Economy

SYDNEY (Reuters) -Two of Australia’s top banks have quietly relaxed some home lending standards, banking and mortgage-broking sources said, despite authorities urging prudence in recent months amid a falling real estate market.The banks are now less conservative in counting expected rental income when assessing loan applications, said the four sources.The changes boost borrowing power for those applicants with big rental incomes, who are typically seeking investment loans. In September, about a third of new bank mortgage lending was for investment. Westpac Banking (NYSE:WBK) Corp, Australia’s third-largest home lender, in May reduced a discount on assessed rental income to 10% from 20%, according to three of the sources.National Australia Bank (OTC:NABZY) Ltd (NAB), the number-two lender, has resumed accepting income from short-term rentals, such as those booked through the agency Airbnb Inc, two of the sources said. Media reported in 2020 that NAB had stopped the practice.On Nov. 12, NAB will also halve its discount on rental income to 10%, including for Airbnb-like short-term rentals, the sources said.According to long-standing guidance from the Australian Prudential Regulation Authority (APRA), banks should discount rental income declared by mortgage applicants by at least 20% to create a buffer for times when properties are vacant.A Westpac spokesperson said the bank varied its credit policy from time to time and “any proposed change is put through a robust process to ensure it’s fit for purpose.” NAB declined to comment.Another of Australia’s four biggest banks, Australia and New Zealand Banking Group (ANZ), also applies a 10% discount on rental income. A fifth source said it had done so since September 2020.ANZ “acts diligently and prudently in setting our risk appetite and policy,” a spokesperson said in an email. “We regularly review our lending policies and guidelines to ensure we are operating within our risk appetite and practising responsible lending practices, including meeting APRA prudential standards,” he added.APRA declined to comment but referred Reuters to a letter it sent to lenders in June that said “in the current environment, with high household indebtedness and rising interest rates, it is important that (lenders) are prudently managing risks in residential mortgage lending.”The Reserve Bank of Australia has repeatedly said this year that, while broader financial stability risks are low, it is important for lenders to maintain prudent lending standards.FALLING PRICESAs seven interest rate rises applied since May take heat out of one of the world’s most expensive real estate markets, Australian banks have been fighting to grow their shares of a loan pool that has long been the engine room of their earnings.Housing prices in September were down 1.4% from August, when the monthly fall was 1.6%, the sharpest in 40 years.NAB, Westpac and ANZ trail market leader Commonwealth Bank of Australia (OTC:CMWAY), which has a quarter of the mortgage market. Commonwealth continues to apply a rental income discount of 20% on mortgage applications, a sixth source said.”Banks hold a position of power and expertise in the mortgage business, so most people rely on their assessments of what they can borrow,” said Tom Abourizk, senior policy officer at the Consumer Action Law Centre.”With interest rates and cost of living increases, banks should be taking more care than ever to ensure they are not writing unaffordable mortgages that set people up to fail,” he added, commenting on the changes to assessment of rental income.The most recent bank earnings showed late and impaired loans near record lows, but financial analysts warn those figures are likely to rise as inflation, increased interest rates and a rebound in unemployment take hold in 2023.”It takes time for the impact of the rate increases to hit people and make them realise what they can and can’t afford,” said Nathan Zaia, a banking analyst at Morningstar.”People might have A$10,000 to A$15,000 in savings, dig into it and only realise in time that they can’t manage it anymore.” ($1 = 1.5555 Australian dollars) More

