Economy

Here we go again. The recurring political theatrics of raising the US debt ceiling — the maximum the government can legally accumulate — are under way once more. Things usually follow a routine path: after some wrangling Congress eventually agrees to increase or suspend it — the ceiling has been amended 78 times since 1960. But every so often the threat to hold it hostage to extract concessions runs until the last minute, raising the prospect of government shutdowns, missed social security payments and a disastrous default on debt. This year the risks of a crisis are particularly high, at a time of global economic and financial market fragility. A political deal to raise the debt limit is paramount. Better still, the US should consider ditching the ceiling altogether in favour of a saner alternative.Periods when there has been a Democratic president with a Republican-majority House, following a notable rise in debt, have produced some of the most disruptive debt ceiling episodes. This includes 2011, when the US’s credit rating was downgraded. The Republicans were always going to seek concessions to raise the ceiling this year. But the palaver over electing the House speaker, Kevin McCarthy, has only amplified the chances of brinkmanship. To garner hardline Republican votes, McCarthy pledged to attach large spending cuts to any legislation raising the debt limit. That is a non-starter for the Democrats.The clock is ticking to find an agreement. The US hit its statutory $31.4tn debt ceiling last week. Extraordinary measures, cash on hand, and tax receipts could now sustain the government until at least June. The US could then prioritise debt payments to avoid a default, but only at the expense of other obligations — revenues only cover about 80 per cent of spending. Cutting expenditure to balance the budget would push the US economy into recession. By then, waning confidence and higher borrowing rates would have already done damage. Beyond that, a default would be catastrophic. The credibility of US debt — a linchpin of the global economic system — would be shattered. Treasury Secretary Janet Yellen warned of a “global financial crisis”.There are no quick or easy options to circumvent the impasse. Using accounting trickery by minting a $1tn coin and depositing it at the Federal Reserve, issuing very high-interest bonds or innovative forms of government securities have all been suggested. Others propose invoking the 14th amendment, which says the validity of US debt “shall not be questioned”. These paths are untested, have dubious legal grounds and are likely to incur challenges, which will only amplify market anxieties. As it is, liquidity has been drying up in Treasury markets.That such underhand options are being discussed is a measure of just how ludicrous the debt ceiling is. Few countries have limits on nominal government debt, which needs to be raised to due to inflation even if the real level of debt itself does not increase. It also curtails funding for measures already passed into law. Denmark’s high ceiling causes little friction, while Australia repealed its own after similar deadlocks. It is a nonsensical way to set tax and spending decisions. To prevent the size of the state ballooning, targeting debt sustainability measures would be far more suitable. At the very least, parties should agree to automatically authorise any borrowing needed to fund new legislation. A bipartisan commission could also look at longer-term spending reforms. Political will to agree on any changes will be the sticking point. In the near term, Democrats and Republicans must instead find common ground to raise the ceiling. The potentially dire fallout — for both the US and global economy — ought to focus the minds. More

Parents are being encouraged to save more for their children’s future with National Savings & Investments increasing rates on junior cash Isas (Jisas) above pre-pandemic levels. The state-backed savings fund said on Tuesday that it had increased the rate for the tax-free children’s savings product from 2.7 per cent to 3.4 per cent. This puts NS&I at the top of the market for online Jisa accounts, beaten only by rates offered on rivals’ in-branch or postal Jisas. NS&I also announced the rate offered on its adult Isas would rise from 1.75 per cent to 2.15 per cent and it will also improve the prize fund rate for premium bonds to 3.15 per cent, representing its fourth increase in a year. “Today’s changes will provide a welcome boost for savers of all ages across the country, with more premium bonds prizes and some of the highest interest rates we’ve seen in over a decade.” said NS&I’s chief executive Ian Ackerley. Amid a general increase in interest rates, NS&I has moved to market itself more competitively, with an improved offer for Jisa holders that could appeal to rivals’ customers looking to switch to a better rate.Jisas were launched in 2011 as a replacement for child trust funds, offering parents the ability to build a tax-free nest egg for their children before they turned 18, at which point accounts would convert to adult Isas.

