Economy

Investing.com– The South Korean central bank raised rates within market expectations on Wednesday, as it looks to combat rising inflation and help support a severely weakened won. The Bank of Korea (BoK) hiked interest rates by 50 basis points (bps) to 3%, bringing lending rates to their highest level in a decade. The move comes as the country grapples with inflation reaching a roughly 24-year high this year, which has weighed heavily on Asia’s fourth-largest economy. Wednesday’s hike is the BoK’s sixth rate hike this year. The central bank was among the first in the world to begin tightening policy in the aftermath of the COVID pandemic, with its latest hiking cycle beginning in August 2021. But this has done little to temper rising inflation. South Korea’s economy is also reeling from the knock-on effects of a drastic economic slowdown in China, which is a major trading partner. Higher commodity prices have also weighed heavily on the country, given its heavy dependence on food and fuel imports. While inflation eased slightly in October, it did little to reduce the BoK’s hawkish bias. The bank recently signaled that it expects inflation to remain elevated in the near-term, trending around 5% by the first quarter of 2023.  The bank is also moving up interest rates to keep pace with the Federal Reserve, which hiked rates five times this year.But with U.S. interest rates currently trending above those in South Korea, the won has suffered this year. The currency tumbled over 20% to a 13-year low, and is among the worst performing Asian units this year. The won showed little reaction to the rate hike, trading down slightly at 1,432.33 to the dollar.Wednesday’s rate hike also disappointed a small portion of traders betting that pressure from the Fed would push the BoK into raising rates more than expected.  More

WASHINGTON (Reuters) – The United States could soon offer billions of dollars in military financing for Taiwan, fast-track weapons sales and increase military coordination, as China exerts pressure on the democratically governed island.     The Senate included much of the expansive “Taiwan Policy Act of 2022” in the $817 billion National Defense Authorization Act, or NDAA, on which debate began on Tuesday. The Senate Foreign Relations Committee approved the Taiwan legislation in September, sparking anger from Beijing.    China considers Taiwan to be its territory and has neverrenounced using force to bring it under its control.    It was not immediately clear which Taiwan provisions would make it into the final version of the NDAA, but senators and Senate aides said many would become law if the NDAA is passed as expected this year.Here are some highlights:    TAIWAN MILITARY FUNDING    The Taiwan bill includes $6.5 billion in grant assistance over five years to bolster Taiwan’s military capabilities, and authorizes up to $2 billion in loans.    The grants would be contingent on Taiwan increasing its own defense spending, and could give Washington extra sway in Taiwan’s defense procurement given U.S. military planners’ desire to see the island prioritize mobile equipment that could better survive a Chinese assault than large-scale systems.The bill also takes steps to track and expedite delivery of military equipment to Taiwan.TRAINING AND STOCKPILESIt requires the State Department and Pentagon to expand joint military training in order to improve the island’s defenses and increase interoperability with U.S. forces. Defense analysts say increasing the two militaries’ ability to operate together would be critical in responding to any Chinese attack should the United States choose to do so, as President Joe Biden recently suggested.    POSSIBLE SANCTIONS AGAINST CHINAThe bill lays out specific sanctions for the president to impose in the event of “significant escalation in aggression” against Taiwan by China, language intended to increase U.S. deterrence.That would include sanctions against high-ranking Chinese Communist party members, government officials and agencies, as well as state-owned and controlled banks.    Other sanctions would block and prohibit property-relatedtransactions in the United States and bar those targeted from obtaining visas to enter the country.CONTROVERSIAL PROPOSALSSome elements of the Taiwan measure have raised concerns about increased tensions with China at the State Department and White House. Congressional aides said these are unlikely to make it into the NDAA.For example, the bill calls for Taiwan to be treated as a “major non-NATO ally” to facilitate the transfer of defense materials and services. And it would require Washington to assess renaming its de facto U.S. embassy from the Taipei Economic and Cultural Representative Office to the Taiwan Representative Office. Critics say that change would be largely cosmetic and sure to antagonize Beijing while not materially aiding Taiwan. More

