Economy

SINGAPORE (Reuters) – A bruised dollar was nudged lower still in Asia on Thursday, as traders took surprisingly slow U.S. inflation as a signal U.S. interest rate rises will be all but finished by month’s end.The dollar had its worst session in five months overnight, falling more than 1% against the euro to its lowest in more than a year and notching even larger losses elsewhere.The euro hit a fresh 15-month high of $1.1141 in early Asia trade and the yen, up 0.3% at 138.16 per dollar, was its strongest since mid-May. The U.S. dollar index fell marginally to 100.47, its lowest since April 2022.The New Zealand dollar reached a two-month high of $0.6309 and the Aussie a three-week peak of $0.6796.The moves were small, yet showed traders’ faith the dollar has further to fall. The yuan touched a one-month high at 7.1604 to the dollar in offshore trade. Sterling and Swiss franc were testing overnight highs.U.S. core inflation came in at 0.2% in June against market expectations for 0.3%. Headline annual CPI fell to 3% and has been dropping since hitting a peak at 9.6% a year earlier.”Oversized CPI gains are receding into the distance, and the recent run of inflation data has been very benign,” said Steve Englander, head of global G10 currency research at Standard Chartered (OTC:SCBFF).”We, and increasingly the market, doubt that the Fed will hike again after the 26 July meeting,” he said.”We think the recent dollar underperformance reflects a qualitative shift in market comfort with being short dollars as the terminal Fed policy rate looks increasingly capped.”Interest rate futures showed markets have fully priced a Federal Reserve rate hike later this month, but expectations of any further increases are being wound back.Two-year Treasury yields, which track rate expectations, dropped more than 15 basis points overnight to 4.73%. In Scandinavia, where inflation is looking sticky and central bankers are projecting further rate hikes, currencies surged, with the Swedish and Norwegian crowns up more than 2% and eyeing gains of about 5% for the week.In Asia the yen is up 4.8% against the dollar in five trading days and almost as much on other major crosses as short-sellers have been cleared out and market focus turns to whether the Bank of Japan (BOJ) might soon tweak its yield control policy.Japanese government bond yields rose to multi-month highs on Wednesday, though the closely-watched 10-year yield remains at 0.46%, comfortably below the BOJ’s 0.5% cap, suggesting only modest speculation on a policy shift.Sterling sat at $1.2994, just below its overnight high of $1.3001. The Swiss franc, which hit its highest since 2015 overnight, traded just below that level at 0.8661 francs to the dollar.Chinese trade data is due later on Thursday, along with minutes from last month’s European Central Bank meeting, European industrial production data and British monthly GDP. More

