Economy

TOKYO (Reuters) – Bank of Japan policymakers took note of growing inflationary pressure with one of them calling for the need to eventually communicate an exit strategy from ultra-loose monetary policy, minutes of their meeting in September showed on Wednesday.The BOJ maintained ultra-loose monetary policy at the Sept. 22 meeting and its governor Haruhiko Kuroda said interest rates would remain low for “two to three years,” a remark that sent the yen sharply lower and later prompted the government to intervene in the currency market to prop up the currency.Many in the nine-member board said the BOJ must keep monetary policy ultra-loose to ensure wages rise enough and help achieve the bank’s 2% inflation in a sustainable manner, the minutes showed.But some said corporate price-setting behaviour might be changing as an increasing number of firms hike prices with one saying companies will likely continue raising prices, the minutes showed.”We must humbly watch without any preset idea the risk of inflation sharply overshooting expectations, including from the impact of currency moves,” one member was quoted as saying.Japan’s core consumer inflation rate accelerated to a fresh eight-year high of 3.0% in September, challenging the central bank’s resolve to retain its ultra-easy policy stance as the yen’s slump to 32-year lows continue to push up import costs.The BOJ’s offer to buy an unlimited amount of bonds to defend its 0.25% cap on the 10-year yield has also heightened concern over the side-effects of prolonged easing, such as distortions in the shape of the yield curve.”When the appropriate timing comes, it’s important to communicate to markets an exit strategy” from ultra-easy policy, one board member was quoted as saying.The BOJ remains an outlier among a global wave of central banks tightening monetary policy as it focuses on reflating a fragile economy with aggressive stimulus. Kuroda has repeatedly stressed the bank’s resolve to keep monetary policy ultra-loose.The yen has weakened sharply against the dollar as markets focus on the divergence between the BOJ’s ultra-loose policy and U.S. interest rate hikes. More

BENGALURU (Reuters) – The dollar’s retreat in foreign exchange markets is temporary, according to a Reuters poll of currency strategists, who said the greenback still had enough strength left to reclaim or surpass its recent highs and resume its relentless rise.Up around 16.0% for the year, the dollar has come off an over-two-decade peak it hit in September, as the U.S. Federal Reserve, which powered the currency’s rally, was expected to be nearing the end of its interest rate tightening cycle.The Fed is widely expected to raise its benchmark rate by 75 basis points on Wednesday, its fourth jumbo increase in a row. However, for the December meeting interest rate futures showed a split on the odds of a 75 or 50 basis point increase.Over a two-thirds majority of analysts, 30 of 44, who answered an additional question in a Reuters Oct. 28-Nov. 1 poll said the dollar would either reclaim its recent highs (22) or move past them by end-year (8). The remaining 14 said it would fall from its current levels.”Everybody’s talking about a pivot, whether or not after we get this week’s meeting over and done with the Fed will be able to move by less. But I fail to see that as being a factor which is going to significantly undermine the dollar,” said Jane Foley, head of FX strategy at Rabobank.Foley also said investors need to get into riskier currencies for the dollar to weaken significantly and added “as long as the Fed is still hiking, even by small increments, I don’t think that environment would be there.” GRAPHIC: U.S. dollar outlook for end-2022 https://fingfx.thomsonreuters.com/gfx/polling/klpygejkzpg/Reuters%20Poll%20-%20U.S.%20dollar%20outlook%20for%20end-2022.PNG The poll also showed most emerging market currencies, which have hit their lowest levels in at least a decade, were expected to remain around those levels or sink deeper over the remainder of the year and into early next.While the dollar was expected to remain defiantly strong in the near-term, the 12-month outlook was still for the currency to cede some ground to its peers.”We still see the dollar as toppish, which doesn’t mean that it couldn’t go up another percent or two – which likely means going up a couple of percent against some currencies and maybe being flatter or even falling against some others,” said Steve Englander, head of G10 FX strategy at Standard Chartered (OTC:SCBFF).The euro, down over 13% against the dollar and less than 1% away from its worst annual performance since the currency’s inception in 1999, was expected to remain under pressure over the next three months.The common currency, which has mostly traded below parity against the dollar since August, was forecast to stay there over the next three months and to trade at an equal footing against the greenback only in six months.It was then expected to climb higher to trade around $1.04 in a year.Those six and 12-month median forecasts were a slight upgrade from the October poll and the first since April.The Japanese yen, down nearly 22% for the year, was expected to claw back about half of this year’s historical losses over the next 12 months. It was expected to trade around 146.0, 141.7 and 135.0 per dollar over the next three, six and 12 months respectively.Sterling, which has gained over 10% since sinking to a record low of $1.0327 in September amid political turmoil, was forecast to be another 2.0% stronger at $1.17 in a year. Predictions ranged from $1.06 to $1.29.(For other stories from the November Reuters foreign exchange poll:) More

