Economy

(Reuters) – The U.S. Treasury Department next week is likely to announce that it will offer fewer Treasury bills in the second quarter, after hitting its statutory borrowing limit.Any new indications over whether the Treasury could employ Treasury buybacks, or make changes to its auction schedule for some notes, will also be a focus of interest as market participants grapple with the best ways to improve liquidity in the $24 trillion Treasuries market.U.S. Treasury Secretary Janet Yellen activated a second extraordinary cash management measure on Tuesday, after previously warning that the Treasury could run out of funds in early June if the U.S. Congress does not approve an increase in the $31.4 trillion debt ceiling.Analysts expect the U.S. government could finance itself through July or even October, but there is much uncertainty and how long it can last may depend on proceeds from this year’s tax season.Next week, the Treasury is likely to say that it will reduce its issuance of Treasury bills, debt that matures in one year or less, and run down its cash balance to buy more time.“Bill issuance is going to come down quite a bit in Q2. … They have to incorporate the debt ceiling into their financing estimates at this point,” said Angelo Manolatos, a macro strategist at Wells Fargo (NYSE:WFC).The Treasury will give its financing estimate for the coming quarter on Monday and offer more details on its funding strategy on Wednesday.It may also indicate that it will do more than reverse cuts in bill issuance when an agreement to increase the debt ceiling is reached, and a flood of the debt is expected to hit the market.That is because the U.S. government wants to increase bills as a percentage of overall debt to meet its long-term goals.“It’s trying to build up bill supply, which got too low last year when Treasury was facing smaller deficits on the back of the pandemic spending,” said Meghan Swiber, U.S. rates strategist at Bank of America (NYSE:BAC).IMPROVING LIQUIDITYAnalysts and market participants will also be watching to see whether the Treasury indicates that it will adopt proposals meant to improve liquidity, which it has queried dealers about over the last few quarters.In the last survey, Treasury asked if it should change auctions schedules for two-, three-, five- and seven-year notes to include reopenings, as is common with longer-dated debt.This could increase liquidity and concentrate more trading in larger “on-the-run” issues, but that would come at the expense of “off-the-run” debt, said Benjamin Jeffery, an interest rate strategist at BMO Capital Markets.So-called “on-the-runs” are the most recent and liquid issues, while older “off-the-run” bonds have suffered the most liquidity problems when market conditions worsen.Having larger two-year note issues could reduce the number of times the notes trade “special” in the repurchase agreement market, said Manolatos, which occurs when there is a shortage of notes to borrow.On the other hand, it could also require more active risk management by investors because three months between issues, assuming two reopenings, is a large duration change for a relatively short maturity.“Two months later a two-year doesn’t have the same duration,” Manolatos said.BofA’s Swiber said that Treasury buybacks, which the Treasury queried dealers about in a previous survey, are a better solution to boost liquidity during times of market stress.These “allow Treasury to more directly manage Treasury liquidity, to more directly manage the outstanding supply of securities and they can effectively buy back things that are cheap on the curve and help support liquidity in the more liquid parts of the curve as well,” she said.An improving liquidity outlook with less uncertainty over Federal Reserve policy relative to last year and more balanced supply and demand dynamics makes this issue less urgent, however, so while the Treasury may include a discussion on possible buybacks, it is unlikely to make a formal announcement next week, Swiber said. More

PRETORIA (Reuters) -U.S. Treasury Secretary Janet Yellen on Thursday lauded South Africa’s “bold” participation in an energy transition partnership backed by the United States and other Western nations, but steered clear of mentioning U.S. concerns about Pretoria’s planned military drills with China and Russia.Yellen spoke to reporters alongside South African Finance Minister Enoch Godongwana in Pretoria on the third leg of her nearly two-week tour of Africa, and just days after Russian Foreign Minister Sergei Lavrov visited South Africa.In prepared remarks, Yellen welcomed Godongwana’s “cooperation and insightful views” in their talks so far, and said she planned to raise several issues, including Zambia’s stalled sovereign debt restructuring effort, given South Africa’s key role on the country’s creditor committee.”The United States strongly values our relationship with South Africa,” Yellen said in remarks