SEOUL (Reuters) -South Korea’s central bank on Thursday held interest rates steady for a fourth straight meeting, as expected, faced with softening but still high inflation and heightened financial uncertainty. The Bank of Korea (BOK) said its seven-member monetary policy board voted to keep the base rate unchanged at 3.50%, as it did in meetings in February, April and May. Domestic markets showed muted reaction as the decision was in line with the unanimous forecasts of 46 economists surveyed by Reuters.The BOK has kept monetary policy unchanged since its last interest rate hike in January and its tightening campaign, which began in August 2021, is widely expected to be over.South Korea’s annual consumer inflation has eased since peaking at a 24-year high of 6.3% in July 2022. The rate stood at 2.7% in June this year, although it is still higher than the central bank’s medium-term target of 2%.The decision comes amid heightened worries about a sluggish property market that has weighed on liquidity conditions of financial institutions.South Korea’s heavily trade-reliant economy has been losing momentum this year due to a slowing global economy, weak chip sector and still sluggish demand from China, although consumer sentiment ticked up in June to its highest in just over a year. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.Asian markets could not be in better spirits going into the latest South Korean interest rate decision and Chinese trade data on Thursday, thanks to the dollar’s slump and global market rally on Wednesday sparked by another steep decline in U.S. inflation.The one percentage point fall in June headline consumer price inflation to 3.0% strengthened hopes that the U.S. economy is heading for a ‘soft landing’, boosting risk appetite and, more importantly for emerging markets, slamming the dollar.The greenback fell around 1.2% against a basket of major currencies on Wednesday, its biggest fall since November, to its lowest in over a year. Latin American currencies hit a 10-year high, and emerging Asia FX could follow that lead on Thursday.Asia and Pacific currencies in the G10 space were among the best performers on Wednesday. The New Zealand and Australian dollars surged 1.6%, both chalking up their biggest one-day rise since January, and Japan’s yen rose 1.4% for its best day since March.The yen has risen five days in a row, its longest winning streak against the dollar since November. It is up 5% in that time, which has cooled talk of yen-supportive intervention from Japanese authorities and contributed to Japanese stocks’ decline of around the same magnitude.The kiwi dollar’s rally came as traders digested the central bank’s decision on Wednesday to hold its cash rate steady at 5.5%, hitting pause as expected and flagging that rates would be on hold for some time. Most economists still expect rate cuts to come in 2024.The Thai baht, meanwhile, may be subject to greater-than-usual volatility and political risk on Thursday as Thailand’s parliament convenes to elect a prime minister, paving the way for a new government to be formed, likely by early next month.The outcome of Thursday’s vote is far from certain.And the South Korean won will take its cue from the Bank of Korea’s policy decision and guidance. All 46 economists in a Reuters poll say the BOK will keep its key policy rate unchanged at a 15-year high of 3.50% and for the rest of the year.Inflation is at its lowest in 21 months and getting closer to the BOK’s 2% target, so the won could be sensitive to guidance on when the bank might begin easing policy.Chinese trade figures are expected to show yet another sharp fall in cross-border activity last month, with exports and imports predicted to fall 9.5% and 4.5% year on year, respectively. That would be the biggest fall in exports since January – economists at SocGen are penciling in a 15.7% crash.Yes, trade data from China could dampen the mood in Asia, but it would have to be a particularly gloomy set of numbers for the feelgood factor infusing markets to fizzle out completely.Here are key developments that could provide more direction to markets on Thursday:- South Korea interest rate decision- China trade (June)- Thailand parliament elects new prime minister (By Jamie McGeever; Editing by Josie Kao) More