Anyone can contribute to a Jisa, though an account must be opened by a parent or guardian and contributions cannot exceed a £9,000 tax-free limit each year. Children can hold one cash and one stocks and shares Jisa at a given time. In 2019, NS&I increased returns on its cash Jisas to 3.25 per cent in an effort to encourage savings among young people, but cut rates to 1.5 per cent the following year, before lifting rates twice last year to 2.7 per cent at the close of 2022. Rachel Springall of comparison site Moneyfacts said that NS&I’s cash Jisa would appeal to individuals looking to open an account online. However, parents prepared to apply in a branch, by post or over the phone could access 3.8 per cent on an equivalent account with Coventry Building Society. Savers wanting greater flexiblity on withdrawals may prefer non-Jisa children’s accounts, though they lose the tax advantages. Leeds building society offers 3.65 per cent on its easy-access child savings account. Little over half of the £7bn held in Jisas between 2020 and 2021 was in cash, according to HM Revenue & Customs. This figure has slowly fallen as a proportion over time as more people invest in stocks and shares Isas.“There are lots of people whose junior Isas or child trust funds are sitting at worse rates,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown, noting that balances could be transferred.Financial records suggest that even though markets fluctuate over time, a stocks and shares Jisa will tend to outperform a cash Jisa, with more chance of beating inflation. More

The government expects the economy, the world’s third largest, will pick up going forward but Japan needs to pay full attention to the impact from China’s spreading infections after it dropped stringent pandemic curbs, the report said.The economic downgrade followed the Bank of Japan’s move last week when it slashed its economic growth projections for the next two fiscal years amid worries that slowing global demand will weigh on Japan’s export-reliant economy.”The economy is recovering moderately but some weakness is seen recently,” according to the latest report by the Cabinet Office. The authorities slashed its assessment on exports for the first time since November 2021, while it also cut its view on imports for the first time in three months. The January report said both exports and imports are “weakening recently” compared with its previous view of “almost flat” last month.”China’s coronavirus rebound could affect Japan’s exports and production and such a possibility has become clearer than last month,” said an official at the Cabinet Office.The government also remained cautious over downside risks from the global economic slowdown amid monetary tightening, inflation and financial market fluctuations. Meanwhile, the Cabinet Office maintained its assessment of Japan’s domestic demand, saying private consumption was “picking up moderately” in the latest report.But the government said the recovery in industrial production was stalling, unchanged from its view in December. (This story has been corrected to say that the downgrade in the official view of exports was first since November 2021, not November 2011, in paragraph 5) More

Average copper prices averaged $8,004.64 per tonne in the last three months of 2022, a 16% drop from a year-earlier period, as China’s economic growth faltered, while Europe and the United States stared at a recession.Miners are also struggling with higher inflation, lower demand and rise in per-unit cost of production.Freeport reported average realized copper prices of $3.77 per pound, compared with $4.42 a year earlier.The miner, which has operations in the Americas and Indonesia, said quarterly production of the red metal rose to 1.07 billion pounds from 1.03 billion pounds a year earlier. Its gold output rose to 472,000 ounces from 405,000 ounces.The Phoenix-based miner’s net income fell to $697 million, or 48 cents per share, in the three months ended Dec. 31, compared with $1.1 billion, or 74 cents per share, last year. More

Futures on the S&P/TSX index were down 0.4% at 6:51 a.m. ET (1151 GMT), mirroring declines in their U.S. counterparts.The BoC is expected to raise interest rates to a 15-year high in the face of a tight job market and above-target inflation, but economists say the move could be the last in the current tightening cycle.A Reuters poll of economists showed the BoC will hike its benchmark rate by 25-basis-points to 4.50% at 10:00 a.m. ET.The BoC was one of the first major developed world central banks to start hiking its overnight lending rate last year, raising at an unprecedented pace of 400 basis points in nine months.It will be the first time where the central bank will offer minutes from its policy-setting session, which will be published on Feb. 8.Further weighing on sentiment were corporate earnings in the United States, after tech giant Microsoft (NASDAQ:MSFT) warned that growth in its cloud business could stall. Commodity prices, which tend to influence the resources-heavy TSX, were a mixed bag.Crude oil prices slipped as a rise in U.S. crude inventories and global recession worries edged out optimism for a demand recovery in China. [O/R]Gold prices declined against a firmer dollar, while copper prices inched higher. [GOL/] [MET/L]Results from Canadian National Railway (TSX:CNR) showed fourth-quarter earnings beat market expectations. A Canadian court on Tuesday dismissed the competition bureau’s effort to overturn an approval of Rogers (NYSE:ROG) Communications Inc’s C$20 billion ($14.9 billion) bid to buy Shaw Communications (NYSE:SJR) Inc. More

