Economy

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.The battle lines between stock markets and the Fed are clearly drawn, and worryingly for investors still banking on a pivot, the other side is showing no sign of backing down. Quite the opposite.Late on Tuesday Atlanta Fed President Raphael Bostic said policy tightening so far has not dented inflation, and on Wednesday San Francisco Fed President Mary Daly said pausing the hiking cycle is off the table and is not part of the discussion.Until recently, Daly was one of the most dovish members of the Federal Open Market Committee. Not any more. Her comments helped push Wall Street into the red on a day when bulls might have expected to have the upper hand. On the geopolitical front tensions between the West and Russia eased after Poland and NATO said the missile that crashed inside Poland killing two people on Tuesday probably wasn’t a Russian strike, but was a Ukrainian stray.U.S. Treasury Secretary Janet Yellen held “frank, constructive, and positive” talks with China’s central bank Governor Yi Gang at the G20 summit in Indonesia. On the economic and market front, U.S. retail sales came in stronger than expected; bond yields, the dollar, and the VIX volatility index all fell; and the Atlanta Fed’s GDP estimate tracker for Q4 jumped to 4.4%.But this is exactly the conundrum Bostic highlighted. The more the economy refuses to slow, the more aggressive the Fed will have to be. Wall Street – and stocks and risk assets around the world – has a problem.Goldman Sachs (NYSE:GS)’s U.S. financial conditions index shows that U.S. financial conditions have eased almost 100 bps in the past month. This is not what the Fed wants to see, and it may be that the support this has lent equities in recent weeks is now starting to wane. US financial conditions – Goldman Sachs index https://fingfx.thomsonreuters.com/gfx/mkt/zjvqjkekdpx/USFCI3.jpg Equity bulls may also want to consider the warning signs flashing in the U.S. bond market, where the yield curve is inverted all the way out from three months to 30 years. Wall Street’s weak performance will likely push Asian stocks lower at the open on Thursday, and the cat-and-mouse game between markets and the Fed is likely to increasingly dominate sentiment in days and weeks ahead.Three key developments that could provide more direction to markets on Thursday: – Japan trade (October)- Australia unemployment (October)- Indonesia rate decision (consensus 50 bps hike to 5.25%) More

US stocks fell on Wednesday as investors digested hotter than expected retail sales data and a slowdown in manufacturing output growth in the world’s biggest economy.Wall Street’s benchmark S&P 500 fell 0.8 per cent, while the tech-heavy Nasdaq Composite gave up 1.5 per cent. The dollar index, which tracks the currency against six of its peers, fell 0.1 per cent and has fallen 4.7 per cent in November.Data out on Wednesday showed US retail sales climbed more than expected in October, rising 1.3 per cent, having levelled off in September. Economists polled by Reuters had forecast a 1 per cent rise.The sales figures came after department store Target warned of weakening consumer demand and announced a multibillion-dollar cost-cutting plan, with its shares plunging 13 per cent on Wednesday.“Dwindling savings and increased use of credit are keeping the consumer propped up right now,” said Shelby McFaddin, analyst at Motley Fool Asset Management. Total household debt increased 2.2 per cent to $16.5tn in the third quarter, data from the Federal Reserve Bank of New York show.Another batch of data out on Wednesday showed US manufacturing output rose 0.1 per cent in October, slightly less than the 0.2 per cent increase predicted by economists. US industrial production, which includes mining and utility output on top of manufacturing output, fell 0.1 per cent. Economists predicted a rise of 0.2 per cent. The figures suggested US manufacturing was “slowly succumbing to the global malaise”, said Paul Ashworth, chief North America economist at Capital Economics.In government bond markets, the yield on the two-year Treasury note, which is particularly sensitive to changes in interest rate expectations, was flat at 4.37 per cent. The yield on the 10-year note, seen as a proxy for global borrowing costs, slid 0.11 percentage points to 3.69 per cent as the price of the benchmark debt instrument rose.In turn, the gap between the two yields reached as much as minus 0.68 percentage points on Wednesday, with the so-called Treasury yield curve inversion — a closely watched recession signal — sitting at its widest level since 1982. The deeper inversion on Wednesday suggested that investors were betting that Federal Reserve policy could further crimp US economic growth.US stocks climbed in the previous session, consolidating strong gains late last week, after a report on Tuesday showed factory gate prices rose 0.2 per cent in October from September, less than the 0.4 per cent rise expected by economists polled by Bloomberg. The data spurred hopes that moderating inflation could prompt the Fed to soon slow the pace of interest rate increases.Across the Atlantic, the regional Stoxx Europe 600 fell 1 per cent. London’s FTSE lost 0.3 per cent after fresh data showed UK inflation accelerated to 11.1 per cent last month, up from 10.1 per cent in September. Core inflation, which excludes volatile food and energy prices, held steady at 6.5 per cent in October, the same rate as in September.“It looks like UK headline inflation is at its peak,” said James Smith, economist at ING. “The fact that the government is effectively fixing electricity [and] gas unit prices below wholesale costs until next April means this is probably as high as it will get, though admittedly we expect headline rates to stay in double-digits until at least February next year,” Smith added.Asian equities fell on Wednesday after making strong gains earlier this week, as geopolitical tensions in Europe and rising Covid-19 cases in China hit markets.Hong Kong’s Hang Seng index was down 0.5 per cent, China’s CSI 300 slipped 0.8 per cent and South Korea’s Kospi fell 0.1 per cent. Japan’s Topix was little changed. More