WASHINGTON (Reuters) – A jump in U.S. monthly job openings has thrown the Federal Reserve another confounding bit of data for its policy meeting this week, with more evidence that rapid interest rate increases have yet to bite hard in the real economy.New data released by the Bureau of Labor Statistics on Tuesday showed firms had 10.7 million job openings at the end of September, a jump of about half a million from August in a number the Fed expects to see move lower as demand in the economy slows.Yields on U.S. Treasury bonds rose after the release of the data, as did bets that the Fed may raise its target policy rate higher than anticipated.With the central bank widely expected to lift that rate yet again by three-quarters of a percentage point to a range of 3.75% to 4.00% at the end of a two-day meeting on Wednesday, traders are now leaning to a fifth straight hike of that size at the Fed’s final meeting of the year in December, with the target policy rate seen exceeding 5% in March.Stocks were lower in early afternoon trading.DIFFICULT TO PIVOTThe job openings data “will make it very difficult for the Fed to pivot” towards a slower pace of rate hikes, as many have expected, Jefferies economists Aneta Markowska and Thomas Simons wrote. “In order to slow the pace of hikes, the Fed needs to be able to make a compelling case that slowing labor demand will take pressure off of labor costs, ultimately slowing inflation. It’s difficult to make that case after today’s report.”The new data means there were more than 1.85 jobs available for each person estimated to be formally unemployed in September, an increase from August in a data point that Fed Chair Jerome Powell has said he watches closely for evidence U.S. labor markets are becoming better aligned between the number of workers firms want to hire and the number of jobseekers.In the months before the COVID-19 pandemic, when the unemployment rate was also around the current 3.5%, the figure was roughly 1.2. GRAPHIC: Unemployed to job openings – More jobs than jobseekers https://graphics.reuters.com/USA-FED/JOBS/egvbkmeoepq/chart.png The Fed has been hiking interest rates aggressively to slow the worst outbreak of inflation in 40 years. Yet prices, as measured by the central bank’s preferred gauge, have continued to rise at about triple its 2% target, while a resilient labor market has strengthened policymakers’ faith that they can continue to push borrowing costs higher if needed without a major hit to jobs. GRAPHIC: Rates up, inflation sideways, https://graphics.reuters.com/USA-FED/INFLATION/gkvlgnaywpb/chart.png Another closely watched number from the monthly Job Openings and Labor Turnover Survey showed more than 4 million people quit their jobs in September, roughly half a million more than the levels seen just before the pandemic.Quits are seen as a sign of labor market strength, evidence that people either have a more attractive option in front of them or are confident of finding one.The number of people laid off declined in September.Since the start of the year “there has been some cooling,” in the labor market, with measures like the quits rate coming off of historic highs, said Nick Bunker, head of economic research at Indeed Hiring Lab. But “how much has it moderated? One degree? A couple? Either way it has not dropped fast enough” for an “impatient” Fed. UNCOOPERATIVE DATAThe jobs openings survey will have little influence over the Fed’s expected approval of a 75-basis-point rate increase at this week’s policy meeting. But it could shape how officials frame that decision and how it is characterized by Powell in a news conference shortly after the release of the policy statement on Wednesday.Balanced against the strength of the labor market is evidence that a slowing of inflation may be in the pipeline. Private data, for example, indicates rents are beginning to decline, and a new manufacturing survey showed input prices fell in October – a sign that goods price inflation will also slow. GRAPHIC: Rent inflation slows https://graphics.reuters.com/USA-FED/INFLATION/zjpqjqezkvx/chart.png That has not yet been seen in headline inflation numbers, and the combination of high inflation reports and scant evidence that the job market is cracking may leave the Fed in a more aggressive posture, even if it does raise rates in smaller increments at future policy meetings.Some policymakers, such as Fed Governor Christopher Waller, have said they expect much of the tension in the labor market can be relieved by companies scaling back hiring plans – an outlook that will be foiled if job openings continue to rise. GRAPHIC: A shift in the Beveridge Curve? https://graphics.reuters.com/USA-FED/JOBS/zgpomomzqpd/chart.png The jump in job openings “is another example of data ‘not cooperating’ with the Fed’s desire to slow the pace of rate hikes,” Citi analysts wrote. “Resilient data raises further the risk that any slowdown is paired with hawkish communication that policy rates could rise for longer and to higher terminal rates.” More

