Economy

Across the world, the dollar’s surge is hurting economies, roiling financial markets, and leaving destruction in its wake. Some central banks now are pushing back. On Friday, the People’s Bank of China became the latest central bank to intervene, trying to slow down the pace of renminbi depreciation against the dollar. The Japanese finance ministry started intervening a week before that. The Reserve Bank of India has tried to slow the rupee’s depreciation, and the Bank of England has been forced to hint of monster rate hikes to come after sterling fell to multi-decade lows. Which might sound strange to some. After all, countries such as China have in the past been accused of artificially preventing their currencies from getting stronger. Indeed, governments often like weaker currencies. It makes exports more attractive, brings in more foreign tourists, and can be a relatively low-cost way to boost a nation’s competitiveness. Yet only up to a point, and as long as the move is contained. And the dollar rally of 2022 has been anything but. The resulting runaway currency weakness elsewhere can lead to both capital flight and future inflation as imports become more expensive, forcing central banks to tighten more than they planned to.Little wonder, then, that rumours are flying thick and fast of a new “Plaza Accord”, à la the 1985 agreement between the world’s major economies to engineer a significant depreciation of the US dollar to temper the adverse impact on many other countries.More recently, in February 2016 we saw a so-called “Shanghai accord’”, after the dollar had gone on a massive run that eventually sparked months and months of capital flight out of China and threatened global growth and financial stability. While no official pact was announced — unlike in 1985 — the Fed quietly backed off its hiking cycle. In December 2015, the Fed’s “dot-plot” had promised four quarter-point hikes in 2016. Instead, the Fed waited until the end of the year and hiked just once. The greenback started to weaken from late February, and financial markets, which had an awful start to 2016, calmed down.We have been inundated in recent days with questions from clients asking if a repeat is now likely. With global policymakers meeting in mid-October for the IMF meetings in Washington, DC, surely a new Plaza accord is around the corner? Yes, the most important step for any new dollar accord is for the Fed to stop its planned hikes. Without that, nothing will work. But surely Fed officials are willing, given the damage that a strong dollar is now causing elsewhere? Not a chance. Like Tom Petty, the Fed won’t back down. First, while dollar strength can lead to higher inflation in other economies, it doesn’t lead to much lower inflation in the US. Because many of the world’s goods and services are denominated in dollars, prices of US imports drop far less than one would think when the dollar strengthens. Moreover, the US is a fairly inward-looking economy; trade and the related price impact is almost never an important enough factor to the macro outlook. And most important, the US economy is still way too strong for the Fed to change course just for the sake of the rest of the world. This is not 2016, when US inflation ran below 2 per cent for most of the year. With inflation at 8-8.5 per cent for much of this year, the Fed simply has no room to back off.And while there are signs that the rest of the world is hurting, consider the recent run of US data. Core PCE inflation is near 5 per cent, and the latest report was stronger than consensus. Personal consumption and spending releases a few days ago surprised to the upside. Yes, housing is struggling, but the Fed has waved that away and focused almost exclusively on the red-hot labour market, which is still creating almost 400,000 jobs a month lately. Nor are there signs that the labour market is slowing down sharply. While the last jobs report was four weeks ago, initial jobless claims have been falling for several weeks now and remain remarkably low. And without evidence of a turn, the Fed is going to stick to its path. The dot-plot signalled another 75 basis point rate increase in October and another 50bp in December, and it’s hard to see them changing their mind because of economic difficulties outside the US.And no one can accuse them of hiding their intentions. Even as the UK financial markets saw unprecedented volatility last week, Fed speaker after Fed speaker sounded a hawkish tone. Fed vice chair Lael Brainard warned of the dangers of pulling back too early from hikes. San Francisco president Mary Daly, often thought of as a dove, emphasised that battling inflation was the Fed’s first priority right now. The St Louis Fed’s James Bullard played down the impact of dollar strength. Even more emphatic was Cleveland Fed president Loretta Mester, who said that even a recession wouldn’t stop the Fed from hiking to restore price stability. These are fighting words — and they suggest a U-turn on policy is not in the cards, no matter how much stronger the dollar gets in the near term.Over the next few weeks, many of the world’s policymakers will no doubt fly to DC and plead for a respite. But the Fed will be sympathetic but unmoved. To all those hoping for a new Plaza Accord, all we can say is — good luck. More

