Economy

The issuance also saw the highest demand in CAF’s 30-year history in capital markets, it added, reaching $3.4 billion.About 120 investors participated amid “an international market marked by high volatility due to economic and geopolitical uncertainty,” CAF said. More

Further signs of resilience in the U.S. economy help explain the latest sell off in Treasuries, as traders have unwound bets the U.S. Federal Reserve would soon start to lower interest rates.Earlier on Thursday, Fed Chair Jerome Powell said the economy’s strength and continued tight labor markets could require still tougher borrowing conditions to control inflation, although rising market interest rates could make action by the central bank itself less necessary.Treasuries have also been hurt by expectations for higher government debt levels and increased bond sales. COMMENTS: MICHAEL SCHULMAN, PARTNER & CIO, RUNNING POINT CAPITAL ADVISORS, EL SEGUNDO, CALIFORNIA”I see the 5% as a psychological threshold but I’ve been telling my clients for over a year that we are in a higher for longer environment, that inflation is going to stay around, higher than it has in the past, and with it interest rates also.””Some people will look at this number and fear that things might get worse .. simultaneously other people look at these high rates and think that historically this is time to invest.”NOAH WISE, PORTFOLIO MANAGER, ALLSPRING GLOBAL INVESTMENTS, CHARLOTTE, NC“I do think that (Powell’s) comments today are definitely a big factor behind the move to 5%. He highlighted what everyone has seen with the strong economic growth data and the retail sales figure that came out. He also signaled that he is fine with tightening coming as a result of longer end rates going higher, even if it means that the shorter end rates don’t need to go as high.”BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN”The move up has been driven by the Fed leaving the market as a price insensitive buyer. Foreign demand has also waned. Combined with surprisingly large issuance from the deficit, it’s a classic supply and demand effect.” “Some people think it’s because prospective growth is much stronger, but growth has never worked in explaining the level of yields. Growth stories are just that, stories. Just like how the market forced the Fed to stop quantitative tightening in 2019, it might be forcing the Fed to rethink QT today. The big difference is that in 2019 it was repo-madness that pushed the Fed to pivot. Today, it’s the chaos on the long-end of the curve.”QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA”When we move to a new level it’s always an adjustment psychologically. It’s interesting because Powell made it clear that another rate hike is on the table, but he did not telegraph that it would be for November and that there was an opportunity to remain data dependent and see if there was a rationale for keeping rates where they are. That certainly wasn’t the catalyst.””But there is a concern that is exclusive from the Fed…and that is concern over the deficit that is clearly now poised to climb higher with the larger defense needs for the administration. Now we’re talking about not just the Ukraine-Russia conflict, that front, but now you have another front, that’s in the Middle East that has to be satisfied. Not to mention the U.S. itself needs to have a larger budget…to replenish the military stockpile. The U.S. is going to need more and more supply in terms of what we auction to pay for all of this.” More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Another watershed day for U.S. Treasuries on Thursday – the entire curve came within a whisker of trading above 5% – is set to weigh heavily on Asian market sentiment on Friday and potentially seal one of the biggest weekly losses for regional stocks in months.The gloomy end to the week comes as investors also await inflation figures from Japan, Malaysia and Hong Kong; remarks from Bank of Japan governor Kazuo Ueda; and an interest rate decision from China.The People’s Bank of China is widely expected to leave its one- and five-year loan prime rates unchanged at 3.45% and 4.20%, respectively. But after Bank Indonesia’s shock rate hike on Thursday, traders won’t be taking anything for granted.But market sentiment and direction across Asia on Friday will be driven by the dramatic repricing of the U.S. bond market that shows no sign of cooling. If anything, it is heating up by the day.The U.S. 10-year yield has shot up 35 basis points this week, on track for its biggest weekly rise in over a decade. The 2s/10s yield curve has steepened 27 basis points, which would be the biggest weekly steepening move since March.There are plenty cross-currents flowing through markets right now – mixed U.S. earnings, war in the Middle East and spiking oil prices, and another debacle on Capitol Hill as U.S. lawmakers again failed to elect a House speaker.But the catalyst for Thursday’s volatility was remarks by Federal Reserve Chair Jerome Powell, who said signs of above-trend growth or