Economy

Former far-right Jair Bolsonaro unveiled the fuel tax cut last year as he sought to ease inflation and win over voters ahead of the election which he eventually lost to Lula. Since Lula’s victory, debate has raged within his Workers Party (PT) over what to do with the costly and popular measure. Lula’s Finance Minister Fernando Haddad has long opposed the waiver, arguing privately that it hurts public coffers and undermines Lula’s green agenda, according to two sources from the ministry who requested anonymity to speak candidly. Publicly, Haddad has said ultimately it would be up to Lula to decide.”The decision (to extend the tax waiver only to February) was taken by the president, who, obviously, can revisit the matter,” he said after a January meeting with Febraban, the lobbying group representing Brazilian banks. Others in Lula’s circle have convinced the president to extend the waiver on diesel and biodiesel until December of this year, and on gasoline and ethanol until February. Tensions are now mounting over whether to extend further the gasoline and ethanol tax waiver. In his fiscal plan, presented in January, Haddad included the reintroduction of taxes on gasoline and ethanol starting in March. That would generate 29 billion reais ($5.6 billion) in federal revenue and add fiscal backing to Lula’s social spending plans. But this stance is seen as too market-friendly by some of the leftists in Lula’s camp, and on Friday that debate broke out into the open. In a series of Twitter posts, Congresswoman Gleisi Hoffmann, president of Lula’s Workers Party (PT), said fuel taxes should only resume once state-run oil giant Petrobras defines a new pricing policy.”This will be possible starting April when the Board of Directors is renewed with people committed to the reconstruction of the company and its role for the country,” she said.Hoffmann added that a “fairer pricing policy” is needed for Petrobras, which currently pegs domestic fuel prices to international oil rates, which makes pump prices more expensive when the commodity and the U.S. dollar appreciate. “We are not against taxing fuels, but doing so now penalizes consumers, generates more inflation, and violates campaign commitments,” she wrote.The Finance Ministry and the Presidential Palace did not immediately respond to requests for comments.Vice-President Geraldo Alckmin said on Friday the government had not yet made a decision on fuel taxes.Central bank governor Roberto Campos Neto, who is under pressure from Lula and his allies to reduce interest rates, has said the re-taxation of fuels would add short-term inflationary pressure, but would improve Brazil’s fiscal situation, arguing it would have “a beneficial effect going forward.” More

NEW YORK/SAN FRANCISCO (Reuters) -Expectations that the U.S. Federal Reserve will need to push interest rates higher and keep them elevated longer than previously projected rose on Friday after data showed a key inflation gauge accelerated last month. Even so, Fed policymakers speaking on Friday did not push for a return to the kind of aggressive action that marked last year’s interest-rate hikes, suggesting that for now central bankers are content to stick to a gradual tightening path despite signs that inflation is not cooling as they had hoped.The Commerce Department reported that the Personal Consumption Expenditures price index, the metric by which the Fed measures its 2% inflation target, rose 5.4% last month from a year earlier, a pickup from an upwardly revised 5.3% annual pace in December. Underlying “core” inflation climbed a faster-than-expected 4.7% from a year earlier, compared to December’s upwardly revised 4.6% pace. The report “is another indication that the impulse of inflation and price pressures is still with us,” Cleveland Fed President Loretta Mester told Reuters on the sidelines of a conference in New York. “It’s going to take more effort on the part of the Fed to get inflation on that sustainable downward path to 2%.”Even so, Mester — who had wanted a half-point hike at the Fed’s last meeting — said she could not yet say if she would support such a large hike at the Fed’s upcoming meeting. She is among the minority of Fed policymakers who in December thought they would need to lift the policy rate to 5.4% to stop inflation, while most believed 5.1% would suffice. Earlier on Friday she said she had not revised her view.Similarly, none of the other Fed policymakers who spoke on Friday, including the normally hawkish Governor Christopher Waller and St. Louis Fed President James Bullard, focused on the fresh inflation data to argue for a more muscular Fed response. Boston Fed President Susan Collins said more rate hikes will be