Economy

There are so many full-on global crises these days it’s refreshing to see one that was widely predicted but hasn’t happened, or not yet.Vladimir Putin’s invasion of Ukraine raised well-founded fears of a global food crisis similar to that of 2007-8. Russia and Ukraine together make up around a third of global wheat exports, and many low and middle-income countries, particularly in the Middle East and Africa, are dependent on grain imports. Ukraine and allied governments accused Russia of threatening global famine as a geopolitical tool.International food supply was already vulnerable after droughts and poor harvests in 2021. Global grain stocks, which act as a buffer for supply shocks, are at their lowest for a decade. Climate change has made growing conditions increasingly volatile. This year, India went from promising to feed the world in April to imposing wheat export controls in May after a poor harvest.In the event, the alarm has subsided. Global food prices measured by the UN Food and Agriculture Organization’s index fell for the sixth consecutive month in September to pre-invasion levels.Was this the result of good policy or good fortune? Have governments learnt lessons from 2007-8, when panicked export controls pushed world prices higher? What role was played by the UN-sponsored Black Sea grain initiative agreed in July, in which Russia permitted Ukraine to export wheat and maize? And what of Putin’s decision this week first to suspend the initiative and then rejoin it?The answer seems to be that it was mainly luck. Joe Glauber, former chief US agricultural trade negotiator and now at the International Food Policy Research Institute in Washington, notes that excellent harvests in the big southern hemisphere grain exporters — Australia, Argentina and Brazil — were rapidly bringing down maize and wheat prices before the Black Sea initiative was launched. Meanwhile, a threatened worldwide spike in fertiliser costs has been ameliorated by falling prices of natural gas, one of its main inputs.The Black Sea initiative has been helpful but not dramatic. Ukraine has doubled its grain exports but still only to levels 50 per cent lower than in 2021. In the weeks after its announcement, wheat prices dropped by only about 5 per cent, having already retraced almost all of the 50 per cent rise between February and their peak in May. As the FT has shown, Russia has also been expropriating Ukrainian grain and smuggling it on to the international market: it’s not exactly an altruistic act, but at least it increases global supply. It’s a comfort in the short term that even another collapse of the initiative wouldn’t be disastrous. But it also underlines that global markets are tight and stocks remain low even without the Ukraine issue. The FAO index may have fallen back to levels seen in February, but that was already historically high: it’s currently about 40 per cent higher than the average for 2020.It’s hard here to fault the international institutions, which have all dutifully cranked the machinery of global governance into action. As well as facilitating the Black Sea initiative, the UN has continued to support the useful Agricultural Market Information System (Amis), a monitoring service intended to reassure panicked governments not to impose export controls because of baseless fears of shortages.The World Trade Organization has been warning loudly about the dangers of export bans. The IMF has launched a special food shock lending window for low-income food importing countries with balance of payments problems, and the World Bank has similarly disbursed a lot of money.But it’s hard to see these making a fundamental difference. Governments retain wide leeway under WTO rules to impose export restrictions, a situation not improved much by a weak deal on food security at the WTO ministerial meeting in June. Egypt in September lifted export controls on staple foods it had imposed in March, but that was driven by market considerations, not international co-ordination. More generally, some governments such as those in the EU have increased support for agricultural production, but not enough radically to expand the output of tradable food.It’s a frightening thought, but avoiding a food crisis in the next year depends mainly on good weather. Governments, helped by the international institutions, have got somewhat better at managing global food supply since the previous big crisis erupted 15 years ago. But it’s telling that a year or two of drought before 2022 put the markets so much on edge. Governments will have to do much more if shocks are not to threaten the kind of mass hunger that the world has been lucky to escape so far this [email protected] More

