Economy

In the minutes of its Jan.31 – Feb.1 meeting, when the rate-setting committee kept the benchmark rate at 13.75%, some committee members noted that the fiscal package presented by the Finance Ministry should mitigate the fiscal risks.Nonetheless, “it will be important to monitor the challenges for its implementation,” the minutes added.The central bank said inflation expectations drifting further from official targets over longer horizons was noted “with concern,” highlighting the existence of two fiscal risks that may push inflation upwards.The first relates to the country’s fiscal framework revision, which “reduces the visibility on public accounts for the coming years, introduces premia on asset prices, and impacts inflation expectations”.In an environment of a narrowed output gap, the impact on inflation of government fiscal stimuli tends to outweigh the desired impact on economic activity, they added. The messages come amid intense criticism from President Luiz Inacio Lula da Silva, who has repeatedly portrayed the level of basic interest rates as a villain for the economy. The central bank, which paused its aggressive monetary policy cycle in September after 12 consecutive hikes, had already stated that it was considering holding interest rates at a six-year high, longer than markets expect, due to fiscal risks under Lula.Finance Minister Fernando Haddad has adopted a more conciliatory tone, but has expressed hope for a “more generous” communication from the central bank regarding the government’s fiscal measures.Despite Haddad’s measures to reduce this year’s primary budget deficit, markets remain skeptical of their viability as they await a new fiscal rule to prevent rampant growth in public debt after leftist Lula secured Congress approval for a strong spending package that bypasses the constitutional spending cap to meet campaign promises. More

Investing.com — The AI race heats up, with Alphabet and Baidu both nearing launches of tools to compete with Microsoft-backed ChatGPT. CVS is closing in on its second big health acquisition in five months. Stocks are steady after slipping on Monday over fears of higher interest rates. The Winklevoss twins will dip into their pockets for $100 million as part of a deal to unlock the assets trapped on crypto lending platform Genesis, and oil rises as Saudi Arabia raises its official selling prices. Here’s what you need to know in financial markets on Tuesday, 7th February.1. AI race heats up with Google launch, Microsoft event The AI wars are heating up. Google owner Alphabet (NASDAQ:GOOGL) is set to roll out a new AI tool called Bard in the coming weeks, responding to the competitive threat from the Microsoft-based ChatGPT.Alphabet CEO Sundar Pichai said in a blog post that Bard will be powered by a slimmed-down version of the LamDA technology, which one Google engineer famously claimed last year to be ‘sentient’.Microsoft (NASDAQ:MSFT), meanwhile, is set to hold an event of its own later Tuesday that will be attended by Sam Altman, CEO of ChatGPT developer OpenAI.Overnight in Hong Kong, Baidu (HK:9888) stock rose 13% after the Chinese search giant – which is protected from competition in its domestic market by Beijing’s Great Firewall – also aims to finish testing of a new AI product by March.2. CVS nears $10 billion deal for Oak StreetActivity in the M&A market is picking up, after months of logjam caused by rising interest rates and mountains of unsold buyout debt.CVS (NYSE:CVS) is set to announce a deal to buy Oak Street Health (NYSE:OSH) for $10.5 billion, according to The Wall Street Journal, building out a growing presence in the primary healthcare market as its traditional retail business comes under pressure from new entrants such as Amazon (NASDAQ:AMZN).The deal would represent CVS’s second big deal in the space in less than six months, after it agreed to buy Signify Health for $8B in September.On Monday, gold miner Newmont Goldcorp (NYSE:NEM) had made a $17B approach for Australian rival Newcrest (ASX:NCM), in what would be the biggest M&A deal of the year so far.3. Stocks flat ahead of Redbook, trade data U.S. stock markets are set to open mixed later, still weighed down by concerns from Atlanta Fed President Raphael Bostic on Monday that the Federal Reserve may still have to raise interest rates further to tame inflation. His comments followed a stronger-than-expected labor market report for January on Friday that showed the economy is still some way from falling into recession.Economic data for Tuesday is limited, with only January’s trade figures and the latest snapshot of the retail sector from Redbook. Earnings season is also continuing in a lower gear, with Dupont (NYSE:DD) and Centene (NYSE:CNC) heading a list of early reporters and Chipotle (NYSE:CMG) and Vertex (NASDAQ:VRTX) heading the late lineup.By 06:30 ET (11:30 GMT), Dow Jones futures were down 30 points, or 0.1%, while S&P 500 futures were up by a similar amount and Nasdaq 100 futures were up 0.2%. The main cash