NEW YORK (Reuters) -The criminal tax fraud trial of the Trump Organization went on hold on Tuesday after the company’s controller, Jeffrey McConney, who had been testifying as a prosecution witness, tested positive for COVID-19.McConney had been coughing during his testimony earlier in the day and on Monday after he took the stand as the first witness in the trial. He tested positive after complaining of illness during Tuesday’s lunch break.Justice Juan Merchan, who oversees the case in Manhattan Supreme Court, said the trial could resume on Nov. 7 if the 67-year-old McConney felt better. He said court protocol called for McConney to isolate for six days.The unexpected delay came after McConney testified that the Trump Organization paid well over $1 million in untaxed benefits for Allen Weisselberg, its longtime former chief financial officer.McConney’s testimony could bolster prosecutors’ argument that the former president’s company improperly paid Weisselberg off-the-books benefits to keep him happy by reducing his tax bill, and save money itself.The Trump Organization, which operates hotels, golf courses and other real estate around the world, was charged in 2021 by the Manhattan district attorney’s office with awarding executive perks over 15 years without reporting the additional income to tax authorities, and falsely reporting bonuses as non-employee compensation.If convicted, the company could face $1.6 million in fines. A conviction could also complicate its ability to do business.The case is one of several legal matters faced by Donald Trump, as the Republican former president, 76, weighs another White House run in 2024 after losing to Democrat Joe Biden in 2020.Trump has not been charged, while two Trump Organization units have pleaded not guilty.Weisselberg pleaded guilty and agreed to testify for the prosecution, which viewed him as a prime beneficiary of the tax scheme.The plea agreement calls for Weisselberg to serve five months in jail. He remains on the Trump Organization’s payroll, but stepped down as CFO after being charged.TRUMP WAS ‘THE BOSS’McConney’s illness was disclosed outside the jury’s presence by prosecutor Joshua Steinglass, who told Merchan that the district attorney’s office had arranged for a COVID-19 test.The judge later said that McConney tested positive.McConney has worked for the Trump Organization since 1987, and received immunity after testifying to a grand jury.Before being sidelined, McConney testified that Weisselberg’s $540,000 annual salary and $400,000 annual bonus did not change for a decade, but that he was awarded perks including rent and private school tuition payments. McConney said that before becoming president, Trump would decide how much Weisselberg would be paid each year.”Prior to 2017, he was the boss,” McConney said, referring to Trump.McConney was shown a 2005 lease that Trump signed for a $6,500-a-month Manhattan apartment for Weisselberg and his wife. “That is President Trump’s signature,” McConney testified, looking at Trump’s trademark black Sharpie signature.He said one of Trump’s companies paid about $1 million in rent, more than $80,000 in utilities and $45,000 for parking, and more than $195,000 for Mercedes-Benzes for Weisselberg and his wife between 2005 and 2017.McConney said Trump personally signed more than $315,000 in checks for private school tuition for Weisselberg’s grandchildren, and Weisselberg received more than $29,000 in cash to disperse as Christmas gifts.The controller also said other Trump entities, including a golf club and his Mar-a-Lago club in Florida, paid bonuses to some Trump Organization employees that would make them appear to be independent contractors instead of employees.It was not until 2017 or 2018, by which time Trump’s sons Donald Jr and Eric had taken the helm, that the company changed its practices after a memo from its tax lawyer, McConney said.McConney remains on the Trump Organization’s payroll, and prosecutors view him as a hostile witness. More

NEW YORK (Reuters) – As the market widely anticipates the U.S. Federal Reserve to hike interest rates by another 75 basis points this week, several parts of the U.S. Treasury yield curve point to an upcoming recession.The U.S. central bank has hiked interest rates aggressively this year to fight inflation. Curve inversions essentially reflect traders’ expectations that the Fed will need to cut rates later on to help an economy hurt by higher borrowing costs. The Fed is on Wednesday expected to hike its target overnight lending rate to a 3.75%-4.00% range. Yields on two-year Treasuries have been significantly above those of 10-year Treasuries since early July. Other parts of the curve that the Fed sees as more reliable warnings an economic contraction is expected have also inverted, or have flattened significantly, in recent weeks. Here is a quick primer on what a steep, flat or inverted yield curve means, how it has predicted recession, and what it