Economy

LONDON (Reuters) – The European Central Bank will go for another jumbo 75 basis point increase to its deposit and refinancing rates when it meets on Oct. 27 as it tries to contain inflation running at five times its target, a Reuters poll found.As in much of the world, euro zone inflation has soared on skyrocketing energy prices and supply chains still healing from the coronavirus pandemic have taken a further hit from Russia’s invasion of Ukraine. The ECB targets inflation at 2.0%, yet it was 10.0% last month. It will average at a peak of 9.6% this quarter, higher than thought last month, before gradually drifting down but will not reach target until late 2024, the poll found.”Inflation is far too high. Rapid rate rises are needed. However, the ECB also needs to keep an eye on bond spreads, so more than 75bps seems unlikely,” said Brian Martin at ANZ.Much of the price pressure is coming from energy costs. With no end in sight to the Russia-Ukraine conflict, nearly 65% of 34 respondents said the cost of living in the euro zone would worsen or worsen significantly. Only 12 said it would improve.”The worst impact of the energy crisis on the household sector will develop in Q4 2022 and Q1 2023, when the demand for gas is seasonally higher,” said Luca Mezzomo at Intesa Sanpaolo (OTC:ISNPY). (Graphic: Reuters Poll – Euro zone economic outlook, https://fingfx.thomsonreuters.com/gfx/polling/zjpqkxrzbpx/Reuters%20Poll%20-%20Euro%20zone%20economic%20outlook.PNG) In the run-up to winter, forecasters are expecting the ECB to be more aggressive in tightening policy. The bloc’s central bank will take the deposit rate to 1.50% and the refinancing rate to 2.00% next Thursday, a view held by an overwhelming majority of respondents in the Oct. 12-18 Reuters poll of more than 60 economists. Three-quarters of respondents to an additional question, 27 of 36, said the bank ought to choose a 75 basis point lift to the deposit rate while two said it should go harder with a 100 basis point increase. Only seven recommended 50 basis points. (Graphic: Reuters Poll – ECB monetary policy outlook, https://fingfx.thomsonreuters.com/gfx/polling/dwvkroxbbpm/Reuters%20Poll%20-%20ECB%20monetary%20policy%20outlook.PNG) SHORT AND SHALLOW?The ECB’s first increase did not come until July, when it added 50 basis points to all its rates – taking the deposit rate to zero, its first time not in negative territory since 2014 – and followed that up with a 75 basis point lift in September.That was slow compared to peers like the United States Federal Reserve, which has contributed to a fall in the euro to below parity to the U.S. dollar.By year-end the deposit and refinancing rates were forecast to be at 2.00% and 2.50% respectively compared to 1.25% and 2.00% predicted in a September poll.The deposit rate was expected to reach a peak of 2.50% next year and the refinancing rate 3.00%, higher than the 1.50% and 2.00% highs given in September. The highest forecast was for them to reach 4.00% and 4.50%.The ECB has promised more hikes and begun a debate about unwinding its 3.3 trillion euros ($3.25 trillion) of bond purchases – the legacy of its fight against deflation in the last decade.Two hawks on the ECB’s Governing Council called last week for more hikes to fight runaway price rises. But the central bank is also facing a recession in the bloc and economists in the poll gave a median chance of 70% of one within a year.Asked what type of recession it would be, 22 of 46 respondents said it would be short and shallow while 15 said it would be long and shallow. Eight said it would be short and deep and only one said it would be long and deep.The economy was expected to grow 3.0% this year but flatline in 2023 before returning to growth in 2024 and expanding 1.5%. In September’s poll those forecasts were 2.9%, 0.4% and 1.6%.(For other stories from the Reuters global economic poll:)($1 = 1.0144 euros) More

Filers whose salaries have not kept pace with inflation could see savings on their federal income tax bills.WASHINGTON — The rapidly rising cost of food, energy and other daily staples could allow many Americans to reduce their tax bills next year, the I.R.S. confirmed on Tuesday.Tax rates are adjusted for inflation, which in typical times means incremental movements in the thresholds for what income is taxed at what rate. But after a year that brought America’s fastest price growth in four decades, the shift in rates is far more notable: an increase of about 7 percent.Other parts of the tax code will also be affected by the inflation adjustment. Those include the standard deduction Americans can claim on their tax returns.The shift would be slightly larger if not for a change Republicans made as part of President Donald J. Trump’s tax overhaul that was passed in 2017. It tied rates to a measure of inflation, called the chained Consumer Price Index, that typically rises more slowly than the standard Consumer Price Index. In September, chained C.P.I. was up about a quarter of a percentage point less, compared with the previous year, than standard C.P.I.In dollar figures, the shift will be largest at the highest end of the income spectrum, although all seven income brackets will adjust for inflation. The top income tax rate of 37 percent will apply next year to individuals earning $578,125 — or $693,750 for married couples who file joint returns. That is up from $539,900 for individuals this year. The difference: Nearly $40,000 worth of individual income is eligible to be taxed next year at a lower rate of 35 percent.Inflation F.A.Q.Card 1 of 5What is inflation? More

