Economy

SHARM EL-SHEIKH, Egypt (Reuters) – A few countries have resisted mentioning a global goal of limiting warming to 1.5 degrees Celsius in the official text of the COP27 summit in Egypt, U.S. Special Climate Envoy John Kerry said at the conference on Saturday.”You’re absolutely correct. There are very few countries, but a few, that have raised the issue of not mentioning this word or that word,” Kerry said when asked about opposition by some governments to mentioning the 1.5C target.”But the fact is that, in Glasgow that was adopted, the language is there. And I know … Egypt doesn’t intend to be the country that hosts a retreat from what was achieved in Glasgow,” Kerry said, referring to last year’s COP summit in Scotland.World governments agreed in 2015 during a U.N. summit in France to try to limit the average global temperature increase to 1.5C, a deal dubbed the Paris Agreement that was seen as a breakthrough in international climate ambition.Greenhouse gas emissions have been rising ever since, however, and scientists say the world risks missing the target without swift and deep cuts. Breaching the 1.5C threshold risks unleashing the worst consequences of global warming.Already, the world has warmed more than 1.1C from the preindustrial average temperature – fueling extreme weather that is already delivering steep economic losses. Many developing countries have demanded the establishment of a “loss and damage” fund that could disperse cash to countries struggling to recover from disasters. Kerry said the United States would not support establishing such a fund, and instead believed existing platforms should be used. “It’s a well known fact that the United States and many other countries will not establish … some sort of legal structure that is tied to compensation or liability. That’s just not happening,” he said. “We will find a way, I am confident, to be able to have financial arrangements that reflect the reality of how we are all going to deal with the climate crisis.”Democratic lawmakers spent the last few days at the summit trying to bolster the U.S. commitment to its climate goals, and reassure countries that Washington will deliver on promises pledged at previous climate summits.They touted the passage of the Inflation Reduction Act in Congress, which unleashed over $300 billion in climate-related domestic spending.They added they would push to pass legislation allowing Biden to deliver on $11.4 billion in a climate finance pledge he made at the Glasgow climate talks last year. That task could be complicated in a politically divided Congress.Congressman John Curtis (R-Utah), who is leading a delegation of Republicans at the summit, told Reuters that he opposed climate aid.”The US writing a check wont solve problems,” he said. He said he supported policies that expand production and access to natural gas, and the development of new clean energy technologies. More

At the end of 2021, things looked rosy for the global housing sector. Across the 38 countries in the OECD, house prices were growing at the fastest pace since records began 50 years earlier. Analysis of data from Oxford Economics, a consultancy, shows a similar trend. In 41 countries, from Norway to New Zealand, house prices were rising, bolstered by record low borrowing costs and buyers with savings to spend. Arguably, there had never been a better time to own a home.Not even a year later, and the picture is completely different. While homeowners around the world are reckoning with increasingly unaffordable mortgage payments, prospective homebuyers are facing house prices that are rising faster than incomes. In the background, a global cost of living crisis deepens.What has changed, of course, is the spectre of rising prices and the economic shock of Russia’s invasion of Ukraine. This fuelled a surge in inflation — now at multi-decade highs in many countries — which prompted central banks around the world to sharply tighten monetary policy. The OECD also predicts that real-term wages are likely to fall next year. The upshot is that a pandemic-induced housing boom in the world’s richest countries is likely to be followed by the broadest housing market slowdown since the financial crash. This, in turn, could add further pressure on to flagging economies.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Now, nearly all of the countries in the Oxford Economics database are expected to experience a slowdown next year, marking the most widespread deceleration in housing price growth since at least 2000. More than half are likely to register an outright price contraction — something last seen in 2009.“This is the most worrying housing market outlook since 2007-2008, with markets poised between the prospect of modest declines and much steeper ones,” says Adam Slater, lead economist at Oxford Economics. “The ongoing surge in mortgage rates in advanced economies threatens to push some housing markets into steep downturns.”The IMF agrees. It warns the global housing market is at a “tipping point”. “As central banks around the globe aggressively tighten monetary policy to tackle price pressures, soaring borrowing costs and tighter lending standards, coupled with stretched house valuations, could lead to a sharp decline in house prices,” its global financial stability report says.This “sharp decline” will be widespread. While the FT analysis based on Oxford Economics data largely covers advanced economies, the IMF forecasts that in a severely adverse scenario, real house prices could decline by 25 per cent over the next three years in emerging markets compared to 10 per cent in advanced economies.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