needed, but did not specify a particular stopping point.Implied yields on federal funds futures contracts rose on Friday as traders firmed up expectations for at least three more rate hikes through June, a path that would push the U.S. central bank’s benchmark overnight interest rate to the 5.25%-5.50% range, from the current 4.50%-4.75% range. Pricing also now puts about a 40% chance of an even higher stopping point for that rate, up from about 30% prior to the release of the PCE data. And traders largely erased what had been consistent bets on Fed rate cuts toward the end of the year, pricing in a year-end Fed policy rate of 5.26%.”There are inflationary pressures in the economy, the level of inflation is still too high, and it’s going to take more on the monetary policy side to get inflation down, Mester said.Economic data in recent weeks has generally come in stronger than expected, with job growth still robust and wage gains exceeding what Fed Governor Phillip Jefferson said on Friday was consistent with a timely return to 2% inflation. Revisions to data from prior months in Friday’s Commerce Department report showed inflation did not cool in November and December as much as had been thought, and spending in January rose more than expected even as the savings rate increased. All told, the economic readings may throw doubt on Fed Chair Jerome Powell’s assessment this month that the “disinflationary process” had begun, a view that seemed to justify the central bank’s decision at its Jan. 31-Feb. 1 policy meeting to deliver a quarter-percentage-point rate increase after a string of bigger hikes in 2022. “If the Fed had this data at the last meeting, they probably would’ve raised by 50 (basis points) and the tone from the press conference would’ve been a lot different,” said Gene Goldman, chief investment officer at Cetera Investment Management. Goldman said he expects the next round of Fed projections, to be published in March, to signal rates will rise father and stay there longer than previously thought. “It looks like the Fed will have to be more aggressive,” said Yelena Shulyatyeva, an economist at BNP Paribas (OTC:BNPQY). “They will probably overdo it, in our view, and that will eventually lead to a recession; the question is more like when, not whether, it will be a recession.” More

BRUSSELS (Reuters) -TikTok accused the European Commission on Friday of failing to consult it over a decision to ban the Chinese short video sharing app from staff phones on cybersecurity grounds, a move subsequently followed by another top EU body.The app, which is owned by Chinese firm ByteDance, is facing growing scrutiny from Western authorities over concerns that China’s government could use it to harvest people’s data. Beijing has regularly denied having any such intentions.The EU executive and the EU Council, which brings together representatives of the member states to set policy priorities, said on Thursday staff will also be required to remove TikTok from personal mobile devices that have access to corporate services.TikTok, which has in the past said that data on its service can not be accessed by Beijing, said it had not been told or contacted by either institution ahead of their decisions.”So we are really operating under a cloud. And the lack of transparency and the lack of due process. Quite frankly one would expect, you know, some sort of engagement on this matter,” Caroline Greer, TikTok’s director of public policy and government relations, told Reuters.She said she cold not respond to the bodies’ cybersecurity concerns because they had not spelled them out.The European Commission pointed to EU industry chief Thierry Breton’s comments at a news conference on Thursday where he said the EU executive does not have to give reasons for decisions taken to ensure its proper functions.”To suspend the use of TikTok is a purely internal decision for cybersecurity reasons to protect the Council General Secretariat’s (GSC) data and staff. As the GSC has no contractual relationship with TikTok, there is no obligation to consult or inform them,” an EU official said. Greer said TikTok CEO Shou Zi Chew, who met Breton and other commissioners in Brussels in January, was “concerned and a little puzzled”.”He has always been very available, you know, responding to the Commission … We have reached out for a meeting in whatever shape or form they would like that to happen.”Other EU institutions should do their own research before making decisions on the app, Greer said.TikTok is banned on U.S. Senate employees’ government-owned devices and also in India. The European Parliament has not taken such a step. More