The Consumer Price Index climbed far more slowly in June, a relief for shoppers and a hopeful — though inconclusive — sign that America might pull off a “soft landing.”Inflation cooled significantly in June, offering some of the most hopeful news since the Federal Reserve began trying to tame rapid price increases 16 months ago — and boosting the chances that the central bank might be able to stop raising interest rates after its meeting this month.The Consumer Price Index climbed 3 percent in the year through June, according to data released Wednesday, less than the 4 percent increase in the year through May and just a third of its roughly 9 percent peak last summer.That overall measure is being pulled down by big declines in gas prices that could prove ephemeral, which is why policymakers closely watch a more slimmed-down version: the change in prices after stripping out food and fuel costs. That metric, known as the core index, offered news that was even better than what economists had expected.The core index climbed 4.8 percent compared with the previous year, down from 5.3 percent in the year through May. Economists had forecast a 5 percent increase. And on a monthly basis, it climbed at the slowest pace since August 2021.Slower inflation is unquestionably good news, because it allows consumer paychecks to stretch further at the gas pump and in the grocery aisle. And if inflation can come down sustainably without a big increase in unemployment or a painful economic recession, it could allow workers to hang on to the major gains they have made over the past three years: progress toward better jobs and pay that has helped to chip away at income inequality.The White House, which has spent over a year on the defensive over rising prices, celebrated the fresh report, with President Biden calling the current economic moment “Bidenomics in action.” And stocks soared as investors bet that the Fed would be able to be less aggressive in its fight against inflation — even halting its interest rate increases after a final July move — in light of the new data.“This is very promising news,” said Laura Rosner-Warburton, senior economist and founding partner at MacroPolicy Perspectives. “The pieces of the puzzle are starting to come together. But it’s just one report, and the Fed has been burned by inflation before.”Fed officials are likely to avoid declaring victory just yet. Policymakers are still trying to assess whether the moderation is likely to be quick and complete. They do not want to allow price increases to linger at slightly elevated levels for too long, because if they do, consumers and businesses could adjust their behavior in ways that make more rapid inflation a permanent feature of the economy.That’s why officials have signaled in recent weeks that they are likely to raise interest rates at their meeting on July 25 and 26. Policymakers had also indicated that one or more additional rate moves could be warranted after that.“Inflation is too high,” Thomas Barkin, the president of the Federal Reserve Bank of Richmond, said Wednesday in a speech in Maryland, according to Bloomberg. “If you back off too soon, inflation comes back strong, which then requires the Fed to do even more.”But economists and investors saw less of a chance that the Fed would raise rates again later this year in light of the fresh data.Policymakers have already slowed down the pace of rate moves sharply, skipping an adjustment at the June meeting. Assuming they hold off again in September, that could mean it would be November before they have to seriously debate lifting borrowing costs again — and by then, success in tamping down inflation could be clear.“They don’t want to unleash animal spirits too quickly here and have everyone go bananas,” said Julia Pollak, chief economist at ZipRecruiter. But by November, “it may be clear in the data that their job is done.”The details of the June report offered reasons for optimism. Inflation slowed down as a few key products and services posted steep price declines. Airfares fell 8.1 percent from the previous month, and used cars and trucks were down 0.5 percent. New vehicle prices were flat compared with May.Not all of those changes will necessarily last: Airline tickets, for instance, are not expected to continue to decline as sharply as they did in this report. But for the Fed, there were other encouraging signs that the cool-down is broad enough to prove sustainable.For one thing, the cost of housing as measured by the Consumer Price Index — which relies on rent prices — is coming down sharply. That is expected to continue in coming months. An index tracking the rent of primary residences slowed to a 0.46 percent change in June, the weakest increase since March 2022.Car prices are also stabilizing, and in some cases falling. After years in which semiconductor shortages and other parts problems limited supply, making it hard to meet booming demand, discounting is making a comeback on car dealer lots. Inventories are rebounding, and consumers have a less voracious appetite for new cars in particular.“It’s different from the past couple of years, and even different from the fall,” said Beth Weaver, who runs a Buick GMC car dealership in Erie, Pa. “Interest rates have certainly weighed on demand.”And more broadly, price increases for a basket of services excluding energy, food and housing costs — a metric that the Fed watches very closely — continued to slow in June. That progress comes even as unemployment is hovering near its lowest level in half a century and hiring remains stronger than before the pandemic.“This is very promising news,” the economist Laura Rosner-Warburton said. “But it’s just one report, and the Fed has been burned by inflation before.”Amir Hamja/The New York TimesFed interest rate increases work to slow inflation partly by slowing the job market and holding back wage increases, so the Fed’s fight against inflation and the strength of the labor market are closely tied.“The economy is defying predictions that inflation would not fall absent significant job destruction,” Lael Brainard, the director of the National Economic Council, said during a speech on Wednesday. “This economy is delivering strong results for America’s middle class.”Republicans highlighted that inflation is still higher than usual — a fact that has been biting into consumer confidence, though it may become less salient as consumers feel relief from cheaper fuel and find that they can replace their aging cars without facing eye-popping price tags.“Inflation that is almost double the Federal Reserve’s target is not a win for American wallets and budgets,” Representative Jason Smith, a Missouri Republican and chairman of the House Ways and Means Committee, said in an emailed statement, referring to the core inflation rate.Inflation does remain above the rate of increase that was normal before the 2020 pandemic, and it is still much faster than the Fed’s 2 percent goal. The Fed defines that target using a separate inflation measure, the Personal Consumption Expenditures index. That gauge is also slowing notably, and its June reading is scheduled for release on July 28.Even if central bankers are taking the slowdown cautiously — cognizant that price increases have slowed and then accelerated again before — many commentators welcomed the fresh data point as the latest sign that the economy might be able to slow gently.Officials at the Fed have been trying to engineer a “soft landing,” in which inflation slows gradually and without requiring a big jump in the unemployment rate. Jerome H. Powell, the Fed chair, has repeatedly said there was a “narrow path” to achieving one: There are few if any historical examples of the Fed wrestling significant inflation lower without a downturn.Challenges continue to loom. The economy has momentum, and the job market is strong, which could give companies the wherewithal to keep increasing prices. The war in Ukraine could always intensify, pushing up commodity prices.But there are also factors that could help out: China’s rebound has been weaker than expected, which means that fewer buyers are competing for goods in global markets. Consumers are buying fewer retail goods, and while spending on services is not plummeting, it has been gradually slowing.And as those trends combine with inflation that is easing more convincingly, the odds of a gentle deceleration may be improving.“Powell’s saying is that ‘it’s a narrow path to a soft landing,’” said Michael Feroli, chief U.S. economist at J.P. Morgan. “It’s looking maybe a little wider now.”Alan Rappeport More