might be signaling now. WHAT SHOULD THE CURVE LOOK LIKE? The U.S. Treasury finances federal government budget obligations by issuing various forms of debt. The $24 trillion Treasury market includes bills that mature in one month to one year, two- to 10-year notes, and 20- and 30-year bonds. The yield curve, which plots the return on all Treasury securities, typically slopes upward as the payout increases with the duration. Yields move inversely to prices. A steepening curve typically signals expectations for stronger economic activity, higher inflation, and higher interest rates. A flattening curve can mean investors expect near-term rate hikes and are pessimistic about economic growth further ahead.HOW DOES THE CURVE LOOK NOW?Investors watch parts of the yield curve as recession indicators, primarily the spread between three-month Treasury bills and 10-year notes, and the two- to 10-year (2/10) segment.Yields on two-year Treasuries stood at 4.523% on Tuesday while the 10-year were at 4.035%. That curve has been in deep negative territory for several months now.The curve plotting yields of three-month bills against those of 10-year notes, which had already inverted in intraday trading in July, has turned negative late last month, closing inverted for the first time since early 2020. That negative yield spread stood at -12.1 basis points on Tuesday.Another part of the curve that Fed Chair Jerome Powell has indicated as a more reliable harbinger of recession has flattened significantly, and some analysts said it could invert soon. What Fed economists call near-term forward yield spreads – namely the differential between the three-month Treasury yield and what the market expects that yield to be in 18 months – stood at around 25 basis points on Tuesday.A similar curve, that shows a spread between where money markets expect the three-month federal funds rate to be in 18 months and the current three-month federal funds rate, inverted briefly in July and turned negative again late last month. That spread – measured through overnight indexed swap (OIS) rates, which reflect traders’ expectations on the federal funds rate – stood at about -16 basis points on Tuesday. WHAT DOES AN INVERTED CURVE MEAN?The inversions suggest that while investors expect higher short-term rates, they may be growing nervous about the Fed’s ability to control inflation without significantly hurting growth. The Fed has already raised rates by 300 basis points this year. The U.S. curve has inverted before each recession since 1955, with a recession following in six to 24 months, according to a 2018 report by researchers at the San Francisco Fed. It offered a false signal just once in that time. That research focused on the part of the curve between one- and 10-year yields.Anu Gaggar, Global Investment Strategist for Commonwealth Financial Network, found that the 2/10 spread has inverted 28 times since 1900. In 22 of these instances, a recession followed, she said in June.For the last six recessions, a recession on average began six to 36 months after the curve inverted, she said.Before this year, the last time the 2/10 part of the curve inverted was in 2019. The following year, the United States entered a recession, albeit one caused by the pandemic. WHAT DOES THIS MEAN FOR THE REAL WORLD? While rate increases can be a weapon against inflation, they can also slow economic growth by raising borrowing costs for everything from mortgages to car loans. The yield curve also affects consumers and business. When short-term rates increase, U.S. banks raise benchmark rates for a wide range of consumer and commercial loans, including small business loans and credit cards, making borrowing more costly for consumers. Mortgage rates also rise. When the yield curve steepens, banks can borrow at lower rates and lend at higher rates. When the curve is flatter their margins are squeezed, which may deter lending. More

WELLINGTON (Reuters) -The Reserve Bank of New Zealand said on Wednesday the country’s financial system is as a whole resilient but global financial stress will test this.”The rising global interest rates necessary to curb inflation will test New Zealand’s financial resilience,” Governor Adrian Orr said in the bank’s financial stability review, which is released twice a year.”While our financial system as a whole is resilient, some households and businesses will be challenged by the rising interest rate environment,” Orr added.The RBNZ added there are increasing downside risks to the global economic outlook and despite New Zealand’s high levels of employment and a sound government fiscal position, the country is not immune to these risks.New Zealand’s central bank has aggressively hiked interest rates as it has sought to get on top of a red-hot housing market and soaring inflation. The cash rate is now at its highest level in seven years and mortgage rates have risen sharply putting pressure on housing markets with sharp falls in some locations and a reduction in sales.The central bank, however, said house prices remain above their sustainable level, and that a further gradual decline would be positive for long-term financial stability.However, it adds a small number of recent buyers are in negative equity, and this will continue to grow if prices continue to fall. “With widespread negative equity, banks would be more at risk of losses if people can no longer afford their mortgage, for example if they lose their job,” the RBNZ said. More

