Economy

(Reuters) – A look at the day ahead in Asian markets. Asian markets are set to end the week on the defensive, pressured by rising U.S. bond yields and a firmer dollar, with investors ready to reduce risk exposure as they ponder the cross-currents sweeping through the emerging world.China’s latest pledges – to widen the budget deficit, issue more debt and loosen monetary policy – have generally been welcomed, but Brazil’s surprisingly aggressive interest rate hike and promise of more to come has had a more mixed impact.Chinese and Hong Kong stocks bounced strongly on Thursday, and barring a fall of 1.4% or more on Friday, blue chip Chinese stocks will register their third weekly rise in a row, a winning streak not seen since May. The yuan fell on the stimulus news, as expected, but not by much. Indeed, going into Friday’s session, the onshore yuan is set to break a remarkable run of 10 consecutive weekly declines. Even less surprising, perhaps, was another leg lower in Chinese bond yields. The 10-year yield is at record lows and is on course for its biggest weekly fall since 2020. Wall Street understandably took a breather on Thursday after the previous day’s somewhat surprising surge. The S&P 500 fell 0.5% and is poised for a modest fall on the week, and the Nasdaq backed off Wednesday’s record high above 20,000. It’s still on course for its fourth consecutive weekly rise though, and remarkably, it has declined in only two weeks out of the last 14. The AI-driven bull run in U.S. tech shows every sign of powering on into the year end with Hong Kong’s benchmark tech index is up 3% for the week. The wider policy and market sentiment thermometer is also sending mixed signals. The Swiss National Bank delivered a jumbo rate cut on Thursday, bringing the zero bound into view and floating the possibility of negative rates, if they are needed.The European Central Bank cut rates by a more modest 25 basis points, as expected, but was more cautious in its guidance. And hot U.S. producer price inflation pushed up Treasury yields, while punchy jobless claims data stoked concern about the labor market.All in all, a very mixed bag, and investors may well be relieved that the weekend is near.Asia’s economic calendar on Friday is light. The two main indicators are India’s wholesale inflation for November, which is expected to ease a bit to 2.2% on an annual basis from 2.36% in October, and Japan’s fourth quarter Tankan survey of business sentiment.The Australian dollar and Philippine peso could move on scheduled speeches from RBA Assistant Governor Sarah Hunter and Philippine central bank governor Eli Remolona, respectively. Here are key developments that could provide more direction to markets on Friday:- Japan Tankan survey (Q4)- India wholesale inflation (November)- New Zealand manufacturing PMI (November) More

The producer price index increased 0.4% for November, higher than the Dow Jones consensus estimate for 0.2%.
However, excluding food and energy, core PPI increased 0.2%, meeting the forecast.
First-time claims for unemployment insurance totaled a seasonally adjusted 242,000 for the week ending Dec. 7, versus the 220,000 forecast and up 17,000 from the prior period.

A measure of wholesale prices rose more than expected in November as questions percolated over whether progress in bringing down inflation has slowed, the Bureau of Labor Statistics reported Thursday.
The producer price index, or PPI, which measures what producers get for their products at the final-demand stage, increased 0.4% for the month, higher than the Dow Jones consensus estimate for 0.2%. On an annual basis, PPI rose 3%, the biggest advance since February 2023.

However, excluding food and energy, core PPI increased 0.2%, meeting the forecast. Also, subtracting trade services left the PPI increase at just 0.1%. The year-over-year increase of 3.5% also was the most since February 2023.
In other economic news Thursday, the Labor Department reported that first-time claims for unemployment insurance totaled a seasonally adjusted 242,000 for the week ending Dec. 7, considerably higher than the 220,000 forecast and up 17,000 from the prior period.
On the inflation front, the news was mixed.
Final-demand goods prices leaped 0.7% on the month, the biggest move since February of this year. Some 80% of the move came from a 3.1% surge in food prices, according to the BLS.
Within the food category, chicken eggs soared 54.6%, joining an across-the-board acceleration in items such as dry vegetables, fresh fruits and poultry. Egg prices at the retail level swelled 8.2% on the month and were up 37.5% from a year ago, the BLS said in a separate report Wednesday on consumer prices.

