Economy

The ECB has raised rates by an unprecedented 200 basis points since July, but a slowdown in the rate of increases has been anticipated after the bank claimed “substantial progress” in policy tightening on the back of 75 basis point moves in September and October.”As the stance of monetary policy tightens further, it will become more likely that the pace of increases will slow,” Knot, an influential conservative or policy hawk, said in a speech. “I expect us to reach broadly neutral territory at next month’s policy meeting.” At 1.5%, the ECB’s deposit rate is already approaching the generally accepted 1.5% to 2% range for the neutral rate, which neither stimulates nor slows economic growth.Once that level is reached, the ECB should then move into “restrictive” territory to dampen demand, but should also start running down its 3.3 trillion euro ($3.4 trillion) Asset Purchase Programme, Knot said.”It would not be consistent to keep a large balance sheet to compress the term premium, while at the same time tightening policy rates above neutral,” Knot said in Frankfurt. The comments may point to an early 2023 start for the debt run-off as the ECB’s February meeting, its first next year, could already look to raise rates above neutral. While no date has been set for letting debt expire, Bundesbank chief Joachim Nagel, another influential hawk, has made the case for a start at the beginning of next year. “An earlier start of so-called Quantitative Tightening (QT) lowers both peak inflation and the required terminal rate via its effect on the term premium and the terms of trade,” Knot said.Markets now see the terminal, or peak, ECB rate at just below 3%, suggesting another 150 basis points of hikes may come between now and mid-2023. Like ECB chief Christine Lagarde, Knot argued that rates should remain the bank’s primary tool and the balance sheet run-off should happen on the “backburner”.”This calls for an early but partial stop to reinvestments, to test the waters before calibrating the ultimate pace of the roll-off,” Knot said. “QT should be predictable, like watching paint dry.”($1 = 0.9648 euros) More

FRANKFURT (Reuters) -The European Central Bank must raise interest rates high enough to dampen growth as it fights sky-high inflation and it could soon start running down its 5 trillion euro ($5.2 trillion) debt pile, three top policymakers said on Friday. Having raised rates by 200 basis points to fight double-digit inflation, the ECB has been tightening policy at the fastest pace on record and more moves are still in the pipeline, even if some of the comments on Friday suggest a slowdown.Speaking in quick succession at a major financial conference in Frankfurt, ECB President Christine Lagarde, Bundesbank President Joachim Nagel and Dutch central bank Governor Klaas Knot all made the case for lifting the ECB’s 1.5% deposit rate into “restrictive” territory, a level commonly seen as above 2% where the bank puts a brake on growth.They also argued for the need to start winding down the bank’s massive pile of government debt, hoovered up over the past decade when the ECB was still fighting anaemic inflation.But the comments also contained plenty of nuance, which some saw as signalling a potential compromise between conservatives, who are pushing for rapid tightening, and a small number of policy “doves”, mostly from the bloc’s southern periphery.”As the stance of monetary policy tightens further, it will become more likely that the pace of (rate) increases will slow,” Knot said in a speech. A slowdown after back-to-back 75 basis point hikes would not be a surprise given that the ECB already claimed “substantial progress” in policy tightening, but the comments from a key hawk are still likely to temper rate hike expectations. Nagel meanwhile made the case for beginning the bond run-off at the start of 2023, an earlier date than advocated by most others, suggesting that more modest rate hikes could be coupled with a quicker start of quantitative tightening.”We should start reducing the size of our bond holdings at the beginning of next year by no longer fully reinvesting all maturing bonds,” Nagel said. TS Lombard analyst Davide Oneglia saw a compromise taking shape focused on the balance sheet run-off, also known at quantitative tightening or QT, even if the ECB is set to maintain its bias for overtightening. “The ‘grand bargain’ between hawks and doves in the ECB Governing Council is shaping up ahead of the December meeting, which could mean slower hikes in exchange for earlier and/or faster QT,” he said.Knot also advocated a quick start to the debt run off, arguing that it would cut inflation and lower the required peak interest rate to control price growth.Still, ECB chief Lagarde said rates will remain the ECB’s primary policy tool and the balance sheet run off is more likely to take place in the background.”Acknowledging that interest rates remain the most effective tool for shaping our policy stance, it is appropriate that the balance sheet is normalised in a measured and predictable way,” she said.Reinforcing views that quantitative tightening would be on auto pilot, Knot said it should be as predictable and boring as “watching paint dry.”The ECB has little experience with the effect of reducing its balance sheet, which is just shy of 9 trillion euros. It raised funding costs for banks last month, hoping lenders would start paying back multi-year loans, called Targeted Longer-Term Refinancing Operations. However, in the first repayment possibility under the new terms, only 296 billion or 14% of such loans were repaid, far below the roughly 500 billion expected by markets, suggesting that balance sheet action is more unpredictable than rate moves.($1 = 0.9664 euros) More

