Economy

SAO PAULO/BRASILIA (Reuters) -Brazil’s currency rebounded on Friday from record intraday lows after congressional leaders said they would put the brakes on government income tax reform, and the finance minister stressed that fiscal commitment goes beyond a new spending cuts package.”We won’t be able to do everything that needs to be done with a silver bullet. This set of measures is not the grand finale of what we need to do,” said Minister Fernando Haddad at an event hosted by banking lobby group Febraban.Later, in an interview to Record TV, he said the government could resume discussions for new fiscal measures in two or three months if needed.Investors have been doubtful about the scope and effectiveness of the measures presented by President Luiz Inacio Lula da Silva’s administration this week to slow down expenses to sustain a fiscal framework passed last year.Brazil’s gross public sector debt rose to 78.6% of gross domestic product in October from 78.2% in September and economists say it is on a path to hit 91% by 2030, fueling market skepticism about the framework’s ability to stabilize it.Haddad said on Friday at the event that no one in the government was trying to sell fantasies or magic, emphasizing a firm commitment to slashing the primary budget deficit.Before his remarks, Lower House Speaker Arthur Lira and Senate head Rodrigo Pacheco said that broader income tax exemptions proposed by the Lula administration were a topic for the future, and the near-term focus would be on passing spending cuts.The Brazilian real, which in early morning weakened to a record low of 6.11 per dollar following a two-session sell-off, pared losses and ended the session to trade slightly down, but still marking a fresh closing record ever at 6 per greenback.Lira said on social media that fiscal responsibility was a “non-negotiable” for the lower house, while Pacheco in a statement said a potential income tax reform would only go through if there was fiscal room.”The remarks by the heads of both houses of Congress are extremely relevant and indicate that there is an effort to regain some of the trust that was lost in the process,” analysts at brokerage XP (NASDAQ:XP) said.FX JITTERS The government on Thursday detailed a package announced a day earlier aimed at achieving more than 70 billion reais ($11.8 billion) in savings over the next two years.But the measures failed to ease market fiscal concerns amid rising mandatory expenditures growth, leading to a sharp decline in Brazilian assets.Following an over 20% decline of the real year-to-date, incoming central bank governor Gabriel Galipolo said on Friday that the monetary authority does not target or defend any specific exchange rate level, intervening only in cases of “market dysfunction.”Speaking at the same event as the finance minister, Galipolo, the current central bank monetary policy director, added that the exchange rate is floating, which is important for absorbing shocks.The market had expected the fiscal package to focus exclusively on spending cuts, consistent with previous statements by Haddad, who had indicated that changes to income tax rules would only be presented next year. But the government unexpectedly announced an income tax reform, raising the exemption threshold to 5,000 reais ($842) per month from 2,824 reais, while compensating for the revenue loss with higher taxes on those earning over 50,000 reais. “What weighed heavily was the indication of including the income tax reform alongside the package,” said Daniel Leal, strategist at BGC and former coordinator of public debt operations at the Treasury.”The market fixated on the signal of more fiscal stimulus,” he added.Haddad said at the event on Friday that the Lula administration was “aligned” with Lira and Pacheco on the fiscal issue, and reiterated that any income tax reform would only be voted on by lawmakers if it proved to be fiscally neutral.The government stressed that spending control measures would ensure 327 billion reais in savings from 2025 to 2030, with Congress expected to approve them later this year. More

“I would like to see what kind of momentum the fiscal 2025 shunto (spring wage negotiation) creates,” repeating his intention to keep a close eye on wage moves, Ueda told the Nikkei in an exclusive interview.He also said “there is a big question mark left on the outlook for U.S. economic policy,” suggesting the central bank will avoid rushing to rate hikes as President-elect Donald Trump takes office in January, the report said.The BOJ will scrutinise its policy at its Dec. 18-19 meeting, when some analysts expect it to hike rates from the current 0.25%. More