NEW YORK (Reuters) – Signs of a resilient U.S. economy are boosting the appeal of semiconductor stocks, even as worries over the Federal Reserve’s monetary policy tightening weigh on the sector along with the broader market.The Philadelphia SE Semiconductor index is up about 16% so far this year, dwarfing the 3% year-to-date gain for the S&P 500 and the Nasdaq Composite’s 8.5% rise. Semiconductors were among the worst hit areas in last year’s market rout, which saw the SOX index lose 36%, fueled by worries of an imminent recession. They have been standouts in the market’s 2023 rebound, supported in part by evidence that the U.S. economy continues to be robust even after the Federal Reserve unleashed its most aggressive monetary policy tightening in decades to fight inflation. With semiconductors a key component in countless products, some investors are betting economic strength could help the shares outperform. Despite last year’s recession fears, the market now believes “the economy is going to continue to chug along,” said King Lip, chief strategist at Baker Avenue Wealth Management, whose firm owns shares of Nvidia (NASDAQ:NVDA) and On Semiconductor. “If that’s the case, then I think semiconductors can do very well.”Of course, economic strength has been a double-edged sword for stocks lately. Semiconductor shares have pulled back recently along with broader markets on worries of a “no landing” economic scenario in which strong growth keeps inflation elevated and prompts the Fed to raise interest rates higher for longer. More insight into the state of the economy comes next week with a raft of data due, including consumer confidence and durable goods.Still, virtually all of the 30-component Philadelphia semis index have outperformed the broader market this year, led by heavyweight Nvidia’s roughly 60% year-to-date gain.The chip designer’s shares rose 14% on Thursday after it forecast first-quarter revenue above estimates as its CEO said use of its chips to power artificial intelligence services had “gone through the roof in the last 60 days.” The rally in Nvidia’s shares has catapulted its market value to $570 billion, making it the sixth most valuable S&P 500 company after electric automaker Tesla (NASDAQ:TSLA).Graphic: Chip stocks vs the S&P 500 https://fingfx.thomsonreuters.com/gfx/mkt/dwvkdzarjpm/Pasted%20image%201677191358965.png Whether the group maintains its momentum could depend on companies hitting earnings estimates that were marked down severely in the last year.Forward 12-month earnings estimates for semiconductor companies declined 28% from June of last year to January, the largest such downward revision in a decade, according to Stacy Rasgon, an analyst at Bernstein.“We have had one of the larger earnings resets that we have had in a quite a while,” Rasgon said.Earnings for the S&P 500 semiconductor and semiconductor equipment industry, which has a nearly 6% weight in the index, are expected to fall 20% this year, but are seen perking up in the last quarter of the year, according to Refinitiv IBES. “It’s not that fundamentals are incredibly good right now,” said Peter Tuz, president of Chase Investment Counsel. But, he said, “the outlook down the road seems to be a little bit better than it was in late 2022.”Not every chip stock has thrived. Intel (NASDAQ:INTC) shares have slumped 5% this year. The company earlier this week cut its dividend payout to its lowest in 16 years amid slowing demand for its chips used in personal computers and data centers.While chip stocks might benefit from a stronger economy, few expect them to be immune to the adverse effects of higher Treasury yields, which have surged along with Fed rate expectations. Rising yields offer investment competition to stocks and make equities more expensive in standard analyst valuation models – particularly for tech companies, whose market value is more dependent on future profits.And if tighter Fed policy eventually brings on a recession in the second half of the year, as some fear, semis could suffer.Burns McKinney, a portfolio manager at NFJ Investments, also sees declining demand in the personal computer market after the pandemic boom as yet another obstacle for the sector. Nevertheless, he believes the sector could thrive in the longer-term, especially if signs of cooling inflation eventually allow the Fed to slow its monetary policy tightening later in the year. McKinney holds positions in Texas Instruments (NASDAQ:TXN) and ASML Holding (NASDAQ:ASML). “Lower data prints should give the Fed the ability to take their foot off the brakes, and if that takes place it would be a positive for cyclical tech stocks,” McKinney said. More