After the Federal Reserve delivered its fourth consecutive 0.75 percentage point rate rise on Wednesday, it soon became clear the US central bank’s battle against persistently high inflation was entering a new phase. In a statement accompanying the increase, which lifted the federal funds rate to a target range of 3.75 per cent to 4 per cent, the committee that sets monetary policy indicated it was preparing to ease up on the accelerator.From now on, the Federal Open Market Committee will take into account how far rates have already risen this year as well as the fact it takes time for such increases to filter through to the real economy. That suggests a slower pace of rate rises in the future. “They are obviously a bit more confident about where policy stands relative to where they need to be and relative to where they were a couple [of] weeks ago,” said Tim Duy, chief US economist at SGH Macro Advisors. Since embarking on 0.75 percentage point increases, “the objective has always been to get policy up to a range that allows them to be more purposeful about their future policy stance”, Duy added.But as traders digested what at first appeared to be a dovish shift from the Fed, sending the S&P 500 up roughly 1 per cent, chair Jay Powell swiftly crushed their hopes. At the subsequent press conference, Powell warned that the “terminal” rate at which the fed funds rate tops out will be higher than previously expected — even if it takes longer to get there with smaller increments. For investors, the terminal rate is more important than the speed of travel, and by close of trading on Wednesday the blue-chip stock index had erased its earlier gains to close down 2.5 per cent. For Powell, getting off the 0.75-point train was always the plan. In June, when the central bank delivered what would become the first in a series of jumbo rate rises, he framed increases of such magnitude as “unusually large”, adding: “I do not expect moves of this size to be common.”But even if a downshift is on the way, Powell made clear the Fed remains committed to bringing inflation under control: “We have some ground left to cover here, and cover it we will.” Talk of pausing rate rises altogether was “very premature”, he added.Torsten Slok, chief economist at Apollo Global Management, described the new messaging as “incredibly complex”, but investors seemed to get the idea. Traders in federal funds futures priced in a half-point rate rise at the December meeting and remained committed over wagers that the benchmark rate would peak at about 5 per cent next year. In September, when the Fed last released its compilation of officials’ forecasts, most saw it topping out at 4.6 per cent. “There’s always this artful dance between the Fed and markets,” said Ellen Zentner, chief US economist at Morgan Stanley. She added Powell had done a “good job” of laying the groundwork for smaller rate rises while pushing back against “misperception” that the Fed was easing up.“It’s safer to slow the pace of the ascent, and you actually give yourself a better chance of getting to a higher peak rate,” she said.Chief among the fears of policymakers, economists and market participants is the stability of the financial system amid rapidly rising borrowing costs and sluggish growth, which could expose “landmines”, said Diana Amoa, chief investment officer at Kirkoswald.

“Moving at a measured pace will allow policymakers to be more responsive to these things and allow them to calibrate what they need to do in a much more elegant way,” she added. A slower pace of rate rises might mean the Fed avoids an unintended market meltdown. But a higher terminal rate — along with a pledge to keep monetary policy at a point where it constrains the economy for a prolonged period — only increases the likelihood of a sharper downturn, say economists. Powell even went so far as to acknowledge that the path to a soft landing, in which the Fed brings down inflation without a painful recession, had narrowed even further. Slok interpreted that as more evidence of the Fed’s unwavering commitment to getting inflation back down to its 2 per cent target.David Kelly, chief global strategist at JPMorgan, said: “I think the Federal Reserve feels guilty because inflation has gotten to too high a level, and that has made them aggressive in trying to kill [it].” He added: “Everyone talks about a soft landing, but we hardly ever achieve one.” More

There’s a Chinese proverb that holds it is better to plan one’s means of retreat than 36 different ways to win the battle.The axiom has cropped up on Tokyo trading floors this autumn, after Japan lavished a record $62bn to fight the yen’s collapse below a three-decade low, in as many as four separate interventions since September.That is only one front in its war against global market forces. By the end of June, after months fighting to control the yield curve, the Bank of Japan had raised its holdings of Japanese government bonds (JGBs) to over half a quadrillion yen ($3.6tn). Last week, to fight the negative impact of inflation, the government unveiled a $200bn stimulus package.There is mounting fear, however, that an orderly retreat may be impossible. Instead the BoJ is betting everything on yet another strategy aimed at winning the battle. It is making a giant gamble that a royal flush of national and international outcomes will solve its most pressing problems: sizeable wage increases by Japanese companies, the onset of “good” inflation, visible stability in the yen, a soft US recession and an interest rate pivot by the Federal Reserve.But at the same time, the radars of investors around the world are beeping noisily with signs of a potentially explosive Japan crisis. In an October blog post that went viral, George Saravelos, a Deutsche Bank strategist, described Japan’s yield curve control policy — curbing the short and long-term interest rates on Japanese government bonds — as “for all intents and purposes, already broken”. The yield curve not only demonstrated the scale of policy distortion but its likely limits, too, he wrote. The BoJ is reaching “near-full ownership” of the three bond yields it has targeted, meaning “the time is soon approaching where these bonds will stop trading in their entirety and the market will simply cease to exist”, he wrote.But the JGB market is just one symptom of a larger distortion, analysts and traders say. Too much of the current Japanese policy mix and its secondary market effects seem unsustainable, says the head of one global fund, and waiting for the outcome of Japan’s bet could become unbearable. The Bank of Japan headquarters. A disorderly exit by the BoJ from the bond market would cause a huge surge in 10-year Japanese government bond yields © Noriko Hayashi/BloombergDespite the interventions, Japan’s currency continues to test new lows around ¥150 against the dollar. The widening interest rate differential between Japan and the US means few are yet confident where the yen will find a natural floor. With Japan the only major economy still running a zero-interest-rate policy, the BoJ is looking ever more isolated.