Speaking to reporters, Chalmers warned the global economy was heading for a substantial downturn and Australia would not be “immune” from that.However, it was not the government’s expectation that Australia’s economy will go backwards. “The budget that I hand down … won’t have an expectation or a forecast that the Australian economy falls into recession,” he said. Aggressive rate hikes to curb runaway inflation, continuing high food and energy prices and geopolitical risks from Russia’s war in Ukraine have heightened concerns for global recession in the months to come.Both World Bank and International Monetary Fund on Monday warned of a growing risk of global recession, citing concerns about slowing growth in advanced economies and currency depreciation in many developing countries.Mindful of the economic strains already in the domestic economy with households under pressure and business grappling with rising costs, the Reserve Bank of Australia last week unexpectedly slowed the pace of rate hike with an increase of 25 basis points, after four outsized moves of 50 bps. The RBA also warned of rising financial stability risks, which would be “magnified by a further substantial tightening in global financial conditions.”Chalmers said inflation, the global economy and spending pressures are the three most important factors which would provide the backdrop for the budget, which will be unveiled on Oct. 25. This will be the Labor government’s first budget after winning election in May. “We can expect substantial downgrades to the global growth outlook in the Budget,” said Chalmers. “It won’t be fancy. It won’t be flashy. It will be responsible. It will be solid.” More

TOKYO (Reuters) – Japan’s machinery orders posted their biggest single-month fall in six months in August as pressure from a global economic slowdown and a weaker yen that pushes up import costs darken the outlook for corporate spending.The Reuters Tankan survey separately showed that business confidence at big manufacturers fell to a five-month low, as a double whammy of inflation and slowing global growth hurt the trade-reliant economy. Core orders, a highly volatile data series regarded as barometer of capital expenditure in the coming six to nine months, fell 5.8% in August from the previous month, Cabinet Office data showed.That marked the sharpest month-on-month decline since a 9.8% drop in February and was weaker than the median forecast of a 2.3% fall by economists in a Reuters poll.Compared with a year earlier, core orders, which exclude volatile numbers from shipping and electric utilities, rose 9.7% in August, the data found.By sector, orders from manufacturers advanced 10.2% from the previous month, lifted by a large-size order for a nuclear motor in the non-ferrous metals sub-sector, while orders from the non-manufacturers shrank 21.4%.In the Reuters Tankan survey, the manufacturers’ sentiment index slipped to 5 in October from 10 last month as monetary tightening around the world and the yen’s recent decline to a 24-year low against the dollar hurt corporate sentiment.The world’s third-largest economy has managed to expand at a relatively strong pace so far this year, growing an annualised 3.5% in the second quarter as private spending picked up after the government lifted local COVID-19 restrictions.But it faces risks from an economic slowdown in Asia and the United States, which is clouding the prospects for a stronger recovery and making companies and consumers more cautious at home. More

ORLANDO, Fla. (Reuters) -An apparent rundown of global foreign exchange reserves this year is just a mirage related to U.S. dollar strength – but the real thing may yet materialize and pack another punch for the ailing U.S. bond market.The narrative around a reserves rundown has gained traction but doesn’t bear closer scrutiny. Reserve managers, overall, have been net buyers of Treasuries this year, for example. It is true that an increasing number of central banks are intervening in the currency market to sell dollars, and the nominal value of their FX reserves and U.S. Treasury holdings has declined.But the aggregate fall has been mostly driven by valuation effects. In the case of Treasuries, it has been entirely due to plummeting prices.The latest available Treasury International Capital (TIC) data show that the nominal value of overseas official holdings of Treasuries stood at $3.709 trillion in July, down from $3.913 trillion last December.That