TOKYO (Reuters) – Sterling rose to a fresh post-budget high on Tuesday in Asia, weighing on the broader U.S. dollar index, as the UK currency extended its recovery a day after the British government capitulated on tax cuts.The Aussie dollar retreated from near the top end of its recent range against the greenback ahead of a central bank decision later in the day, with traders split on the odds of a quarter point or half point interest rate rise.The U.S. dollar also lost some support from a slide in Treasury yields as local economic data showed a slowdown in manufacturing, hinting that aggressive Federal Reserve rate hikes are already being felt. [US/]Sterling was little changed at $1.13265 after earlier reaching $1.13435, the highest level since Sept. 22, the day before the new government roiled markets with its mini-budget of massive tax cuts funded by expanded borrowing.British Prime Minister Liz Truss was forced to back down from the plan on Monday amid a party rebellion.The euro also hovered close to the highest since Sept. 22, last changing hands 0.07% stronger at $0.9827.The dollar index, which measures the currency against six peers including sterling and the euro, was 0.07% firmer at 111.63, but still close to Monday’s low of 111.46, a level last seen on Sept. 23. It had soared to a two-decade high of 114.78 last Wednesday.On Monday, the Institute for Supply Management’s (ISM) survey showed U.S. manufacturing activity was the slowest in nearly 2-1/2 years in September as new orders contracted, with a measure of inflation at the factory gate decelerating for a sixth consecutive month.Commonwealth Bank of Australia (OTC:CMWAY), though, predicts sterling’s respite will be short-lived, and that the dollar rally has further to run.Over the coming month, “USD can remain elevated as the FOMC (Federal Open Markets Committee) continues to hike aggressively and (the) global economy enters recession,” CBA strategist Joseph Capurso wrote in a client note.He also noted “global recession risks can push GBP down significantly” and “the weak UK economic outlook will keep GBP under pressure” over the medium-term.The greenback was about flat at 144.64 yen, keeping below 145 after briefly popping above that level on Monday for the first time since Japanese authorities intervened to support their currency on Sept. 22.Japanese finance minister Shunichi Suzuki repeated on Monday that authorities stand ready for “decisive” steps in the foreign exchange market if “sharp and one-sided” yen moves persist.The Aussie fell 0.25% to $0.650, but was not far from the top of its range since Sept. 23 at $0.6537. It sank to a 2-1/2-year low of $0.63635 last week.Traders place 41% odds for a quarter-point increase from the Reserve Bank of Australia (RBA) at its 0330 GMT interest rates decision, and a 59% chance for a half-point hike.New Zealand’s kiwi slipped 0.10% to $0.572, but was also still close to the top of its recent range. The Reserve Bank of New Zealand decides policy on Wednesday, and the market is fully priced for a half-point bump, while giving 23% odds on a 75 basis-point increase. More

The S&P Global (NYSE:SPGI) purchasing managers’ index (PMI) posted a slight fall to a seasonally-adjusted 47.3 in September from 47.6 in August, marking the third month in a row under the 50-mark that separates expansion from contraction.The index extended declines for a fifth straight month and hit the lowest level since July 2020, indicating the sharpest pace of contraction in 26 months.Output shrank for a fifth month and by the most since June 2020, with some companies also affected by a typhoon that hit industrial areas of South Korea, according to the survey.The subindexes showed new orders fell for a third straight month and exports decreased for a seventh month, although both declines were smaller than the previous month. There were also signs of declines in the semiconductor industry as deteriorating demand for goods curtailed the chip sector, the survey noted.The challenges from weaker demand were worsened by continued easing of supply chain bottlenecks and price pressure.Suppliers’ delivery times worsened by the least since January 2020, while input and output prices rose by slowest since early 2021. “Brought all together, the immediate outlook for the South Korean manufacturing sector appears bleak,” said Joe Hayes, senior economist at S&P Global Market Intelligence. “External factors such as the weakening global economy will certainly challenge goods producers’ order books, while also keeping pressure on the won – thus pushing up imported inflation – as the dollar benefits from its safe haven status.”Manufacturers still remained optimistic over the coming year for output, but the level of optimism fell for a fourth month to the weakest since October last year. More

