Economy

NEW YORK (Reuters) – A banner year for U.S. stocks gets one of its last big tests with the coming week’s Federal Reserve meeting, as investors await the central bank’s guidance on interest rate cuts.The Nasdaq Composite index breached 20,000 for the first time ever in the past week, another milestone for equities in a year during which the tech-heavy index has gained 32% while the S&P 500 has risen about 27%.Expectations that the Fed will cut interest rates have supported those gains. But while the central bank is expected to lower borrowing costs by another 25 basis points next week, investors have moderated their bets on how aggressively policymakers will move next year due to robust economic growth and sticky inflation. Bond yields, which move inversely to Treasury prices, have risen in recent sessions as a result, taking the benchmark U.S. 10-year yield to a three-week high of 4.38% on Friday. While stocks have pushed higher despite the rise in yields, the 10-year is approaching the 4.5% level some investors have flagged as a potential trip-wire for broader market turbulence. “Anything that results in an expectation that maybe the Fed moves even more slowly from here than investors were expecting could create a little bit of downside for stocks,” said Jim Baird, chief investment officer with Plante Moran Financial Advisors.The trajectory of monetary policy is closely monitored by investors, as the level of rates dictates borrowing costs and is a key input in determining stock valuations. Interest rate expectations also sway bond yields, which can dim the allure of equities when they rise because Treasuries are backed by the U.S. government and seen as virtually risk-free if held to term.Fed fund futures indicated a 96% chance the Fed will cut by 25 basis points when it gives its policy decision on Wednesday, according to CME FedWatch data as of Friday.But the path for rates next year is less certain. Fed fund futures are implying the rate will be at 3.8% by December of next year, down from the current level of 4.5%-4.75%, according to LSEG data. That is about 100 basis points higher than what was priced in September.The Fed’s summary of economic projections released at the meeting will provide one indication of where policymakers see rates heading. Officials penciled in a median rate of 3.4% for the end of next year when the summary was last released in September. One sign of potential support for a slower pace of cuts came from Fed Chair Jerome Powell, who this month said the economy is stronger now than the central bank had expected in September.Another factor that could make Fed officials more cautious about future cuts is the presidential election of Donald Trump, whose pro-growth economic policies and favoring of tariffs are causing concerns about stronger inflation next year.Analysts at BNP Paribas (OTC:BNPQY) said they expect a “hawkish cut,” with the central bank likely to “open the door for a pause in further cuts of undefined length.”Carol Schleif, chief market strategist at BMO Private Wealth, said markets “will be trying to read into how worried is the Fed about inflation.”November data released in the past week showed progress in lowering inflation toward the U.S. central bank’s 2% target has virtually stalled.Still, analysts say the market’s momentum favors more gains into year end, while sentiment among investors in surveys remains bullish – though some market technicals suggest the rally in stocks may have grown stretched. The percentage of Nasdaq constituents hitting 52-week highs has declined since the rally after the Nov 5 election, implying fewer stocks are supporting the advance, Adam Turnquist, chief technical strategist for LPL Financial (NASDAQ:LPLA), said in a note on Thursday.“History suggests the tech-heavy index could be due for a breather before longer-term momentum resumes,” Turnquist said. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldWe will soon find out whether Donald Trump has changed his tune on the dollar.In his first term, the comeback president had a clear preference for a weaker buck. On one notable occasion in 2019, when European Central Bank chief Mario Draghi was dropping hints of more monetary stimulus, the then-president responded with his trademark poise, tweeting that Draghi’s comments “immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.” Trump’s foray in to dollar policy — traditionally the preserve of the Treasury secretary — prompted that immediate drop in the euro to reverse and left the market in no doubt what the leader of the free world wanted to see.Fast forward to the end of 2024, and we are invited to believe that Trump 2.0 is different. In October, the man who has gone on to become the nominee for the Treasury job — Scott Bessent — indicated that Trump is actually a free markets fan after all.