 400 million barrels of oil in July, a record.

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Monthly U.S. crude oil production
Source: Energy Information AdministrationBy The New York Times“There’s still a lot of oil in the U.S. strategic reserve, and the U.S. is not in this alone,” said Richard Newell, president and chief executive of Resources for the Future, an energy-focused think tank. He noted that other countries had their own strategic reserves.Still, with Mr. Biden already taking criticism from Republicans for depleting the stockpile, he may be reluctant to tap it again now. “There’s another arrow in the quiver, but there’s only so many arrows right now,” said Jim Burkhard, head of energy markets research for S&P Global Commodity Insights. “Could they repeat it? Yes, but then you’re left with much, much less oil.”The stakes for Mr. Biden are high. Voters often punish presidents for high gasoline prices, and the challenge is amplified for Mr. Biden because, unlike most presidents, he has leaned into his role — intervening aggressively when prices soared early last year, and then claiming credit when prices fell.Independent experts say Mr. Biden is justified in claiming some credit for the moderation in prices last year, though they say other factors — including weaker-than-expected Chinese oil demand — also played a major role.The initial jump in oil prices was driven not by an actual shortage of oil but by a fear of one: Investors worried that millions of barrels of Russian oil would be blocked from the international market, either as a result of Western sanctions or Russian retaliation.Worried that the growing conflict in the Middle East could send oil prices soaring, Biden officials are looking for ways to hold down gasoline prices.Mark Abramson for The New York TimesMr. Biden’s decision to release oil from the strategic reserve provided additional supply at a crucial moment, helping to calm markets and push prices down.Analysts worried that additional sanctions from Europe, which were set to take effect near the end of 2022, would cause a second surge in prices by knocking more Russian supply offline. The Biden administration worked to prevent that by leading an international effort to impose a price cap on Russia that allowed the country to keep exporting oil — but only at reduced prices.That effort has worked to keep Russian oil flowing to markets and avoid a supply shock. In the first half of this year, it also appeared to be denting Moscow’s oil revenues. Increasingly, Russia has found ways around the price cap, forcing administration officials to take steps this month to crack down on enforcement of the cap in hopes of reducing the price at which Russian oil is sold.There is some risk that those enforcement efforts could at least temporarily knock Russian supply off the market at a tenuous time for global oil supply. But more important for the administration, there is little chance that a similar sort of price cap could help keep supply flowing from a large oil producer that could be involved in a widening war in the Middle East — most notably, Iran.Last October, the White House announced that it would enter into contracts to buy oil for the strategic reserve when prices fell below $72 a barrel. Doing so, the administration argued, would not just replenish the reserve but encourage domestic production by guaranteeing demand for oil at a reasonable price. But the effort has gotten off to a fitful start.Rory Johnston, an oil market analyst, said that the administration had been admirably creative in its energy policy, but that its execution had been flawed. Investors, he said, have been left skeptical about the administration’s ability to execute its strategy on refiling the reserve. They are also wondering if Mr. Biden will ever be willing to risk the political hit from driving up oil prices, by buying supply and pulling it off the market to refill the reserve.“If you want to be cynical, they’re very keen to do the price downside stuff and understandably not as keen to do the things that could seen as lifting prices,” Mr. Johnston said. More