indices lost between 0.1% and 1.0% on Monday.4. DCG strikes deal with Winklevoss twins and other creditors on Genesis recapitalizationBarry Silbert and the Winklevoss twins moved a step closer to ending their bust-up over the collapse of crypto lender Genesis, which left customers of the Winklevosses’ Gemini project short of some $900M.Under the terms of a deal announced late on Monday, Silbert’s Digital Currencies Group will exchange a $1.1B promissory note due in 2032 for convertible preferred stock, and will also refinance $500M of loans to Genesis that were due this year. DCG will also contribute its equity interest in Genesis Global Trading to a new holding company, bringing all Genesis entities under the same roof as it restructures under Chapter 11 bankruptcy regulations.The deal will also see Gemini contribute up to $100M, which will unlock at least some of the funds owed to by Genesis to Gemini’s Earn lending platform.5. Oil rises after Saudi move; API inventories dueCrude oil prices rose after Saudi Arabia raised its official selling prices for export cargoes loading in March, a move attributed by some to higher Chinese demand.By 06:50 ET, U.S. crude futures were up 1.7% at $75.34 a barrel, while Brent crude was up 1.5% at $82.22 a barrel.Elsewhere, Turkish authorities restarted the flow of Azerbaijani oil to the export terminal of Ceyhan, after stopping it as a precautionary measure in the wake of Monday’s earthquakes.In the U.K. meanwhile, BP (LON:BP) said it will slow its planned exit from the fossil fuel business, seeing more demand for conventional energy over through the end of this decade.The American Petroleum Institute reports weekly inventory data at 16:30 ET.  More

WASHINGTON (Reuters) – Joe Biden speaks to the nation tonight at a time of record low unemployment, rising wages, and diminishing fears of recession – facts the U.S. president is likely to trumpet as a sign his economic plans are working in the wake of the COVID-19 pandemic.But there are pressing economic issues, most notably the need to lift a statutory debt limit that, in the extreme, could cause the U.S. government to stop paying its bills.And simmering in the background: A still unresolved Federal Reserve fight to control inflation that may pose the largest outstanding risk to the Biden economy, and over which the White House has little influence.Biden will deliver the annual State of the Union address to a joint session of Congress on Tuesday night, his second such speech as president and the first since the Republican party narrowly took control of the House of Representatives after November’s mid-term elections.The overall mood is still mixed, economists and pollsters report, with Biden’s approval ratings hovering at around 40%. Consumers are “reconciling layoff announcements with record job numbers, inflation that is rolling over yet prices remain elevated. It is not black and white,” said John Leer, chief economist with Morning Consult.In his speech, Biden “has to thread a bit of a needle,” said Brian Gardner, Washington strategist for investment firm Stifel. Despite positive employment and other trends, “people are still anxious and you cannot be tone deaf to that,” after a year in which prices rose at the fastest pace in 40 years and the Federal Reserve’s aggressive rate hikes put home mortgage and other credit out of reach for some families. GASOLINE AND INFLATION DROP On the whole, economic data in recent months has moved in the president’s favor, particularly after inflation spiked to a 40-year high last summer and government reports showed the U.S. economy could be heading into a recession.The consumer price index dipped from a nearly 9% annual rate in June to under 6.5% as of December.Gasoline prices that hit $5 a gallon over the summer were below $3.50 this week. Consumer confidence and the household inflation outlook have improved.Graphic: Inflation eases- https://www.reuters.com/graphics/USA-BIDEN/INFLATION/znvnbklyzvl/chart.pngGDP AND JOBS RISE After a tepid start to 2022, the U.S. economy ultimately grew by more than 2% for the year after a stronger than expected second half, prompting firms like Goldman Sachs (NYSE:GS) to lower the perceived risk of a downturn.The progress on inflation, meanwhile, has come so far without any corresponding hit to job growth or the unemployment rate.The economy added an average of a half million jobs a month in the first two years of the Biden presidency, nearly triple the pace seen before the health crisis – and 4.8 million in 2022 alone. The 571,000 added in January showed unexpected ongoing strength and put the economy within a few months of potentially returning the employment level to its pre-Covid trend.Graphic: The jobs hole facing Biden and the Fed – https://www.reuters.com/graphics/USA-ECONOMY/JOBS/jbyprzlrqpe/chart.pngSTRONG LABOR MARKET The gains have been spread across industries and demographic groups.High profile tech firms may be laying off employees, but other businesses have picked up the slack