Economy

TOKYO (Reuters) – Japanese currency authorities declined on Monday to confirm whether the government had intervened in the currency market on Friday, signalling their determination to engage in a war of nerves with traders selling the yen.Any respite from such an intervention appeared to be brief, however, with dollar/yen rising 1.3% to 149.54 in early trade on Monday before easing slightly on fears of more interventions.Sources told Reuters that the dollar’s plunge by as much as by 7 yen overnight on Friday was caused by authorities’ yen-buying action for the second time in as many months. On Sept. 22 they stepped in to prop up the yen for the first time since 1998.Japan announced that intervention but has since remained mum on whether it were taking any further action in the currency market.”I won’t comment,” Finance Minister Shunichi Suzuki told reporters at the finance ministry, when asked about intervention.”We absolutely cannot tolerate excessive moves in the foreign exchange market based on speculation,” Suzuki told reporters at the finance ministry.Masato Kanda, vice finance minister for international affairs, also declined to comment on intervention.Both Suzuki and Kanda said they were ready to take appropriate steps against any excessive currency volatility. More

Kubelkova, who joined the board in July, said while a rise in domestic demand would signal the need for a further tightening in monetary policy, this was not materialising. “Latest data show that people are ceasing to spend and consumption is beginning to slow, and is even declining in some market segments,” she told daily Lidove Noviny in her first public remarks since joining the board.The bank halted a previous cycle of rate hikes under new Governor Ales Michl, who also took his post in July, and signalled rate stability for an extended period. The bank had raised its main rate to 7% by June this year, while inflation reached 18% year-on-year in September.Wage growth surprised on the upside in the second quarter, Kubelkova said, though she added she was not as worried as some of her board colleagues about a wage-inflation spiral, as she expected a compromise in wage talks between employers and unions.Kubelkova said the central bank’s months-long running market interventions to prop up the crown currency’s exchange rate had been an exceptional tool that was helping to reduce the bank’s large balance sheet built up in previous years.She said data showed the bank did not intervene much in August, and that she believed the crown’s exchange rate would be roughly where it was now even without interventions.The crown, propped up by billions of euros in interventions in the past months, has outperformed regional peers the Hungarian forint and the Polish zloty, staying stable at around 24.5 to the euro, up 1.4% so far this year. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeeverChinese politics, Japanese policy.Remarkable developments on both fronts over the last 48 hours will be the talk of Asian trading floors on Monday – the former with longer-term economic consequences, and the latter potentially sparking more immediate market fireworks.In Beijing, China’s Xi Jinping has secured a historic third leadership term, becoming the country’s most powerful ruler since Mao Zedong. His grip on the Communist Party – and the country – appears to be iron. This was offered up for public consumption on Saturday when former President Hu Jintao was unexpectedly escorted out of the Party Congress’s closing ceremony. Video footage showed Hu, who was sitting next to Xi, looking distressed and confused. Xi’s cabinet reshuffle may also see central bank chief Yi Gang stepping down and being replaced by former deputy governor Yin Yong, according to sources. “The pro-reform camp is almost out,” says one. Meanwhile, Japan intervened in the FX market on Friday after the yen slumped to a new 32-year low close to 152.00 per dollar. However many dollars Tokyo sold, it packed a punch – the greenback sank more than 7 yen to low of 144.50 before ending the day around 147.50. But it remains to be seen whether this turns the yen-selling tide, or whether the FX market reloads and goes again. As long as the U.S.-Japanese monetary policy chasm is in place, traders will feel there is still juice in the long dollar/short yen trade, despite the specter of Japanese intervention.Although the intervention was a “success”, the dollar around 147.50 yen today is stronger than it was when Tokyo last intervened selling almost $20 billion on Sept. 22. Then, the dollar was just below 147.00 yen. History suggests this is not over yet.Key developments that could provide more direction to markets on Monday:Australia PMIs (October)Japan PMIs (October)U.S., European PMIs (October) More