Suzuki also said the government would “properly respond” in the foreign exchange market based on existing policy, according to Jiji.The comments came as the yen traded near a 32-year trough to the dollar at 149 yen, putting the major psychological barrier of 150 in focus. More

Federal Reserve officials are barreling toward another three-quarter-point increase in November, and they may decide to do more next year.Federal Reserve officials have coalesced around a plan to raise interest rates by three-quarters of a point next month as policymakers grow alarmed by the staying power of rapid price increases — and increasingly worried that inflation is now feeding on itself.Such concerns could also prompt the Fed to raise rates at least slightly higher next year than previously forecast as officials face two huge choices at their coming meetings: when to slow rapid rate increases and when to stop them altogether.Central bankers had expected to debate slowing down at their November meeting, but a rash of recent data suggesting that the labor market is still strong and that inflation is unrelenting has them poised to delay serious discussion of a smaller move for at least a month. The conversation about whether to scale back is now more likely to happen in December. Investors have entirely priced in a fourth consecutive three-quarter-point move at the Fed’s Nov. 1-2 meeting, and officials have made no effort to change that expectation.Officials may also feel the need to push rates higher than they had expected as recently as September, as inflation remains stubborn even in the face of substantial moves to try to wrestle it under control. While the central bank had penciled in a peak rate of 4.6 percent next year, that could nudge up depending on incoming data. Rates are now set around 3.1 percent, and the Fed’s next forecast will be released in December.Fed officials have grown steadily more aggressive in their battle against inflation this year, as the price burst sweeping the globe has proved more persistent than just about anyone expected. And for now, they have little reason to let up: A report last week showed that Consumer Price Index prices climbed by 6.6 percent over the year through September even after food and fuel prices were stripped out — a new 40-year high for that closely watched core index.“It’s a little bit hard to slow down without an apparent reason,” said Alan Blinder, a former Fed vice chair who is now at Princeton University.Mr. Blinder expects the Fed to make another big move at this coming meeting. “If you were Jay Powell and the Fed and slowed to 50, what would you say?” he said. “They can’t say we’ve seen progress on inflation. That would be laughed out of court.”Policymakers came into the year expecting to barely lift interest rates in 2022, forecasting that they would close out the year below 1 percent, up from around zero. But as inflation ratcheted steadily higher and then plateaued near the quickest pace since the early 1980s, they became more determined to stamp it out, even if doing so comes at a near-term cost to the economy.Consumer prices continue to increase rapidly month after month. Those increases are driven by a broad array of goods and services and have been stubborn even in the face of the Fed’s policy moves.John Taggart for The New York TimesOfficials are afraid that if they allow fast inflation to linger, it will become a permanent feature of the American economy. Workers might ask for bigger wage increases each year if they think that costs will steadily increase. Companies, anticipating higher wage bills and feeling confident that consumers will not be shocked by price increases, might increase what they’re charging more drastically and regularly.“The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched,” Mr. Powell, the Fed chair, warned at his news conference last month.Inflation F.A.Q.Card 1 of 5What is inflation? More