thanks to still booming demand at restaurants and for other services.The unemployment rates for Black and Hispanic people are near the lows seen before the pandemic hit the U.S. economy in March of 2020.Graphic: Unemployment by race and ethnicity- https://www.reuters.com/graphics/USA-FED/JOBS/gdvzqqznapw/chart.pngWhat’s still to be determined, and what could shape the landscape Biden and his Democratic Party ultimately face in 2024, is whether inflation continues to steadily decline, and, if not, what the Fed chooses to do about it.Fed officials see the current levels of job and wage growth as unsustainable. If inflation does not continue to slow they have pledged to raise interest rates as high as necessary to win that particular fight – even at the cost of rising unemployment.Biden’s message Tuesday night, however, will be focused on what the administration sees as the progress that is continuing, and the sense that the economic impact of the pandemic has waned. “On average, American households are in a better position than they were before the pandemic hit,” National Economic Council director Brian Deese said on Monday. “We find ourselves today in an economy where we have real resilience.” More

WASHINGTON (Reuters) – After vouching last week that a “gratifying” drop in inflation was underway, Federal Reserve Chair Jerome Powell will face questions on Tuesday about whether a blowout January jobs report has shaken his confidence the decline can continue without harsher steps by the U.S. central bank to slow the economy.Fed officials, including Powell, are typically reluctant to put weight on single data points, and the Labor Department report on Friday showing 571,000 jobs were added in January may be seen as particularly “noisy” given annual data revisions and seasonal adjustments. Indeed, on an unadjusted basis, employers cut jobs last month as they do every January but by a much smaller amount than usual, resulting in the largest seasonally adjusted increase in six months.But, with the unemployment rate hitting its lowest level since 1969 at 3.4%, January’s numbers were still far out of line with the looser labor market the Fed has expected and feels will be needed to ensure that wage growth also slows and inflation continues to fall. Investors skeptical of the Fed’s interest rate hike plans have now matched officials’ own projections in seeing the benchmark overnight interest rate increased by another half of a percentage point this year, to a range of 5.00% to 5.25%, while some economists pushed even further in suggesting the January jobs report showed the economy was still too hot for the Fed’s comfort and required even tighter monetary policy. Job gains remain strong https://www.reuters.com/graphics/USA-FED/POWELL/xmvjkrbdgpr/chart.png “It is increasingly difficult to make the case that the Fed has slowed the economy substantially enough to return inflation” to the 2% target, Citi economists wrote on Monday, seeing a “hawkish risk” in the remarks that Powell will make to the Economic Club of Washington starting at 12:40 EST (1740 GMT). The Fed last week increased its policy rate by a quarter of a percentage point to the 4.50%-4.75% range, returning to a more conventional rate-hike increment after nearly a year of three-quarters-of-a-percentage-point and half-percentage-point hikes.Powell said that in slowing down to quarter-percentage-point steps the Fed was trying to “make a fine judgment” about how high rates needed to go without stepping too far and tightening credit conditions so much that it increases the risk of, or even causes, a jobs-destroying recession.He noted that a process of “disinflation” seemed to be taking hold so far without throwing employment off course – a hoped-for outcome if it can continue but one that might prove unsustainable if job growth doesn’t slow. Rates and inflation Rates and inflation https://www.reuters.com/graphics/USA-FED/INFLATION/gkvlgnaywpb/chart.png HARDER CALLS AHEADBy the Fed’s preferred measure, prices as of December were still increasing at a 5% annual rate, but the pace has been slowing and is expected to continue doing so. The consumer price index report for January is due to be released next week, with economists projecting another decline in the annual pace though perhaps a smaller one than has been the case in recent months.David Kamin, former deputy director of the Biden administration’s National Economic Council and now a law professor at New York University, said after a wrenching move in interest rates last year the Fed’s toughest choices may lie ahead. Policymakers now must balance what may be slowing progress towards their 2% inflation target against risks to the economy if they move rates even higher than expected, he added.The full impact of the Fed’s already-anticipated rate increases still has not been felt on the economy, meaning the current strength in the job market and elsewhere may in fact begin to wane, Kamin said. At the same time, the easy progress in lowering inflation may