TOKYO/BENGALURU (Reuters) -Bank of Japan Governor Kazuo Ueda said the timing of the next interest rate hike was “approaching” as the economy was moving in line with the central bank’s forecasts, the Nikkei newspaper reported, leaving open the chance of a December rate increase.He, however, also said the BOJ wanted to scrutinise developments in the U.S. economy as there was a “big question mark” on its outlook, such as the fallout from President-elect Donald Trump’s proposed tariff hikes, according to the Nikkei.”We can say it’s approaching in the sense that economic data are on track to meet our forecasts,” Ueda told Nikkei in an interview conducted on Thursday and published on Saturday, when asked whether the timing of the next rate hike was nearing.”We will adjust the degree of monetary easing at the appropriate time if we become confident” that underlying inflation accelerates toward the BOJ’s 2% target in the second half of its three-year projection period from fiscal 2024 to 2026, Ueda said.The remarks reinforce growing market expectations that the BOJ will raise its short-term policy rate from the current 0.25% as soon as its next meeting on Dec. 18-19.The yen jumped on Friday after core inflation in Japan’s capital accelerated in November, as markets stepped up bets of a December rate hike. Traders now see a 60% chance of a hike next month, having been undecided before the data.In the interview, Ueda said wage growth, the pass-through of wage hikes to prices, and the strength of consumption were key factors in the BOJ’s decision on how soon to raise rates.Regular pay has recently been rising at a year-on-year pace of 2.5% to 3%, which is roughly consistent with consumer inflation moving around 2% in the long run, Ueda said, adding it was important for this trend to continue.The outcome of next year’s annual wage negotiations between firms and unions is key, he said. “While it will take a bit more time to confirm the momentum (of next year’s wage talks), we don’t necessarily have to wait until everything becomes clear.”Rising labour costs from higher wages are pushing up the price of services on a business-to-business level, though some data suggest the pass-through to consumers remains weak, Ueda said, adding that he wanted to watch developments carefully. Ueda emphasized that if the Japanese yen continues to depreciate after the country’s inflation rate surpasses the annual 2% target, it could pose a potential threat to the central bank’s economic projections and warrant a response.The weak yen, which heightens inflationary pressure by pushing up import costs, was among the factors the BOJ explained as leading to its decision to raise interest rates in July.The BOJ ended negative interest rates in March and raised short-term rates to 0.25% in July on the view Japan was making progress towards durably achieving its 2% inflation target.Ueda had repeatedly signalled readiness to hike rates again if the economy moved in line with the bank’s forecast, though he has dropped few clues on how soon that could happen.Just over half of economists polled by Reuters expect the BOJ to raise rates again at its Dec. 18-19 meeting. More

(Reuters) -Canada’s main stock index extended its November gains on Friday, moving to a new record high, with technology and industrial shares rising as investors welcomed greater clarity about the economic outlook following the outcome of the U.S. election.The S&P/TSX composite index ended up 104.48 points, or 0.4%, at 25,648.00, eclipsing the record closing high it posted on Thursday. For the month, it was up 6.2%, its fifth straight monthly gain and the largest since November last year.”We’ve climbed that wall of worry,” said Greg Taylor, portfolio manager at Purpose Investments.”There was a lot of nervousness heading into the (U.S.) election and now we’ve got at least more clarity with what’s going on. We’ve got more confidence that there’s going to be some more growth aspects in the U.S. and that should help earnings as the economy keeps going and regulation falls back.”U.S. President-elect Donald Trump has pledged to cut taxes and loosen business regulations.While those measures could boost the economy, the potential for higher fiscal deficits under the Trump administration, as well as inflationary tariff and immigration policies, could reduce prospects for Federal Reserve interest rate cuts and raise long-term borrowing costs, say analysts.”The big thing everyone is going to be watching is just what happens with (bond) yields and the (U.S.) dollar going forward, because if yields and the dollar keep going higher that’s going to be a pretty big headwind,” Taylor said. The Canadian dollar posted its third straight monthly decline against its U.S. counterpart in November as Canada’s economy grew just 1% in the third quarter, prompting investors to raise bets on another outsized interest rate cut from the Bank of Canada.The technology sector added 1% on Friday and industrials were up 0.5%. Seven of 10 major sectors ended higher. More

BRASILIA (Reuters) – Brazilian President Luiz Inacio Lula da Silva nominated Nilton David, head trader at Bradesco bank, to serve as the next monetary policy director at the central bank starting in January, the institution said on Friday.The appointment was accompanied by two additional nominations, all of which must still be confirmed by the Senate. They will mark a shift in the makeup of the nine-member committee responsible for setting borrowing costs, as Lula’s picks will secure a majority starting next year. According to the central bank statement, Lula selected Gilneu Vivan, the current head of the central bank’s financial system regulation department, to succeed Otavio Damaso as director of regulation.Additionally, Izabela Correa, currently public integrity secretary at the Comptroller-General Office, was chosen to replace Carolina Barros as director of institutional relations.A law granting the central bank autonomy, passed in 2021, decoupled the terms of the president of the republic from those of the central bank’s top officials. Currently, the committee is made up of four members chosen by Lula and five by his predecessor, former right-wing President Jair Bolsonaro. The balance will shift to 7-2 in January.If confirmed by senators, David will replace Gabriel Galipolo, who is set to take over as central bank governor from Roberto Campos Neto, also in January.Before joining Bradesco, David served as head of the Brazil and Mexico trading desk at Morgan Stanley (NYSE:MS) and has also held positions at institutions such as Canvas Capital, Citi and Barclays (LON:BARC).Lula has been a vocal critic of Campos Neto since taking office last year, with members of his Workers Party repeatedly calling for intervention in the foreign-exchange market to mitigate the sharp depreciation of the country’s currency – a decision currently overseen by Galipolo and soon to be handled by his successor.Focus has largely centered on the monetary policy role, as it oversees the foreign-exchange desk and is typically filled by someone with extensive financial market experience. More