BRASILIA (Reuters) -Brazilian President-elect Luiz Inacio Lula da Silva’s brief honeymoon with financial markets looked finished on Thursday, as he pushed for more room to grow social spending without setting long-term fiscal rules or naming his top economic policymakers.Brazil’s currency and benchmark Bovespa stock index, which rose last week as fears of political volatility subsided after Lula’s election victory, plunged around 4% on Thursday on comments by Lula and details of his transition team.The rout made clear that many investors were done waiting for more clarity over Lula’s key ministerial appointments or details of how he aims to stabilize Brazil’s public finances.In a speech to lawmakers, Lula said he aims to prioritize social spending over market concerns, questioning the priority given to key parts of Brazil’s economic policy framework.Investors have called for Lula to restore firm rules for public finances after major outlays by current President Jair Bolsonaro through the pandemic and election season. Instead, the president-elect is pushing to dismantle old budget rules before settling on the alternatives proposed by his advisers.Lula acknowledged market reaction in comments to reporters later on Thursday, but sought to downplay investors’ concerns. “The market is nervous for nothing,” he said. “I have never seen a market as sensitive as ours. It’s funny that the market wasn’t nervous with four years of Bolsonaro.”Markets deepened losses after the announcement of four economists aligned with the leftist Workers Party to handle budgetary issues as part of Lula’s transition team, including former Finance Minister Guido Mantega. After markets closed, a key lawmaker who had met with the transition team confirmed some investors’ fears that Lula wanted recurring exemptions from a constitutional spending cap. Senator Marcelo Castro, the point man for the 2023 budget, said Lula backed a permanent spending cap waiver for the “Bolsa Familia” welfare program, which is slated to cost 175 billion reais ($33 billion) annually based on his campaign promises.The negative reaction to Lula’s comments and transition team is the latest example of investors delivering an immediate, bruising response to nascent governments’ economic proposals, amid a challenging global backdrop of high inflation, weak growth and low risk appetite. In Britain, former Prime Minister Liz Truss resigned after markets shunned her plans for major unfunded tax cuts, while leftist Latin American leaders Gabriel Boric of Chile and Gustavo Petro in Colombia faced market routs in their early months in office.QUESTIONING PRIORITIESIn his speech to lawmakers, Lula insisted he would maintain fiscal discipline. But he also questioned the priority given to parts of Brazil’s economic framework, including the spending cap that has been waived repeatedly under Bolsonaro.”Why do people talk about the spending ceiling, but not social issues?” he asked. “Why do we have an inflation target, but not a growth target?” Investors, calling for Cabinet picks or clear fiscal rules to show how Lula intends to conduct policy, were not impressed.”In the past few days, the president-elect’s focus has been on signaling a major expansion in social spending, without a counterbalancing point about fiscal responsibility, which strikes a different tone than expected,” said Arthur Carvalho, chief economist at TRUXT Investimentos in Rio de Janeiro.Lula has not yet designated his finance minister and said he would consider his Cabinet picks after returning from the United Nations climate summit in Egypt next week. His advisers are already discussing with lawmakers how to open room for more spending outside the spending cap in order to deliver on campaign promises, including a possible constitutional amendment.”The signals indicate that the spirit of the (proposed amendment) is very oriented around new public spending. For now, there seems to be no plan for where those resources come from and what will be the long-term adjustments,” Dan Kawa, TAG Investimentos’ chief investment officer, wrote in a client note. “The signals are terrible.”($1 = 5.3449 reais) More

She said the White House will continue to monitor developments on cryptocurrencies.“The administration has consistently maintained that, without proper oversight of cryptocurrencies, they risk harming everyday Americans,” Jean-Pierre told reporters.“This is something that clearly we monitor and that we see as an important issue. The most recent news further underscores these concerns and highlights why prudent regulation of cryptocurrencies is indeed needed,” she said. More

Investing.com — The U.S. midterm elections may not have brought financial markets everything they hoped for, but they appear to have brought one indubitable long-term good.The rejection of Donald Trump’s proteges and proxies looks likely to break the spell over the Republican Party of a man whose reckless fiscal and trade policies had already put the economy on an unsustainable path even before the pandemic.  If – as seems likely – the next Republican Presidential candidate is Ron DeSantis (convincingly re-elected as governor of Florida) or a like-minded Conservative, then the party will be able to offer a convincing alternative to the tax and spending priorities of the Democrats in 2024, without the associated costs of erratic populism and self-defeating trade wars.That may seem harsh judgment on a period that many remember as one of rapid growth and falling unemployment. However, the truth is that the Trump boom was a sugar rush founded on a massive widening of the fiscal deficit that never even tried to pay for itself: between 2016 and 2019, the last year before the pandemic, the deficit had risen from $590 billion to $980 billion.Covid-19 covered up that basic truth. In 2020, it blew holes in the budget (as well as wrecking any chance of China meeting its commitments under the famous “Stage 1” trade deal), but in 2019, the last year before the pandemic, the Congressional Budget Office estimated that Trump’s tax cuts would add $1.9 trillion to the national deficit over 10 years, even after accounting for growth effects.Any revival of that policy today would likely have catastrophic consequences, in a brave new world where inflation is alive and well, and where bond vigilantes hand out vicious beatings to leaders – like the U.K.’s ill-fated Liz Truss – who try to ignore it. Trump could browbeat Federal Reserve Chair Jerome Powell into easing monetary policy in 2019, when growth and inflation were slowing, but market reactions to the bullying of an independent central bank would be very different today.But the budget is only one area – albeit a huge one – where Trump could do long-term damage to U.S. markets.His unyielding denial of the realities of climate change undermined valid arguments about near-term risks to energy security. His failure to implement meaningful healthcare reform ensured that millions of Americans still have worse access to healthcare than their peers in other developed countries, with unquantifiable but undeniably huge costs to the U.S.’s service-based economy.His unseemly closeness to Russia’s Vladimir Putin, meanwhile, could only too easily create a situation in which Russia’s nuclear blackmail is rewarded, setting a precedent that could have fateful codas in the Taiwan Straits or on the Korean peninsula, with all that that implies for the U.S. and the world economy.  Most importantly, a return of Trump and Trumpism would be a return to an America where the rule of law itself would be in serious doubt, given the ex-President’s flagrant efforts to overturn the legitimate election results of 2020.Most U.S. investors don’t invest in emerging markets. Those who do understand that markets impose significant costs on economies where politicians unleash mobs to stop the smooth transfer of power. Country risk exists as much for the U.S. as it does for Argentina or Zimbabwe, the only difference being that it would take only a small increase in U.S. country risk to raise the cost of capital for the world economy noticeably.None of this is to say that the outcome of the midterms is perfect – or even optimal – for U.S. or world markets.But with Trump sidelined and control of the House of Representatives passing back to the Republicans, there is a chance – however slim – of bipartisanship gaining traction again in Washington. Even if the more immediate risk is of two years of drift and paralysis.It’s unlikely to be pretty, but nor is it the worst scenario imaginable. More