“There’s a logic and a strategy behind what the BoJ is doing, but it’s a risky one. Everything could work out reasonably well as long as we are in a scenario next year where there’s clear evidence of US inflation coming down,” says Derek Halpenny, head of research for global markets at Mitsubishi UFJ Financial Group.“The big risk is if that doesn’t happen. They want to relax yield curve control in a world where global bond yields are coming down. If they’re not, then the longer they leave it, the more disorderly the exit,” he adds.Mansoor Mohi-uddin, chief economist at Bank of Singapore, says the closest analogy to understand the potential consequences would be the Swiss National Bank’s abrupt removal of the ceiling on the Swiss franc in 2015, which led to a large jump in the currency and left European equity markets reeling.“But Switzerland is a small economy compared to Japan,” Mohi-uddin says. A disorderly exit by the BoJ would cause a huge surge in 10-year Japanese government bond yields, causing “major disruptions” for bondholders, from domestic pension funds to central bank reserve managers overseas. The Nikkei would plunge, he adds, with the ripples felt across global stock markets.The expectation of inflationTo market watchers, the BoJ’s determination to carry on with its experiment appears dangerous in a world where countries are scrambling to keep inflation at bay.But for Haruhiko Kuroda, this is exactly the moment he had been waiting for since he became Bank of Japan governor in March 2013 vowing to do “whatever it takes” to end the country’s bouts of mild yet corrosive deflation.Helped by a global surge in commodity prices caused by the war in Ukraine, prices of goods in Japan are rising with inflation hitting 3 per cent, surpassing the BoJ’s target of 2 per cent. More importantly, both companies and households now expect prices to increase over the next few years, after almost two decades of believing that prices could only go down. Companies and households expect prices to increase over the next few years, after almost two decades of believing that prices could only go down © Richard Brooks/AFP/Getty ImagesThe enduring assumption that prices in Japan will not change is finally crumbling, says Kentaro Koyama, Deutsche Bank’s chief Japan economist in Tokyo. “To take advantage of this precious opportunity, monetary policy needs to encourage price change, and this is why the BoJ’s bias toward maintaining its current monetary policy is reasonable,” he says, in a striking change of tone from his colleague Saravelos. According to the latest consumer confidence survey released by Japan’s cabinet office this week, 63 per cent of those polled said they expected prices to rise 5 per cent or more over the coming year. The BoJ’s Tankan, a closely watched survey on business sentiment, also showed that in September, Japanese companies expected an inflation rate of 2 per cent within five years, the highest level since it began polling such expectations in 2014.Creating the presumption of inflation is critical in Japan, a country that has struggled to dislodge the expectations set by 15 years of on-and-off deflation between 1998 and 2013. This mindset has also posed the biggest hurdle for rising prices to be reflected in employee earnings.The worry for the BoJ is not a wage spiral that could result in a more prolonged period of high inflation, as it is in the US and Europe, but the opposite: the lack of strong wage growth that would shield the economy from falling back into a deflationary spiral.A weaker yen may also help kindle wage growth. Even though benefits have waned as companies have shifted manufacturing abroad, a softer currency still increases corporate profits made overseas when they are repatriated and the hope is that robust earnings will make it easier for businesses to raise wages.“To get rid of the deflationary mindset, they were prepared to see a weaker currency. What they wanted badly was for this inflation rate of 3 per cent to be translated into higher wages. This is the most important thing in Japan,” says a former senior BoJ official.Wage growth neededThe ace in the hole for the BoJ, say analysts, may not be a potential pivot by the Fed, but the “shunto” wage negotiations in the spring. These annual talks between unions and employers have for many years delivered a build-up of hope followed by a collective slouch of disappointment among workers across the country. In a sign of changing times, the Japanese Trade Union Confederation (Rengo) is seeking a 5 per cent year-on-year increase in wages — 3 per cent in terms of base pay — during the spring negotiations, the highest since 1995.If such a serious wage hike is in prospect, it would also coincide with the change in BoJ governorship when Kuroda’s term expires in April.