The debate, the first between opposition hopefuls since 2011, was held as they await a ruling by the country’s top court which could suspend the Oct. 22 nominating contest.Independent candidate for 2024 Luis Ratti – who many in the opposition say has ties to the ruling socialist party – asked the Supreme Justice Tribunal on Monday to bar the primary on unspecified allegations of irregularities. Venezuela’s often divided opposition is seeking to dislodge President Nicolas Maduro, who has ruled the country since 2013. Though the last election in 2018 was widely condemned, especially by the United States, as fraudulent, the opposition has so far failed to unseat Maduro.Three of the most high-profile of the 14 opposition hopefuls, Maria Corina Machado, Henrique Capriles and Freddy Superlano, have already been barred from holding public office.The primary must give the opposition clear leadership and stronger unity, said the eight candidates who attended the debate, organized by non-governmental groups and hosted at Universidad Catolica Andres Bello. “We need a leadership that does not hesitate, that confronts, that is incapable of bending in the face of threats,” said Machado, a 55-year-old former lawmaker who is leading polling for the primary.”This is not a conventional election,” said Superlano, who warned any of the candidates could be banned. “We need leadership who will take the fight to the end.”However, there was disagreement about how to choose a replacement if the favored candidate was barred from running.Two-time presidential candidate Capriles was notably absent. He said on Monday the country needs the opposition to be unified, not airing its differences in public.The hopefuls said private investors must feel confident returning to Venezuela, whose economy contracted for eight consecutive years until 2022, when it showed incipient growth which is already waning.”We propose … reinserting the country into the global financial system to attract investment. Productive expansion means openings markets, privatizing, and respecting private property,” Machado said.Superlano and other hopefuls, including former lawmakers Delsa Solorzano and Carlos Prosperi, said laws were needed to ensure respect for private property, increase employment, and revise rules which allow the state a majority participation in oil companies.”We need to move from extractive development to productive development, to a free-market economy that obliges the inclusion of those who have been left behind,” said former legislator Tamara Adrian. More