LOS ANGELES (Reuters) -Netflix Inc reversed customer losses that had hammered its stock this year and projected more growth ahead, reassuring Wall Street as it prepares to offer a new streaming option with advertising.Shares of Netflix (NASDAQ:NFLX) jumped 14% in after-hours trading, boosted in part by the streaming giant’s forecast that it would pick up 4.5 million customers in the fourth quarter. The company’s stock, an investor favorite during its years of rapid growth, had fallen nearly 60% this year before the earnings report. “Thank God we’re done with shrinking quarters,” said Co-CEO Reed Hastings, adding the company needs to continue gathering momentum by focusing on content, marketing and a lower-priced plan with advertising. From July through September, Netflix attracted 2.4 million new subscribers worldwide, more than double what Wall Street expected. “Netflix’s impressive numbers show the company’s growth story is far from over,” said Investing.com analyst Haris Anwar. During the quarter, Netflix released the final episodes of season four of sci-fi hit “Stranger Things,” plus serial-killer series “Dahmer – Monster: The Jeffrey Dahmer Story,” which became one of Netflix’s most-watched series of all time.The streaming giant is working to kick-start membership growth after a sudden decline in the first half of the year, when the company’s subscriber base shrunk by 1.2 million amid a rocky global economy and growing competition for online video viewers. Netflix now has a total of 223.1 million subscribers around the world.Most established services have stopped growing in the United States, where the market has reached maturity. Newer entrants, such as Paramount Global’s Paramont+, are picking up market share thanks to live sports programming.In its quarterly letter to shareholders, Netflix noted that other media companies are losing money from streaming.”Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard,” the letter said. Netflix estimated that competitors would end 2022 with combined operating losses of “well over $10 billion,” compared with Netflix’s annual operating profit of $5 billion to $6 billion. Rivals such as Walt Disney (NYSE:DIS) Co run multiple businesses including TV networks and theme parks that offset streaming losses. For the third quarter, Netflix topped analyst projections with revenue of $7.9 billion, up 6% from a year earlier. Earnings were $3.10 per share.The company’s forecast of 4.5 million customer pickups by the year’s end came in slightly ahead of Wall Street estimates, which had averaged 4.2 million. For the fourth quarter, Netflix projected revenue of $7.8 billion, a sequential decline it blamed on the strong value of the U.S. dollar.In early November, Netflix is launching a $7-per-month streaming plan with advertising to attract cost-conscious customers. “We’re quite confident in the long term that this will lead to a significant incremental revenue and profit stream,” Chief Product Officer Greg Peters said.He did not disclose how many new subscribers, or how much revenue, Netflix expects from the advertising plan. PP Foresight analyst Paolo Pescatore predicted some of Netflix’s current subscribers will switch to the lower-priced option. “Some will downgrade or decide to come back to Netflix,” Pescatore said. “The move is as much about retaining users as well as signing up new ones.” Another analyst, Wedbush’s Michael Pachter, saw the ad-supported tier as a tool for to reduce cancellations by giving price-sensitive subscribers an alternative. Disney, Warner Bros Discovery (NASDAQ:WBD) and other companies also offer, or plan to offer, ad-supported options.While Netflix is making various changes to propel growth, the company said it remained committed to producing original programming and releasing all episodes at once for binge watching.”We believe the ability for our members to immerse themselves in a story from start to finish increases their enjoyment but also their likelihood to tell their friends,” the company said. A new season of British royal family drama “The Crown” and a sequel to 2019 movie “Knives Out” will be released during the fourth quarter.Netflix said it would no longer provide quarterly guidance for new customers. The company will continue to issue forecasts for revenue, operating income and other categories.”We are increasingly focused on revenue as our primary top line metric,” the company said. More

HONG KONG (Reuters) -Hong Kong leader John Lee will on Wednesday deliver his inaugural policy address that is expected to focus on reviving the city’s credentials as an international business hub and on housing after extended COVID lockdowns and political upheaval.Lee, a former career policeman with limited financial expertise, will have the challenging task of lifting Hong Kong’s regional competitiveness after its economy shrank 1.3% in the second quarter.COVID-19 restrictions have hit the China-ruled city hard since early 2020, battering shops and restaurants, bringing tourism to a halt, and stoking an exodus of expatriates.Lee, speaking to reporters on Tuesday, emphasized a need for Hong Kong to relaunch itself, citing a recent speech by Chinese leader Xi Jinping, who said Beijing would help Hong Kong “resolve deep-seated issues and problems in economic and social development” and consolidate its “international position” in finance, trade and other areas.”We are now embarking on a new chapter for further prosperity and this is a new phase for Hong Kong,” Lee said.”Hong Kong has emerged from chaos to order, and now we’re moving from order to prosperity,” added Lee, referring to pro-democracy demonstrations in 2019.Beijing responded to the protests with a sweeping national security law in 2020, prompting an exodus of Hong Kong residents to countries including Britain, that offered “lifeboat” citizenship schemes in response to the law. Lee was sanctioned by the United States that year for his role in the crackdown on freedoms.More than 200,000 people have left over the past two years or so, according to government figures. In a bid to retain foreign workers, Lee is expected to announce a stamp duty refund for foreigners who have owned property in Hong Kong for more than three years and who agree to permanent residency, according to the South China Morning Post.A new 18-month visa is also expected to be launched for graduates of prominent foreign universities, in a bid to reverse a brain-drain of talent, media has reported.On the issue of housing, Lee has vowed to be “pragmatic” in increasing land and housing supply.    Affordable housing has been a priority for all of Hong Kong’s leaders since the former British colony returned to Chinese rule in 1997. Despite their efforts, many people still live in cramped flats that are among the world’s priciest.    Transaction volumes are at their lowest levels in 20 years thanks to weak sentiment and rising interest rates. Property prices that were resilient through the 2019 protests and pandemic are now expected to drop about 10% this year. More