nominal fall of $204 billion is on course to be the biggest annual decline since 2016, and second-largest ever. But research by Fed economists Carol Bertaut and Ruth Judson, who help compile and present the TIC data, is instructive. Their models published earlier this year estimate monthly flows net of valuation effects. Their analysis shows that valuation effects account for a near-$270 billion decline in total holdings this year, and that central banks actually purchased almost $65 billion of U.S. Treasuries in the first seven months of this year. They were net buyers in five months, and sellers in April and May. “Official holdings are falling, but not because central banks are selling. So far this year, it has been down to valuation effects,” said Frank Warnock, professor at the University of Virginia and senior research advisor to the Fed.    “But we don’t know what’s going to happen in the coming months,” he added.INTERVENTION TENSIONCentral banks across Asia and Latin America, most notably the Bank of Japan, have recently intervened directly in the FX market selling dollars for local currency. This may have involved selling U.S. Treasuries.But Bertaut and Judson’s calculations call into question some of the more frenzied market chatter in recent weeks that the soar-away dollar could force central banks to bump U.S. bonds for FX intervention purposes. They are as accurate an interpretation as any of the ebb and flow of central bank demand for Treasuries. The estimated $270 billion valuation change reflects a 7% fall from end-2021 holdings, which is broadly in line with the 7.5% slide in Bank of America (NYSE:BAC)’s aggregate U.S. Treasuries index over the period. Central banks bought into that downturn but it is unclear whether that continued through August and September, when the BofA Treasuries index lost another 6% and central banks’ FX intervention picked up pace.Partial custodial data from the New York Fed suggests there was net selling in August and September.The fear is that FX intervention involves selling Treasuries, opening up a potentially serious ‘doom loop’: yields rise, making the dollar more attractive, pushing the dollar higher, forcing central banks to intervene again and in greater size.We’re not at that stage yet, however. “Only a handful of countries appear to be actually intervening in the foreign exchange market by selling Treasuries,” says Marc Chandler, head of FX strategy at Bannockburn Global and a veteran FX reserves watcher. Until the next few TIC reports are released – August data is out on Oct. 18 – we can only speculate. China and Japan, the world’s biggest holders of FX reserves, have released September reserves data but neither give a breakdown of currency or asset composition.The nominal value of China’s FX reserves stood at $3.029 trillion in September, the lowest since March 2017. Since July, the last month of official TIC data, they dipped $75 billion, or 2.4%.Japan’s reserves fell to $1.238 trillion in September, also the lowest in five and a half years. They were down some $85 billion, or 6.4%, since July. In nominal terms.It must be noted, however, that the dollar’s broad value rose 6% over those two months, while the BofA Treasuries index fell 6%. These are two powerful valuation shifts that could distort the figures in a big way.Steve Barrow, head of G10 strategy at Standard Bank in London, warns that official sector sales of Treasuries could ultimately necessitate counter action from the Fed and others.”There is a growing danger that dollar strength and substantial currency intervention will serve to make global monetary conditions too tight,” he wrote on Monday.(The opinions expressed here are those of the author, a columnist for Reuters.)Related columns:In reverse currency war, there’s only one winner (Sept. 23) Dazed and confused enough to buy bonds (Sept. 21) RIP Great Moderation, hello Great Volatility (Aug. 30) (By Jamie McGeever; Editing by Andrea Ricci) More

(Reuters) -Cameco Corp and Brookfield Renewable Partners (NYSE:BEP) said on Tuesday they would acquire nuclear power plant equipment maker Westinghouse Electric in a $7.9-billion deal including debt, amid renewed interest in nuclear energy. The deal for one of the most storied names in the American power industry at an equity value of $4.5 billion comes at a time when nuclear power is seeing an uptick in interest amid an energy crisis in Europe and soaring crude oil and natural gas prices. Nuclear power is also key for countries to meet global net-zero carbon emission goals and could be on the cusp of a boom seen after the 1970s oil crisis. “We’re witnessing some of the best market fundamentals we’ve ever seen in the