The ECB has already raised rates by 200 basis points in three steps this year and put a string of further moves on the table as inflation is now running well into double digits with little hope of a return to its 2% target for years.”We must resolutely raise our key rates further and adopt a restrictive stance,” Nagel, a powerful conservative, or policy hawk, said in a speech. “We cannot stop here. Further decisive steps are necessary.”At 1.5%, the ECB’s deposit rate is at the lower end of the commonly accepted, 1.5% to 2% range for the “neutral rate,” where it is neither stimulating nor restricting growth. Markets see a move to 2% in December, then a further rises towards 3% by next spring. Complementing rate hikes, the ECB needs to start running down the trillion of euros worth of government debt it hoovered up over the past decade, when inflation was still too low.”We should start reducing the size of our bond holdings at the beginning of next year by no longer fully reinvesting all maturing bonds,” Nagel said.The ECB holds around 5 trillion euros worth of bonds and said it would start talks in December on how and when to run down the 3.3 trillion euros in its Asset Purchase Programme. Speaking earlier on Friday, ECB chief Christine Lagarde said this run off should be “measured and predictable”, a comment suggesting that the decision is about the terms of the wind down and not whether it was necessary. More

JOHANNESBURG (Reuters) -The Africa head of Ford Motor Co said the South African government must deliver policy certainty on electric vehicles (EVs) within six months to save its automotive industry. Three quarters of cars produced by South Africa’s auto industry, which accounts for 5% of gross domestic product and more than 100,000 jobs, are exported, mostly to Europe.But with Britain planning to ban sales of new petrol and diesel cars from 2030 and the European Union in 2035, the local industry risks losing thousands of jobs and billions in revenue in the absence of a government plan for EVs.”We need policy certainty, literally, within the next six month period,” Neale Hill, President of Ford Motor Company (NYSE:F) in Africa, told Reuters in an interview on Friday.South Africa’s trade and industry ministry said it had previously indicated a policy paper would be out by November 2021 but the deadline could not be met due to “variety of issues”.”There is a commitment to conclude this matter soon,” it said.The government issued an Automotive Masterplan in 2018 to help local makers achieve 1% of global production, increase the use of local materials to 60% from 39% and raise employment, among other objectives. It did not include any policy on EVs. Hill, who is also the President of South African carmakers’ lobby NAAMSA, said auto companies wanted the government to clarify what parts of the master plan are still up for support.Ford in March boosted its spending on EVs to $50 billion through 2026 as the Dearborn, Michigan-based company tries to catch up with Germany’s Volkswagen (ETR:VOWG_p) and industry leader Tesla (NASDAQ:TSLA).A carmaker takes around four years for an investment decision to convert into an actual funding in a factory, Hill said, adding globally auto companies were making such decisions and South Africa was not featuring in them.”I’m concerned that (the South African) government’s delays and lethargy on this is going to end up costing us having a seat at the table,” he said. More

SANTIAGO (Reuters) -Chile’s economy shrank in the third quarter at the fastest quarterly rate in more than two years, declining further after a rapid post-pandemic recovery as recession concerns grow in the world’s largest copper producer.Gross domestic product (GDP) contracted 1.2% from the second quarter, central bank data showed on Friday, its largest decrease since the second quarter of 2020, when the economy dropped 13% as the COVID-19 pandemic hit the Andean country.Economists polled by Reuters had expected a 1.0% fall.Chile’s economy recovered rapidly from the pandemic-related downturn but was then hit by soaring inflation, leading the central bank to hike interest rates aggressively to the current 11.25%.”The economy is shrinking, and the near-term outlook remains negative,” Pantheon Macroeconomics’ economist Andres Abadia said, mentioning tighter fiscal and monetary policy, elevated political uncertainty, weakening external conditions, high inflation and problems in key industries.The central bank said that the quarterly drop came on the back of worsening personal services and mining figures, as copper production and exports have been decreasing in recent months.The contraction “was even steeper than expected and we think that the downturn has further to run,” Capital Economics’ Kimberley Sperrfechter said, forecasting Chile’s economy to contract by 1.3% over 2023 as a whole.Improvements ahead might come from falling consumer prices and higher government spending, as President Gabriel Boric said he would propose increasing public spending by 4.2% in 2023 in an effort to boost the economy.In October, Chile’s inflation slowed to its lowest in eight months – though still far above the central bank’s target, it was a positive surprise reinforcing that the monetary tightening had likely come to an end, leading some economists to call for an easing cycle to start in early 2023.On a yearly basis, according to the central bank, Chile’s economy expanded 0.3% in the third quarter, slightly above expectations of a 0.2% increase.Domestic demand, however, dropped 1.5%.”Activities posted results offsetting each other,” the central bank said in a report, noting that there was services growth driven by personal services and transportation but drops in trade and mining. More