A housing market slowdown is also likely to depress broader economic activity, hurting the construction sector and its suppliers.Slater predicts that the housing downturn could shave off 0.2 percentage points from global growth as a result of reduced spending and another 0.6 percentage points owing to lower residential investment. The Bank of Canada estimates that the housing downturn will reduce economic growth by 0.6 percentage points to 0.9 per cent next year. This dynamic is already playing out in China where a property crisis has intensified in recent months and its economy this year has grown at its slowest pace since records began in 1992, excluding the pandemic period. Housing floor space sold is down 26 per cent in the year to September compared with the same period last year.Because the sale of properties not yet built is a major source of funding for developers, the sharp decrease as the country presses on with its zero-Covid policy has created self-reinforcing liquidity pressures and harmed the economy.Too expensive to borrowThe biggest factor in the slowdown is undeniably mortgage rates. In the US, the rate for a 30-year deal has stabilised at about 7 per cent, more than double the rate last year and the highest since 2008, following a quick succession of rate increases by the Federal Reserve. Combined with the boom in house prices in the previous two years, the monthly mortgage payment on a typical property rose to more than $2,600, up from $1,700 a year earlier.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

“These are rates that I think are likely to be much more of a headwind and indeed we’re seeing the housing market slow,” says Nathan Sheets, chief economist at US bank Citi.This pattern is similar in many countries. Mortgage rates have risen to their highest level in recent years across the eurozone, as well as in Canada, Australia and New Zealand.“With mortgage rates rising and banks holding back lending, depressing demand, we remain confident in our view that eurozone house price growth is set to fall sharply and will turn negative by the end of 2023,” says Melanie Debono, economist at Pantheon Macroeconomics.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Marcel Thieliant, economist at Capital Economics, estimates that mortgage payments in New Zealand have already soared to above 60 per cent of the median income, up from below 45 per cent before the outbreak of Covid-19.With interest rates set to rise further, he forecasts a 25 per cent fall in New Zealand’s house prices from their peak in November. In the UK, the mortgage market has been sent into turmoil by the political crisis triggered by the large tax cuts proposed by Liz Truss’s shortlived government. Markets have calmed down with the appointment of Rishi Sunak, the new prime minister, but interest rates are still expected to rise to about 4.6 per cent next year from the current 3 per cent. The Resolution Foundation, a UK think-tank, calculated that for nearly a fifth of households, mortgage payments could shoot up by more than £5,000 a year by the end of 2023.As a result, economists forecast a 2023 UK housing price crash varying from 4.4 per cent for Oxford Economics to 10 per cent and 12 per cent for the real estate agent Savills and the consultancy Capital Economics, respectively. The rise in mortgage rates reflects the increase in policy rates that have risen sharply as many central banks battle the fastest pace of inflation for decades. The US, the UK and the eurozone combined have increased rates by nearly 900 basis points over the past year, with markets expecting another 400 basis points increase by summer next year. Most emerging markets have seen even steeper rate rises. Brazil has aggressively pushed up rates to 13.75 per cent from only 2 per cent in January 2021 and, in Hungary, there was a 12.4 percentage points increase to 13 per cent.“Our rough rule of thumb has been that every 100 basis point increase in policy rates leads to a decline in house price growth of one-and-a-half to two percentage points,” says Prakash Loungani, adviser in the research department of the IMF.The European Central Bank calculates that in a low interest rate environment, a 1 percentage point mortgage rate increase corresponds to roughly a 9 per cent decline in house prices and a 15 per cent decline in housing investment after about two years.As the financial pressures on households increase, the savings accumulated during the pandemic that helped support the housing boom are rapidly depleting. Not only can households buy less with their money, they are more likely to struggle to save for a deposit. In the US, “the rising cost of living and falling equity markets have made it more challenging to save enough of a downpayment for first-time buyers — the lifeblood of the market,” says James Knightley, economist at ING. What strength there is in the housing market in part reflects buyers rushing to lock in mortgage deals before rates increase further. Rent prices also remain strong, because of steady demand from those unable to afford to buy a property. In many countries, house prices are