“The reserve currency can go up and down based on the market. I believe that if you have good economic policies, you’re naturally going to have a strong dollar,” Bessent said.But Trump is a norm-breaker and a master of signalling policy shifts on social media. It’s not hard to imagine him requesting or demanding dollar-weakening measures from major trading partners of the US in return for lenience on tariffs, perhaps through a grand Mar-a-Lago Accord — an echo of the dollar-squashing Plaza Accord of 1985. Whether that would work is another question entirely, particularly given currency relations are a very delicate game of diplomatic chess, not Trump’s obvious strength.If Trump does still love a weak dollar then the past few weeks have not gone his way. The DXY dollar index, which tracks the buck’s value against a basket of other currencies, is up by close to 3 per cent since election day, carving out gains against precisely those currencies likely to be in the path of the trade tariffs bulldozer, such as the euro and Chinese renminbi.Figuring out where currencies are heading involves more than just comparing economic growth trajectories and interest rates, but honestly not much. (Just don’t tell the currency analysts or they will email me to complain.)Under that framework, the case for the dollar to keep on pushing higher is obvious. America is already on a higher growth trajectory than much of the rest of the world, even before further stimulus under the incoming president. If Trump does slap large tariffs on imports, that leaches growth away from those other countries and will probably mean interest rates there will drop in response.Already, US inflation is proving persistent, ticking up to 2.7 per cent on an annual basis in data released this week. That leaves December’s quarter-point rate cut from the Federal Reserve still in play, but undermines the case for a long series of further cuts in to next year. By contrast, investors expect the ECB to keep on hacking rates back in an effort to counteract the risk of recession, taking deposit rates potentially as low as 1.5 per cent, from 3 per cent now.“The US data is already pointing in a significantly more inflationary direction than just a few months ago,” Deutsche Bank analyst George Saravelos wrote this week. Meanwhile, the ECB could soon start to worry about inflation sinking below its 2 per cent target, he said. “Bottom line, even without Trump, there is more Fed/ECB repricing to go and pressures remain to the downside” for the euro against the dollar.For China and the renminbi, a similar story applies. The economy is stuck in a hole and likely to struggle further if Trump goes all-in on tariffs. This week, China’s leaders called for more fiscal and monetary stimulus. Deliberate efforts to weaken the renminbi by buying dollars are a well-trodden tactic for Chinese authorities and analysts say they would not be at all surprised to see evidence of that dotted throughout next year.So, as ever, the ball is in Trump’s court. Does he lash out at overseas stimulus measures as he did the last time he was in office? Does he decide that dollar strength is a price worth paying for his tariffs? Investors don’t know, but they do see a decent chance that this gets nasty. “This could turn in to currency wars,” said Salman Ahmed, a macro strategist at Fidelity International. “Right now, we’re seeing [the Fed and the ECB] focusing on different realities because of the political changes and fiscal divergence.”One moderating factor here could be that markets have already priced in a lot of Trump. The dollar index is already up 6 per cent since late October — roughly the time when investors grew more confident that Trump would win. This could suck some of the wind out of the dollar’s sails next year. If it does not, a period of currency diplomacy by social media lies ahead again.katie.martin@ft.com More

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Rs4335 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