LONDON (Reuters) – U.S. stock index futures rose on Friday, indicating a higher open on Wall Street, as investors digest warnings from U.S. Federal Reserve officials on U.S. interest rates, but the U.S. bond yield curve remains priced for a recession.S&P futures gained 0.8%, recovering poise after the S&P 500 index dipped 0.3% and U.S. bond yields rose on Thursday following comments from St. Louis Fed President James Bullard. Bullard said interest rates might need to hit a range from 5-5.25% from the current level of just below 4.00% to be “sufficiently restrictive” to curb inflation.That was a blow to investors who had been wagering rates would peak at 5% and saw Fed fund futures sell off as markets priced in more chance that rates would now top out at 5-5.25%, rather than 4.75-5.0%.”The Fed has come back through their speeches and pushed back against the market narrative – we are not going to see a pivot,” said Arun Sai, senior multi-asset strategist at Pictet Asset Management.Sai said markets were currently “running on fumes” and would likely switch focus to the real economy’s response to rising rates, such as anecdotal signs of slowdown in the U.S. labour market. GRAPHIC: Implied Fed terminal rate – https://fingfx.thomsonreuters.com/gfx/mkt/akveqzmxrvr/One.PNG The MSCI world equities index rose 0.33% but was heading for a 0.5% loss on the week, coming off recent two-month highs.Inflows into global equity funds hit their highest level in 35 weeks in the week to Wednesday, according to a report from Bank of America (NYSE:BAC) (BofA), as investor optimism brightened.Euro zone banks, meanwhile, are set to repay 296 billion euros in multi-year loans from the European Central Bank next week, the ECB said on Friday, in its latest step to fight runaway inflation in the euro zone. This is less than the half a trillion euros that analysts were expecting but still the biggest drop in excess liquidity since records began in 2000.The yield on Germany’s 10-year government bond, the benchmark for the euro zone, was up 3.6 basis points at 2.06%. European stocks gained 1.2%, with banks up 1.4%.The European Central Bank may need to raise interest rates so much that they dampen growth as it fights sky-high inflation, while any runoff in the ECB’s bond holdings must be “measured and predictable”, its chief Christine Lagarde said earlier on Friday.”The ECB will be wanting to show that it’s a strong institution and that it’s willing to fight inflation,” Jim Leaviss, Chief Investment Officer, Public Fixed Income at M&G Investments told the Reuters Global Markets Forum. “There will come a time during 2023 where rates will come down from the ECB because the recessionary impulse will be quite severe.”Britain’s FTSE rose 1% to two-month highs, a day after finance minister Jeremy Hunt announced tax rises and spending cuts in an effort to reassure markets that the government was serious about fighting inflation. U.S. two-year yields rose 3.8 bps to 4.49%, retracing a little of last week’s sharp inflation-driven drop of 33 basis points to a low of 4.29%. That left them 69 basis points above 10-year yields, the largest inversion since 1981 and an indicator of impending recession. [US/]The dollar fell 0.2% to 106.5 on a basket of currencies, after touching a three-month trough of 105.30 early in the week. The U.S. currency dropped 0.26% to 139.82 yen JPY=EBS. Sterling rose 0.45% to $1.1921.The euro held at $1.0375, having eased from a four-month peak of $1.0481 hit on Tuesday as some policymakers argued for caution on tightening.MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2%.Chinese blue chips dropped 0.45% amid reports that Beijing had asked banks to check liquidity in the bond market after soaring yields caused losses for some investors.There were also concerns that a surge in COVID-19 cases in China would challenge plans to ease strict movement curbs that have throttled the economy.Japan’s Nikkei slipped 0.1% as data showed inflation running at a 40-year high as a weak yen stoked import costs.Oil was on track for a second weekly decline, pressured by concern about the weakening demand in China and further U.S.interest rate rises [O/R]Brent crude hit four-week lows and was down 0.8% at $89.07 a barrel. U.S. crude was down 0.5% at $81.23 a barrel. Gold was flat at $1,762 an ounce. [GOL/] More