being maintained by low housing stocks. In October, the UK stock of property for sale for each surveyor was the lowest since records began in 1978, while inventories remain low by historical standards in the US. But the signs of the market downturn are clearly visible. Housing inflation is already slowing in most markets, including Germany, Australia and China. Australia registered its first annual contraction and in the US the annual house price growth slowed to 13 per cent in August from 16 per cent in the previous month, the fastest deceleration since the index began in 1975. Capital Economics expects US house prices to fall 8 per cent from peak to trough next year.Real estate consultancy Knight Frank reported that, at the end of the third quarter, house prices in major cities were in their second consecutive quarter of growth slowdown. Cities in New Zealand, Canada and Norway are registering double-digit contractions.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Because low stock is still supporting prices, the upcoming downturn is more visible in transactions. In the eurozone, banks are increasingly rejecting housing loans as well as tightened conditions for those already granted. Demand for housing loans fell at the fastest pace in a decade, according to the bank lending survey for the fourth quarter. In September, new loans for house purchases were down 30 per cent from the same month last year.Property transactions in the UK were down by an annual rate of 32 per cent in September. Housing surveyors also reported the largest fall in new buyer inquiries in October since the financial crisis, excluding the housing market shutdown during the first Covid-19 lockdown.In the US, house sales in September dropped by an annual rate of 24 per — well below their pre-pandemic levels. Mortgage applications fell to their lowest level in 25 years in the US.The US housing market is “evaporating,” says Mark Zandi, chief economist of Moody’s Analytics. Paul Ashworth, chief US economist at Capital Economics, echoes this view, saying housing activity “has been absolutely decimated.”Figures for Toronto are even more dramatic. The Canadian city reported a 96 per cent nosedive in single family home sales and an 89 per cent fall for condos. Learning lessons from the past Not all countries, however, share the same risk of a housing downturn. In Canada, New Zealand and Australia, for example, an acceleration in prices over the past few years, coupled with the large proportion of households with a mortgage and high levels of debt make the housing market particularly risky.Sweden and the UK are raising alarm bells because of their reliance on floating or short-term mortgage rates.Yulia Zhestkova, economist at Goldman Sachs, says that of the world’s largest economies she sees a “greater risk of a meaningful rise in mortgage delinquency rates in the UK.” Similarly, in the US, the fast pace of the past housing inflation, coupled with high valuations and aggressive monetary tightening, are sources of risks.Yet other countries, including Japan, Italy and France, are better positioned, according to Oxford Economics, thanks to more modest price rises, less elevated valuations, and lower levels of household debt. France and Italy also have quite low shares of floating-rate debt, implying some insulation from the immediate impact of rising mortgage rates.It is not clear yet how severe any crash might be. Globally, analysts are optimistic that in most large economies, the conditions of the property market do not suggest as deep a downturn as that experienced during the financial crisis.Back then, house prices among the most industrialised countries fell by 13 per cent from the peak in 2007 to the lowest point in 2012.The crisis resulted in more than 2mn foreclosures in 2009 in the US. In countries such as Greece, Italy and Spain, which also suffered housing and sovereign crisis, the housing crash was so significant that prices are not yet back to where they were in 2007.A key difference now is the strength of the labour market. Unemployment is not going to be as severe as it was in the wake of the financial crisis. The IMF forecasts the rate of joblessness to increase by less than 1 percentage point next year, compared to financial crash when it was closer to 3 percentage points. “While unemployment remains low, there is a reasonable chance that price downturns could be limited, with markets instead ‘freezing’ at low levels of transactions,” says Slater, of Oxford Economics. There’s also another crucial difference this time around: in many markets, including the US, the UK, South Africa, Spain and Denmark, households have lower mortgage debt relative to income than they had before the financial crisis. Borrowers are also better protected by longer-term contracts and mortgage lending is more tightly regulated.Across Europe, the share of mortgages on floating rates has declined sharply over the past decade, and mortgage deals for 10 years or more have become the norm. This is particularly true of Germany, the Netherlands and Spain.