nuclear energy sector,” Uranium fuel supplier Cameco (NYSE:CCJ)’s chief executive, Tim Gitzel, said.Cameco will own 49% of Westinghouse, while Brookfield Renewable and its institutional partners will own the rest.Westinghouse was acquired from Toshiba (OTC:TOSYY) Corp by Brookfield Business Partners (NYSE:BBU), an affiliate of Canadian asset manager Brookfield, out of bankruptcy in 2018, for $4.6 billion, including debt.Brookfield Business said in a separate statement it expects to generate about $1.8 billion in proceeds from the sale of its 44% stake in Westinghouse, with the balance distributed among institutional partners. The deal is expected to close in the second half of 2023.Last year, Reuters reported that Brookfield Business was exploring options including the sale of a minority stake in Westinghouse.Brookfield Renewable and its partners will pay about $2.3 billion for the deal, whereas Cameco will incur equity costs of about $2.2 billion. Westinghouse’s existing debt structure will remain in place. Cameco, one of the largest suppliers of uranium fuel, said it would fund the purchase through a mix of cash, debt and equity. More

WASHINGTON/LONDON (Reuters) -Bank of England Governor Andrew Bailey said on Tuesday that British pension funds and other investors hit hard by a slump in bond prices had just three days left to fix their problems before the central bank would withdraw support.Only hours earlier, the BoE expanded its programme of daily bond purchases to include inflation-linked debt, citing a “material risk” to British financial stability and “the prospect of self-reinforcing ‘fire sale’ dynamics”.But speaking in Washington late in the day, Bailey was clear that he had no intention of extending purchases of bonds beyond Friday when they are due to stop.”We have announced that we will be out by the end of this week. We think the rebalancing must be done,” Bailey said at an event organised by the Institute of International Finance.”My message to the funds involved and all the firms involved managing those funds: You’ve got three days left now. You’ve got to get this done.”Sterling fell more than a cent against the U.S. dollar to its lowest since Sept. 29 after Bailey’s remarks.Pension funds have scrambled to raise cash since finance minister Kwasi Kwarteng sparked a bond rout on Sept. 23 when he announced the government’s plans for 45 billion pounds of unfunded tax cuts.The funds were forced to stump up emergency collateral in liability-driven investments (LDI), which use derivatives to hedge against shortfalls in pension pots, after gilts dropped sharply in value.Many did so by selling gilts, sparking a vicious cycle of falling prices that forced the BoE to pledge to buy as much as 65 billion pounds of long-dated government bonds between Sept. 28 and Oct. 14 to allow a more orderly disposal of assets.”It’s a big hole,” a pension industry consultant said of the latest moves in markets.A pensions industry group urged the BoE to extend its bond-buying support beyond its Oct. 14 deadline, and possibly beyond the end of this month. Asked his view on this request, Bailey told Reuters: “I think they need to concentrate on doing everything they need to do to be done by the end of this week.”Bailey was keen to distinguish between the temporary, financial stability nature of the latest intervention and previous quantitative easing stimulus.HEAVY LOSSESInflation-linked gilts, typically held by pension funds and known in the market as linkers, suffered a massive sell-off on Monday as the end to the BoE’s programme on Friday approached.At its first buy-back of inflation-linked bonds on Tuesday, the BoE bought 1.95 billion pounds’ worth of linkers, the largest single operation of the programme so far, but as in previous days less than the maximum it had set. It bought 1.36 billion pounds of standard long-dated bonds in a second operation of the day.The broader government bond market was more stable than on Monday, although 30-year bonds extended their price slide.At an auction on Tuesday, Britain’s Debt Management Office received strong demand but had to offer investors the highest return since 2008 to sell 900 million pounds of index-linked gilts due in 2051. Kwarteng told parliament he was committed to “getting to the bottom” of what had happened in the long-dated gilt market. Some gilts have lost more than 75% of their value this year, reflecting a global rise in inflation and interest rates as well as market suspicion of the government’s budget plans.LIFE AFTER DEATHInvestors are worried about what will happen to the market after most of the BoE’s emergency support measures end.”Eventually, the gilt sell-off could