If a trend for a steady wage rise can be confirmed, that might give the next BoJ governor confidence to consider reining in the quantitative and qualitative monetary easing (QQE) programme.Kuroda has argued that any tightening would be premature with Japan’s core inflation expected to fall below its 2 per cent target by next year, but the BoJ’s current forecast does not take into account potential wage hikes by companies in spring.“Strong wage growth is seen as the ultimate ‘amulet’ against Japan slipping back into disinflation,” argues David Bowers, co-founder of Absolute Strategy Research. “If [the talks] succeed, then it may be that the Bank of Japan — under Kuroda’s successor — can start to pivot away from its QQE narrative, with implications for the yen and for bond yields not just in Japan but around the world.”Still, economists are divided on how much companies would be willing to increase employees’ pay after resisting for so long. While some are cautiously raising the price of their products, others are still afraid consumers will balk at higher prices, creating a chicken-and-egg problem for corporate Japan.“If companies generate profits and raise wages, demand might pick up. But which comes first? Companies cannot raise wages if they are not making money, while consumers cannot buy goods at higher prices if their wages are not going up, ” says Masahiro Okafuji, chief executive of Itochu, one of Japan’s big five trading houses.“We can’t easily criticise the BoJ since companies will suffer as well if a wrong decision is made,” he adds.Time to buy Japan?The 28 per cent descent of the yen against the dollar so far this year has reignited the broader question of how investable Japanese markets are. Ten years ago, the economic and regulatory reforms that took place under “Abenomics” pushed Tokyo-listed equities, as measured by the Topix index, into a multiyear rally and a near 100 per cent rise in value. But more recently, Japanese equities have to some extent become another highly visible symptom of where BoJ policy has far outstripped its original plan.In the two-and-a-half years that followed the arrival of Shinzo Abe as prime minister in 2012 and the appointment of Kuroda as BoJ governor, foreign investors bought a net ¥25tn of Japanese shares. In the years between 2015 and today, they have reversed that completely, selling ¥25.6tn. Over the past 10 years, the BoJ has been a net buyer of ¥36tn, via its ETF-purchasing programme. The circumstances might seem ripe for another rally. Japanese companies look relatively stable and, because of the yen, very cheap. In theory, a robust influx of foreign stock-buying would shore up the yen and create the kind of natural upward pressure that would save the Japanese authorities from digging ever deeper into the national store of US Treasuries to artificially support the currency.Japanese companies look relatively stable and, because of the yen, very cheap from an investing perspective © Shuji KajiyamaAPIn reality, the yen is locked in a volatile trading pattern dictated by massive outflows by Japanese companies and asset managers. While that is causing instability, foreign investors may still decline to “buy Japan”. Bruce Kirk, head equity strategist at Goldman Sachs in Tokyo, says currency stability is essential for investment committees to look at Japan again. “There is a lot of interest from foreign investors in Japan, but what is holding them back is that they feel they don’t yet know how much further the yen could fall and whether the 150 level is the answer or whether it could fall further towards 175 or 200.” The Japanese authorities may be muddying the situation, say analysts, in how they are responding to the recent volatility of the yen. Repeated references by Japan’s finance minister Shunichi Suzuki and other officials to market speculators heavily overstate the role of hedge funds and other leveraged investors. Shusuke Yamada, chief Japan forex and equity strategist at Bank of America, says that it was “real money” driving the yen’s fall this year: corporate Japan and domestic Japanese asset managers responding to the rate differential, Japan’s trade deficit and foreign direct investment deficit. Unlike the period immediately before the 2008 global financial crisis, where speculators at home and abroad would borrow yen and sell it to buy higher-yielding assets in what was known as the “carry trade”, there is less excitement around such investments now, says