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Alexia Koreas, associate director at the rating company Fitch, says that in the Netherlands the lower loan-to-value ratios and substantially lower shares of interest-only mortgages “will help to avert the large price declines” seen after the financial crisis. Tom Bill, head of UK residential research at Knight Frank, says he expects UK prices to revert to where they were in the summer of 2021, but because of low unemployment and well-capitalised banks “the sort of double-digit price declines seen during the global financial crisis” won’t be repeated. Similarly, in the US, most mortgages are long-term deals and more than two-thirds of buyers are prime borrowers, compared with only one in four before the financial crisis. Coupled with a very tight supply, Zandi, of Moody’s Analytics, doesn’t expect the same fall in prices and the rise in foreclosures as during the financial crisis in the US, and suggests institutional investors attracted by high rents will also support demand long-term. They “have stepped to the sidelines [for now] because they know prices are going to decline, but they won’t wait forever,” he adds. All the signs suggest that the surge in housing demand underpinned by low interest is a thing of the past. The market “is softening around the world,” says Cristina Arbelaez, global economist at Morgan Stanley. “We are now starting to see a reversal” of last year’s housing boom, she warns. “But to be clear, we do not expect a repeat of the 2006-2008 housing collapse.” More

Argentina had announced on Friday that it would nominate international economic relations Secretary Cecilia Todesca Bocco. Also previously nominated were Mexico’s central bank Deputy Governor Gerardo Esquivel and Chile’s former Finance Minister Nicolas Eyzaguirre.Brazil’s outgoing President Jair Bolsonaro nominated former central bank chief Ilan Goldfajn, who heads the International Monetary Fund’s Western Hemisphere department. Trinidad and Tobago nominated Gerard Johnson, a former IDB official now serving as a senior consultant to the Jamaican finance ministry, for the post.The deadline for submitting nominations was 11:59 p.m. on Friday, the IDB said.The IDB’s governors, who are usually finance ministers or other high-ranking economic authorities from the Bank’s 48 member countries, will interview the candidates at a virtual meeting on Nov. 13, with the election to follow at a hybrid meeting a week later, it said.An aide to Brazilian President-elect Luiz Inacio Lula da Silva is seeking to delay the election until next year so that Brazil’s nomination can reflect the newly elected leader. Former Finance Minister Guido Mantega said he sent a letter to U.S. Treasury Secretary Janet Yellen to support a delay. Treasury had no immediate comment on the issue.The U.S. Treasury, which has said it will not nominate any candidate for the leadership role, holds 30% voting power in the bank, followed by Brazil (11%) and Argentina (11%). Colombia and Chile each hold a 3% stake.Former President Mauricio Claver-Carone was ousted in an ethics scandal last month. More

NEW YORK (Reuters) – Hopes that inflation is subsiding are fueling a surge in battered technology and megacap stocks, though some investors believe still-high valuations and doubts over the companies’ earnings outlooks may make a sustained reversal elusive.The tech-heavy Nasdaq Composite index rose 8.1% this week to notch its biggest weekly gain since March, one of several eye-popping market moves that also saw Treasuries soar and the U.S. dollar tumble after Thursday’s softer-than-expected inflation data spurred hopes the Federal Reserve could temper its rate hikes.Despite those recent gains, some investors are hesitant to jump on the rebound in shares of companies such as Amazon.com Inc (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT) and Google-parent Alphabet (NASDAQ:GOOGL) Inc, which have stumbled badly this year after leading markets higher for more than a decade.Few believe the Fed will be swayed by a single inflation print, and past rebounds fueled by Fed-related optimism have crumbled this year after discouraging economic data or pushback from policymakers.At the same time, tech sector valuations remain well above the overall market, while analysts are dimming their profit outlooks for the group.While lower interest rates could drive near-term demand for the stocks, “we think that there is still going to be some valuation and earnings concern,” said James Ragan, director of wealth management research at D.A. Davidson. “We are not really looking for those sectors to retake the leadership of the market.”In the coming week investors will be watching a spate of economic data, including retail sales numbers on Wednesday, for more clues on whether the Fed’s monetary policy tightening is cooling the economy.Tech and growth stocks have been hit hard this year, with the Russell 1000 growth index still down 25% for 2022, compared to a 16% decline for the S&P 500 and a 7% fall for the Dow Jones Industrial Average. Tech sector funds have seen $14.2 billion in outflows so far this year, putting them on track for their first year of outflows since 2016, according to Refinitiv Lipper data.The price declines have moderated valuations, with the S&P 500 tech sector trading at about 21 times forward earnings estimates versus 28 times at the end of 2021, according to Refinitiv Datastream. That level, which is still above the 17 times earnings commanded by the S&P 500, is still too lofty for some investors.”The (megacaps) trade at quite a premium to the S&P,” said Andrew Slimmon, U.S. equity portfolio manager at Morgan Stanley (NYSE:MS) Investment Management. “There are a series of stocks that will do much