AUSTIN (Reuters) – Rapid advancements in artificial intelligence have the potential to exacerbate societal problems and even pose an existential threat to human life, increasing the need for global regulation, AI experts told the Reuters MOMENTUM conference this week. The explosion of generative AI – which can create text, photos and videos in response to open-ended prompts – in recent months has spurred both excitement about its potential as well as fears it could make some jobs obsolete, upend economies and even possibly overpower humans.”We are flying down the highway in this car of AI,” said Ian Swanson, CEO and co-founder of Protect AI, which helps businesses secure their AI and machine learning systems, during a Reuters MOMENTUM panel on Tuesday. “So what do we need to do? We need to have safety checks. We need to do the proper basic maintenance and we need regulation.”Regulators need look no further than at social media platforms to understand how unchecked growth of a new industry can lead to negative consequences like creating an information echo chamber, said Seth Dobrin, president of the Responsible AI Institute. “If we expand the digital divide … that’s going to lead to disruption of society,” Dobrin said. “Regulators need to think about that.”Regulation is already being prepared in several countries to tackle issues around AI.The European Union’s proposed AI Act, for example, would classify AI applications into different risk levels, banning uses considered “unacceptable” and subjecting “high-risk” applications to rigorous assessments.U.S. lawmakers last month introduced two separate AI-focused bills, one that would require the U.S. government to be transparent when using AI to interact with people and another that would establish an office to determine if the United States remains competitive in the latest technologies.One emerging threat that lawmakers and tech leaders must guard against is the possibility of AI making nuclear weapons even more powerful, Anthony Aguirre, founder and executive director of the Future of Life Institute, said in an interview at the conference.Developing ever-more powerful AI will also risk eliminating jobs to a point where it may be impossible for humans to simply learn new skills and enter other industries. “We’re going to end up in a world where our skills are irrelevant,” he said. The Future of Life Institute, a nonprofit aimed at reducing catastrophic risks from advanced artificial intelligence, made headlines in March when it released an open letter calling for a six-month pause on the training of AI systems more powerful than OpenAI’s GPT-4. It warned that AI labs have been “locked in an out-of-control race” to develop “powerful digital minds that no one – not even their creators – can understand, predict, or reliably control.””It seems like the most obvious thing in the world not to put AI into nuclear command and control,” he said. “That doesn’t mean we won’t do that, because we do a lot of unwise things.” More

Good morning. Today’s top story is on US inflation, which eased last month to its slowest rate in more than two years. US inflation fell sharply to 3 per cent in June, sending the dollar lower and highlighting the Federal Reserve’s relative success at bearing down on price pressures.The improved picture in Wednesday’s data stands in sharp contrast to other advanced economies, such as the UK where the Bank of England is struggling to control inflation of 8.7 per cent. China’s economy, meanwhile, teetered on the brink of deflation in June, with flat annual CPI, adding to calls for more stimulus. The major US stock indices hit 15-month highs; the two-year Treasury yield, which moves with interest rate expectations, fell to a two-week low of 4.73 per cent; and the US dollar index, which measures the greenback against a basket of six currencies, hit its weakest point in 15 months.The annual increase in the consumer price index slowed from 4 per cent in May to 3 per cent in June, the slowest rate of inflation since March 2021, compared with expectations of 3.1 per cent.“After a punishing stretch of high inflation that eroded consumers’ purchasing power, the fever is breaking,” said Bill Adams, chief economist at Comerica Bank.Here’s what I’m keeping tabs on today:Economic data: Monthly oil market reports will be released by the International Energy Agency and Opec. France has consumer price index and HICP inflation rate figures for last month, while final June producer price index data is due from the US. South Korea interest rate decision: Economists expect the Bank of Korea to hold rates at 3.5 per cent for the fourth straight meeting. (Bloomberg) Meetings: The EU-Japan summit begins in Brussels, attended by European Council president Charles Michel, European Commission president Ursula von der Leyen and Japanese prime minister Fumio Kishida.Thailand’s high-stakes vote for PM: Parliament will vote for new prime minister. Pita Limjaroenrat, whose progressive Move Forward party won big in May’s general election, faces various obstacles to become prime minister and supplant the military-backed government. (The Guardian)Five more top stories1. Elon Musk has launched xAI, an artificial intelligence company aiming to challenge the dominance of ChatGPT owner OpenAI. The company will be led by Musk, who has also secured thousands of GPU processors from Nvidia, which are required to build large language models that consume vast amounts of content. Here are more details on Musk’s plans for AI. Nvidia news: The world’s most valuable semiconductor company is in talks to be an anchor investor in SoftBank-owned chip designer Arm’s New York IPO. 2. At Nato’s summit this week, allies were careful to stress their staunch support for Ukraine in the face of Russia’s invasion. But after Volodymyr Zelenskyy blasted Nato for its “absurd” lack of a clear timeline for Ukraine’s entry, tensions began spilling into the open. Here’s more on the frustrations between Ukraine and its allies. Related: US President Joe Biden said he is considering sending long-range missiles to Ukraine, a potentially significant shift as Washington alters its risk calculus in Ukraine as the war slogs on.3. EY China has refused to pay fees owed to its global headquarters for more than a year in a dispute over IT services. The Chinese arm says the services cannot be fully used after Beijing tightened data security rules, according to people familiar with the matter. Read more on the tussle between EY’s global bosses and its semi-independent member firms in China.4. Japanese regional banks have been accused by the country’s financial regulators of “gender-washing” in disclosures to investors due to legal ambiguity over leadership roles occupied by women. Here’s what the Financial Services Agency’s survey revealed about female representation in management at regional banks.Other banks news: JPMorgan is hiring dozens of bankers around the world who cater to start-ups and venture capital-backed companies as it tries to take advantage of the collapse of Silicon Valley Bank. 5. North Korea has fired an intercontinental ballistic missile into waters between the Korean peninsula and Japan, days after threatening to shoot down US reconnaissance planes it accused of violating its airspace. Japan’s defence ministry said the missile flew for about 74 minutes, the longest flight time for any North Korean long-range missile. The Big Read