(Reuters) – Just days into a new sitting of the U.S. Congress, lawmakers are confronting what will be perhaps the most pivotal legislative issue of 2023: the national debt limit.Here are some key moments in the months ahead:FEB. 1The Treasury Department will release a quarterly document next week laying out how it plans to fund the government over the next three months. The document, which includes information on debt the Treasury will issue, could shed light on the timing of a possible default. It follows a more general overview of quarterly funding to be released on Jan. 30.Analysts warn, however, that it will still be far too early to pin down a precise date, which will depend on a number of factors, including tax receipts.MARCH/APRIL In March or April, the Congressional Budget Office will issue new budget projections for fiscal 2023 and fiscal 2024, based on current tax and spending laws and economic forecasts. The projections will provide a non-partisan view of government cash flows and provide additional clues as to how long the Treasury can continue to pay its bills. Additionally, President Joe Biden will likely unveil his fiscal year 2024 budget request in the second quarter. Last year, this occurred in early March.The proposal will become grist to any negotiations with Republicans, who will likely demand significant cuts to sign off on legislation raising the debt limit.APRIL 18The deadline for federal income tax returns falls on April 18. Data regarding government income could be an important factor in determining the so-called “X date,” or the day when the government will stop paying its bills.The more tax revenue collected by the government, the longer the government can meet its obligations.JUNE 5Treasury Secretary Janet Yellen has pinpointed June 5 as the earliest possible X date, setting that as the end of a “debt issuance suspension period” in enacting extraordinary cash management measures.Analysts generally agree, however, that the government would not default until a later date and that the U.S. Treasury is presenting a worst case scenario to lawmakers.JUNE 30 Should the U.S. Treasury make it to June 30 without missing payments, it will receive a roughly $145 billion reprieve when investments made by a U.S. account known as the Civil Service Retirement and Disability Fund will mature. Normally, these funds would be reinvested, but the Treasury Department has said it could use the proceeds to help make needed payments.JULY-OCTOBERMost analysts see the true X date occurring somewhere between July and October.In addition to rattling global financial markets, reaching the X date without an agreement could cause some government payrolls and Social Security benefits and bond repayments to be missed. More

Investing.com — Stocks are set to open lower after Microsoft reported slowing demand even for the fastest-growing parts of its empire. It’s another big day for earnings, with Tesla headlining later on, and Boeing, NextEra Energy and Abbott due before the open. Germany departs from eight decades of pacifism, agreeing to ship its modern battle tanks to the world’s hottest war zone. And short-sellers Hindenburg Research goes after India’s richest man Gautam Adani, wiping nearly $10 billion off his group’s value. Here’s what you need to know in financial markets on Wednesday, 25th January. 1. As Microsoft goes, so goes the U.S.…Microsoft’s (NASDAQ:MSFT) earnings reinforced the impression that 2023 is going to be a tough year for business. The software giant, whose broad reach across the business and consumer segments of the economy makes it a decent proxy for the rest of USA Inc., said its revenue grew at the slowest rate in six years in the three months through December, the mid-point of its fiscal year.Adjusted earnings were fractionally above expectations, but included a $1.2B restructuring charge related to the 10,000 job cuts it announced last week. But analysts were more concerned by the top line, where sales of Windows and Xbox-related services slumped as COVID-related factors ebbed. The company even expects a significant slowdown this year in its Cloud services division this year, which has been its strongest-performing segment in recent quarters.Microsoft stock fell nearly 2.5% in premarket trading.2. Tesla’s up nextTesla (NASDAQ:TSLA) reports earnings after the closing bell, arguably facing its stiffest challenge yet in trying to justify a valuation that still far exceeds anything else in the auto sector.The company has lost around half its value since its last quarterly update, with CEO Elon Musk repeatedly selling stock to fund his misfiring purchase of Twitter. Musk took the witness stand in a trial on Tuesday where he is accused of deliberately misleading investors with a tweet about a possible buyout back in 2018. He told the court he believed that he had funding for the buyout in place.Tesla is expected to report adjusted earnings per share of $1.15, down from $2.54 a year ago, hurt by production disruptions and price cuts in the final quarter of last year.3. Stocks set to open lower in Microsoft’s shadow; Abbott, IBM, Boeing all set to report laterU.S. stock markets are set to open lower later, as Microsoft’s lackluster outlook casts a long shadow over the rest of the market.By 06:20 ET (11:20 GMT), Dow Jones futures were down 160 points, or 0.5%. While S&P 500 futures were down 0.7% and Nasdaq 100 futures were down 1.2%, with technology stocks coming under particular pressure.Sentiment has not been helped by news of the Department of Justice charging Alphabet (NASDAQ:GOOGL) with abusing its market dominance of the online advertising industry, which is a significant expansion of the existing antitrust actions against the Google owner.Other stocks due to report on Wednesday include Boeing (NYSE:BA), NextEra Energy (NYSE:NEE), IBM (NYSE:IBM), Lonza Group (OTC:LZAGY), Abbott Laboratories (NYSE:ABT), CSX (NASDAQ:CSX) and Norfolk Southern (NYSE:NSC), Freeport-McMoRan (NYSE:FCX) and Lam Research (NASDAQ:LRCX), among many others.4. Scholz frees the LeopardsGerman Chancellor Olaf Scholz formally approved the shipment of Leopard 2 main battle tanks to Ukraine, a day after reports suggested that the U.S., too, has finally relented on including its Abrams M1 battle tank in future military aid packages.The move was sharply criticized as an escalation of the conflict by Moscow, but warmly welcomed by Germany’s NATO allies, who have been exasperated at its reluctance to fill a vital gap in Ukraine’s arsenal.Germany’s change of heart is a landmark in the evolution of its foreign policy, which has seen it shun any kind of leadership role in military affairs since World War 2. The move will put a sharp focus on Moscow’s reaction function, given its previous threats of using battlefield nuclear weapons.The decision comes, ironically, on the birthday of Ukrainian President Volodymyr Zelensky.5. Adani hit by short-seller claims, rebuts allegationsThe sprawling empire of India’s richest man, Gautam Adani, was shaken by a report by short sellers Hindenburg Research, which accused it of various accounting tricks to inflate the value of its portfolio companies.The flagship Adani Enterprises (NS:ADEL) holding company fell 1.1% in Mumbai, while the group’s ports and shipping arm lost over 6%.Companies linked to Adani lost around $9B in market capitalization on the report, which the group’s chief financial officer described as “a malicious combination of selective misinformation and stale, baseless and discredited allegations,” according to the Financial Times.Adani’s net worth is estimated at some $118B, tied largely to investments in fossil fuels and renewable energy. More