Hello and welcome to the working week.We are living in a moment when even seemingly the most secure of diarised events evaporate: last week’s Chinese GDP announcement being a prime example (now due this week) and of course anything to do with the UK government.Talking of the UK political news diary, since Liz Truss became PM in early September we have been on a cycle of significant shocks happening at the end of the week — the “mini” Budget, and the sacking of chancellor Kwasi Kwarteng being two examples. Now she’s gone, the trend may well continue. One thing is for certain, we will have a successor by Friday. The FT’s team of parliamentary pundits will be on hand to guide you through these next few days, notably Stephen Bush of the Inside Politics newsletter — sign up here if you haven’t already. Read this one for a clear outline of the process and why a Sunak vs Boris contest is the most likely outcome on Monday. Read this also to learn more about who is more likely to unite the party. By the way, this Friday also happens to be the western church’s feast day of St Jude, patron saint of lost causes. Just saying.It is not just seemingly secure economic and political diary items that can be torn out of the schedule at a moment’s notice. Court hearings are often postponed. With that proviso, Monday is the date set for the criminal trial of former US president Donald Trump’s family company over tax fraud charges brought by Manhattan’s district attorney to begin in a New York courtroom. Read this for a full briefing on the case.One thing that will be decided this week — having almost been decided earlier this month — is the election of Brazil’s next president. The second round of voting takes place on Sunday, after an ugly contest. Of course, both of the candidates have done this job before. And whoever wins will face enormous economic and social challenges in a country polarised politically.As ever, thank you for your comments about this newsletter. Keep them coming, either by hitting reply or emailing [email protected] dataInterest rates, inflation and GDP are the headlines for economic news this week. Is it ever thus in this year of disruption?The European Central Bank, now battling record high double-digit inflation in the eurozone, will announce its next monetary policy move on Thursday with expectations high for a 75 basis point increase. Earlier that day the Bank of Japan’s rate-setting committee begins its two-day meeting with the country’s ultra-loose policy expected to be maintained.There will be another chance for speculation about the US Federal Reserve’s next rate move with an updated estimate of third-quarter GDP growth in the US indicating whether recession has become more or less likely in the coming months. Germany, where there are growing concerns that the country is already tipping into recession, will also update its quarterly GDP estimate.The purchasing managers’ index (PMI) reports on Monday will allow us some international comparisons, and provide probably the most significant economic data for the UK of this week.There are unemployment and inflation rate updates from Japan, Australia, Italy and Hungary.CompaniesWe’ve reached peak earnings season, again. No trains, but plenty of planes and automobiles this week — BA’s parent International Consolidated Airlines Group, Southwest Airlines, Ford Motor Company, Harley-Davidson, Hyundai Motor Company and JetBlue Airways are all reporting. The most obvious linking factor for all these companies is the cost of fuel. But for the airlines, there is also a problem getting the planes, according to my colleagues.Big Tech will be out in force too with earnings updates from Spotify, Amazon, Apple, Alphabet, Meta, Microsoft. It is the best of times and worst of times for British banks. Rising interest rates are helping the bottom line of HSBC, Barclays, NatWest and Lloyds Banking Group, but that has also made them a windfall tax target for a UK government desperate to fill a £40bn fiscal spending hole. There are specific challenges. With regards to HSBC, Jonathan Pierce at Numis says: “The main focus may be capital, which could fall well below target given a combination of the France disposal and rate related headwind”.Given the Brazilian elections taking place this week, it is also worth mentioning that the country’s most valuable listed company, Petrobras, will give a production and sales update on Monday. What’s next for the energy company? Ask our man in São Paulo, Michael Pooler.