force the BoE back into the market,” Antoine Bouvet, a strategist at ING, said.The British central bank has postponed until Oct. 31 the start of its sales of gilts – a big step in the unwinding of its quantitative easing (QE) stimulus push over the past decade – in order to launch the emergency purchase programme.Investors are waiting to hear from Kwarteng on how his economic growth plans will be funded, with a major statement and new official economic forecasts also due on Oct. 31. The International Monetary Fund’s chief economist said on Tuesday that Kwarteng’s push for growth and the BoE’s attempts to control inflation were akin to people trying to steer a car in different directions.”That’s not going to work very well,” Pierre-Olivier Gourinchas told a news conference.The BoE temporarily paused sales of its corporate debt holdings, reflecting broader trouble in British financial markets. The IHS Markit iBoxx Sterling Corporate Bond Index fell on Monday to its lowest level since 2016.Simeon Willis, chief investment officer of pension consultants XPS, said he had seen pension funds selling “across the board” to find liquidity.”We have seen some property funds respond to that, we have seen credit spreads widen, we have seen equities fall – we have seen them coming out of all asset classes,” he said.($1 = 0.9066 pounds) More

BEIJING (Reuters) -New bank lending in China nearly doubled in September from the previous month and far exceeded expectations after the central bank acted to spur an economy weakened by a property crisis and a resurgence of COVID-19 cases.Chinese banks extended 2.47 trillion yuan ($344.58 billion) in new yuan loans in September, jumping from 1.25 trillion yuan in August, data released by the People’s Bank of China showed on Tuesday.Analysts polled by Reuters had predicted new yuan loans would rise to 1.80 trillion yuan in September. The new loans also exceeded 1.66 trillion yuan a year earlier.Policymakers are gearing up to consolidate a recovery in the world’s second-largest economy, which narrowly escaped a contraction in the second quarter, as COVID flare-ups and a deepening property slump weigh on the outlook.”Expanded credit for infrastructure, manufacturing, real estate and other sectors will give a strong support for growth of credit and total social financing in the fourth quarter, helping to keep the economic operation within a reasonable range,” said Wen Bin, chief economist at Minsheng Bank.Household loans, including mortgages, rose to 650.3 billion yuan in September from 458 billion yuan in August, while corporate loans rocketed to 1.92 trillion yuan from 875 billion yuan, central bank data showed.New yuan loans totalled 18.08 trillion yuan in the first nine months, rising 1.36 trillion yuan from a year earlier, central bank data showed.The central bank said in late September that it would increase efforts to consolidate an economic recovery, citing risks to the global economy and pledging to implement prudent monetary policy and to keep liquidity ample.In August, the central bank cut the one-year loan prime rate (LPR), its benchmark lending rate, by 5 basis points, and lowered the five-year LPR by a bigger margin.The central bank in September also lowered the interest rate for housing provident fund loans by 15 basis points for first-time home buyers from Oct. 1, in a bid to prop up the embattled property market.Broad M2 money supply in September grew 12.1% from a year earlier, central bank data showed, in line with analysts’ forecasts in a Reuters poll. It rose 12.2% in August.Outstanding yuan loans grew 11.2% in September from a year earlier, compared with 10.9% growth in August, which was in line with expectations.BROAD CREDIT GROWTH QUICKENSThe central bank faces limited space to ease policy further due to worries over capital flight, as the U.S. Federal Reserve and other major central banks aggressively raise interest rates in a bid to put a lid on soaring inflation.Chinese authorities are doubling down on an infrastructure push, dusting off an old playbook by issuing debt to fund big public works projects to revive the economy.Local governments issued a net 3.52 trillion yuan in special bonds in the first eight months, the finance ministry data have shown, as authorities accelerated special bond issuance for infrastructure.Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 10.6% in September, up from 10.5% in August.TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies, and bond sales.In September, TSF rose to 3.53 trillion yuan from 2.43 trillion yuan in August. Analysts polled by Reuters had expected September TSF of 2.73 trillion yuan.($1 = 7.1682 Chinese yuan renminbi) More