Gensesis said its operating capital and net positions in FTX “are not material to our business” and that it has no ongoing relationship with FTX or Alameda Research, the crypto trading firm belonging to FTX CEO Sam Bankman-Fried. The locked assets on FTX do not impact the company’s market-making activities, Genesis said. More

The US has warned European countries that a conflict over Taiwan would trigger a huge global economic shock, in an effort to step up contingency planning amid rising concern about military action in the Indo-Pacific.The state department has shared research with partners and allies that estimates that a Chinese blockade of Taiwan would spark $2.5tn in annual economic losses, according to six people familiar with the material, which was commissioned from the research firm Rhodium Group.The stark warning has been shared with European Commission and European government officials, as the US and partners begin to think about how they could use sanctions against China over any military action against Taiwan. Washington is using the report to stress to European countries that a Taiwan conflict would have significant implications for them.Two officials said the US and EU had begun talks about how to prepare for a possible conflict over Taiwan. The Financial Times earlier this year reported that the US had held contingency planning talks with the UK for the first time.Two people familiar with the US-EU discussions said some officials believed that preparing contingency plans, and communicating them publicly, could become part of a strategy to deter China.Some US and European officials believe the spectre of huge global economic damage from a Taiwan conflict is necessary to rally international support for deterring China. The US has also used the example of the Russian invasion of Ukraine to stress the need to consider contingencies.The sharing of the Rhodium research comes as senior US officials and military officers have increasingly talked about the threat to Taiwan. Secretary of state Antony Blinken has said twice in the past month that the US believed China had moved up its timeline for “reunification” with Taiwan.Joe Biden and Xi Jinping are expected to discuss Taiwan when the US and Chinese presidents hold their first in-person meeting as leaders in Bali on Monday on the sidelines of the G20 summit. Over the past year, Biden has said on four occasions the US would defend Taiwan from an unprovoked Chinese attack.The state department declined to comment on the report. A spokesperson said the US had “an abiding interest in peace and stability across the Taiwan Strait, which is an issue of international concern”. He said it would support Taiwan “in line with our longstanding one China policy” — under which the US recognises Beijing as the sole government of China and acknowledges, without endorsing, the position that Taiwan is part of China.One senior EU official compared the sharing of the report with the US move last year to distribute intelligence on Russia’s military build-up around Ukraine, when some EU capitals were dismissive of the idea that Vladimir Putin would invade. “We learned a lesson with that,” the official added.Daniel Rosen, a partner at Rhodium who leads the group’s China practice, declined to comment on whether the consultancy had produced a report for the state department. But he said Rhodium had done work on Taiwan-related economic scenarios for years and would publish a public note soon.

The report said Taiwan would suffer the biggest hit but the economic blow to China would also be immense, and that the fallout would reverberate throughout the global economy. It said south-east Asia — a region where many countries want to avoid taking sides and argue that a China-Taiwan conflict has nothing to do with them — would see heavy economic damage.In terms of industries, supply chains dependent on semiconductors led by the automobile, server and PC and cell phone sectors would suffer the biggest disruption, the report forecasts. The US has become increasingly concerned over the past few years about its reliance on Taiwan for chips.The report warns that trade finance for Chinese companies would dry up the moment Beijing crossed the line to conflict over Taiwan, dealing a severe shock to global trade. It also said that due to the importance of China as an economic partner for developing countries, such a shock could push more than a dozen emerging markets into economic crisis.Additional reporting by Henry Foy in Brussels More