Economy

SINGAPORE (Reuters) – Japan’s yen took the spotlight in Asia on Monday, circling near the 150-per-dollar level in a tug of war between investors betting on a further rise in dollar yields and those expecting Japanese authorities will intervene in markets.The week kicks off with growing worries about the Middle East conflict as Israel bombarded Gaza with air strikes early on Monday, extending a two-week bombardment that began after an Oct. 7 rampage by Islamist group Hamas on southern Israeli communities, and as the United Statese dispatched more military assets to the region.U.S. Treasuries were subdued as investors hunkered down for a European Central Bank meeting and U.S. GDP data later in the week. Ten-year yields had briefly blipped above 5% last week after Federal Reserve Chair Jerome Powell said the U.S. economy’s strength and tight labor markets might warrant tighter financial conditions.The dollar index added 0.02% to 106.19, with the euro down 0.07% at $1.0586.The Japanese yen last traded at 149.83 per dollar, after a brief trip early on Monday to 150.14, a level last seen on Oct.3 when traders had suspected the Bank of Japan intervened to nudge it to the stronger side of 150.Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, said a set of investors are betting the Bank of Japan will defend the 150 level, even as others see rising U.S. yields as a reason to keep pushing the dollar up.”Potentially there are two camps out fighting around 150, so that’s why dollar-yen doesn’t move from here,” Yamamoto said.Investors are also wary of a further rise in the long end of the U.S. Treasuries curve, driven by widening term premiums on expectations of stronger growth and fiscal slippage. Oil prices dipped on Friday after Hamas released two U.S. hostages from Gaza, leading to hopes the crisis could de-escalate without engulfing the rest of the Middle East region and disrupting oil supplies. Brent crude futures were 0.6% lower at $91.55 a barrel, but are still up 10% over 10 days.The ECB meets on Thursday. Its rate hiking cycle is over, according to all 85 economists polled by Reuters, but it won’t be until at least July 2024 before it begins easing as the battle against elevated inflation continues.The ECB raised its key interest rates by 25 basis points in September, taking the deposit rate to 4.00% and the refinancing rate to 4.50%, but signalled its 10th hike in a 14-month-long streak was likely to be its last. More

The report was compiled before the recent attacks by Hamas in Israel. Despite these recent developments, the conflict between Russia and Ukraine was placed as the 11th concern in the report. This positioning suggests that while geopolitical tensions remain a factor for consideration, the focus remains on economic indicators and their potential impact on financial stability. The Federal Reserve’s semi-annual report serves as a key barometer of potential risks to financial stability. The identification of inflation persistence and a downturn in commercial real estate as imminent threats reflects an increasing concern about these issues among financial institutions and policymakers. The report’s emphasis on bank instability resulting from the failure of three major firms indicates a heightened level of concern for the banking sector’s resilience amidst challenging global economic conditions. This is further compounded by China’s economic frailty, which could have far-reaching implications for global financial markets.The geopolitical conflicts, such as those in Israel and between Russia and Ukraine, while noted in the report, were not ranked among the top ten concerns. This suggests that economic factors are currently viewed as posing more immediate risks to financial stability than geopolitical tensions.The Federal Reserve’s semi-annual report provides valuable insights into the current state of financial stability and potential risks. It serves as a guide for policymakers, financial institutions, and investors in navigating the complex global economic landscape.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

This situation could necessitate additional monetary tightening, which could have adverse effects on short-maturity government bonds. This viewpoint contrasts with swaps pricing predictions, which currently forecast a pause by the ECB and only a 10% probability of a 25 basis-point increase in the near term. These firms, however, contend that an overshoot might be necessary considering Europe’s heightened risk.In contrast to the ECB’s forecasted pause, swaps pricing indicates a 40% likelihood of another quarter-point increase by the Federal Reserve in the United States. The differing views on monetary policy directions between two of the world’s most influential central banks highlight the unique economic challenges each region is facing. For Europe, it is primarily the energy crisis and its implications on inflation and growth rates. Meanwhile, in the US, despite similar inflationary pressures, robust economic recovery from COVID-19 seems to be steering towards further tightening measures.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