that included no mention of Russia or China, or White House concerns about Pretoria’s plans to hold joint military drills with both countries.Godongwana said the two would discuss countering the financing of terrorism, climate financing, resolving sovereign debt crises in Africa and global topics that will form part of a meeting of the G20 group of major economies next month.He said Yellen’s visit was a “momentous” occasion, noting the previous visit by a U.S. Treasury secretary was in 2014, and praised Yellen’s announcement on Wednesday that the United States and South Africa were setting up a joint task force on combating financing of wildlife trafficking.The U.S. Treasury issued no statement about Yellen’s closed-door meeting on Wednesday with South African President Cyril Ramaphosa, a meeting described by Pretoria as a “courtesy call.”South Africa has remained one of Moscow’s most important allies on a continent divided over Russia’s invasion of Ukraine on Feb. 24 last year. Yellen’s trip has kicked off a yearlong charm offensive of U.S. top leader visits to Africa aimed at deepening U.S. economic ties with the continent and countering China’s long dominance of trade and lending with many African nations.Throughout her visit, Yellen has emphasized the right of countries to choose their trading partners, while pitching the greater transparency and lasting nature of engagement with the United States.The Treasury secretary, who meets with South Africa’s central bank governor later on Thursday, singled out South Africa’s “Just Energy Transition Partnership,” which was backed in late 2021 by the United States, Britain, France, Germany and the European Union. They pledged a combined $8.5 billion to accelerate South Africa’s transition away from fossil fuels to renewable energy, but the total bill will be much higher.”This partnership represents South Africa’s bold first step toward expanding electricity access and reliability and creating a low carbon and climate resilient economy,” Yellen said, adding that it would “alleviate the deep fiscal strain the energy sector is putting on South Africa’s economy.” More

Foxtons said it achieved double-digit revenue growth and better than expected profits for last year, but warned that the start of 2023 would be tougher as economic conditions toughen for many in the UK. The estate agent said on Thursday that its lettings business had grown strongly in 2022, but admitted that sales would be “subdued” as higher interest rates and inflationary pressure weigh on demand.“The economic outlook for the year ahead remains uncertain, but we have a growing portfolio of non-cyclical revenues” said chief executive Guy Gittins said.Estate agents have warned that a challenging economic backdrop in the UK will continue to affect sales into 2023, as the market approaches the hottest time of year for house buying and selling. Savills recently cautioned that high interest rates and inflationary pressure would remain “in focus for some time.”Foxtons said it expects to report an 11 per cent rise in revenue to around £140mn for 2022, ahead of market expectations. The group also said that its adjusted operating profit would beat analysts’ estimates. The estate agent had raised its expectations in October for the full year as a squeeze in supply led to surging rents in London. The group, which has more than 26,000 tenancies in its portfolio, said its lettings and financial services business now generates around two-thirds of its overall revenue.However, shares in Foxtons were down nearly 2 per cent in early trading. Chris Millington, analyst at Numis Securities, said “it’s probably fair to say it’s going to be a very tough first half for them.” “I have seen activity levels pick up a little at the start of this year relative to Q4, admittedly off a very low base, but the difficulty is knowing how that’s going to convert and how long it’s going to take to convert,” he added. “Everything takes a bit longer in times of uncertainty.” More

Investing.com — Tesla surges 7% in premarket trading after an upbeat outlook for the year from CEO Elon Musk, helping the broader market higher. It’s peak earnings season, with updates from Dow Chemical , American Airlines and – after the bell – Intel, to name but three. The U.S. will report its first reading for fourth-quarter GDP, which is expected to show a clear slowdown in growth at the end of last year. Meta is reinstating Donald Trump’s Facebook account. And oil prices hit resistance after a 10% rally over the last three weeks. Here’s what you need to know in financial markets on Thursday 26th January. 