Yamada.All the central bank can do now is wait out the storm, he adds. “The BoJ is trying to buy time, hoping that the US rates peak out and smoothing the moves where they can,” he adds. “How this will play out ultimately depends on the US side.”The exit rampFew economists expect Kuroda to change course before his term expires next year. But when Japan eventually (and, some say, inevitably) does, it will be fraught with risk.Experts agree any hint of normalisation from the BoJ will require intricate communication with markets to avoid the risk of misinterpretation. “The BoJ will need to come up with a basic plan beforehand so that the market can expect what will be coming,” the former BoJ official says.Kuroda said as much at a news conference last week. Though “we are not thinking of a rate hike or an exit anytime soon . . . when the 2 per cent [inflation] target becomes reachable, the policy board will need to discuss the exit strategy and it will be important to properly communicate with the market,” he said. Masamichi Adachi, chief economist at UBS in Tokyo, says the BoJ is likely to make a public assessment of the effects of its monetary policy during 2023 to signal an adjustment is looming. It did something similar before bringing in yield curve control, he says. A first step might be to revise the BoJ’s forward guidance and widen the 0.25 per cent target on 10-year JGBs, Adachi adds. “We could call this process a beginning of policy normalisation for improving bond market function, allowing a smooth start without difficult pressure from markets.”Few economists expect Haruhiko Kuroda to change course before his term expires next year, but he told a news conference last week that any eventual moves would be clearly communicated © Kazuo Horiike/Jiji Press/BloombergOn Wednesday, Kuroda dropped his biggest hint yet that a pivot point might be approaching. “If the achievement of our 2 per cent inflation target that is accompanied by wage hikes comes into sight, a review of the monetary policy will of course become necessary,” he told parliament. But any tweak that is perceived to be too fast or beyond expectations could cause rapid repercussions across markets. When yields in the UK spiked in the wake of September’s “mini” Budget, the Bank of England had to step in to support pension schemes facing sudden, unexpected liquidity issues. If the Japanese central bank were forced into a similar action with bondholders, the scale of intervention would need to be far, far larger — with much higher risk of global contagion. Little wonder then that within the BoJ and the Japanese government, the crisis in the UK gilts market has become a cautionary tale. “It’s become a lesson for markets as well as policymakers that Japan must not become like the UK in terms of the turmoil that it caused,” says Mari Iwashita, chief market economist at Daiwa Securities. A disorderly exit is not yet on the cards. But Kuroda will be watching the flop carefully, hoping he reaches the end of his term with the strongest hand possible. More

SINGAPORE (Reuters) -DBS Group reported a forecast-beating 32% jump in quarterly profit to a record high and gave a bullish outlook on Thursday as higher interest rates boosted net interest margins at Southeast Asia’s largest lender.Banks globally have benefited from a jump in net interest income as central banks hike rates to tackle soaring inflation, although analysts warn they could suffer if higher rates lead to a sharp slowdown in economic activity.DBS shares, though, dropped 1.6% in early trade on Thursday as the broader Singapore market fell about 1%. Local peer UOB Group beat market estimates last week with a record quarterly net profit as net interest income swelled and credit allowances declined. OCBC reports results on Friday.Net profit at Singapore-based DBS came in at S$2.24 billion ($1.58 billion) in July-September, beating an average estimate of S$1.97 billion from four analysts, according to Refinitiv data.The bank saw sustained business momentum in the quarter and asset quality was resilient, DBS CEO Piyush Gupta said in a statement. Looking ahead to next year, he said the loan pipeline remained healthy and could reach mid-single digit growth.While the bank’s net fee and commission income fell 13% in the quarter, hurt by weakness in the wealth management business in depressed markets, Gupta forecast double-digit fee income growth for next year, led by wealth management and credit cards. Return on equity at DBS rose to a record 16.3% in the quarter and net interest income surged 44%. Its net interest margin, a key profitability gauge, improved to 1.90% in the quarter from 1.43% a year earlier.Shares of Singapore banks have risen between 4%-6% so far this year, outperforming the broader market on expectations of big expansions in their net interest margins. More