BUENOS AIRES/MEXICO CITY (Reuters) – Brazil’s slowing economy will likely remain weak in 2023 as a planned spending drive by newly-elected President Luiz Inacio Lula da Silva risks keeping already-high borrowing costs elevated for longer, a Reuters poll of economists found.Lula’s government, which took power on Jan. 1, is increasing the size of welfare programmes well beyond strict budget limits to address deeply-rooted social problems. Former President Jair Bolsonaro’s government did not keep within those rules either. However, many investors and analysts fear a new wave of planned spending could put Brazil’s debt on even more unsustainable path and stir inflation, which is dropping after a long series of interest rate rises.Heeding their worries, the central bank is set to keep benchmark rates high for a long time, but that may amplify an economic slowdown and stoke tensions with the government.Growth is forecast to recede sharply to 0.8% in 2023 from 3.0% last year, according to median estimates of 44 economists polled between Jan. 9 and Jan. 20. The growth forecast for this year was unchanged from an October poll, with 2022 upgraded from 2.7%.”The main reason for our negative outlook is in regards to the fiscal policy that is being implemented,” Tomas Goulart, an economist at Novus Capital, said. His growth forecast for this year was just 0.5%.With a possible reinstatement of taxes on fuels to help pay for extra spending measures “inflation will be around 5.0% in 2023 and the central bank won’t be able to lower its Selic rate, reducing growth for the next years,” he added.This month, bank chief Roberto Campos Neto cited a likely restoration of taxes on fuels as one of the main factors behind his forecast of 5.0% inflation in 2023 – an outcome that would exceed the 4.75% objective for a third year.Finance Minister Fernando Haddad presented a fiscal scheme to appease market concerns. Still, he said it was only a list of proposals that Lula had yet to approve and were prone to “frustrations”, as well as more unexpected outlays.UPCOMING TAX REFORMDomestic markets, which have remained calm recently, could be tested after the Southern Hemisphere summer break and Carnival (NYSE:CCL) holidays, as the government begins to press lawmakers to vote on a tax reform in the first-half.”There are risks of higher inflation with the pass-through (to consumer prices) of a more depreciated exchange rate in case of sharper fiscal deterioration,” Mauricio Nakahodo, senior economist at MUFG, said.Asked a separate question on the overall trend for Brazil’s GDP growth in 2023, a slight majority of seven of 12 who replied said it was tilted to the downside, while three saw upside potential, and two said neutral.Headwinds hitting Latin America’s No. 1 economy should be somewhat offset by an improvement in terms of trade from rising commodity prices due to China’s reopening, and by the impact of Lula’s policies on aggregate demand.Estimates for Brazil´s growth in 2023 ranged from stagnation to 1.5%, while projections for Mexico varied between a 0.5% contraction and 1.7% growth, with the median in the survey pointing to a slowdown to 1.0% this year from 3.0% in 2022.On the Mexican economy, Citi analysts said in a report they expected activity to decelerate “as the expansion of the U.S. economy loses traction, the improvement of the labor market slows down, (and) real interest rates increase”.But contrary to Brazil, where frictions between the central bank and government are materializing, Mexican President Andres Manuel Lopez Obrador has praised policymakers for their work, supporting business confidence.Also, the Mexican peso has been trading close to three-year highs against the U.S. dollar, reflecting a much more subdued political climate compared to this month’s chaos on the streets of Brasilia.(For other stories from the Reuters global economic poll:) More