1. Tesla surges as Musk hails effect of price cutsTesla (NASDAQ:TSLA) stock rose 7% in premarket trading after Elon Musk said this month’s price cuts had revived demand for its electric vehicles, putting it on course for a year of solid – if slightly slower – growth in sales and profits.Consensus forecasts for Tesla’s fourth-quarter revenue and profits had already been revised down sharply in light of production and logistics disruptions in China at the end of last year, which meant that revenue of $24.3 billion was barely up on the previous quarter. Profit of $3.7 billion was the company’s higher ever, but fractionally short of revised market forecasts.Musk’s comments at a conference call after the results suggested deliveries (or production, it wasn’t clear which) of 1.8 million cars this year, which would represent growth of some 37% from 2022 – below the company’s 50% target. While production of its pickup truck is set to start later this year, high-volume output won’t start until 2024, Musk said.2. U.S. GDP growth seen slowing to 2.6% in 4Q; jobless claims, new home sales data also dueThe U.S. will report its first reading for fourth-quarter gross domestic product at 08:30 ET (12:30 GMT), just under a week before the Federal Reserve meets to adjust its monetary policy settings.Analysts expect growth to have slowed to an annualized rate of 2.6% from 3.2% in the third quarter, as raging inflation and higher financing costs ate into consumer spending and disposable income.The Labor Department will publish jobless claims data at the same time, while there are also numbers due on durable goods. December’s new home sales data and the Kansas City Fed regional business survey follow at 10:00 ET.3. Stocks set to open higher amid earnings deluge; Dow disappoints but Northrop and Valero beatU.S. stock markets are set to open higher, with Tesla’s earnings and outlook helping selected technology stocks in particular to outperform. Industrials lagged, however, after Dow Chemical’s (NYSE:DOW) disappointing update.By 06:30 ET, Dow Jones futures were essentially flat, but S&P 500 futures were up 0.2%, while Nasdaq 100 futures were up 0.6%.The gain across Tech wasn’t universal: IBM (NYSE:IBM) and Lam Research (NASDAQ:LRCX) both fell after missing forecasts in their updates late on Wednesday.A cast of thousands reports earnings in the course of the day, with Mastercard (NYSE:MA), Comcast (NASDAQ:CMCSA), Archer Daniels Midland (NYSE:ADM) and American Airlines (NASDAQ:AAL) all offering a broad snapshot of the economy. Valero (NYSE:VLO) and defense giant Northrop Grumman (NYSE:NOC) are both looking good after stronger-than-expected reports. After the bell, Visa (NYSE:V), Intel (NASDAQ:INTC), KLA Corp (NASDAQ:KLAC) and L3Harris (NYSE:LHX) are all up.4. Buzzfeed on a tear after Meta reportAlso in focus later will be BuzzFeed (NASDAQ:BZFD) stock, which surged 30% on reports that Facebook owner Meta (NASDAQ:META) is to pay the company an unspecified, but probably large, amount to help it bolster content on its social media sites.Meta was also in the news for saying it will reinstate the Facebook page of former President Donald Trump, whom it suspended in the aftermath of the Jan 6th, 2021 assault on the Capitol. It warned that Trump will face stiffer sanctions for repeated breaches of its user code.                                       5. Oil consolidates ahead of OPEC+ meetingCrude oil price consolidated, running into resistance around the $81 a barrel level after a 10% rally in the last three weeks, in which fears of a global economic slowdown have been offset by the outlook for a Chinese-specific increase in demand and, not least, a weaker dollar that makes oil purchases cheaper for big importers such as China and India.The latest U.S. inventory data were a fraction more bullish than expected, but are unlikely to move the dial as the market looks forward to next week’s meeting of OPEC and its allies.By 06:40, U.S. crude prices were up 0.8% at $80.78 a barrel, while Brent was up 0.8% at $86.79 a barrel. More

The writer is Senior Fellow at the Center for International Governance Innovation and a former IMF executive director and WTO counsellorGeopolitical tensions have exposed the risk of over-reliance on certain markets. Liberal democracies are reassessing whether free trade should be replaced by what US Treasury secretary Janet Yellen has called “resilient trade”. This is defined as a form of trade where international value chains rely on “friendly” suppliers (read: not China). Champions of this new trade architecture are not questioning David Ricardo’s comparative advantage theory. They continue to believe in the benefits of trade liberalisation, but more so if it takes place among “friends”. In their world, free trade is good but “friendshoring” is safer. Comparative advantages still count, but rather than chasing the cheapest suppliers, companies should factor in longer-term risks such as geopolitics, security and overconcentration in supply chains. Governments, friendshoring advocates say, should play a critical role in strengthening national economic resilience by guiding private companies towards reliable comparative advantages. How can they do that?Friendshoring proponents are not very specific on how governments should choose friends