LONDON (Reuters) -The dollar headed for its best weekly performance in a month on Friday, as investors priced in the possibility of the Federal Reserve cutting rates more slowly next year, while sterling fell after a surprise contraction in UK economic activity.The U.S. currency held firm against the euro and Swiss franc following rate cuts by those central banks a day earlier, and rose against the yen after reports that the Bank of Japan could forgo a rate hike at its meeting next week.The dollar index, which measures the currency against six others, was flat at 106.94, but still set for a weekly gain of nearly 1%, its biggest in a month.U.S. data on Thursday showed the job market is gradually cooling in line with expectations, while producer price inflation helped reinforce the market’s current scenario of a Fed cut on Dec. 18, but a slower pace of reductions in 2025.Markets fully expect a cut at the upcoming meeting, but only price a roughly 24% chance of another one in January, with March the most likely point for another move, according to CME’s FedWatch tool.”What is clear from recent Fed speakers and the data flow is that progress toward the inflation target has slowed down and the economy has continued to perform, therefore policymakers can afford to take a more cautious approach to easing over 2025,” said Rodrigo Catril, senior FX strategist at National Australia Bank (OTC:NABZY).San Francisco Fed President Mary Daly, for example, said this month that she was comfortable cutting rates in December, but advocated “a more thoughtful and cautious approach” on further reductions.The dollar rose 0.5% to 153.465 yen its highest since late November. The yen has been the worst performer this week against the dollar, which has gained 2% on the Japanese currency. Traders see just a 23% chance of a quarter-point hike by the BOJ on Dec. 19, following reports by Reuters and Bloomberg that pointed to officials forgoing tightening this time in order to wait for more evidence of wage growth and see how U.S. policy takes shape under incoming president Donald Trump. “While the outcome is uncertain, one thing is clear: a hike exceeding 15 bps would likely trigger a downside move in dollar/yen as the yen strengthens,” City Index market analyst David Scutt said.”On the other hand, if the BoJ keeps rates unchanged, there’s a solid chance of a kneejerk upside reaction.” Either way, the outlook is volatile for this currency pair and likely will be driven by the dollar, he added. EUROPE UNDER PRESSURE In Europe, the pound fell after data showed the UK economy shrank unexpectedly in October, adding to signs of a bigger-than-expected slowdown. The Office for National Statistics said the economy contracted 0.1% in October, compared with forecasts in a Reuters poll for growth of 0.1%.Sterling was last down 0.2% at $1.2647, around its weakest since the start of the month. Against the euro the pound was down 0.48% at 82.985 pence, but still not far off its strongest since June 2016, when the UK voted to leave the European Union.The euro pared earlier losses against the dollar and rose 0.26% to $1.0493. The European Central Bank on Thursday cut rates by 25 basis points and kept the door open to further easing.The Swiss franc remained under pressure after the central bank’s shock half-point rate reduction the day before. The dollar was last up 0.1% at 0.8935 francs, while the euro rose 0.4% to 0.9375 francs.Rate cuts and the threat of the U.S. imposing tariffs have Canada’s dollar pinned to a 4-1/2 year low. [CAD/]The Chinese yuan held at 7.2826 per dollar in the offshore market. Reuters reported this week China is considering allowing its currency to fall further to counter the impact from any U.S. trade war. Bitcoin nudged above $100,000, heading back towards Dec. 5’s all-time high of $103,649. More

He said Thursday’s decision to cut the ECB’s key rate by 0.25 percentage points to 3% was ‘fortunately absolutely consensual’.”In the future, the expectation is that the restrictiveness of interest rates will be reduced,” Centeno, who is also governor of the Bank of Portugal, told a briefing, adding that monetary policy should be normalised in a few quarters’ time, with rates close to 2%, if no new shocks materialise.The ECB cut the key deposit rate for the fourth time this year on Thursday, and kept the door open to more easing as the euro zone economy is dragged down by political instability at home and the threat of a fresh U.S. trade war. More