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayEurozone, France, Germany, Japan, UK, US: S&P Global/Sips flash composite (manufacturing and services) purchasing managers’ index (PMI) dataResults: Heidrick & Struggles Q3, Hyundai Motor Q3, Pearson Q3 trading update, Petrobras Q3 production and sales report, Philips Q3,TuesdayBrazil, Banco Central do Brasil monetary policy committee interest rate decisionGermany, Ifo business confidence surveyHungary, interest rate decisionJapan, monthly unemployment figuresPoland, September unemployment figuresSingapore, consumer price index (CPI) inflation rate dataSweden, Spain: producer price index (PPI) inflation rate dataUS, October consumer confidence indexResults: Alphabet Q3, Carrefour Q3 sales, Corning Q3, General Electric Q3, Halliburton Q3, HSBC Holdings Q3 trading statement, JetBlue Airways Q3, Juniper Networks Q3, Kuehne+Nagel Q3, Mattel Q3, Microsoft Q1, NCR Q3, Norsk Hydro Q3, Novartis Q3, Orange Q3, Randstad Q3, Raytheon Technologies Q3, SAP Q3, Shoe Zone FY trading statement, Spotify Q3, THG Q3 trading statement, UBS Q3, United Parcel Service Q3, Visa Q4, Whitbread H1, Xerox Q3WednesdayCanada, Bank of Canada interest rate announcementJapan, September PPI inflation rate dataRussia, industrial output figuresUK, employee earnings dataUS, new home salesResults: Accor Q3, Atos Q3, Banco Santander Q3, Barclays Q3 trading update, BASF Q3, Bloomsbury Publishing H1, Boeing Q3, Chubb Q3, Dassault Systemes Q3, Deutsche Bank Q3, Ford Motor Company Q3, General Dynamics Q3, Harley-Davidson Q3, Heathrow airport Q3, Heineken Q3 trading update, Hilton Worldwide Holdings Q3, KPN Q3, Kraft Heinz Company Q3, Mercedes-Benz Q3, Meta Q3, Moncler Q3, Puma Q3, Reckitt Benckiser Q3, Standard Chartered Q3, Telenor Q3, Thales Q3, UniCredit Q3, UMC Q3, WPP Q3 trading update, Wyndham Hotels and Resorts Q3ThursdayInternational Energy Agency (IEA) world energy outlook reportEU, European Central Bank monetary policy meeting meetsGermany, Gfk consumer confidence surveyJapan, Bank of Japan’s October rate-setting meeting beginsSouth Korea, Q3 GDP figuresSpain, monthly unemployment figuresUK, CBI distributive trades surveyUS, Q3 GDP figuresResults: Amazon.com Q3, Anglo-American Q3 production report, Anheuser-Busch InBev Q3, Apple Q4, Brunswick Q3, Campari Q3, Carlsberg Q3 trading statement, Caterpillar Q3, Cemex Q3, Clariant Q3, Comcast Q3, Credit Suisse Q3, Danone Q3 sales, EDF Q3, Foxtons Q3 trading update, Fujitsu H1, HelloFresh Q3, Inchcape Q3 trading statement, Intel Q3, Kerry Group Q3, Lufthansa Q3, Lloyds Banking Group Q3 management statement, Mastercard Q3, McDonald’s Q3, Merck & Co Q3, Samsung Q3, Shell Q3 trading update, Shopify Q3, Southwest Airlines Q3, STMicroelectronics Q3, TotalEnergies Q3, Unilever Q3 trading updateFridayAustralia, Q3 PPI inflation rate dataCanada, August GDP figuresFrance, monthly consumer spending data and flash Q3 GDP figuresGermany, flash Q3 GDP and monthly CPI figuresEU, business and consumer confidence surveysItaly, flash October CPI inflation rate dataJapan, labour force surveyRussia, key policy rate decisionSpain, preliminary Q3 GDP figuresTaiwan, preliminary Q3 GDP figuresUK, insolvency figuresResults: Airbus Group Q3, Air Canada Q3, Computacenter Q3 trading update, Electrolux Q3, Eni Q3, Equinor Q3, ExxonMobil Q3, Glencore Q3 production report, IAG Q3, Kongsberg Gruppen Q3, NatWest Q3, OMV Q3, Piaggio Q3, Swiss Re Q3, Volkswagen Q3World eventsFinally, here is a rundown of other events and milestones this week. MondayCanada, Ontario municipal electionsIndia, Sri Lanka: national holiday for the Diwali festival of lightsJapan, 35th Tokyo International Film Festival opensUK, Nearly 600 Unite the Union members working as port operatives, maintenance engineers, senior control room operators and control room operators at Liverpool docks begin two weeks of strike action in a dispute over pay. Also, CWU members at BT Group and Openreach, including 999 call handlers, take further strike action over pay. Separately, the GMB union opens a strike ballot among 15,000 ambulance workers across 11 trusts in England and Wales in a dispute over pay.UK, long-awaited opening of Bond Street station on London’s cross city express railway the Elizabeth LineUS, jury trial begins in the criminal case against the Trump Organization in New York. Charges include criminal tax fraud, falsifying business records, filing false tax returns, and a scheme to defraud the state. Company owner former president Donald Trump has called the charges a “political witch-hunt”.Zambia, independence day public holidayTuesdayEU, German chancellor Olaf Scholz and European Commission president Ursula von der Leyen host a conference on postwar reconstruction of Ukraine in BerlinGrenada, Thanksgiving public holidayTaiwan, the World Movement for Democracy’s 11th Global Assembly begins in TaipeiWednesdayUK, the largest independent film festival in the UK, the Raindance Film Festival, begins ThursdayUK, the Royal British Legion launches its annual poppy appeal ahead of Armistice Day and Remembrance Sunday next monthFriday60th anniversary of the Cuban Missile Crisis endingCzech Republic, Independence Day public holidayUK, Northern Ireland secretary Chris Heaton-Harris expected to call an Assembly election if power-sharing isn’t restored to the devolved governmentUS, 2022 World Series baseball playoffs beginSaturdaySlovakia, municipal and regional electionsSundayEuropean Daylight Saving Time endsBrazil, second round of voting in the country’s presidential electionRussia, annual day of remembrance for the victims of Stalin’s purges More