WASHINGTON (Reuters) -The International Monetary Fund’s (IMF) executive board will consider Ukraine’s request for $1.3 billion in additional emergency funding on Friday as Russia’s war against the country continues, two sources familiar with the matter said.IMF staff have prepared the necessary documents and believe Ukraine has received sufficient financial assurances from its global partners to meet the IMF’s debt sustainability requirements and qualify for further emergency funds, the sources told Reuters.If approved, the funds would come from a new emergency lending program to address food shortages approved by the board last week.An IMF spokesperson declined to comment.IMF staff are slated to meet with Ukrainian authorities in Vienna the week of Oct. 17 for discussions about Ukraine’s budget plans and monetary policies, one of the sources said. The discussions will follow higher-level meetings to take place during next week’s annual meetings of the World Bank and IMF.IMF officials have praised the Ukrainian government and its central bank for their management of the economic shocks caused by Russia’s invasion of the country in February.The IMF provided $1.4 billion in emergency assistance to Ukraine in March, shortly after the war began.Ukrainian officials are pressing for additional, non-emergency funds under a full-fledged IMF lending program, but such a program could come later. More

TOKYO (Reuters) -Core consumer prices in Tokyo, a leading indicator of nationwide inflation, rose 2.8% in September from a year earlier, marking the biggest gain since 2014 in a sign of broadening cost pressures.The core consumer price index (CPI) for Japan’s capital, which includes oil products but excludes fresh food prices, matched a median market forecast and followed a 2.6% gain in August.It was the fourth straight month the index’s rate of increase exceeded the Bank of Japan’s 2% target, and matched a 2.8% gain hit in June 2014.Prices rose for a wide range of goods and services including electricity bills, chocolate, sushi to hotel bills, government data showed, a sign more firms were passing on rising raw material costs to households.The data is among key factors the BOJ will scrutinise in gauging whether recent cost-push inflation could change into a sustained rise in prices driven by robust domestic demand.The BOJ has pledged to keep monetary policy ultra-loose despite recent rises in inflation, which it sees as driven by temporary factors like higher fuel and raw material rather than strong consumption. More

NEW YORK (Reuters) – New York City’s office market rebounded in the third quarter from a year earlier, though leasing remained below levels seen before the rise of remote work during the COVID-19 pandemic, and higher interest rates and a strong dollar dampened new investment in the sector. Office leasing volume rose 27.6% to 9.23 million square feet, the strongest quarterly gain since the end of 2019 – a gangbuster year for leasing in New York, according to Colliers International Group (NASDAQ:CIGI) Inc. So far this year leasing volume has totaled 24.17 million square feet, or nearly 50% more than the same period in 2021 and less than 4% from passing last year’s total. Volume remained below the quarterly average of about 9.1 million square feet in the five years through 2019. “We’re still hearing of large pending deals,” said Frank Wallach, executive managing director of New York research at Colliers, adding that leases in the works for months typically close by year’s end.”Not all but a good number of them come to a close as we approach the post-Thanksgiving, pre-New Year’s Eve rush because there’s usually that desire to get everything wrapped up and taken care of,” Wallach said. In another positive sign, the availability rate for office space slid 0.8 percentage points to 16.4% in the third quarter, the sharpest quarterly decrease in eight years, Colliers said.The drop drove availability to its tightest since March 2021, but still far above its 10.2% level in the first quarter of 2020, at the start of the pandemic, Wallach said.The leasing surge was driven by several large leases in the Hudson (NYSE:HUD) Yards district overlooking the Hudson River, including the largest so far this year, a 456,000 square foot deal by KPMG in August.The accounting firm’s lease at 2 Manhattan West, a 58-story, 2 million square foot tower due to open next year, is indicative of a flight to quality during the pandemic. But the deal also marks a more than 40% drop in KPMG’s New York office footprint as it consolidates several office sites into one, an efficiency driver, and embraces the hybrid office, a model that can allow companies to reduce their space needs.The latest data on potential future leases for New York office space from View The Space Inc, a multidimensional commercial real estate platform, last week showed a 22.8% drop in August for new leasing demand in New York.VTS expects leasing activity to be “pretty good” for coming months, but if more new demand is not seen by year’s end, leasing can be expected to decelerate in 2023, VTS said.”The next quarter or two will be really telling because we’ll get to see people who’ve been in the market, do they end up transacting or not?” said Nick Romito, VTS chief executive.The sale of office buildings fell 71% in the third quarter to $1.2 billion, an amount that often accounted for single asset sale during red-hot 2015 and 2016. Rising interest rates was the most significant factor for slower sales, Colliers said. More