U.S. large-, and mid-cap funds suffered weekly disposals of $5.68 billion and $389 million respectively but small-cap received a marginal $79 million worth of inflows.Tech and real state witnessed $856 million and $603 million worth of outflows, while consumer discretionary and utilities, both lost about $300 million in net selling.Economic data releases during the reported week showed upbeat U.S. business activity in February and fewer weekly unemployment claims, solidifying expectations that interest rates would remain higher for longer. Meanwhile, investors exited U.S. bond funds for a second straight week as they withdrew a net $1.67 billion. U.S. high yield and municipal debt funds suffered outflows of $6.4 billion and $1.78 billion, respectively, but U.S. short/intermediate government and treasury funds saw about $4.85 billion worth of net buying.Meanwhile, money market funds obtained $541 million, marking a second weekly inflow in a row. More

In a statement issued on Friday, TitleMax said it “vehemently denies” any wrongdoing.The Consumer Financial Protection Bureau said the business, which comprises an array of entities operating under TMX Finance LLC, was a repeat offender. The CFPB fined TitleMax $9 million in 2016 for allegedly misrepresenting loan costs and using “high pressure” debt collection practices, the bureau said in a statement. CFPB Director Rohit Chopra called TitleMax’s behavior “predatory,” citing the lender’s steps to hide allegedly illegal behavior by doctoring borrowers’ personal information so they would not be identified as military service members or their dependants.From 2016 to 2021 TitleMax made nearly 2,700 prohibited auto loans to borrowers covered by the Military Lending Act and charged illegal fees on about 15,000 loans, the CFPB said.In its statement, TitleMax said the CFPB’s factual and legal allegations were unproven and untrue. It also denied being a repeat offender, saying it had complied with all prior Bureau directions.”Although the company agreed to pay a fine to the CFPB, it did so to avoid lengthy and costly litigation,” the statement said. More

Inflation is down from its peak last summer, but recent readings have shown substantial and surprising staying power.There was a moment, late last year, when everything seemed to be going according to the Federal Reserve’s plan: Inflation was slowing, consumers were pulling back and the overheated economy was gently cooling down.But a spate of fresh data, including worrying figures released Friday, make it clear that the road ahead is likely to be bumpier and more treacherous than expected.The Personal Consumption Expenditures price index — the Fed’s preferred measure of inflation — climbed 5.4 percent in January from a year earlier, the Commerce Department said Friday. That was an unexpected re-acceleration from December’s 5.3 percent pace after six months of relatively consistent cooling.Even after stripping out food and fuel prices, both of which jump around a lot, the price index climbed 4.7 percent over the year through last month — also a pickup, and more than expected in a Bloomberg survey of economists.Those readings are well above the Fed’s goal of 2 percent annual inflation. And the report’s details offered other reasons to worry. The previously reported slowdown in December, which had given economists hope, looked less pronounced after revisions. While price increases had also been consistently slowing on a month-to-month basis, they, too, are now showing signs of speeding back up.Stocks slumped to their worst week of the year, with the S&P 500 down by 1.1 percent at the close of trading on Friday as investors digested the report and what it portends for the Fed, which has been raising rates aggressively since last year. Financial markets have come under sustained pressure in recent weeks as investors have recalibrated their expectations for how long inflation could remain high, and how high interest rates could go as a result.The figures released Friday are just the latest evidence that neither price increases nor the broader economy is cooling as much as expected as 2023 begins. Employers added half a million jobs in January, wages continue to rise, and figures released Friday showed that Americans continue to spend freely on goods and, especially, on services like vacation travel and restaurant meals.Inflation F.A.Q.Card 1 of 5What is inflation? More