Freeland made her remarks when asked by reporters about U.S. and Canadian fears that China could use the agreement as a back door to export cheap goods into North America.The most populous Canadian province, Ontario, proposed booting Mexico from the free-trade pact and signing a bilateral agreement with the U.S., which is home to three-fourths of Canada’s total exports.”We think that today, there is an opportunity for all of the (USMCA) countries to work together to have a fully aligned policy on China, to protect all of our workers and to ensure that we are supporting each other in this really important effort,” Freeland said.Canada and the United States have slapped tariffs on Chinese electric vehicles and steel, citing what they call Beijing’s deliberate policy of over-capacity.Freeland reiterated that Canada’s preference was for the USMCA deal to remain a three-nation pact. More

NEW YORK/LONDON (Reuters) -Global stock markets rallied on Friday, with Wall Street crowning November with its biggest monthly gain in a year on post-election growth hopes, while the dollar eased amid prospects for firmer rates in Japan and easing in Europe. U.S. trading was thin the day after Thanksgiving. Many investors made it a long weekend and stocks and bonds closed early, so most month-end position adjustments were done before the holiday.The S&P 500 rose 0.56% to mark the best monthly gain since November 2023 of 5.14%, while the Nasdaq’s 0.83% rise Friday secured a 6.2% gain for the month, it’s best since May.MSCI’s broad gauge of world stocks rose 0.52%, also securing the best month since May. Donald Trump’s Nov. 5 election victory and pledges of tax cuts, deregulation and import tariffs have supercharged investors’ expectations for U.S. and Wall Street stocks to keep outperforming other regions. U.S. tech shares are also benefiting from an artificial intelligence investing craze. Speculation about Japanese rate hikes drove a rebound for the yen, which ended with the biggest weekly gain vs the buck since July. The dollar fell 1.25% on the day to 149.65 yen. It delved 149.46 yen in late trade, the lowest since Oct. 21, under pressure after Japan’s government finalised a stimulus budget and inflation in Tokyo came in hotter than economists expected. The dollar index, which measures the currency against six major rivals, fell 0.26% to 105.79, ending the week 1.4% lower thanks to a sudden rebound for the euro, which had been lurching towards the key $1 marker on tariff fears and a bleak euro zone outlookThe outlook for lower U.S. rates has also weighed on the dollar. Trump’s import tariffs could boost U.S. inflation, Federal Reserve officials have turned cautious on rate cuts while futures traders put odds that the Fed will cut rates another 25 basis points at December’s meeting at 65%. However, for 2025 they see less chance that the central bank will continue to bring rates down at the same pace as this year. “The dollar is a little bit weaker. That’s helpful for the multinationals in the S&P 500,” said Quincy Krosby, chief global strategist, LPL Financial (NASDAQ:LPLA) in Charlotte, North Carolina.Trump has pledged immediate 25% tariffs on all products from Mexico and Canada when he takes office in January and an additional 10% on imports from China, a major trading partner for Asian economies and euro zone export powerhouse Germany. “President-elect Trump has called out Canada, Mexico, and China for now, but Europe is not far down the list,” strategists at BCA Research said, recommending investors limit their exposure to European stocks and favour German government bonds. The euro wrapped the day up 0.21% at $1.0575. It has recovered from crushing losses since the Nov. 5 U.S. election to gain 1.25% this week, supported by data on Friday showing higher euro zone inflation, limiting bets for deep European Central Bank rate cuts. Europe’s STOXX share index rose 0.58%, while Europe’s broad FTSEurofirst 300 index rose 12.65 points, or 0.63%. Asian and emerging market stocks sustained the deepest blows from tariff fears. While Tokyo’s Nikkei 225 index eased a bit on Friday, it ended November off 2.23%, even though Japan was not singled out as a tariff target. MSCI’s broadest index of Asia-Pacific shares outside Japan showed a 2.35% loss for the month. Traders have fully priced a 25-bps European Central Bank rate cut to 3% in December, although hawkish remarks from board member Isabel Schnabel this week dampened speculation about a 50 bps reduction. The yield on the benchmark U.S. 10-year notes fell 6.8 basis points to 4.174%. Investors bought government bonds this week after Trump nominated hedge fund manager and Wall Street veteran Scott Bessent for Treasury Secretary, easing fears about excessive U.S. borrowing. U.S. crude fell 0.42% to $68.43 a barrel and Brent fell to $73.06 per barrel, down 0.3% on the day after the Israel-Hezbollah ceasefire deal in Lebanon eased supply fears, while gold rose 0.42% to $2,652.09 an ounce. In cryptocurrencies, bitcoin gained 2.23% to $97,252.72. More

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