better than the megacaps because they have re-rated significantly lower.”Many of the major tech and growth companies, including heavyweights such as including Amazon, Microsoft, Alphabet and Facebook (NASDAQ:META) parent Meta Platforms, also recently posted third-quarter earnings reports that soundly disappointed the market.Tech and tech related companies that represent less than one-fifth of the S&P 500 have so far accounted for over half of the negative profit revisions for the fourth quarter, according to Credit Suisse.Still, some investors are considering increasing their positions in tech and megacap stocks if further evidence of easing inflation presents itself. One key factor is whether Treasury yields, which move inversely to prices, continue this week’s stunning decline. Higher yields can weigh heavily on tech and growth stocks, whose valuations tend to be based heavily on future profits that are discounted more severely as yields go higher.The U.S. 10-year yield dropped to a five-week low of 3.818% on Thursday after notching its steepest one-day decline since daily fall in more than a decade.King Lip, chief strategist at Baker Avenue Asset Management, described Thursday’s CPI news – with the annual increase below 8% for the first time in eight months – as a “big deal.” If bond yields continue to fall, “the pace at which people are reducing their exposure to these large-cap tech names is going to slow down,” he added.The firm has been underweight large-cap tech and growth stocks, preferring small cap and value shares, Lip said.Ultimately, much will depend on whether inflation shows more signs of cooling. The Fed will get one more CPI reading before the bank’s policymakers gather again in December.”If inflation continues to subside, tech is a good place to invest right now,” said J. Bryant Evans, portfolio manager at Cozad Asset Management. “They certainly could lead the way out in an environment where the Fed is reducing these increases they have been doing on interest rates.” More

WASHINGTON (Reuters) -World Bank President David Malpass on Friday said he was deeply concerned about Chad’s longer-term ability to pay its $3 billion in external debts since an agreement reached by the African country’s creditors does not call for any actual debt reduction.Chad on Friday confirmed a Reuters report that it had reached a debt agreement with Swiss commodities trader Glencore (OTC:GLNCY) Plc and other creditors, but sources said the deal will not reduce the overall debt level.”The World Bank remains deeply concerned about debt sustainability in developing countries, including in Chad,” Malpass told Reuters. “The agreement reached by the creditors provides no immediate debt reduction. As a result, the debt service burden of Chad remains heavy and is crowding out priority expenditures on food, health, education and climate.”Malpass said he had advocated that debt treatments reached under the Common Framework – a mechanism created by the Group of 20 major economies to help poor countries weather the fallout from the COVID-19 pandemic – include actual debt reductions.Chad was the first country to request debt treatment under the framework and the first to reach a deal with creditors.A source familiar with the negotiations told Reuters on Thursday that it would include a reprofiling to stretch out Chad’s debt payments in 2024, but no debt “haircut.””For longer-term sustainability beyond the window of this agreement, there needs to be a mechanism to reduce the debt,” Malpass said, noting that Chad faced large development needs, mounting domestic debt, and exposure to frequent shocks, including volatility in oil prices.Glencore and creditors had argued that Chad did not need debt relief at the moment since higher oil prices had lifted its revenues, but Malpass said changes in the oil price could leave Chad vulnerable in the future. More

N’DJAMENA (Reuters) -Chad has reached an agreement with its creditors, including Swiss commodities trader Glencore (OTC:GLNCY), paving the way for more funding from the International Monetary Fund, but stopping short of reducing the central African country’s $3 billion in external debt.The deal, outlined by Chad’s finance minister Tahir Hamid Nguilin on Friday, is the first to be agreed under the Common Framework – a mechanism created by the Group of 20 major economies in late 2020 to help poor countries weather the fallout from the COVID-19 pandemic. However, the framework was widely criticised for delays in granting debt relief.The minister’s statement confirms a Reuters report that creditors had reached an agreement in principle. It also marks China’s first participation in a joint debt treatment deal with other creditors, a source familiar with the process said.”Chad is the first country to reach an agreement with its official and private creditors under the G20 Common Framework,” Eric Lalo, head of sovereign advisory at Rothschild & Co and adviser to Chad’s government told Reuters. The “favourable outcome for Chad” of these negotiations will help the country access deeply needed funding from international financial institutions as well as address in advance potential debt sustainability issues, Lalo added.Nguilin said the parameters of the debt treatment were in line with commitments made by Chad under its Extended Credit Facility (ECF) programme with the IMF as well as Common Framework principles, making it “possible to restore the sustainability of the public debt.” He did not specify the terms of the deal in his statement.World Bank President David Malpass told Reuters on Friday that he was “deeply concerned” about Chad’s longer-term ability to pay its debts since ongoing oil price volatility and the failure of creditors to agree to actual debt cuts.”This is a long-term problem that they’re facing,” Malpass said. “The challenge is that the agreement that they reached with the creditors doesn’t reduce the debt … There’s not a reduction in net present value.”A source familiar with the negotiations told Reuters on Thursday that it would include a reprofiling to stretch out Chad’s debt payments in 2024, but no debt “haircut”.A third of Chad’s external debt, which stood at close to $3 billion by end-2020, according to IMF data, is commercial and concentrated in an oil-backed loan from Glencore.”We are pleased that all stakeholders have agreed on how Chad’s external debt should be treated,” a Glencore spokesperson said in an emailed statement.Chad said the deal with bilateral and commercial creditors will allow for another disbursement from its $572 million, four-year ECF programme by end-2022, pending IMF approval.FIRST COMMON FRAMEWORK DEALApart from Chad, Ethiopia and Zambia also sought a debt restructuring under the G20 Common Framework. World Bank and IMF officials, as well as Western finance officials, have grown increasingly frustrated about what they see as foot-dragging by China in addressing debt issues, despite its role as the world’s largest bilateral creditor.China, which holds about $291 million of Chad’s external debt, has tended to offer debt relief by extending maturities rather than accepting writedowns on loans. Beijing rejects claims that it has delayed work on cases such as Zambia.Chad was widely expected to be first to reach a framework deal given the mix of its external creditors. It reached a deal in principle with official creditors last year, but Glencore and other private creditors balked at joining until now. In October, the country’s bilateral creditors – China, France, India and Saudi Arabia – said in October the country did not currently require debt relief given higher oil prices, but pledged to reconvene and offer Chad help if needed.The IMF said earlier this month that it could not make more disbursements to Chad from the ECF program that began in 2021 until a “contingent” debt relief deal was agreed by creditors. Neither the IMF nor the Paris Club were immediately available for comment on Friday. More

BRASILIA (Reuters) -There is growing investor pessimism that Brazilian President-elect Luiz Inacio Lula da Silva will govern with fiscal discipline as the country’s central bank chief likened a market selloff to a “Liz Truss moment for Brazil.”Brazil’s real currency and Bovespa stock index both lost around 4% on Thursday, as Lula’s brief honeymoon with investors soured over his public commitment to prioritize social spending over fiscal rectitude and delays in naming his economic team.The real clawed back losses on Friday, with the dollar closing the session down 1.24 after a volatile day of trading. Stocks were up over 2%. Despite those gains, jitters remained, with investors calling for Lula to restore firm rules for public spending after major outlays by outgoing President Jair Bolsonaro during the pandemic and election campaign. Central bank chief Roberto Campos Neto, speaking at an event in Sao Paulo, said Thursday’s rout was the latest example of markets demanding fiscal discipline amid a challenging global backdrop of high inflation, low growth and little risk appetite.”I don’t know if that was a Liz Truss moment for Brazil, but it was a clear demonstration of the markets’ sensitivity to the fiscal issue,” Campos Neto said, referring to the former British prime minister who resigned after the markets punished her push for unfunded tax cuts. Citigroup Inc (NYSE:C). said in a report that investors may have been mistaken in thinking that Lula would pursue an orthodox fiscal agenda, adding that the bank had decided to cut its risk exposure to Brazil in the face of this reassessment.”The market seemed to have convinced itself that Lula would be fiscally orthodox. The most recent news now casts doubt on this hypothesis,” Dirk Willer, Citi Research’s head of emerging markets strategy, wrote on Thursday night.Milton Maluhy Filho, the chief executive of Brazil’s largest lender Itau Unibanco, said on Friday that a balance needed to be struck between social spending and putting public finances in order. “We think that fiscal responsibility and social responsibility should go hand in hand,” he said on a conference call.Investors and even Lula allies have also expressed concern about delays in naming his finance minister. Lula has said he will only name his cabinet once he returns from the COP27 climate summit in Egypt.Senator Simone Tebet, of the centrist Brazilian Democratic Movement party (MDB), said the finance minister should be his first cabinet pick to make clear what his economic policies are going to be.”A finance minister is needed to explain the president’s political thought,” she told reporters.On Thursday, Lula sought to downplay investors’ concerns. “The market is nervous for nothing. I have never seen a market as sensitive as ours,” said the president-elect, who takes office on Jan. 1. ($1 = 5.3449 reais) More