© FT montage/Lindsay DeDario

Four decades after Ronald Reagan rejected large-scale US government intervention in the economy, Joe Biden is embracing it wholeheartedly with a raft of subsidies for domestic producers in strategic sectors, in the hope of creating hundreds of thousands of new jobs. Will the president’s policies transform the American economy in a way that is durable and have a tangible impact that resonates with voters?We’re also reading . . . Corporate Japan’s hunt for US deals: Unlike the 1980s, the current search is about diversifying revenue streams and not accumulating trophy assets.Turkey looks west: Backing Sweden’s Nato bid was a strategic move by President Recep Tayyip Erdoğan to ease tensions and unblock trade.Battle in cyber space: After serving as a marine, Nathaniel Fick became the White House’s first-ever cyber space ambassador, tasked with championing America’s digital interests against countries such as China. Chart of the dayThe yen strengthened past ¥140 against the dollar on Wednesday on bets from currency and bond traders that the Bank of Japan could soon begin its pivot away from its ultra-loose monetary policy. The 3.5 per cent rise to ¥139.5 against the dollar in July set the Japanese currency on a tentative course for its best month since the country’s finance authorities intervened late last year to prop up the currency.Take a break from the newsWant some fresh fashion inspiration for the summer? FT’s deputy fashion editor Carola Long suggests looking to Ken, the real style star of the upcoming Barbie movie.

Ryan Gosling, as Ken, in a co-ordinated cabana set

Additional contributions by Tee Zhuo and Gordon Smith More

NEW YORK (Reuters) -Large leveraged bets by hedge funds in the U.S. Treasury market could “amplify stress” in global financial markets should rates markets move sharply, the Bank of England said in a report published on Wednesday.Hedge funds have taken record short positions in two- and five-year Treasury futures this year, suggesting that fund managers expect short-term interest rates to continue to move higher. The yield on the 2-year Treasury note fell 10 basis points on Wednesday after touching 5.12% last week, the highest since June 2007.Bond yields move in the opposite direction of prices. Hedge funds, meanwhile, disputed the notion that they are undermining the security of financial markets. “Our members understand the importance of strong capital markets and will continue to work with policymakers to enhance the resilience of the financial system,” the Managed Funds Association, a trade association representing hedge funds and the global alternative asset management industry, said in a statement. The release on Wednesday of U.S. data showing consumer prices on a year-on-year basis rose by their smallest amount in more than two years in June could convince market participants that inflation is ebbing and prompt a reduction in the record short positioning, said Benjamin Jeffery, vice president of rates strategy at BMO Capital Markets. “Really what the market is looking for is a little bit more clarity from the Fed and other global central banks as to where terminal rates will ultimately be, and that will ultimately translate into more conviction in the rates market,” he said.Overall, mutual funds and other institutional investors have been adding to their long positions in Treasuries this year, while hedge funds have been increasing their bets that they will fall, Bank of America (NYSE:BAC) strategists wrote in a July 3 note. “Asset managers continued to add to (Treasury) exposure with leveraged funds taking the other side,” the report noted. More