Services costs rose 0.2%, pushed higher by a 0.8% increase in trade.
The PPI release comes a day after the BLS reported that the consumer price index, or CPI, a more widely cited inflation gauge, also nudged higher in November to 2.7% on a 12-month basis and 0.3% month over month.
Despite the seemingly stubborn state of inflation, markets overwhelmingly expect the Federal Reserve to lower its key overnight borrowing rate next week. Futures markets traders are implying a near certainty to a quarter percentage point reduction when the rate-setting Federal Open Market Committee concludes its meeting Wednesday.
Following the release, economists generally viewed the data this week as mostly benign, with underlying indicators still pointing towards enough disinflation to get the Fed back to its 2% target eventually.
The Fed uses the Commerce Department’s personal consumption expenditures price index, or PCE, as its primary inflation gauge and forecasting tool. However, data from the CPI and PPI feed into that measure.
An Atlanta Fed tracker is putting November PCE at 2.6%, up 0.3 percentage point from October, and core PCE at 3%, up 0.2 percentage point. The Fed generally considers core a better long-run indicator. A few economists said the details in the report point to a smaller monthly rise in PCE inflation than they had previously expected.
“It appears that only an exogenous shock such as dramatic tariff policy shifts would be capable of derailing supply-side contributions toward inflation’s return to the Federal Reserve’s 2.0% average goal in the near term,” PNC senior economist Kurt Rankin wrote.
Stock market futures were slightly in negative territory following the economic news. Treasury yields were mixed while the odds of a rate cut next week were still around 98%, according to the CME Group.
One reason markets expect the Fed to cut, even amid stubborn inflation, is that Fed officials are growing more concerned about the labor market. Nonfarm payrolls have posted gains every month since December 2020, but the increases have slowed lately, and Thursday brought news that layoffs could be increasing as unemployment lasts longer.
Jobless claims posted their highest level since early October, while continuing claims, which run a week behind, edged higher to 1.89 million. The four-week moving average of continuing claims, which smooths out weekly volatility, rose to its highest level in just over four years. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The IMF’s in-house watchdog has criticised the fund over a lack of consistency in some of its biggest bailouts of the past two decades, calling on officials to address claims they succumb to political pressures to back big, risky repeat borrowers.Rules for outsized loans to countries such as Argentina, Ukraine and Egypt needed an overhaul as “perceptions of a lack of even-handedness” were affecting the fund’s credibility, the IMF’s independent evaluation office said in a report on Thursday.The report casts light on one of the thorniest issues facing the IMF, as the Washington-based institution comes under pressure to balance mounting debt problems in more and more developing economies with the taxing of its resources by a small group of countries that it is struggling to wean off its support. The fund’s biggest lending commitment is to Argentina, where President Javier Milei is seeking a new $10bn loan, on top of $44bn the country tapped since 2018 under the exceptional access rules. The country’s obligations to the IMF are so large that last year it tapped a renminbi swap line with the Chinese central bank to help repayments.Ongoing IMF support for Ukraine is also a linchpin of Kyiv’s financing of its war effort against Russia’s invasion, while a fund loan to Egypt this year was seen as stabilising a key economy on the frontline of fallout from the Gaza war.Kristalina Georgieva, the IMF managing director, said in response to the assessment that a fund review of the rules governing its biggest bailouts was “needed to ensure that the policy remains fit for purpose in an evolving global context”.But she cautioned that the IMF still needs space for flexibility and that too many sweeping reservations about its commitments to countries such as Argentina and Ukraine could backfire, and weaken countries’ ability to return to markets. The fund introduced a so-called “exceptional access policy” in 2002 to better regulate large bailouts that put bigger risks on IMF resources.While the watchdog acknowledged the fund’s policy for so-called “exceptional access” cases, where a country borrows many times more than usual limits, has worked better than previous use of discretion, it “has not provided a substantively higher standard” compared to normal bailouts, the office said.“The use of the [policy] at times may have led to delaying debt resolution problems and it has not catalysed private financing to the extent the fund envisaged when it was adopted,” it added.Under a long-standing policy, countries have had to pay surcharges, or extra interest, on IMF lending above a set quota, in order to discourage large repeat borrowings. The fund reformed the surcharges this year, including a cut to the rate.“Outside the fund, there is a strong perception of political pressures in some high-profile cases affecting the assessment” of bailouts under the exceptional access rules, the IEO said.The IMF often faces criticism that it bows to big shareholders that often are also large lenders to countries in trouble. In October, Brent Neiman, the US Treasury Assistant Secretary for International Finance, said the fund needed to be firmer in assessing bailouts where China was a big creditor.The IEO report said its evaluation “confirms that pressures on staff and management, exerted directly or indirectly, were strong in high-stakes cases”.The review did not find evidence that confirmed concerns that economic assumptions behind bailouts were “reverse-engineered” in order to get loans approved.But it identified weaknesses in processes, such as when the IMF relied on political assurances ahead of elections that bailout conditions such as big spending cuts will be delivered.It added that the fund also tended to wrongly assume that big bailouts would boost investor confidence in countries. “The expected confidence effects relied more on assumption than on analytical explanation,” the report said. The assessment reviewed cases from 2002 up to the middle of last year, such as the IMF’s bailout of Greece at the start of the Eurozone crisis in 2010, and a 2015 loan to Ukraine after Russia annexed Crimea. It also looked at so-called “grey zone” cases where the fund judges that a country’s debts are sustainable before it lends but cannot say so with high probability.For grey zone cases in particular, Georgieva said “further reflection and review based on more recent data” was useful. “We do not want to increase the risk of inadvertently raising prospects of deeper debt restructurings and increased losses,” Georgieva said. More