have been realized, with goods prices moderating as supply chains improve but services inflation showing itself to be more stubborn. “The Fed will have to figure out a path through, taking into account on one hand that some share of the effects have not necessarily been felt in the economy, and on the other that some of the factors that brought inflation down may not repeat,” Kamin said. “The Fed has a series of harder calls to make.” Biden and the Fed https://www.reuters.com/graphics/USA-ECONOMY/JOBS/jbyprzlrqpe/chart.png Powell’s tone on Tuesday will be telling, whether he interprets the January numbers as evidence Fed policy is not yet “restrictive” enough, or as a possible step towards a pre-pandemic state of affairs he has lauded.In 2019, the unemployment rate stood at 3.5% alongside inflation that was around the Fed’s target and modest wage growth, conditions Powell at the start of the health crisis said he hoped the economy could regain. Though job growth has remained remarkably strong, the economy is by many estimates still perhaps a million or more positions short of what would have been reached given job growth trends before the onset of COVID-19, suggesting more room for growth. The issue for Powell and other Fed policymakers is whether the economy begins to look so strong – whether in terms of job growth, an expected rebound in manufacturing, or from financial markets that recently have been bidding home mortgage and other key market interest rates lower – it undermines their faith that inflation will continue slowing.”We should be open to the idea of an acceleration of activity in the first half of the year,” Tim Duy, chief U.S. economist at SGH Macro Advisors, wrote. “The data overran the Fed last week, and Powell and his colleagues are falling behind the curve again. It’s time to start looking for a higher terminal rate.” More

WASHINGTON (Reuters) – U.S. President Joe Biden will face Republicans who question his legitimacy and a public concerned about the country’s direction in Tuesday’s State of the Union speech that is expected to serve as a blueprint for a 2024 re-election bid.In what will be his first address to a joint session of Congress since Republicans took control of the House of Representatives, Biden is expected to explain how he is trying to reshape the post-pandemic economy, highlight massive infrastructure and inflation bills passed in 2022, and stress that a bitterly-divided Congress can still make laws in the year ahead. “I want to talk to the American people and let them know the state of affairs… what I’m looking forward to working on from this point on, what we’ve done,” Biden told reporters on Monday after returning from presidential retreat Camp David, where he spent the weekend working on the speech.Aides to Biden say the primetime speech, which will draw millions of viewers and perhaps the president’s largest television audience of the year, is a key milestone ahead of the second presidential campaign he is expected to launch in the coming weeks.Biden turned 80 in November and, if re-elected, would be 82 at the start of a second term, a fact that concerns many Democratic voters, recent polls show. One area he will ask Congress to work together on is to toughen regulations on the technology sector – including what the administration perceives as a need for stronger privacy protections, one aide said.NOT NEGOTIATING ON DEBT Biden will face a rambunctious and splintered gathering of Republican lawmakers, eager to put their conservative mark on U.S. policy following four years of Democratic control of the House.Speaker Kevin McCarthy will sit behind Biden for the address for the first time. The two are at loggerheads over the $31.4 trillion debt ceiling, which must raised in the coming months to avoid a default.Some House Republican lawmakers have questioned Biden’s victory in the 2020 presidential race against former President Donald Trump and have indicated they plan to investigate his Cabinet and family. But with a razor-thin majority and intraparty divisions, Republicans had a difficult time electing a speaker and are expected to continue to struggle to unite their far-right and more moderate members on legislation.Biden will insist during his speech that raising the debt limit is not negotiable and should not be used as a “bargaining chip” by lawmakers, National Economic Council director Brian Deese said Monday. McCarthy on Monday called on Biden to agree to compromises and spending cuts, adding that “finding compromise is exactly how governing in America is supposed to work and exactly what the American people voted for.”WEAK UNION?While the U.S. economy continues to outperform expectations, faith in Biden is undermined by entrenched political divisions, high prices and concerns over his age, polls show. Just four in 10 Americans say the state of the union is strong, according to a Monmouth University poll published this week, in which many respondents blamed Washington’s problems on a lack of compromise.Biden’s senior aides plan to use the speech to build an argument that Biden’s policies have helped to stabilize the U.S. economy following the COVID-19 pandemic and are the way to go to bring down inflation and boost good-paying jobs.Biden plans to explain how his strategies “makes a clear contrast to the trickle-down economic philosophy that has pervaded thinking for years and decades in the past,” Deese said. More