and whether friends can trade with other friends’ foes. But biases towards friends must be embodied in preferential trade agreements. Nor do advocates of the approach see a conflict with trade’s multilateral architecture. According to them, moving supply chains to like-minded countries can be done through a broad array of “multilateral engagements”. This is peculiar. Friendshoring is not a multilateral engagement, as this is commonly understood, since only friends are invited to sit at the negotiating table. Moreover, unless the scope of the trade preferences exchanged among friends is broad enough to meet the WTO’s free trade agreements’ yardstick, such agreements would breach the “most favoured nation” clause. And it is very unlikely that nations shifting towards friendshoring will be willing to grant all WTO members the ability to specify trade preferences. Beyond the foreseeable consequences of trashing the cornerstone of the entire postwar rules-based trading system, there is a technical detail that friendshoring advocates fail to consider. All trade preferences are necessarily based on rules of origin. Was a product made in a friendly country? What was the origin of the inputs used in its production? And how much value was added in the friendly country from where the final product was shipped? Determining the “friendly origin” of industrial goods is complex yet possible. But what rules could be used to determine the friendly origin of digital flows? Goods have a discrete existence because they are made of atoms. They can only be in one place at a time. But to an increasing extent, trade in goods or services is connected to cross-border data flows. As the OECD notes, a smart fridge requires market access not only for the physical product, but also for embedded digital support and service.Determining the origin of digital flows is difficult because bytes are not discrete items. They behave like waves, rather than like atoms. They can be in several places at the same time and can be reproduced multiple times (at almost zero marginal cost), stored and “shipped” from multiple sites. Admittedly governments could build firewalls to intercept bytes and determine their origin. Although it could be technically difficult, it is theoretically possible to create a barrier to entry for digital flows, scrutinise them to determine their origin and let in only those arriving from friendly places.China already does some of this (although VPNs can make life difficult for the censor). The paradox is that in order to weed out China from their value chains, liberal democracies are creating a world that may end up looking more like China than one shaped by their values. Friendshorers should be careful what they wish for. More

NEW YORK (Reuters) – The amount of money sloshing around the U.S. economy shrank last year for the first time on record, a development that some economists believe bolsters the case for U.S. inflation pressures continuing to abate.The Federal Reserve’s main measure of the nation’s money stock – known as M2 money supply – slid for a fifth straight month in December, dropping by a record $147.4 billion to a seasonally adjusted $21.2 trillion from the month before, data from the U.S. central bank released this week showed. From a year earlier, the volume of cash, coins, checking and savings deposits, other small time deposits and cash parked in money market funds fell by nearly $300 billion and has fallen by more than $530 billion since last March when the Fed kicked off its aggressive – and ongoing – process to drain liquidity from the economy to combat high inflation. M2 took off in March 2020 as the Fed slashed rates and started buying trillions of dollars in bonds to help support the economy as the coronavirus pandemic started, ultimately mushrooming by $6.3 trillion – a 40% increase – from its level right before the start of the crisis. The recent decline in the money supply comes as the Fed has been aggressively raising rates to push inflation back to its 2% target. Since last June, it has also cut its holdings of Treasury and mortgage bonds by $400 billion to roughly $8.5 trillion to augment that process, further stripping the economy of financial liquidity.Money-supply purists have long argued that the country’s ever-growing stock of money was an inflation powder keg. It’s an argument that lost credibility with policymakers in the record-long economic expansion before the pandemic when M2 rose by more than 80% but inflation never rose sustainably above the Fed’s 2% target and spent much of that decade notably below it.That dynamic changed in the last two years, though, with money supply trends moving in roughly the same direction as inflation pressures: As money supply rose rapidly into early 2022, so did inflation; since M2 started a persistent decline last summer, inflation pressures have also receded.’A MONETARY PHENOMENON’Some Fed officials are now taking renewed interest. M2 “exploded during the pandemic, and correctly predicted that we would get inflation,” Federal Reserve Bank of St. Louis President James Bullard, an early proponent of policy tightening, said earlier this month. “Inflation is certainly a monetary phenomenon” and “when you get a huge movement in money, then you do get the movement in inflation,” as was seen in the 1960s, ‘70s and ‘80s.To be sure, measuring money supply is complicated, with no one way to do it. The Fed itself has altered its approach, scrapping the publication of an even broader measure, called M3, in 2006. Bullard, acknowledging the cooling off of money supply, said this downshift in money “bodes well for disinflation,” which means the Fed is likely to face an enduring trend of lower price pressures. A paper published this month by the Mercatus Center at George Mason University said that economists and policymakers would do well to keep an eye on money supply measures in the future. “Money has all but disappeared from monetary policy analysis” given the economics profession’s emphasis on the view monetary policy works by managing expectations about the future path of interest rates, wrote Joshua Hendrickson of the University of Mississippi. Given money supply’s better-than-expected track record on recent inflation issues, ignoring these numbers has been “misguided,” he said. Economists, meanwhile, are still taking on board whether money supply is something they need to pay greater mind to as they contemplate monetary policy and inflation. “I think that what we are finding is that the relationship between changes in the money supply and inflation is far less linear” than had been previously understood, said Thomas Simons, economist with investment bank Jefferies. Nevertheless, Simons said, it appears the Fed’s aggressive balance sheet expansion during the pandemic did have a bigger impact on inflation relative to recent decades. More

The writers are executive vice-presidents of the European CommissionCan Europe’s economy stay globally competitive in the face of multiple challenges? That question is being hotly debated across the EU right now, and finding the right answers requires a fact-based analysis. Let us not forget that the European economy has shown remarkable resilience and agility. We overcame the pandemic thanks to fast co-ordination and solidarity. Together, we are adapting to Russia’s continued war in Ukraine, which has hit our economy hard. We are moving away from Russian fossil fuels, employment is holding up and inflation has dipped. Still, the war is not over, high energy prices and inflation will persist, as will strains on supply chains worldwide and broader geopolitical shifts. These are mighty challenges for our industrial sector, which needs to adapt to a greener and more digital future to stay at the global cutting edge. In addition to all this there is the Inflation Reduction Act, the United States’ flagship plan to green its domestic economy.While sending a strong message on climate action, this act incentivises the (re) location of industry to the US, thereby potentially putting the EU industrial base for clean technologies at a disadvantage. It has led some in Europe to call for an IRA-like response of our own. But a tit-for-tat reaction risks significant economic self-harm. Instead, to make Europe the home of industrial innovation as we transition to net zero, we need common action through an EU green deal industrial plan. This should cover four pillars: the business environment, financing, skills and trade.The need to develop clean technologies, renewable energy sources and improved digital capacity has only grown more urgent with Russia’s war. And we are speeding up on all fronts. Hundreds of billions of euros in Recovery and Resilience Facility funding are earmarked for upgrading our industrial base and infrastructure. The European Commission will propose a European sovereignty fund to support upstream research, innovation and strategic industrial projects. The revised emissions trading system is expected to raise close to €700bn by 2030. Other existing instruments can contribute, as can the European Investment Bank.We need to do more and take a clear-eyed look at the challenges we face. But we should also have more confidence in our unique model and attractiveness as an investment destination. The European model is based on openness, the welfare of citizens and workers, a business-friendly environment and the jewel in our crown, the EU single market, the biggest internal market in the world, equipped with clear rules for business and investors. We should build on these fundamentals. Competitiveness requires a broad set of reforms, creating an environment more conducive to innovation, ensuring adequate skills, reducing administrative burden and further deepening the single market. We urgently need to get private investments to flow, as public money will not be enough. Rolling out the capital markets