Easing supply chain snags and Cisco (NASDAQ:CSCO)’s recent investments in cloud offerings and targeted price hikes have helped the company improve its business and attract customers amid an economic slowdown.Cisco forecast current-quarter revenue to grow between 4.5% and 6.5%, while expecting adjusted earnings between 84 cents and 86 cents per share. The company’s revenue was $13.63 billion in the first quarter, above analysts’ estimates of $13.31 billion, according to Refinitiv data.Excluding items, Cisco earned 86 cents per share. More

WASHINGTON (Reuters) -U.S. Federal Reserve Governor Christopher Waller, an early and outspoken “hawk” in the central bank’s efforts to confront inflation, said Wednesday he is now “more comfortable” with smaller rate increases going forward, though how high rates ultimately need to go depends on how decisively inflation slows.In remarks prepared for delivery at an Arizona State University economic conference, Waller said he will not make a final decision about what to do at the Fed’s Dec. 13-14 policy meeting until the rest of the data between now and then is reviewed, and remains skeptical that inflation has now decisively turned the corner.”I will not be head-faked by one report,” Waller said of consumer price data released last week that saw larger than expected declines in both headline inflation and a narrower but more closely watched index of “core” prices. “We’ve seen this movie before.”He said the push for price stability at the Fed was “still a one-sided campaign,” with rates moving higher and no current trade-off with jobs – the Fed’s other goal – that needs to be balanced against the inflation battle. With job growth still strong and unemployment at a low 3.7%, “we are not seeing the typical trade off that you think a central bank has to make between driving down inflation and causing all these kinds of job losses,” Waller said. “Go after inflation. The job market is giving this to you. So go after it,” he said.But he also acknowledged the most recent reports were a “positive development” that he hoped would be “the beginning of a meaningful and persistent decline in inflation” back to the Fed’s 2% target.After raising rates in atypically large three-quarter point increments at its last four meetings, Waller said that as it stands “the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike,” in December and possibly to smaller quarter-point increases after that.The Fed’s latest policy statement flagged a likely step down in the size of upcoming rate hikes, with officials shifting focus to a more nuanced approach that gives them more time to monitor how the economy and inflation are behaving while leaving themselves free to keep pushing rates higher.Recent positive news on inflation has led investors to bet the Fed may not have to do as much as expected, and may only need to raise the target policy rate to around 5%. It is currently set in a range of between 3.75% and 4%.Waller said signs the economy and wage growth are slowing have added to his sense that Fed policy is beginning to do its job.But he cautioned it was too early to pin down just how high rates may need to go. “One report does not make a trend. It is way too early to conclude that inflation is headed sustainably down,” he said. “Getting inflation to fall meaningfully and persistently toward our 2% target will require increases in the federal funds rate into next year. We still have a ways to go.” More