(Reuters) -Hundreds of Twitter Inc (NYSE:TWTR) employees are estimated to have decided to quit the beleaguered social media company following a Thursday deadline from new owner Elon Musk that staffers sign up for “long hours at high intensity,” or leave.The departures highlight the reluctance of some of Twitter’s 3,000 or so employees to remain at a company where Musk earlier fired half of the workforce including top management, and is ruthlessly changing the culture to emphasize long hours and an intense pace.Musk took to Twitter late on Thursday and said that he was not worried about resignations as “the best people are staying.” The billionaire owner also added: “We just hit another all time high in Twitter usage…,” without elaborating.Musk met some top employees on Thursday to try to convince them to stay, said one current employee and a recently departed employee who is in touch with Twitter colleagues.The company also notified employees that it will close its offices and cut badge access until Monday, according to two sources. Security officers began kicking some employees out of one office on Thursday evening, one source said.Over 110 Twitter employees across at least four continents had announced their decision to leave in public Twitter posts reviewed by Reuters, though each resignation could not be independently verified. About 15 employees, many in ad sales, posted their intention to stay at the company.In Twitter’s internal chat tool, over 500 employees wrote farewell messages on Thursday, a source familiar with the notes said.A poll on the workplace app Blind, which verifies employees through their work email addresses and allows them to share information anonymously, had showed 42% of 180 respondents opting for “Taking exit option, I’m free!”A quarter said they had chosen to stay “reluctantly,” and only 7% of the poll participants said they “clicked yes to stay, I’m hardcore.”The exact number of employees intending to leave the company could not be immediately established.Twitter did not respond to a request for comment.PLATFORM STABILITYThe departures include many engineers responsible for fixing bugs and preventing service outages, raising questions about the stability of the platform amid the loss of employees.On Thursday evening, the version of the Twitter app used by employees began slowing down, according to one source familiar with the matter, who estimated that the public version of Twitter was at risk of breaking during the night.”If it does break, there is no one left to fix things in many areas,” the person said, who declined to be named for fear of retribution. Reports of Twitter outages rose sharply from less than 50 to about 350 reports on Thursday evening, according to website Downdetector, which tracks website and app outages.In a private chat on Signal with about 50 Twitter staffers, nearly 40 said they had decided to leave, according to the former employee.And in a private Slack group for Twitter’s current and former employees, about 360 people joined a new channel titled “voluntary-layoff,” said a person with knowledge of the Slack group.A separate poll on Blind asked staffers to estimate what percentage of people would leave Twitter based on their perception. More than half of respondents estimated at least 50% of employees would leave.Early on Wednesday, Musk had emailed Twitter employees, saying: “Going forward, to build a breakthrough Twitter 2.0 and succeed in an increasingly competitive world, we will need to be extremely hardcore”.The email asked staff to click “yes” if they wanted to stick around. Those who did not respond by 5 p.m. Eastern time on Thursday would be considered to have quit and given a severance package, the email said.As the deadline approached, employees scrambled to figure out what to do.One team within Twitter decided to take the leap together and leave the company, one employee who is leaving told Reuters.Blue hearts and salute emojis flooded Twitter and its internal chatrooms on Thursday, the second time in two weeks as Twitter employees said their goodbyes.Notable departures included Tess Rinearson, who was tasked with building a cryptocurrency team at Twitter. Rinearson tweeted the blue heart and salute emojis.In an apparent jab at Musk’s call for employees to be “hardcore,” the Twitter profile bios of several departing engineers on Thursday described themselves as “softcore engineers” or “ex-hardcore engineers.”As the resignations rolled in, Musk cracked a joke on Twitter.”How do you make a small fortune in social media?” he tweeted. “Start out with a large one.” More

LONDON (Reuters) -Inflows into global equity funds hit their highest level in 35 weeks in the week to Wednesday, according to a report from Bank of America (NYSE:BAC) (BofA), as investor optimism brightened.Investors poured a net $22.9 billion into equities, BofA said, citing EPFR data, and $4.2 billion into bonds. They pulled $3.7 billion from cash funds and $300 million from gold.The pick-up in flows followed data last week which showed that U.S. inflation cooled more than expected in October, prompting a dramatic rally in global stocks and bonds.Investors hope that slowing inflation will allow the U.S. Federal Reserve to let up on its aggressive interest rate hikes, which have punished equities and fixed income this year.U.S. equity funds saw inflows just shy of $24 billion in the week to Wednesday, BofA said.European stocks remained unloved, however, with outflows continuing for the 40th week in a row, in what BofA said was the longest run on record.In the fixed income market, investors pulled $1.3 billion from investment grade corporate bond funds. But they ploughed $3.7 billion into high-yielding debt, which is issued by companies with weaker credit ratings.BofA analysts, led by Michael Hartnett, said in the weekly note they reckon the first half of 2023 will be good for bonds and the second half – when central banks are likely to begin cutting interest rates – can benefit stocks.They said the Fed is only likely to start to “pivot” towards cutting rates around June or July, which could unleash a “big bull trade”.Stocks and bonds surged following last week’s U.S. inflation print. The U.S. S&P 500 rallied 5.5% on Thursday, while the yield on the 10-year U.S. Treasury note, which moves inversely to the price, dropped 32 basis points.Bank of America’s “bull and bear” indicator rose for the first time in nine weeks, but remained in “extreme bearish” territory at 0.4.Money flowed into emerging market (EM) equities for the fourth week running, at $1.9 billion. Yet investors pulled money from EM bond funds for the 13th week.Resources stocks saw their largest inflow in 23 weeks, at $500 million. More