Earlier, Kwarteng said he was dropping his plan to scrap the top rate of income tax, which had caused an uproar including among some lawmakers within his own Conservative Party and helped trigger turmoil in financial markets.He had previously said he would deliver his fiscal statement on Nov. 23, but in a speech to the ruling Conservative party conference said he would publish more details “shortly” of his plans for cutting debt alongside full forecasts from Britain’s independent fiscal watchdog, the Office for Budget Responsibility (OBR).A government source told Reuters the “OBR can move quicker, so can we”. Commenting on the Chancellor’s plan to bring forward publication of the fiscal plan, the chair of the Treasury Committee Mel Stride said the move would “calm the markets” and help “reduce the upward pressure on interest rates”.”In particular getting the forecast out ahead of the MPC meeting on 3rd November might help to reassure our rate setters that they can go with a smaller base rate increase than would otherwise be the case,” Stride said in a statement on Monday, referring to the Bank of England’s Monetary Policy (MPC).The FT, without citing sources, said Kwarteng was expected to accelerate publication to later this month, saying his statement would set out a five-year plan to put debt on a downward path, including a tight squeeze on public spending. More

(Reuters) – General Motors Co (NYSE:GM) outsold Japanese automaker Toyota Motor (NYSE:TM) Corp in the United States in the third quarter, data on Monday showed, but analysts and investors are fretting that a darkening economic picture will lead to a drop in car sales.Thus far, a shortage of cars due to supply disruptions, combined with a preference for personal transport, has seen consumers willing to shell out more money, largely protecting profits at automakers and auto dealers who have pulled back on discounts.But analysts now warn demand may lose steam in the coming quarters as rising interest rates discourage consumers from paying more money for cars and trucks in the coming months.”We’re cautiously optimistic about moving forward. There’s a lot of negative consumer sentiment in the marketplace. So we’re obviously concerned about that,” Randy Parker, chief executive officer of Hyundai Motor North America, said in an interview after the automaker reported a 3% rise in vehicle sales.GM said it sold 555,580 vehicles in the quarter through September, 24% higher than last year when inventory shortages hit sales. Toyota’s sales fell 7.1% to 526,017 vehicles in the same period. GRAPHIC – U.S. sales of major automakers GM outsold Toyota by about 80,000 vehicles through the first nine months of the year. Toyota in 2021 topped GM in sales by about 110,000 vehicles, the first time since 1931 that GM did not lead the U.S. auto industry in sales.Referring to the 2021 win, Toyota President Akio Toyoda last week told dealers he did a “‘happy dance’ in my office” when the figures were announced.U.S. new vehicle sales in September finished at 1.11 million units, with an annual sales rate of 13.49 million, according to Wards Intelligence data.GM, whose shares closed up 2.4%, added it would boost production of its Chevrolet Bolt electric models in response to higher demand. Shipping finished-vehicles to consumers proved to be another headache for some companies. Tesla (NASDAQ:TSLA) Inc shares fell on Monday after it sold fewer-than-expected vehicles in the third quarter as deliveries lagged way behind production due to logistic hurdles.Supply issues dragged down sales of Fiat Chrysler 6%.However, macroeconomic concerns are on top of analyst minds after used-car retailer CarMax Inc (NYSE:KMX)’s inflation warning last week.”Discounts may begin to materialize as economic conditions, rising interest rates and steady vehicle availability affect the imbalance of supply and demand over the coming quarters,” said TrueCar (NASDAQ:TRUE) analyst Zack Krelle. More