Russia’s economy contracted for the second quarter in a row as the western response to Moscow’s invasion of Ukraine helped plunge the economy into recession. Russia’s gross domestic product fell by 4 per cent year-on-year in the three months to October, according to preliminary data released by the federal statistics service Rosstat. The contraction follows sweeping restrictions from the US and Europe on Russia’s energy and financial sectors, including a block on half of the central bank’s $640bn in foreign exchange reserves. About 1,000 western companies followed suit, curtailing their Russian operations, while hundreds of thousands of people left the country after president Vladimir Putin mobilised the army’s reserves in September.This is the second consecutive fall after the Russian economy fell 4.1 per cent year-on-year in the previous quarter. However, it was better than the 7 per cent contraction that Russia’s central bank forecast for the third quarter in July.Russia’s central bank expects the economy to shrink by 3-3.5 per cent this year, governor Elvira Nabiulina told the Duma, Russia’s lower house of parliament, on Tuesday. The central bank estimate is in line with the 3.4 per cent annual contraction forecast by the IMF last month, an upgrade on the 8.5 per cent the fund projected in April, weeks after Russia invaded Ukraine. Higher energy prices have helped boost Russia’s budget revenue, half of which comes from oil and gas. Lower export sales, following the cutting of trade ties with Ukraine’s allies, also helped boost the rouble. Consensus Economics, a company that averages leading forecasters, expects the Russian economy to shrink by 4.6 per cent this year. The figure has been revised up from a 10 per cent fall estimated in April.The fall in output marks the second Russian recession in three years. The economy contracted throughout 2020, during the pandemic. It is also the third largest in 20 years after the international financial crisis in 2009 and the pandemic.“The contraction is [half as bad] as it was on the peak of the pandemic”, said Renaissance Capital economist Sofya Donets. “At the same time it’s clear that the shape of the recovery would be very different and there is no fast recovery in sight.”The statistics service said that in the first quarter of 2022, which began before the invasion, Russia’s GDP grew by 3.5 per cent.Russia’s economy has also been hard hit by higher interest rates. A sharp fall in the rouble in the early weeks of the invasion of Ukraine forced the central bank to raise borrowing costs to 20 per cent. However, the rouble’s rise since then, and signs that inflationary pressures are diminishing, allowed the central bank to lower rates to 7.5 per cent. Inflation, which reached 12.9 per cent in October, is now expected to slow to between 5-7 per cent in 2023, before returning to the central bank’s 4 per cent target in 2024. Rosstat will release a more detailed account of Russia’s third quarter GDP on December 14.Additional reporting by Max Seddon in Riga More