a too-strong labor market could warrant more monetary tightening.Wall Street – which had earlier in the day traded higher on strong U.S. jobs data and Netflix (NASDAQ:NFLX) earnings – quickly flipped as bond yields leapt higher. The 10-year yield rose as high as 4.996%, a level not seen since July 2007.The MSCI Asia ex-Japan index is already down more than 2% so far this week. Given the extent of Wall Street’s slide on Thursday and potential event risk from the Middle East over the weekend, it is almost certain to end the week at a new low for the year.On the economic data front, data are expected to show Japan’s annual core inflation rate was 2.7% in September, cooling from 3.1% in August. That would be the lowest inflation since July last year.The BOJ will scrutinize the data at its next policy meeting on Oct. 30 to 31, when policymakers are expected to raise their inflation outlook, potentially signaling another step towards exiting years of ultra-easy monetary policy.Yen traders, with dollar/yen stuck up near 150.00, will be paying close attention too.Here are key developments that could provide more direction to markets on Friday:- China interest rate decision- Japan inflation (September)- BOJ governor Ueda speaks (By Jamie McGeever; Editing by Josie Kao) More

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The Federal Reserve may need to do more if growth remains hot or if the labor market stops cooling, Jerome H. Powell said in a speech.Jerome H. Powell, the chair of the Federal Reserve, reiterated the central bank’s commitment to moving forward “carefully” with further rate moves in a speech on Thursday. But he also said that the central bank might need to raise interest rates more if economic data continued to come in hot.Mr. Powell tried to paint a balanced picture of the challenge facing the Fed in remarks before the Economic Club of New York. He emphasized that the Fed is trying to weigh two goals against one another: It wants to wrestle inflation fully under control, but it also wants to avoid doing too much and unnecessarily hurting the economy.Yet this is a complicated moment for the central bank as the economy behaves in surprising ways. Officials have rapidly raised interest rates to a range of 5.25 to 5.5 percent over the past 19 months. Policymakers are now debating whether they need to raise rates one more time in 2023.The higher borrowing costs are supposed to weigh down economic activity — slowing home buying, business expansions and demand of all sorts — in order to cool inflation. But so far, growth has been unexpectedly resilient. Consumers are spending. Companies are hiring. And while wage gains are moderating, overall growth has been robust enough to make some economists question whether the economy is slowing sufficiently to drive inflation back to the Fed’s 2 percent goal.“We are attentive to recent data showing the resilience of economic growth and demand for labor,” Mr. Powell acknowledged on Thursday. “Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.”Mr. Powell called recent growth data a “surprise,” and said that it had come as consumer demand held up much more strongly than had been expected.“It may just be that rates haven’t been high enough for long enough,” he said, later adding that “the evidence is not that policy is too tight right now.”Economists interpreted his remarks to mean that while the Fed is unlikely to raise interest rates at its upcoming meeting, which concludes on Nov. 1, it was leaving the door open to a potential rate increase after that. The Fed’s final meeting of the year concludes on Dec. 13.“It didn’t sound like he was anxious to raise rates again in November,” said Michael Feroli, chief U.S. economist at J.P. Morgan, explaining that he thinks the Fed will depend on data as it decides what to do in December.“He definitely didn’t close the door to further rate hikes,” Mr. Feroli said. “But he didn’t signal anything was imminent, either.”Kathy Bostjancic, chief economist for Nationwide Mutual, said the comments were “balanced, because there is so much uncertainty.”The Fed chair had reasons to keep his options open. While growth has been strong in recent data, the economy could be poised for a more marked slowdown.The Fed has already raised short-term interest rates a lot, and those moves “may” still be trickling out to slow down the economy, Mr. Powell noted. And importantly, long-term interest rates in markets have jumped higher over the past two months, making it much more expensive to borrow to buy a house or a car.Those tougher financial conditions could affect growth, Mr. Powell said.“Financial conditions have tightened significantly in recent months, and longer-term bond yields have been an important driving factor in this tightening,” he said.Mr. Powell pointed to several possible reasons behind the recent increase in long-term rates: Higher growth, high deficits, the Fed’s decision to shrink its own security holdings and technical market factors could all be contributing factors.