BENGALURU (Reuters) – Indonesia’s economy grew at its fastest pace in over a year last quarter, buoyed by strong exports and consumption, but a slowdown in China and a widely expected global recession pose significant risks, a Reuters poll found.Southeast Asia’s largest economy has been enjoying an export boom for more than a year due to rising commodity prices. The resource-rich country has reported a $39.9 billion surplus for the first nine months of this year, just ahead of its full-year record surplus of $39.7 billion in 2006.That has helped the country weather the U.S. Federal Reserve interest rate tightening cycle better than most of its peers.The country reported annual economic growth of 5.44% in the second quarter, the strongest reading in a year, and is expected to have grown 5.89% last quarter compared with the same period a year ago, the median forecast of 18 economists in the poll showed. Estimates ranged from 5.23% to 7.50%.The data is due to be released on Nov. 7. “We expect growth to pick up owing to a low statistical base from Q3 2021 and the continued release of pent-up domestic demand driven by the economic reopening,” noted Shivaan Tandon, emerging Asia economist at Capital Economics.”Exports are also likely to have supported growth in Q3 although we think external demand will turn into a headwind over the coming quarters.” However, on a quarter-on-quarter basis, growth was expected to have slowed to 1.62% from 3.72% in the second quarter. That was based on a smaller sample of forecasts.A separate Reuters poll found GDP was likely to grow 5.2% this year, in line with Bank Indonesia’s forecast, and then moderate slightly to 5.0% in 2023.While rising commodity prices have served as a backstop, a significant slowdown in China – Indonesia’s biggest trade partner – would pose a significant threat to the export-led economy.That along with Bank Indonesia’s rate-hiking campaign, which has picked up pace in the last few months to tame inflation and prop up the rupiah, was likely to crimp domestic demand.Bank Indonesia has hiked rates by a total of 125 basis points since August. More

SINGAPORE (Reuters) – The dollar was on the front foot on Thursday after Federal Reserve Chair Jerome Powell signalled U.S. rates would likely rise further than expected, disappointing traders’ hopes for a change in tone, and shifting the focus to Friday’s jobs data.The dollar hit a week-high of $0.9810 per euro in early Asia trade and is eying its best week in more than a month, although a Bank of England meeting and U.S. labour data loom before the close of trade in New York on Friday.The Fed raised its benchmark funds rate by 75 basis points to 3.75-4% as widely expected. The dollar initially fell on hints in the Fed’s statement of smaller hikes ahead, but it was bid after Powell’s hawkish stance about the trajectory rates.”Incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected,” Powell told reporters, adding: “It is very premature to be thinking about pausing…we have a ways to go.”The dollar’s gains knocked its New Zealand peer from a six-week high and back below its 50-day moving average to $0.5890. The Australian dollar fell 0.7% overnight and slipped further to a week-low of $0.6332 on Thursday. [AUD/]”Strong hawkish messaging from the Fed chair pours cold water on premature dovish pivot expectations,” said analysts at Citi, who recommend staying long the U.S. dollar in Asia.”This shall further embolden expectations of policy divergence with a much hawkish Fed relative to other central banks around the world. Further tightening of financial conditions shall put downward pressure on risk assets and strengthen the dollar.”Japan’s yen was notably firm in the face of dollar gains, and has held at 147.90 per dollar, prompting speculation of possible help from official intervention.Japan spent a record $42.8 billion propping up the yen last month via a series of unannounced yen purchases, on top of almost $20 billion spent in September. Japanese markets were closed for a holiday on Thursday, thinning Asian currency trade.Sterling fell 0.8% on the dollar overnight to sit at $1.1378 in early deals on Thursday. Markets are priced for the BoE to deliver its biggest hike since 1989 and raise interest rates by 75 basis points later in the day.”The risk is that the BoE maintains the current pace of tightening and delivers a 50bp hike,” said Commonwealth Bank of Australia (OTC:CMWAY) analyst Kim Mundy. “A 50bp hike would be considered ‘dovish’ by market participants and can push sterling lower.”The U.S. dollar index stood at 112.13, its highest in seven sessions. China’s yuan was hovering near record lows in offshore trade at 7.3408 per dollar, and other Asian currencies were under pressure. More