China, which views democratically-governed Taiwan as its own territory, has been stepping up military drills across the Taiwan Strait since then-U.S. House Speaker Nancy Pelosi visited Taipei in August. In a survey released on Tuesday, which took place between Nov. 15 and Dec. 16, AmCham Taiwan said 33% of respondents said their operations had been “significantly disrupted” by the increase in tensions, compared with 17% when it did a flash survey in August right after China began war games.While what it termed “personal anxiety” about increased military activity or tensions remained flat between August and December, 47% of companies said they either have revised or plan to revise business continuity plans “to address the new geopolitical climate.””We are aware that companies are either initiating or renewing their planning efforts, operational contingency planning. We know that’s going on,” AmCham Taiwan President Andrew Wylegala told reporters. AmCham Taiwan, which said that 214 of its 437 members responded to the December survey, said one-third of companies reported being disrupted by elevated concern or policy changes from their global headquarters, followed by increased shipping, insurance, or financial costs and staff anxiety.Political uncertainty was the biggest factor deferring members from further investment in Taiwan, and more than half of respondents said cross-strait relations should be the government’s top priority in the coming three years, it said.The group has called for an ambitious agenda to accelerate economic cooperation with Taiwan through a new Taiwan-U.S. trade talks framework – and eventually a bilateral trade agreement, though it hopes to see faster progress.”Engagements are going on between the U.S. and Taiwan. A year and half ago there was none,” Wylegala said. “There is an expectation and hope that things will move faster.” More

Joe Biden will take aim at Wall Street and corporate America in his annual State of the Union address tonight, reviving his plan for a tax on billionaires and calling on Congress to quadruple the levy on share buybacks.The newest proposal that Biden will unveil is the quadrupling of the 1 per cent excise tax on share buybacks, which was passed as part of last year’s Inflation Reduction Act (IRA), and staunchly opposed by business.Biden will also reprise his attempt to enact a tax on billionaires’ unrealised investment gains, which he had championed throughout 2022 but failed to secure in the final round of negotiations over the IRA following a backlash from some Republicans and moderate Democrats.In addition, he will call on Congress to extend a cap on insulin costs to all Americans after the IRA approved it only for seniors through the Medicare government healthcare scheme.The proposals are part of Biden’s efforts to double down and defend his economic policies, which have delivered huge jobs growth but also high inflation. Polls show Americans disapprove of Biden’s handling of the economy.Fiscal policy is set to be a crucial political battleground over the next few months as Biden tries to secure an increase in the US debt limit from congressional Republicans to avoid a damaging default on America’s financial obligations.Go deeper: With US unemployment at its lowest level since 1969, Joe Biden is tonight expected to defend his economic record as he makes the case for a second term.Five more stories in the news1. Google reveals answer to ChatGPT The search engine has revealed plans to launch a chatbot to rival OpenAI’s popular ChatGPT. Called Bard, Google’s chatbot will give users access to its most powerful language-based artificial intelligence system as it seeks to make up for lost ground in AI technology. Chinese internet group Baidu joined the AI race today, announcing plans for its own search engine chatbot.2. New Carlyle chief could make $180mn in 5 years Carlyle Group’s new chief executive Harvey Schwartz stands to make more than $180mn over the next five years, a pay deal that would make him one of Wall Street’s highest-paid executives. Part of the Goldman Sachs veteran’s pay package will be based on Carlyle’s share price performance.4. Rescue teams in Turkey and Syria race to save survivors Rescue teams in Turkey and Syria worked through the night against freezing temperatures to pull survivors from rubble as the death toll from the powerful earthquake reached 5,000, with 20,000 wounded. Explainer: The calamitous earthquakes that struck Turkey and Syria were centred on one of the world’s most seismically active regions.3. No plans to return Chinese balloon The US said yesterday