(Reuters) -The Federal Reserve may need to push its benchmark policy rate above 4.75% if underlying inflation does not stop rising, Minneapolis Federal Reserve Bank President Neel Kashkari said on Tuesday.”I’ve said publicly that I could easily see us getting into the mid-4%s early next year,” Kashkari said at a panel at the Women Corporate Directors, Minnesota Chapter, in Minneapolis.”But if we don’t see progress in underlying inflation or core inflation, I don’t see why I would advocate stopping at 4.5%, or 4.75% or something like that. We need to see actual progress in core inflation and services inflation and we are not seeing it yet.”Most Fed policymakers expect to need to raise the policy rate, now at 3%-3.25%, to 4.5%-5% by early next year, based on projections published last month and comments made publicly since then.Kashkari’s remarks signal a readiness to go even further.”That number that I offered is predicated on a flattening out of that underlying inflation,” Kashkari said. “If that doesn’t happen, then I don’t see how we can stop.”So far, data suggests underlying inflation is rising, not falling, despite the Fed’s aggressive rate hikes this year. Based on recent readings of the consumer price index and other data, economists estimate the core personal consumption expenditures (PCE) price index, which the Fed watches closely, rose 5.1% last month from a year earlier, compared with 4.9% in August.The data will be published just a few days before the Fed’s next policy meeting on Nov. 1-2. Last month Fed policymakers penciled in core PCE to register 4.5% at year’s end and overall inflation to be 5.4%. The Fed targets 2% overall inflation.With inflation high, the central bank is widely expected to deliver a fourth straight 75-basis point rate hike when it next meets, and traders of futures contracts tied to the policy rate are betting on another large rate hike in December as well. More

NEW YORK (Reuters) – Foreign inflows into U.S. Treasuries posted a record in the month of August, data from the U.S. Treasury department showed on Tuesday, as investors speculated about a pivot by the Federal Reserve away from aggressive tightening.Data showed that foreign investors poured an all-time peak of $174.2 billion into U.S. Treasuries, up from $23 billion in July. The overall data, however, is a lagging indicator and the numbers are often outdated. Analysts though look at this report to spot trends on foreign buying of U.S. assets.That said, it was in August that July inflation figures were released showing price pressures on the consumer and producer side moderated more than expected for the month. U.S. consumer prices did not rise in July due to a steep decline in gasoline costs, delivering the first notable sign of relief for Americans who have watched inflation climb over the past two years.Investors at the time had speculated that the Fed would moderate the pace of rate hikes, a notion that was dashed at the central bank gathering in Jackson Hole in late August. Fed Chair Jerome Powell, at the meeting, reinforced the Fed’s commitment to stamping out inflation.The foreign inflows, however, did not square up with the price action in Treasuries. The benchmark 10-year Treasury yield started August at 2.605%, and ended the month at 3.110%, or a 50 basis-point increase, suggesting that investors were selling Treasuries, not buying.The report also showed that Japanese holdings of Treasuries dropped to $1.199 trillion in August, from $1.234 trillion the previous month. Japan, which reduced its stash of U.S. government debt for a second straight month, remains the largest non-U.S. holder of Treasuries.Central banks have been known to sell their Treasury holdings in order to defend their struggling currencies. And the yen has struggled mightily against a robust U.S. dollar that has surged due to the Fed’s big rate hikes. So far this year, the yen has plunged nearly 23% against the greenback. For the month of August, the yen fell 4% against the dollar.China, on the other hand, pushed up holdings of Treasuries a little bit to $971.8 billion, from $970 billion in July, rising for a second straight month.Overall, foreign holdings of Treasuries rose to $7.509 trillion in August, from $7.501 trillion in July, data showed.In other asset classes, foreigners sold U.S. equities in August for an eighth straight month to the tune of $26.85 billion, from outflows of $60.32 billion in July. July’s outflow was the largest since March.U.S. corporate bonds posted inflows in August of $9.45 billion, up slightly from July’s $8.78 billion inflows. Foreigners were net buyers of U.S. corporate bonds for eight straight months.The Treasury data also showed U.S. residents once again sold their holdings of long-term foreign securities, with net sales of $22.7 billion in August, from sales of $27.2 billion the previous month. More