Chinese celebrities have been banned from endorsing a clutch of health and education services, signalling a new phase in President Xi Jinping’s campaign to overhaul the country’s corporate and social landscape. The rules, which ban entertainers and influencers from backing the products via social media, television commercials, live-streams and interviews, will constrict the lucrative world of star endorsements. Private tutoring and health foods, as well as tobacco products, healthcare and medical equipment are among the targeted industries, according to a notice issued by Beijing’s top market regulator, the State Administration for Market Regulation, along with six other government agencies. “Celebrities should consciously practise socialist core values ​​in their advertising endorsement activities,” the rules stated. “Activities should conform to social morals and traditional virtues.” Since late 2020, Xi has spearheaded a broad-based crackdown on China’s corporates, including the tech and entertainment industries, as well as wealthy businesspeople. The latest clampdown was announced as the Chinese president intensifies his drive to reform social values and youth culture in the world’s most populous country, under the banner of “common prosperity”.What do you think of the ban? Tell us in our poll below. Thanks for reading FirstFT Asia. — Emily

Five more stories in the news1. Bolsonaro’s team appears to accept election defeat Brazil’s outgoing leader Jair Bolsonaro has appeared to accept his defeat to Luiz Inácio Lula da Silva, although he did not explicitly concede, breaking his silence two days after the men faced off in a bitterly contested presidential election.Market reaction: There was cautious reaction to Lula’s victory as investors awaited clearer signals on the president-elect’s economic programme. But some have already made up their minds.2. Musk outlines Twitter premium subscription plan Elon Musk has said Twitter will offer a premium subscription service for $8 a month that will verify users, boost the visibility of their posts and allow them to see fewer advertisements, in his first step towards overhauling the product since he took the reins at the company last week.3. Exit polls give Netanyahu’s rightwing bloc slim lead Israel’s former prime minister Benjamin Netanyahu is in pole position to emerge victorious from Tuesday’s parliamentary elections, according to exit polls that put his rightwing bloc on course for a razor-thin majority.4. Bumper profits raise pressure on oil majors Profits at two of the world’s largest oil producers soared as BP and Saudi Aramco reaped a windfall from historically high energy prices that have fuelled inflation and stoked a global cost of living crisis. Saudi Aramco reported its second-highest quarterly profits since listing its shares in 2019, as BP’s earnings put it on course for one of the most profitable years in its history.Interview: Japan’s near total dependence on imported energy means it cannot “survive” without continuing to buy oil and gas from Russia, said the head of one of the country’s big five trading houses.5. Ocado shares soar on new South Korea retail partnership Ocado shares surged by more than a third yesterday after it announced its first major deal since 2019, to provide retail technology for Lotte Shopping, one of South Korea’s largest companies. Ocado will help the South Korean group develop its online business and build a network of warehouses with advanced storage and automated picking systems to fulfil customer orders.More earnings news from Asia: Toyota’s quarterly operating profit fell 25 per cent from a year earlier as the world’s largest carmaker warned that it was struggling to cope with yen volatility, interest rate rises in the US and production disruption caused by China’s coronavirus lockdowns.The day aheadHong Kong investment summit The Global Financial Leaders’ Investment Summit, which kicks off today, was set to reassert its place as an international finance centre. But positive Covid tests and an approaching tropical storm have already damped expectations. (Bloomberg) New Zealand reserve bank financial stability report An initial analysis of the Reserve Bank of New Zealand’s climate stress test, part of the November 2022 Financial Stability Report set to be released today, highlighted the risk that river flooding poses to lenders’ residential mortgage portfolios. (Reuters) Federal Reserve interest rate decision The US Federal Reserve is set to announce its decision on interest rates today. Federal Open Market Committee is expected to implement its fourth consecutive 0.75 percentage point rate rise.What else we’re readingGermany struggles with China dependency If the war in Ukraine exposed the folly of Germany’s decades-long reliance on Russian gas, Berlin is about to pick up a bigger tab for its even deeper dependence on China. The country has long been one of the largest markets for German machinery, chemicals and cars.