there were no plans to return debris from the balloon it shot down on Saturday, even after technical experts finish analysing the surveillance capabilities that were on board the craft. Washington also stressed it was still committed to stabilising relations with China.How much did Xi know? The episode has sparked questions about whether Chinese president Xi Jinping knew about the balloon mission and approved it.5. UK to design ‘digital pound’ The UK Treasury and Bank of England are designing a “digital pound” that could supplant banknotes by the end of this decade and fend off potential Big Tech competitors. With the decline of cash, ministers and officials said there was likely to be a need for a publicly-backed digital currency that ensured the central bank retained control of the heart of the UK financial system.The day aheadMonetary policy US Federal Reserve chair Jay Powell will deliver his first public remarks since the central bank downshifted to a smaller interest rate rises and Friday’s much stronger-than-expected jobs data. He is set to speak at the Economic Club of Washington, appearing in conversation with club chair and Carlyle Group co-founder David Rubenstein. Stocks in Europe edged higher ahead of Powell’s appearance.Economic data The US will release its December international trade data, which economists expect will show the trade deficit widening to $68.5bn from $61.5bn in November. Separately, Canada will disclose its trade balance for the same month, and is forecasted to report its own widened deficit.Corporate results Car rental group Hertz, Spirit Airlines, Royal Caribbean Cruises and private equity firms KKR and Carlyle Group report earnings before the opening bell. Burrito chain Chipotle and insurer Prudential report after the market closes.What else we’re reading How Russia bought a new sphere of influence on the cheap In Europe, Vladimir Putin’s invasion of Ukraine has been humiliating and costly. But in Africa, Russia has been making dramatic inroads, helped by a volatile mix of jihadist terror, anti-French sentiment and coups d’état. It has succeeded in challenging western influence and established what a senior adviser to Emmanuel Macron calls “a second front”.FT analysis: At least 16 vessels that formed part of a “ghost” network that allowed Iran to breach UN sanctions have begun to ship Russian crude oil.

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Central banks are not here to make profits Unlike businesses, central banks have a mandate to act in the public interest: to safeguard the value of the money they issue so that people can make financial decisions with confidence. Making a loss is sometimes the price to pay for keeping economies stable in extraordinary times, writes Agustín Carstens, general manager of the Bank for International Settlements.Brexit could be reversed — here’s how At the height of Britain’s Brexit debate, passions ran so high that some talked of a “new English civil war”, writes Gideon Rachman. But the side that won the civil war ultimately lost, as the English restored the monarchy 11 years after King Charles I was executed in 1649. Could a similar reversal happen with Brexit?Ford has bigger problems than an EV price war Ford’s stock is down more than 9 per cent since Thursday evening, when it reported earnings that missed both Wall Street’s and its own forecasts, writes Alexandra Scaggs. Analysts worry the shift to electric vehicle production will not improve profitability.Are CEOs with MBAs good for business? Researchers looked at the effects on a company when a chief executive with an MBA or undergraduate business degree takes over from one without such qualifications and found no evidence that CEOs with such degrees increase sales, productivity, investment or exports relative to the levels the company achieved before. Do you think businesses are better run by a MBA graduate? Email [email protected] and vote in our poll.

Take a break from the newsWhere can you find the best Japanese food in London? Tim Hayward points to Jugemu, a tiny 20-seater in Soho. More

Inflation peaked at over 10% in October but has been in rapid decline since on lower gas prices, even if underlying price growth is still inching up. Median inflation expectations over the next three years rose to 3% in December from 2.9% a month earlier, the ECB said based on a survey of about 14,000 adults in six of the euro zone’s biggest countries. But median expectations over the next 12 months held steady at 5%.The ECB has raised rates by 3 percentage points since July and promised another 50 basis point move in March, looking to restrict the economy enough to tame inflation expectations. The problem is that when expectations stay high, workers and businesses adjust their wage-setting behaviour, entrapping rapid price growth and making it harder for the ECB to get back to its 2% target. The survey also showed a moderate improvement in growth and wage expectations and slightly reduced expectation for unemployment. More