“There are many candidate ideas, and many people feeling their priors have been confirmed,” Mr. Powell said.He later added that the “bottom line” was the rise in market rates was “something that we’ll be looking at,” and “at the margin, it could” reduce the impetus for the Fed to raise interest rates further.The war between Israel and Gaza — and the accompanying geopolitical tensions — also adds to uncertainty about the global outlook. It remains too early to know how it will affect the economy, though it could undermine confidence among businesses and consumers.“Geopolitical tensions are highly elevated and pose important risks to global economic activity,” Mr. Powell said.Stocks were choppy as Mr. Powell was speaking, suggesting that investors were struggling to understand what his remarks meant for the immediate outlook on interest rates. Higher interest rates tend to be bad news for stock values.The S&P 500 ended almost 1 percent lower for the day. The move came alongside a further rise in crucial market interest rates, with the 10-year Treasury yield rising within a whisker of 5 percent, a threshold it hasn’t broken through since 2007.The Fed chair reiterated the Fed’s commitment to bringing inflation under control even at a complicated moment. Consumer price increases have come down substantially since the summer of 2022, when they peaked around 9 percent. But they remained at 3.7 percent as of last month, still well above the roughly 2 percent that prevailed before the onset of the coronavirus pandemic.“A range of uncertainties, both old ones and new ones, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little,” Mr. Powell said. “Given the uncertainties and risks, and given how far we have come, the committee is proceeding carefully.”Joe Rennison contributed reporting. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Beijing is weighing holding up US chipmaker Broadcom’s $69bn acquisition of cloud software company VMware — a move that would come soon after Washington toughened rules to block Chinese access to high-performance semiconductors.China’s State Administration of Market Regulation has not signed off on the blockbuster deal announced in May 2022 and is likely to delay approving the transaction, especially in the wake of Washington’s tougher chip controls unveiled on Tuesday, said three people familiar with the matter.Two of the people said China’s merger and acquisition approvals for US companies now required additional consultations with the Ministry of Foreign Affairs and the State Council.“Their involvement adds to the political nature of the process,” one of the people said. Shares in VMware closed around 9 per cent lower at $150.31 in New York on Thursday. Broadcom was down about 2 per cent. “On Friday last week, this was trading with a greater than 90 per cent probability of success and now it is trading like a coin flip,” said one large hedge fund investor. The State Administration of Market Regulation, the Ministry of Foreign Affairs and the State Council did not respond to requests for comment.Broadcom said in a statement there was no legal impediment to the deal closing in the US, while it had received regulatory approvals in nine jurisdictions and was making progress with filings around the world. The group said it expected the transaction to close in its fiscal year ending this month. VMware said: “We continue to expect the deal to close on October 30 2023.”South Korea’s Fair Trade Commission is one other regulator yet to approve the deal. An FTC spokesperson said a review was held on Wednesday, and a decision was likely to come next week.The need to go through China’s deal review process puts the semiconductor group in the middle of rising tensions between Washington and Beijing. Chinese state security officials raided the offices of US consultancies such as Bain & Company and Mintz Group this year. Authorities have also banned some purchases of chips from US semiconductor maker Micron Technology.If Broadcom’s merger with VMware is scuppered by Beijing, it would mark the second time in five years that the technology group has seen its dealmaking ambitions curtailed by US-China tensions.In 2018, then-US president Donald Trump blocked Broadcom’s $142bn bid for chipmaker Qualcomm, citing national security concerns about a US semiconductor champion being bought by what was then a Singapore-headquartered company.Broadcom subsequently relocated its headquarters to the US.Chinese officials have been closely scrutinising any transaction involving US chip groups. Semiconductor giant Intel in August called off its $5.4bn acquisition of Israeli chipmaker Tower Semiconductor, after failing to secure regulatory approval in China ahead of a self-imposed deadline for closing the transaction.“China’s antitrust regulator rarely formally blocks mergers, especially if other major jurisdictions have already approved it,” said a Chinese antitrust expert who asked not to be named.