The central bank for the 20 countries that share the euro reduced the rate it pays on bank deposits, which drives financing conditions in the bloc, to 3.0% from 3.25%. It was at a record 4.0% only in June.It also signalled that further cuts are possible by removing a reference to keeping rates “sufficiently restrictive”, economic jargon for a level of borrowing costs that curbs economic growth.”Financing conditions are easing, as the Governing Council’s recent interest rate cuts gradually make new borrowing less expensive for firms and households,” the ECB said. “But they continue to be tight because monetary policy remains restrictive and past interest rate hikes are still transmitting to the outstanding stock of credit.”There is no universal definition of what constitutes a restrictive rate but economists generally see neutral territory, which neither fuels nor cools growth, at between 2% and 2.5%.With Thursday’s decision, the ECB also cut the rate at which it lends to banks for one week – to 3.15% – and for one day, to 3.40%. These facilities have barely been used in recent years as the ECB has supplied the banking system with more reserves than it needs via massive bond purchases and long-term loans.But they may become more relevant in the future as those programmes end. The ECB confirmed on Thursday it would stop buying bonds under its Pandemic Emergency Purchase Programme this month. More

The ECB cut its benchmark deposit rate by 25 basis points to 3.0%, while the interest rate on its main refinancing operations fell to 3.15%.The ECB has already cut rates at three of its last four meetings. Nevertheless the debate has shifted to whether it is easing policy fast enough to support an economy that is at risk of recession, facing political instability at home and the prospect of a fresh trade war with the United States.Eurozone inflation came in at 2.3% in November, marginally above the ECB’s 2.0% target, but the central bank’s fresh projections are likely to show inflation back at target in a few months’ time. At the same time, economies within the region are barely growing, with gross domestic product rising 0.4% in the third quarter, according to data released earlier this month, while political turmoil in France and Germany’s upcoming election add to the uncertainty.Additionally, the election of Donald Trump as the incoming US president raised the possibility of a trade war, as he has previously threatened the bloc with high tariffs, particularly on the auto industry.  With this all in mind, investors see a cut at every meeting in 2025 until June, followed by at least one more move in the second half of 2025, taking the deposit rate to at least 1.75% by year-end.The Swiss National Bank cut its key interest rate by 50 basis points earlier Thursday, as it attempted to tackle a strong Swiss franc as well as depressed inflation. More