Following are latest events, comments and context:POLITICS * Johnson and his former finance minister Sunak are leading the contenders to be the next prime minister following Liz Truss’ resignation after just six weeks in office.* Sunak, whose resignation in July triggered Johnson’s removal, vowed to tackle the country’s “profound economic crisis” with “integrity, professionalism and accountability”.* Truss was brought down by an economic programme that roiled financial markets, pushed up living costs for voters and enraged much of her own party.* Candidates are canvassing support among Conservative Party lawmakers to become party leader – and prime minister – in a fast-tracked contest.* Johnson, who was ousted by his lawmakers in July but remains popular with party members, is aiming to make what would be an extraordinary political comeback.* Former defence minister Penny Mordaunt has also joined the contest to become the country’s fifth prime minister in six years.* The leadership election will be completed by Friday to replace Truss, the shortest serving prime minister in British history. The first results will be announced at 1700 GMT on Monday.* A nationwide election need not be called for another two years, but opposition parties said voters should now be given a say. Labour Party leader Keir Starmer said the battle at the top of Conservatives was a “ridiculous, chaotic circus”. * Labour leads the government by more than 30 points in some opinion polls. ECONOMY* British shoppers cut their spending sharply in September while public borrowing grew by more than expected, underscoring the challenge facing new finance minister Jeremy Hunt and whoever succeeds Truss as prime minister.* Hunt reiterated on Friday that the government will do “whatever is necessary” to drive down debt in the medium term.MARKETS * Sterling fell on Friday, weighed by the economic and political uncertainty. Analysts reckon that markets will need some time to thoroughly shake off the political risk premium built over recent weeks.WHAT’S BEHIND THE CRISIS?* Britain’s financial markets were plunged into turmoil on Sept. 23 after then-new finance minister Kwasi Kwarteng announced billions of pounds of unfunded tax cuts.* The Bank of England was forced into emergency bond-buying to stem a sharp sell-off in Britain’s $2.3 trillion government bond market that threatened to wreak havoc in the pension industry and increase recession risks. * Kwarteng’s replacement Jeremy Hunt on Monday scrapped “nearly all” of the economic plan and scaled back Truss’s vast energy support scheme, announced in September, in a historic U-turn to try restore investor confidence. * The BoE interventions have highlighted a growing segment of Britain’s pensions sector – liability-driven investment. GRAPHIC: UK market turbulence (https://fingfx.thomsonreuters.com/gfx/mkt/byvrjzabbve/Pasted%20image%201665660462480.png) More

An unorthodox interest rate rise of 12 per cent by Hungary’s central bank should be a winner for foreign investors in the €930bn local currency government bond market. The move last week was meant to prevent further depreciation of the forint. That is one of three elements needed to lower the yields and raise the prices of government debt.The other two items to watch are fiscal policy and the release of EU funds. The first looks well anchored. The government has shown determination in keeping spending down. The release of EU funds is less assured. The government seems confident this will happen in December. The EU has yet to say.The central bank’s move had two immediate effects. The forint soared against the euro. It is up almost 4 per cent since the rise on October 14. Bond yields also rose as prices fell, with the benchmark 5-year yield up 0.6 percentage points to 12.23 per cent over the past week, according to Refintiv data. The government hopes the currency will hold its gains and bond yields fall back. It is in with a chance.On Friday, the central bank widened its “interest rate corridor”, between the unchanged policy rate at 13 per cent and the overnight