BEIJING (Reuters) -New bank lending in China rose by far less than expected in November, highlighting weak credit demand in the world’s second-largest economy as policymakers pledge to roll out more stimulus measures.Chinese banks extended 580 billion yuan ($79.72 billion) in new yuan loans in November, up from October but missing analysts’ forecast as the central bank steps up support for the economy.Analysts polled by Reuters had predicted new yuan loans would rise to 990 billion yuan last month, from 500 billion yuan in October and against 1.09 trillion yuan a year earlier.”With policymakers planning a larger budget deficit next year, strong government bond issuance will continue to prop up credit growth over the coming quarters,” Capital Economics said in a note. “But we don’t envisage much of a pick-up in private sector credit demand.”The People’s Bank of China (PBOC) does not provide monthly breakdowns, but Reuters calculated the November figures based on the bank’s Jan-Nov data on Friday, compared with the Jan-Oct figure.The PBOC said new yuan loans totalled 17.1 trillion yuan for the first 11 months of the year, versus 21.58 trillion yuan a year earlier. Household loans, including mortgages, rose to 270 billion yuan in November from 160 billion yuan in October, while corporate loans rose to 250 billion yuan from 130 billion yuan, according to Reuters calculations based on central bank data.China’s leaders, at the annual agenda-setting Central Economic Work Conference that concluded on Thursday, pledged to increase the budget deficit and cut interest rates and banks’ reserve ratios to counter the impact of expected U.S. trade tariffs on next year’s economic growth.Earlier this week, the Politburo promised to switch to an “appropriately loose” monetary policy stance.Reuters reported last month that government advisers recommended that Beijing keep its growth target of around 5% unchanged next year.China’s economy has struggled this year, prompting policymakers to act in September, with the central bank unveiling its most aggressive monetary easing since the pandemic, cutting interest rates and injecting 1 trillion yuan into the financial system, among other steps.The government launched a $1.4 trillion debt package last month to ease local government balance sheets and unveiled tax incentives on home and land transactions to spur demand and ease the financial burden on developers.DIFFICULT TASK China may just be able to reach its growth target of around 5% this year, but maintaining that pace next year would be a difficult task as higher U.S. tariffs loom.Analysts at UBS expect the PBOC to cut its key policy rate by 30-40 basis points in 2025 and another 20-30bp in 2026, which could help lead to more cuts in loan prime rate – the benchmark lending rate – and mortgage rates.Broad M2 money supply grew 7.1% in November from a year earlier, central bank data showed, below analysts’ 7.5% forecast in the Reuters poll. In October, M2 grew 7.5%.The narrower M1 money supply fell 3.7% in November from a year earlier, moderating from a 6.1% drop in October.Outstanding yuan loans grew 7.7% in November from a year earlier. Analysts had expected 7.9% growth, slower than the 8.0% recorded in October.The outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, grew 7.8% in November, unchanged from October – a record low. Acceleration in government bond issuance could help boost growth in TSF.TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies, and bond sales.In November, TSF rose to 2.34 trillion yuan from 1.4 trillion yuan in October. Analysts polled by Reuters had expected TSF of 2.8 trillion yuan.($1 = 7.2754 Chinese yuan renminbi)  More

The 24 workers from Nepal and Bangladesh, one of whom has died and whose estate brought the case, sued Dyson Technology Ltd, Dyson Ltd and a Malaysian subsidiary in 2022.The claimants were workers for Malaysian firm ATA Industrial or its sister company and made components for Dyson products. Their lawyers say the workers had money unlawfully deducted from their wages and were sometimes beaten for not meeting onerous targets, alleging in a lawsuit at London’s High Court that the Dyson companies were ultimately responsible.Dyson, whose Malaysian subsidiary cancelled its contract with ATA in 2021, denies the claimants’ allegations and argued that any lawsuit should be brought in Malaysia rather than Britain.Last year, the High Court threw the case out and ruled that the workers could sue in Malaysia.But the Court of Appeal overturned that decision, saying in a written ruling that London was “clearly and distinctly the appropriate forum” for the cases to be heard.”This was a procedural hearing to determine where the main case should ultimately be heard,” a Dyson spokesperson said. “The High Court was right last year in its carefully considered ruling that it should be heard in Malaysia and we disagree with today’s appeal decision,” the spokesperson added, explaining that Dyson was reviewing its legal options.The company – founded by James Dyson, the inventor of the bagless cleaner – employs around 2,500 people in Britain, including at its R&D centre in Malmesbury, west England, having announced in July that it was cutting about 1,000 jobs. More