SYDNEY (Reuters) – Asian shares drifted lower on Monday as the risk of a wider conflict in the Middle East clouded sentiment in a week laden with data on U.S. growth and inflation as well as earnings from some of the world’s largest tech companies.Washington warned over the weekend of a significant risk to U.S. interests in the region as ally Israel pounded Gaza and clashes on its border with Lebanon intensified.The European Central Bank and Bank of Canada also hold policy meetings and, while no hikes are expected, investors will be sensitive to guidance on futures moves.A recent surge in bond yields has tightened monetary conditions without the central banks having to do anything, allowing the Federal Reserve to signal it will likely stay on hold at its policy meeting next week. Indeed, futures imply around a 70% chance the Fed is done tightening for this cycle and are flirting with the chance of rate cuts from May next year. The jump in yields has challenged equity valuations and dragged most of the major indices lower last week, while the VIX ‘fear index’ of U.S. stock market volatility hit its highest since March.Early Monday, both S&P 500 futures and Nasdaq futures added 0.3%, though U.S. 10-year Treasury yields were up at 4.946% and edging back toward 5.0%.MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.1% to be near its lowest in almost a year. Japan’s Nikkei eased 0.4%, as did South Korea’s market.Investors will be hoping earnings from U.S. tech majors will provide some relief this week with Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN) and Meta Platforms (NASDAQ:META) all reporting. IBM (NYSE:IBM) and Intel (NASDAQ:INTC) are also on the docket.Profits should be supported by the strength of consumer demand with figures on U.S. gross domestic product this week expected to show annualised growth of a heady 4.2%, and nominal growth possibly as high as 7%.”At the same time, last quarter’s modest rise in hours worked points to a strong productivity gain and surge in corporate profits,” wrote JPMorgan chief economist Bruce Kasman in a note.”As corporate and household income share the benefits of this nominal activity surge, the underlying resilience of the U.S. private sector is being reinforced.”This U.S. outperformance has underpinned the dollar, though the threat of Japanese intervention has capped it around 150.00 yen at least for the moment. The dollar was last trading at 149.85 yen, just below the recent peak of 150.16.The euro was flat at $1.0588, while the Swiss franc held firm at 0.8927 per dollar having benefited from safe haven flows over the past couple of weeks.Gold has likewise attracted a safety bid to stand at $1,976 an ounce, having hit its highest since May last week. [GOL/]The risk of disruptions to supplies from the Middle East has underpinned oil prices, though Brent did run into resistance around $93.80 last week. [O/R]Brent was last down 43 cents at $91.73 a barrel, while U.S. crude eased 39 cents to $87.69. More

HONG KONG (Reuters) -U.S. measures to limit the export of advanced artificial intelligence (AI) chips to China may create an opening for Huawei Technologies to expand in its $7 billion home market as the curbs force Nvidia (NASDAQ:NVDA) to retreat, analysts say. While Nvidia has historically been the leading provider of AI chips in China with a market share exceeding 90%, Chinese firms including Huawei have been developing their own versions of Nvidia’s best-selling chips, including the A100 and the H100 graphics processing units (GPU). Huawei’s Ascend AI chips are comparable to Nvidia’s in terms of raw computing power, analysts and some AI firms such as China’s iFlyTek say, but they still lag behind in performance.Jiang Yifan, chief market analyst at brokerage Guotai Junan Securities, said another key limiting factor for Chinese firms was the reliance of most projects on Nvidia’s chips and software ecosystem, but that could change with the U.S. restrictions.”This U.S. move, in my opinion, is actually giving Huawei’s Ascend chips a huge gift,” Jiang said in a post on his social media Weibo (NASDAQ:WB) account.This opportunity, however, comes with several challenges.Many cutting edge AI projects are built with CUDA, a popular programming architecture Nvidia has pioneered, which has in turn given rise to a massive global ecosystem that has become capable of training highly sophisticated AI models such as OpenAI’s GPT-4.Huawei own version is called CANN, and analysts say it is much more limited in terms of the AI models it is capable of training, meaning that Huawei’s chips are far from a plug-and-play substitute for Nvidia.Woz Ahmed, a former chip design executive turned consultant, said that for Huawei to win Chinese clients from Nvidia, it must replicate the ecosystem Nvidia created, including supporting clients to move their data and models to Huawei’s own platform.Intellectual property rights are also a problem, as many U.S. firms already hold key patents for GPUs, Ahmed said.”To get something that’s in the ballpark, it is 5 or 10 years,” he added.Huawei and Nvidia did not immediately respond to Reuters’ requests for comment. COMPUTING POWER If Huawei manages to grab Nvidia’s market share, it could claim another victory against the United States, which has targeted the firm with export controls since 2019.Huawei rolled out the first Ascend GPUs that year and it is one of a number of products – such as its Harmony operating system – that the company says are entirely homegrown. Over the past year, the telecoms giant has shown signs that it is beating back against the U.S. curbs by unveiling an advanced smartphone chip and making claims of breakthroughs in chip design tools.It has also set its sights on becoming a key provider of computing power for AI, with Chief Financial Officer Meng Wanzhou saying last month that Huawei wanted to build a computing base for China and give the world a “second option”, in a veiled reference to dominant provider the United States. Huawei’s partners in China so far include iFlyTek, a leading Chinese AI software company which is using the Ascend 910 to train its AI models. IFlyTek was also blacklisted by the United States in 2019. On Thursday, during iFlyTek’s earnings call, Senior Vice President Jiang Tao said the Ascend 910B’s capabilities were “comparable to Nvidia’s A100” and announced that it was developing a general-purpose AI infrastructure in China alongside Huawei. “Our partnership now aims to enable domestically developed LLMs to be built with both homegrown hardware and software technology,” Jiang said. Other partners include state-owned software firms Tsinghua Tongfang and Digital China. At a conference in July, Huawei said its AI chips now help power more than 30 large language models (LLM) in China, which is going through a generative AI craze and currently has more than 130 LLMs. Charlie Chai, an analyst with 86Research, said Nvidia’s ecosystem dominance was not “an insurmountable obstacle if domestic players are given sufficient time and a big customer base”. China’s self-sufficiency push, which has been championed by President Xi Jinping, is likely to aid this. “In short, a small disruption to near-term supplies, but a big boost to the long-term self-sufficiency agenda,” Chai added. ($1 = $1.0000) More