China’s post Lunar New Year business activity data will give a reading of the health of the world’s number-two economy whilst Nigerians head to the polls in the first of this year’s key emerging market elections.Here’s a look at the week ahead in markets from Ira Iosebashvili in New York, Rae Wee in Singapore and Naomi Rovnick, Dhara Ranasinghe and Karin Strohecker in London. 1/ FED VS STOCKS Reports on U.S. durable goods orders, home prices as well as manufacturing and consumer confidence threaten to cement expectations of more Fed rate hikes and to deal a knockout punch to the early-year stocks rally.Evidence of a stronger-than-expected economy has forced investors to recalibrate projections for Fed hawkishness, lifting bond yields and weighing on stock gains. The S&P 500 has managed to hang on to a 4.5% year-to-date gain but is well off its highs.Tuesday’s consumer confidence data may be of particular interest, offering a glimpse into households’ views on economic prospects and inflation expectations. Economists polled by Reuters expect a median reading of 109.5 on the index, which unexpectedly fell in January. Graphic 1: U.S. consumers seen more upbeat in February, https://www.reuters.com/graphics/USA-CONSUMERS/T5/lbpgglgkopq/chart.png2/ BUCKLING UP FOR NO LANDINGAre economic conditions becoming too rosy for markets to bear? The idea of “no landing,” which upends a host of popular trades based on a the scenario of the global economy entering recession is gaining traction thanks to surprisingly upbeat data.China has reopened from COVID lockdowns, U.S. labour markets are booming and consumer spending is holding up, while Europe’s energy crisis has eased. Still, inflation remains sticky, which could keep big central banks on their hawkish path of raising interest rates further.This is inconvenient for investors who bought government bonds and bet on a softer dollar this year, expecting economies would decelerate and central banks would pause rate-hike campaigns. A soft landing could still happen. But if data in coming days signal that growth and inflation remain robust, equity and bond markets may turn lower still. Graphic 2: Economic growth forecasts turn higher, https://www.reuters.com/graphics/GLOBAL-MARKETS/zdvxdxojnvx/chart.png3/INFLATION WEEKIt’s inflation week in the euro area. Preliminary February data from Germany, France, Spain and Portugal are due on Monday and Tuesday, followed by the bloc-wide flash number on Thursday. Price pressures are abating: headline euro area inflation eased to 8.6% in January from 9.2% a month earlier. Still, Thursday’s numbers are unlikely to placate European Central Bank hawks pushing for aggressive rate hikes to continue.Focus will likely stay on core inflation, stripping out volatile food and energy prices. It’s proving stubborn and could still rise from January’s 5.3%.Markets have got the message and renewed bets on the ECB 2.5% depo rate moving higher. Deutsche Bank (ETR:DBKGn) just raised its forecast for the peak in ECB rates to 3.75% from 3.25%.Graphic 3: ECB still in rate-hiking mode to contain inflation, https://www.reuters.com/graphics/GLOBAL-MARKET/znpnbxbjypl/chart.png4/ROARING RESTARTChina’s reopening came fast and furious after a three-year lull. Wednesday’s PMI releases could show whether factory activity in the world’s second-largest economy has returned with a bang or a whimper after the Lunar New Year break.Strong figures could revive some of the waning enthusiasm for the reopening trade – where optimism seems to be fizzling out. The A-share blue-chip CSI 300 Index is largely flat on the month after surging 7% in January.Retail investors are sitting out the stocks rally, and the recent disappearance of star Chinese dealmaker Bao Fan has investors worrying that Beijing’s regulatory crackdowns are far from over. Escalating tensions between Washington and Beijing over a suspected Chinese spy balloon and Taiwan loom large over the China investment thesis. Graphic 4: China economic activity rebounds in January 2023, https://www.reuters.com/graphics/GLOBAL-MARKET/dwpkdzdqqvm/chart.png5/ TIME TO VOTE Nigerians vote on Saturday in what could be their most credible and close electoral contest since military rule ended nearly a quarter of a century ago. It’s also the first election in which a presidential candidate who is not from one of the two main parties stands a chance.Whoever Nigerians choose to succeed President Muhammadu Buhari will have to resolve a litany of crises that have worsened under the current administration – from widespread banditry and militant violence to systemic corruption, and from high inflation to widespread cash shortages. Many other emerging market economies are also approaching election crossroads. Turkey’s government under President Tayyip Erdogan could hold elections in the wake of the devastating earthquake as scheduled in June. Argentina’s Peronists are seeking re-election in October and Pakistan voters will likely head to the ballot box the same month. Graphic 5: Nigeria’s soaring inflation, https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/zjpqjyjmmvx/chart.png More