collateralised loan rate, up 9.5 points to 25 per cent. The one-day deposit facility offers 18 per cent, which the bank can raise at will. The aim is to suck liquidity out of the foreign exchange and interbank markets. That is bad news for investors who have shorted the forint since the central bank called a halt to its policy rate tightening cycle last month.The bank also said it would offer foreign currency directly to energy importers, taking a further chunk out of the market. Hungary’s bill for imported energy is about €12bn; that aside, it would run a current account surplus of almost €3bn. It is far more exposed to soaring energy costs and has much less room to diversify supplies, particularly away from Russia, than other countries nearby.Taken together, the bank hopes its measures will strengthen the forint and help it fight inflation by keeping import prices in check. That, along with fiscal discipline, should be good for bondholders. The rest is up to Brussels. More

Joe Biden’s top economic adviser said the US economy had the “strength and resilience” to shield it from a recession, brushing off growing concerns that steep interest rate increases designed to fight inflation will quash the expansion.Brian Deese, the director of the White House’s National Economic Council, spoke to the Financial Times as economists and chief executives are increasingly warning that the world’s largest economy will experience a downturn next year on the back of global weakness and much tighter monetary policy. But the Biden administration is sticking to its view that the US will experience a form of “soft landing” with a shift to slower growth rather than a deep contraction, and a cooling of job growth rather than mass lay-offs. “If we look at where the United States are, two things are clear. One is that we have a degree of strength and resilience in the labour market and household balance sheets and in business investment. That is continuing to move our economy forward, and that’s really important,” Deese said. “The second is that we are in a stronger position than . . . frankly, any other country to navigate through this transition without having to give up those gains.”Deese spoke ahead of midterm elections early next month with polls showing Republicans poised to regain control of the House of Representatives and possibly the Senate. He dismisses surveys showing that US voters disapprove of Biden’s handling of the economy. “I’m a believer that good economic policy ultimately makes good politics because you know, people are quite sensible,” Deese said.The Federal Reserve has ploughed ahead with large 0.75 percentage point rate rises — with a fourth consecutive increase of that size slated for early November — but the US economy has not suffered a big hit from the monetary tightening. Interest-rate sensitive sectors like housing have slowed considerably, but other segments of the economy have shown surprising resilience.So far this year, monthly jobs growth has averaged 420,000 positions. Still a healthy clip, that is down from 562,000 a month in 2021. Inflation, meanwhile, continues to run rampant, with consumer price growth accelerating again last month to bring the annual rate for the “core” measure — which strips out volatile items such as food and energy — to 6.6 per cent. Traders in futures markets for the federal funds rate expect it to peak at 5 per cent next year, suggesting further large rate rises this year and early next. Fed officials are set to begin discussing how to slow the pace of its rate rises while committing to keep rates at a level that restrains the economy for some time.Jay Powell, the chair of the Fed, last month warned that the higher rates rise and the longer they stay at a restrictive level, the lower the odds the Fed can get inflation under control without causing significant economic pain. “No one knows whether this process will lead to a recession or if so, how significant that recession would be,” he said. But most economists now expect the world’s largest economy to tip into a recession in 2023 as job losses mount. Gregory Daco, chief economist at EY Parthenon, forecasts a 0.7 per cent contraction in growth next year, with the labour market shedding 2.8mn jobs and unemployment rising to 5.5 per cent. That is 2 percentage points higher than its current level. Other economists say it is more likely the unemployment rate will top 6 per cent.Several high-profile US business leaders, including David Solomon of Goldman Sachs, Jamie Dimon of JPMorgan Chase, and Jeff Bezos, the executive chair of Amazon, have expressed their own concerns about a possible recession. “The probabilities in this economy tell you to batten down the hatches,” Bezos wrote on Twitter this week.