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Unilever to extend four-day working week trial to Australia More than half of Unilever’s 900 Australian workers will begin working four-day weeks from November 14. The extension of Unilever’s trial represents a boost to the global campaign for four rather than five-day schedules, which argues that the shorter week helps staff become happier, healthier and more productive.There is no need for defeatism on climate change The reasons not to be cheerful on climate change are obvious, writes Pilita Clark. So what grounds are there for optimism? One big reason: governments and regulators are finally getting serious, and taking unprecedented steps that would have been unthinkable even a year ago.We do need a digital town square Musk is right, to say that, over time, the number of shared spaces where such disagreements can be hashed out has shrunk, writes Stephen Bush. But the question is whether he can make Twitter the place to peacefully hash out our disagreements.Imran Khan bids to regain power in Pakistan The country’s ousted prime minister and former cricket star has embarked on a week-long march through Pakistan’s largest province, Punjab, to the capital Islamabad, hoping to whip up a large enough show of support to topple the government of rival Shehbaz Sharif and force early elections.ArtGiuseppe Eskenazi, 83, has been selling East Asian art for five decades. His family’s gallery has long been at the pinnacle of London’s scene, even as tastes and clients have changed. His latest exhibit: ‘50 Years of Exhibitions’ runs to February 3 2023. More

If the Federal Reserve’s chair, Jerome H. Powell, and his colleagues look at company earnings reports, these themes might catch their eye.Federal Reserve officials are battling the fastest inflation in four decades, and as they do they are parsing a wide variety of data sources to see what might happen next. If they check in on how executives are describing their companies’ latest financial results, they might have reasons to worry.It’s not because the corporate chiefs are overly gloomy about their prospects as the Fed aggressively raises interest rates to control rapid inflation. Quite the opposite: Many executives across a range of industries over the last few weeks have said they expect to see sustained demand. In many cases, they plan to continue raising prices in the months ahead.That is good for investors — the S&P 500 index gained 8 percent last month as companies began reporting quarterly profits — but not necessarily welcome news for the Fed, which has been trying hard to slow consumer spending. The central bank has already raised rates five times this year and is expected to do so again on Wednesday as part of its campaign to cool off the economy. Although companies have warned that the economy may slow and often talk about a tough environment, many are not seeing customers crack yet.“While we are seeing signs of economic slowing, consumers and corporates remain healthy,” Jane Fraser, the chief executive of Citigroup, told investors recently. “So it is all a question of what it takes to truly tame persistently high core inflation.”If companies continue to charge more and consumers are still willing to pay, inflation will be harder to stamp out. That could push the Fed to keep up its push to curb momentum — and if officials must do more to wrestle prices down, it could increase the risk of financial turmoil, higher unemployment or other bad outcomes. Although some companies are reporting a nascent slowdown, the signs are far from conclusive.Demand remains strong despite higher prices.McDonald’s expects to raise prices 10 percent at its restaurants in the United States this year, its leaders said when reporting better-than-expected sales and profits for the third quarter.“I think because of the strength of the brand and the proposition as evidenced by the results, the consumers are willing to tolerate it,” said Chris Kempczinski, the fast-food giant’s chief executive.Inflation F.A.Q.Card 1 of 5What is inflation? More