Today’s top storiesNato said there was ‘no indication’ that a missile which struck Poland was a ‘deliberate attack’ and suggested it was fired by Ukraine air defence against Russian attacks. The Donald is back. Former US president Donald Trump confirmed he would run for office again, making the announcement at a glitzy event at Mar-a-Lago. Many of Trump’s previous supporters were conspicuous by their absence, and Edward Luce argues that Trump is the gift to Democrats that keeps on giving.Shares in Target and its rivals tumbled after the US retail chain predicted economic uncertainty would hit fourth-quarter sales. Walmart, in stark contrast, lifted its forecasts, even after being hit by a $3.1bn legal settlement over its role in the opioids crisis. Overall US retail sales data for October were better than expected, with several businesses launching their holiday sales early and Amazon holding a second Prime Day shopping event.For up-to-the-minute news updates, visit our live blogGood evening.With just one day to go before his pivotal statement on the UK’s public finances, chancellor Jeremy Hunt received another reminder of the scale of the challenges ahead as official data showed inflation hitting a 41-year high.The higher-than-expected acceleration to 11.1 per cent in October, up from 10.1 per cent the previous month, was driven by rises in energy prices and a 16.5 per cent increase in food prices, the highest for 45 years. A separate survey last week showed the average British household’s yearly shopping bill had risen by £682 from last year.On the plus side, core inflation, stripping out these volatile items, held steady at 6.5 per cent.ING economist James Smith commented: “The fact that the government is effectively fixing electricity [and] gas unit prices below wholesale costs until next April means this is probably as high as it will get, though admittedly we expect headline rates to stay in double-digits until at least February next year.”The jump in inflation will fuel calls from British workers for wage rises to match. Data yesterday showed growth in pay falling further behind the cost of living, with public sector workers the worst hit. However, prime minister Rishi Sunak criticised demands from nurses for a double-digit pay rise, and asked company bosses to “embrace restraint” over their own rewards.The UK figures contrast with a softening of inflation in the US, which hit 7.7 per cent in October, the lowest level since January, leading investors to believe the Federal Reserve will slow down its programme of interest rate rises.There are also signs that the US used car market, which has been one of the key drivers of inflation, is finally slowing, as an increased supply of new vehicles, plus rising interest rates, leads to an ebbing in demand. Eurozone inflation hit a record 10.7 per cent in October, keeping pressure on the ECB to continue raising rates, while China remains an outlier, with consumer price inflation up just 2.1 per cent as Covid restrictions put a dampener on consumer activity. What then of the role of the world’s central banks?Bank of England chief Andrew Bailey, quizzed by a parliamentary committee today, said that, with hindsight, the BoE had contributed to the increase in inflation by printing money and buying assets during 2021. And across the Channel, soaring inflation was cited by the European Central Bank in its twice-yearly financial stability review as one of the key factors risking market turmoil. Chief economics commentator Martin Wolf argues central banks have been correct in acting decisively. The worst possibility would not be for disinflation to be done too slowly but for policymakers to give up too quickly, he says. “The risks of tightening are real. But those of letting inflation become entrenched are greater. As Macbeth says, if one has to do something hard, ‘’twere well / It were done quickly.’”Key links:Compare countries’ performance with our inflation tracker.Interactive: Calculate your personal inflation rateNeed to know: UK and Europe economyInvestors warned against a new wave of austerity ahead of Hunt’s statement. The shine is also coming off post-Brexit trade deals. Here’s our explainer on why Hunt is planning big tax rises and spending cuts.Russia and Ukraine are close to extending a deal allowing Kyiv to export grain from its Black Sea ports. A compromise was reached on payments to Russia for its own agricultural exports and the reopening of a pipeline that passes through Ukraine, carrying ammonia.The International Energy Agency warned that surging diesel prices could worsen Europe’s energy crisis. An already tight market will probably be even tighter once an EU embargo on Russian products is implemented in February. Germany has completed building its first floating import terminal for liquefied natural gas, easing fears of shortages from the cut in supplies from Russia.Need to know: Global economyA stronger than expected draft communiqué rejecting the “era of war” was agreed by world leaders at the G20 summit, reflecting global anxiety around Russian’s war in Ukraine.G20 leaders also pledged to limit global warming to 1.5C, putting pressure on attendees at the COP27 summit not to backslide on the commitment. Wealthy nations led by the US and Japan have offered Indonesia $20bn to help the coal-dependent country shift to renewable energy. If you’re just catching up on all-things COP, here’s what you need to know.The UN said the world’s population had now hit 8bn and was on course for 9bn in 15 years’ time. Key demographic changes include a surge in the number of older people, while fertility rates have fallen.

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Ghana is experiencing a severe economic crisis, with one of the world’s worst performing currencies, inflation at 40 per cent and a crippling debt burden. The country is in talks with the IMF over a possible $3bn loan.Need to know: businessGlobal dividends hit a record in the third quarter, fuelled by soaring payouts from oil and gas majors.The €353bn luxury sector is holding up well and set for growth of 3 to 8 per cent next year, despite fears of a global recession, according to new research. Top companies such as LVMH, Gucci owner Kering and rival Hermès have all recently reported jumps in sales.

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China’s support package for the property sector has had an immediate impact on sentiment in the construction industry, although analysts are unsure whether it is a turning point or just short-term relief. The World of WorkThe current round of tech lay-offs has punctured several myths around what was seen by some as a cosseted work environment, writes columnist Sarah O’Connor. The speed of the lay-offs by global companies is also crashing up against employment law in the UK and Europe. New Twitter chief Elon Musk, already on a collision course with EU regulators, added to his recent announcements about working practices at the company by telling staff to commit to a “hardcore” culture or leave. US investment and industries editor Brooke Masters says the affair could wound the sector for years to come.For some more positive news on how businesses can recruit and retain the best people, listen to the new Working It podcast. Get the latest worldwide picture with our vaccine trackerSome good newsBamboo, cheap, strong and in plentiful supply, is increasingly being used as an ultra-sustainable building material.

A bamboo forest near Lin’an, in China’s Zhejiang province © AFP via Getty Images More