“(The Fed hike) supports the BSP’s stance to hike its policy rate by the same amount in its next policy meeting on November 17,” Bangko Sentral ng Pilipinas Governor Felipe Medalla said in a statement.”The BSP deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country’s exchange rate of the most recent Fed rate hike,” he said.By matching the Fed’s rate hike, Medalla said the BSP reiterated its strong commitment to maintaining price stability by aggressively dealing with inflationary pressures stemming from local and global factors.He cited the BSP’s preparedness to “take necessary policy actions to bring inflation toward a target-consistent path”, as he projected headline inflation to return to the 2%-4% target band in the second half of 2023 and full-year 2024. More

SYDNEY (Reuters) – Asian share markets slid on Thursday after the U.S. Federal Reserve laid the groundwork for a protracted tightening campaign that torpedoed market hopes for a pause, sank bonds and lifted the dollar.Investors were initially cheered that the Fed opened the door to a slowdown in the pace of hikes after raising interest rates 75 basis points to 3.75-4.0%, by noting that policy acted with a lag. But Chair Jerome Powell soured the mood by saying it was “very premature” to think about pausing and that the peak for rates would likely be higher than previously expected. “The Fed is now more comfortable with taking smaller rate increases for a longer period than delivering larger increases now,” said Brian Daingerfield, an analyst at NatWest Markets.”The tightening cycle is officially now a marathon, not a sprint.”Futures were now split on whether the Fed would move by 50 or 75 basis points in December, and nudged up the top for rates to 5.0-5.25% likely by May next year. They also imply little chance of a rate cut until December 2023.”Higher for longer” was not what the equity markets wanted to hear and Wall Street fell sharply after Powell’s comments. Early Thursday, S&P 500 futures were off another 0.3%, while Nasdaq futures fell 0.2%. [.N]MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.9%, with South Korea down 1.5%.Japan’s Nikkei was closed for a holiday, but futures were trading around 350 points below Wednesday’s cash close. Two-year Treasury yields popped up to 4.63% as the curve bear flattened, with the spread to 10-year notes near its most inverted since the turn of the century.Attention now turns to the U.S. ISM survey of services later Thursday and Friday’s payrolls report where any upside surprise will likely reinforce the Fed’s hawkish outlook.BoE TAKES THE STAGE Also taking centre stage will be the Bank of England where the market is fully priced for a rate hike of 75 basis points to its highest since late 2008 at 3.0%. “There will be interest in the BoE’s new CPI and GDP forecasts, with the latter likely to show a deeper and more protracted recession in 2023 and 2024,” said Ray Attrill head of FX strategy at NAB.A gloomy outlook could put more pressure on the pound, which was pinned at $1.1374 after retreating from a top of $1.1564 overnight.The U.S. dollar was broadly bid on Powell’s hawkish take, leaving the dollar index at 112.190 after an overnight bounce from a 110.400 low. [FRX/]The euro was flat at $0.9810, having toppled from a high of $0.9976 overnight, while the dollar climbed to 147.87 yen from a trough of 145.68.The bounce in the dollar and yields was a drag for gold, which was stuck at $1,633 an ounce after being as high as $1,669 at one stage overnight. [GOL/]Oil prices also disliked the dollar rally with Brent down 88 cents at $95.28 a barrel, while U.S. crude fell $1.02 to $88.98. [O/R]In good news for bread lovers, wheat futures plummeted overnight after Russia said it would resume its participation in a deal to export grain from war-torn Ukraine. [GRA/] More