PARIS (Reuters) – Governments should open a new front in the international clampdown on tax evasion with a global minimum tax on billionaires, which could raise $250 billion annually, the EU Tax Observatory said on Monday.If levied, the sum would be equivalent to only 2% of the nearly $13 trillion in wealth owned by the 2,700 billionaires globally, the research group hosted at the Paris School of Economics said.Currently billionaires’ effective personal tax is often far less than what other taxpayers of more modest means pay because they can park wealth in shell companies sheltering them from income tax, the group said in its 2024 Global Tax Evasion Report.”In our view, this is difficult to justify because it risks to undermine the sustainability of tax systems and the social acceptability of taxation,” the observatory’s director Gabriel Zucman told journalists.Billionaires’ personal tax in the United States is estimated to be close to 0.5% and as low as zero in otherwise high-tax France, the Observatory estimated.Growing wealth inequality in some countries is fuelling calls for the richest citizens to bear more of the tax burden as public finances struggle to cope with aging populations, huge financing needs for climate transition and legacy COVID debt.U.S. President Joe Biden’s 2024 budget included plans for a 25% minimum tax on the wealthiest 0.01%, but that proposal has since fallen by the wayside with lawmakers in Washington preoccupied with government shutdown threats and looming funding deadlines.Though a coordinated international push to tax billionaires could take years, the Observatory pointed to the example of governments’ success in all but ending bank secrecy and reducing opportunities for multinationals to shift profits to low-tax countries.The 2018 launch of automatic sharing of account information has reduced the amount of wealth held in offshore tax havens by a factor of three, the observatory estimated.A 2021 agreement between 140 countries will limit multinationals’ scope to reduce tax by booking profits in low-tax countries by setting a global 15% floor on corporate taxation from next year.”Something that many people thought would be impossible, now we know can actually be done,” Zucman said. “The logical next step is to apply that logic to billionaires, and not only to multinational companies.”In the absence of a broad international push for a minimum tax on billionaires, Zucman said a “coalition of willing countries” could unilaterally lead the way. Although the end of banking secrecy and the corporate minimum tax have put an end to decades-long competition between countries on tax rates, numerous opportunities remain to reduce tax bills, the report said.For example the rich increasingly park wealth in real estate instead of offshore accounts while companies can exploit loopholes in the 15% corporate tax minimum.Meanwhile, governments are increasingly competing for investment through subsidies even though that is less harmful to their tax bases than competing only on low tax rates, the Observatory said. More

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(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.The big question this week hanging over global financial markets – and Asian markets in particular, given the lack of big-hitting regional economic indicators or policy decisions – is whether the U.S. Treasuries selloff abates or not. Third-quarter gross domestic product data from South Korea, and consumer price inflation reports from Australia, Singapore and Tokyo are the main indicators this week, and flash purchasing managers indices from Japan and Australia will be published on Monday.These figures may have a brief impact on their respective currencies, but are unlikely to move the dial in terms of broader market sentiment. That will come from the U.S. bond market, and Monday’s price action could be instructive.The ICE BofA Treasuries index fell 1.4% last week, its biggest fall since May, and is at an eight-year low. The TLT Treasuries ETF has lost a fifth of its value since mid-July. Short-covering on Friday ahead of the weekend and Middle East event risk stopped the rot, at least momentarily. Perhaps ominously, however, Friday’s bond market relief didn’t ease the pressure elsewhere – Wall Street’s three main indices still closed 0.9%-1.5% lower.The S&P 500 lost 2.4% last week, one of the biggest falls this year, and the VIX ‘fear index’ of U.S. stock market volatility on Friday hit its highest since March.That’s not a positive backdrop for Asia’s open on Monday, although braver investors might be looking for some bargains – the MSCI Asia ex-Japan index on Friday fell to its lowest in almost a year and is down 12% since the start of August. Meanwhile, the stock and bond market selling has tightened financial conditions significantly. According to Goldman Sachs, financial conditions in emerging markets and globally are the tightest in almost a year.It’s even worse in China – financial conditions in the world’s second largest economy are the tightest since Goldman’s China index was launched in 2006.Chinese central bank governor Pan Gongsheng on Saturday said that the central bank will make policy more “precise and forceful”, guide financial institutions to cut real lending rates, and reduce financing costs for firms and individuals.His comments are significant because they are his first on policy since stronger-than-expected third-quarter economic data were released earlier this month.In currencies, the yen and yuan open the week under heavy selling pressure and at critically important levels. Traders will again be on Bank of Japan intervention watch.Meanwhile, Japanese and Australian PMI data for October are out on Monday. September’s reports showed that manufacturing activity in both countries shrank and services sector activity grew, although growth in Japan was the slowest this year. Here are key developments that could provide more direction to markets on Monday:- Japan flash manufacturing PMI (October)- Australia flash PMI (October)- Singapore inflation (September) (By Jamie McGeever; Editing by Diane Craft) More