“If authorities do not want to approve a transaction, they prefer to extend the review process repeatedly until the parties lose patience and give up.”San Jose-based Broadcom has repeatedly declined to address whether its purchase of VMware would need the sign-off of antitrust authorities in China. However, deals between large multinationals in which the two participants generate revenue in China of more than Rmb400mn ($55mn) must be filed with the State Administration of Market Regulation for anti-monopoly approval.In Broadcom’s most recent financial year, about a third of the company’s $33bn in revenue came from shipments to China. VMware does not break out its China revenue, but executives have said its business in the country is “robust”.Additional reporting by Tim Bradshaw and Arash Massoudi in London and Nian Liu in Beijing More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Federal Reserve will proceed “carefully” with forthcoming monetary policy decisions, its chair said on Thursday, in the latest indication that the US central bank is preparing to hold interest rates steady at its meeting later this month.Jay Powell struck a cautious tone just days before the central bank’s scheduled “blackout” period ahead of a two-day meeting starting on October 31, after which public communications are limited. Powell pointed to a range of risks officials now must consider as they determine how much more to squeeze the world’s largest economy to tame inflation. But he also emphasised that the impact of the Fed’s rate-raising campaign of the past 18 months was not yet fully visible.“A range of uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little,” he said in prepared remarks at an event hosted by the Economic Club of New York.“Given the uncertainties and risks, and how far we have come, the [Federal Open Market Committee] is proceeding carefully.”The outlook for Fed’s interest rate policy has been muddied recently by mixed economic data and added geopolitical tensions sparked by the Israel-Hamas war.The “highly elevated” geopolitical tensions “pose important risks to global economic activity”, the Fed chair said, with “highly uncertain” implications.A jump in US borrowing costs has also complicated the Fed’s assessment of how much higher to raise interest rates in its quest to tame inflation, especially at a time when price pressures persist in corners of the economy and labour demand remains elevated.The yield on the benchmark 10-year Treasury note jumped to 4.996 per cent — its highest level since July 2007 — after Powell spoke. The two-year Treasury yield, which moves with interest rate expectations, dipped by 0.03 percentage points to 5.19 per cent, as investors bet that a quarter-point rate increase at the next Fed meeting was unlikely.Many officials — including Lorie Logan, the hawkish president of the Dallas Fed, and governor Christopher Waller — have suggested that the surge in yields could offset the need for the central bank to raise rates again this year. Fed policymakers previously indicated they thought the central bank would need to lift rates at least once again this year to beat back inflation.Powell said the Fed was “attentive” to the rise in yields, which could have “implications for the path of monetary policy”.In a discussion after his remarks, Powell said the recent rise in borrowing costs did not appear to reflect market expectations of higher inflation or changes to the short-term outlook for rates. Rather, he said the rise in yields could reflect market participants’ views that the economy had proven more resilient than expected, or traders’ concerns about fiscal deficits. Asked if the moves in the bond market could offset the need for further Fed rate rises, Powell said: “At the margin it could.”The Fed first pressed pause on its historic interest-rate rising campaign in June, after 10 consecutive increases, before raising rates by a quarter-point again in July. It also opted against an increase at its meeting last month. But even as the pace of monetary tightening has slowed, officials insist it is too early to declare victory in the fight against inflation. Officials have been surprised by the strength of the US economy, which has retained momentum despite one of the most aggressive rate-rising campaigns in the Fed’s history. Powell said this could reflect that demand is less affected by changes in interest rates than in the past — or that rates have not been “high enough for long enough”.He also hinted that the short-term “neutral rate” — a term used by economists to refer to the rate level that neither stimulates nor suppresses demand — could now be higher than in the past.Powell said the Fed would continue to watch for evidence that growth was not slowing sufficiently, or that the labour market remained tight, either of which “could warrant further tightening of monetary policy”.The event at which Powell spoke was initially delayed after protesters stormed the stage, saying that climate-related risks posed the biggest threat to the global economy.Additional reporting by Kate Duguid in New York More

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