Meanwhile, the IMF this month downgraded its own estimate of the US economic outlook, forecasting that output would be flat this year and grow by just 1 per cent next year, after a 5.5 per cent burst in 2021.Deese said that the White House was “very focused” and was spending “a lot of time” on “the global challenges that are out there” — whether it was the war in Ukraine or the impact of China’s slowdown. But he said “policy choices matter” on the domestic side and Biden was trying to remain “focused on what are those things that we can do to try to keep . . . our prospects as strong as they can be”. More

Three weeks ago, Sanna Marin, Finland’s prime minister, retweeted a link to an article by a Finnish academic together with the following quote: “There is something seriously wrong with the prevailing ideas of monetary policy when central banks protect their credibility by driving economies into recession.”Defenders of those prevailing ideas predictably pushed back, warning against second-guessing independent central banks or not valuing their credibility. But defensiveness is the wrong response. Not just because Marin didn’t actually criticise any central bank actions. But, more profoundly, because avoiding a debate over whether our macroeconomic regime is fit for purpose is more perilous than having one.Comparisons with the 1970s often fail to notice one important lesson of that decade: a macroeconomic regime that cannot justify itself will be toppled, first intellectually, then politically. It was from the ashes of 1970s monetary chaos that theories were born justifying independent central banks with a mandate to keep inflation low. Before the century was out, independent inflation-targeting was de rigueur in most advanced economies.Forty years on, a new intellectual and political reckoning would be less surprising than the absence of one. The “great moderation” produced by the 1980s monetary revolution has in many countries long been accompanied by stagnant wages for the low paid. The glacial recovery from the global financial crisis prompted the world’s two biggest central banks to revise their policy framework during the pandemic. In 2020 and 2021, the Federal Reserve and the European Central Bank vowed to tolerate a period of higher inflation if employment had further to rise or there would be little room to loosen policy in case of a downturn. But this new attitude fell at the first hurdle.With cost of living crises biting and recessions looming in key advanced economies, what are the odds of avoiding a more profound reckoning for much longer? Marin is not the only national leader expressing unease about central banks. French president Emmanuel Macron recently worried aloud about “experts and European monetary policymakers telling us we must crush European demand to contain inflation better”. Precisely because central bankers are independent, it falls to political leaders to tell their citizens why it is right to meet Russian energy blackmail with actions to clamp down further on incomes and jobs. They would be remiss if they did not question whether this is the best we can do.In comparison, central bankers have it easy. They have legally imposed inflation-fighting mandates, which are not for them to question. And they have an argument: that losing their “credibility” — by which they mean people no longer believe they can keep inflation low — will cost even more jobs and lost income.But the credibility of central banks itself is only as good as the credibility of the macroeconomic regime as a whole. That is not to say central bank independence should be jettisoned, but to ask openly whether it actually works for the economy.In pursuit of individual mandates central banks may be collectively overtightening, as Maurice Obstfeld has suggested. Or monetary policy uncoordinated with fiscal policy may be making matters worse, as Marin hinted in follow-up comments.The IMF has warned governments against budgeting “at cross-purposes” with monetary tightening. But raising interest rates puts monetary policy at cross-purposes with fiscal policy priorities such as investing in the green transition or, indeed, in energy infrastructure that would itself remedy energy-induced inflation. Even if monetary considerations should take priority, such monetary dominance is undoubtedly something to be democratically debated, not technocratically imposed.It may even be that central bankers are not independent enough but cave in to the political pressure arising from each new monthly record in current inflation, rather than coolly focusing on their benign medium-term forecasts.Like in the 1980s, in time bright economists will suggest better ways of designing monetary policy against energy price shocks. And unless we have a lucky escape from a sharp downturn this winter, a political backlash is surely coming too. The alternative to openly debating these issues in a democratic space is to let that backlash fester until it breaks out in the more radical and dangerous form of a populist assault on institutions. Central banks’ credibility would not be worth much [email protected] More