union to drive investment is the most cost-effective step we can take. Changes to the temporary framework for state aid can bring further, targeted relief. However, a massive surge in subsidies when countries have different financial means will only risk fragmentation of the single market. Subsidies must not come at the cost of well-functioning markets and fair competition. The EU applauds the American decision to get serious about action on climate change. It confirms sustainability will be central to future economic growth. Yet we remain concerned at the discriminatory aspects of the IRA. We need to see more progress in our talks with the US to remove these risks.Like-minded partners have so much more to gain when we work with each other to incentivise the development of green and climate-friendly technologies. The EU and US should be building an open, thriving transatlantic marketplace for our innovators and investors. This brings us to the last essential element: maintaining our open approach to global trade. Europe relies more on a well-functioning global economic order than other major powers because we are an exporting powerhouse. As we are not rich in the natural resources and key inputs required to drive the green and digital transitions, our focus will be on widening our network of trade agreements with trusted partners. The coming decades will see the greatest industrial transformation of our age — maybe ever. The EU has difficult choices to make, but we have every reason to remain confident about the strength and adaptability of our market as we do so. More

TORONTO (Reuters) – Some of Canada’s top investment banks plan to maintain staffing levels to meet client expectations for the same level of coverage through the ups and downs of business cycles, head hunters and industry executives said.U.S. investment banks, including Goldman Sachs (NYSE:GS), began cutting over 3,000 employees on Jan. 11 citing a challenging macroeconomic environment, raising fears Canadian banks may follow suit. Like their global peers, many Canadian investment banks had staffed up during the pandemic only to see dealmaking slow last year.At Royal Bank of Canada, the country’s biggest lender, for instance, headcount at its capital markets division jumped by 71% over the two years ending Oct. 31, 2022 to 6,887 employees.But in the meantime Canadian dealmaking fell 39.7% last year to $89.7 billion. That is more than the 36% drop in global deal values to $3.8 trillion following a stellar 2021, according to data from Dealogic.Yet, Canadian banks have not announced layoffs and some even say they may increase headcount, though dealmaking in the new year is down nearly 50% to $3.2 billion from a year ago, according to Dealogic.”Right now there is a sense that there isn’t a need for cuts in the system,” Dominique Fortier, partner at recruitment firm Heidrick & Struggles (NASDAQ:HSII)’ Toronto office, told Reuters.”When there was an upswing in 2021, it happened so quickly that there was no corresponding increase in hiring and so I don’t see that we’ll have the same decrease in terms of headcount coming.” Toronto Dominion Bank (NYSE:TD), which last year agreed to buy New York-based boutique investment bank Cowen Inc, expects to continue to grow its global investment banking business as it work towards closing the deal, a spokesperson said.Desjardins, another Canadian lender, will continue to invest in its growing capital markets division, a spokesperson said.EXPENSIVE PROPOSITIONBill Vlaad, a Toronto-based recruiter who specializes in the financial services sector, said that while there was some nervousness around the stability of investment banking teams, Canada is unlikely to see U.S.-level redundancies aside from the annual cull of poor performers called “maintenance layoffs.””The U.S. is very nimble. They will go in and out of hotspots very quickly. Canada doesn’t have that same luxury and has to stay relatively consistent in coverage,” said Vlaad.”You have a consistent group of people working…and they don’t fluctuate all that much year to year, decade to decade.”But another down year for dealmaking could see bonuses taking a hit. RBC, which was ranked No. 2 in Canada M&A, equity capital markets and debt capital markets last year according to Dealogic, has no layoff plans for investment banking in Canada, a source with knowledge of the matter said. Spokespeople for JP Morgan, which topped the M&A league table last year, Scotiabank and Canadian Imperial Bank of Commerce declined to comment. BMO did not respond to requests for comment.Headhunters and lawyers say it’s less expensive to lay off bankers in the United States compared to Canada.Howard Levitt, senior partner at employment law firm Levitt Sheikh, said Canadian investment banking employees would be entitled to somewhere between four and 27 months severance with full remuneration depending on their status, re-employability, age and length of service. More