Economy

Another day, another surge in U.S. bonds yields, and another sell-off on global markets. On top of that, Asian markets wake up on Friday to a raft of key economic indicators that could confirm the extent of China’s slowdown.The August readings for house prices, urban investment, industrial production, retail sales and unemployment will paint a pretty clear picture of where the Chinese economy is right now. And it is not a pretty picture. Any hopes for a rebound in the second half of the year have been dashed by renewed COVID-19 lockdowns and the deepening property sector slump. Trade growth has also slowed, while on Thursday the offshore yuan fell to a fresh two-year low through the 7.00/dollar barrier. As part of a sweeping global downgrade, economists at Barclays (LON:BARC) cut their 2022 Chinese GDP growth forecast to 2.6% from 3.1% – “its lowest annual growth outcome in many decades” – and cut next year’s outlook to 4.5% from 5.3%. Some economists are even expecting sub-2% growth this year.Following the offshore yuan’s fall below 7.00/$, markets will be alert to possible PBOC action to prevent the fall from snowballing. The dollar has jumped 10% in the last five months, and 5% in the last two – huge moves for the tightly managed yuan.But given the seemingly unstoppable rise in the two-year U.S. bond yield it will be difficult to tame the dollar, something the BOJ will also be acutely aware of as the yen falls back towards 145.00/$.South Korean unemployment data and RBA governor Phillip Lowe’s (NYSE:LOW) parliamentary testimony could also give their respective currencies direction on Friday.Key developments that should provide more direction to markets on Friday: South Korea unemployment (August)RBA governor Philip Lowe speaks Sony (NYSE:SONY) earnings (Q2)Euro zone inflation (August)U MIch inflation expectations (September) More

(Reuters) -Britain’s antitrust watchdog said on Thursday it would launch an in-depth probe into Xbox maker Microsoft (NASDAQ:MSFT)’s $69-billion purchase of “Call of Duty” maker Activision Blizzard (NASDAQ:ATVI) after the tech giant failed to offer remedies to soothe competition concerns.The deal, announced in January, will require approval in the United States as well as other major jurisdictions including the European Union and China.Britain’s Competition and Markets Authority (CMA) said earlier this month the takeover of the videogame publisher maker could hurt competition in gaming consoles, subscription services and cloud gaming if Microsoft refused to give competitors access to Activision’s best-selling games.The regulator had given the companies until Sept. 8 to submit proposals to address the CMA’s concerns. On Thursday, the CMA added that Microsoft informed the regulator that it would not be offering any undertakings. Microsoft did not offer any remedies during the preliminary investigation because the CMA typically prefers significant concessions in the first phase, a person familiar with the matter said. Microsoft, on the other hand, reiterated its statement from early September saying that it is ready to work with the CMA on next steps and address any of its concerns.Activision did not immediately respond to Reuters’ request for comment.Reuters previously reported that Microsoft would pay a $3 billion break-up fee if the deal falls through, according to a source familiar with the matter, suggesting the company was confident of winning antitrust approval.A spokesperson for Microsoft rival Sony (NYSE:SONY) Interactive Entertainment welcomed the CMA’s move.“We welcome today’s announcement by the UK Competition and Markets Authority (CMA) that it has opened a full-scale investigation into Microsoft’s proposed acquisition of Activision. “By giving Microsoft control of Activision games like Call of Duty, this deal would have major negative implications for gamers and the future of the gaming industry. We want to guarantee PlayStation gamers continue to have the highest quality gaming experience, and we appreciate the CMA’s focus on protecting gamers.” More

Ever since Ukraine liberated the Kharkiv region last weekend after Russian occupation, western observers have wondered how Moscow might respond. Now they partly know.“Russia has answered Ukraine’s counter offensive by destroying civil infrastructure,” Ukrainian prime minister Denys Shmyhal told the Financial Times on Thursday, noting that Russian missiles have knocked out electricity plants and seriously damaged the gigantic Kryvyi Rih dam.This creates big humanitarian and military challenges. But it also invites a key economic question: can Kyiv contend with the immediate, spiralling financial costs of destruction without tipping into fiscal crisis and/or hyperinflation?The problem for Ukraine is not just how to fund the costs of future peacetime reconstruction, estimated to be in the region of $350bn. It also faces an immediate budgetary crisis as it tries to keep its economy (and its people) alive, and power on. Unless it receives rapid assistance from the IMF, among others, it risks losing this economic battle — whatever happens on the military side.Kyrylo Shevchenko, central bank governor, forcefully outlined the problem earlier this week. Since the invasion, Ukraine’s economy has shrunk by more than a third, inflation jumped above 20 per cent — and an estimated $97bn in infrastructure was destroyed, just by June.This is alarming. But it could soon get worse. Shmyhal says the government currently has a $5bn hole in its monthly budget since tax revenues have collapsed, while military spending has soared. Sympathetic western creditors have “reprofiled” existing foreign debt, saving Kyiv around $6bn, bankers tell me. Shmyhal says the finance ministry has also sold $14.5bn of domestic war bonds and plans to sell more. But the central bank is wary of too much war bond issuance because it fears this will lead to hyperinflation. It is entirely correct to worry: war often sparks disastrous inflationary spirals. And though Kyiv has received an estimated $17bn of international loans and grants this year, this does not entirely plug the fiscal hole. And Shmyhal reckons that Ukraine will face monthly deficits of around $3.5bn in 2023, assuming the war drags on.So what should the west do next to shore up Ukraine’s financial defences? Probably the most important move would be to urge the IMF to provide meaningful support. The fund has already implemented one structural adjustment programme in Ukraine, in 2015. It has also given two small(ish) dollops of $1.4bn emergency aid since the invasion. The second emerged this week after Kristalina Georgieva, IMF head, spoke to President Volodymyr Zelenskyy by phone, as he headed to the eastern front lines.However, Kyiv is now asking the fund to offer a fully fledged programme, ideally of at least $15bn. Such numbers are not unprecedented in IMF history: Greece and Argentina received more to battle their respective crises. But what would make any Ukraine package controversial is that the IMF has never implemented a significant structural adjustment programme in a country engulfed in full-blown war before.Moreover, Ukraine’s relations with the IMF have been prickly in recent years. Economists at the fund have fretted about the country’s “poor governance” (the polite phrase for corruption) and Zelenkskyy’s erratic commitment to economic reform in the past. On Ukraine’s part, there has been widespread resentment of western financiers and IMF austerity plans — and opposition to the idea of foreign investors grabbing Ukrainian assets. So much so, that when Zelenksyy was “just” a TV actor playing the fictional president in the popular show Servant of the People (before becoming the actual president in 2019), he enthusiastically kicked the IMF out of Ukraine. You could not make this up.

But war is now resetting Ukraine’s political economy, ushering in once-unimaginable levels of unity and innovation — and undermining the power of previously dominant oligarchs. This creates more openings for reform. And Zelenksyy’s government is trying to show that it will be as fiscally responsible as the IMF needs. Last week, Rustem Umerov, an official who is running peace negotiations, was appointed as head of a putative sovereign wealth fund. Umerov tells me he has a mandate to sweat state assets, or sell them to global investors, to raise cash.So I, for one, hope that the IMF finds the courage to offer meaningful support soon, not least because this could prompt more aid from the US and Europe as well. An IMF reform programme could pull in more private sector investment if (or when) war ends, or even sooner if western governments start offering war insurance to private investors.Georgieva, for her part, has hinted she is getting ready to be creative: after speaking to Zelenskyy, she told staff that “we are going to modify somewhat our engagement capacity” and “there is a build-up toward a fully fledged program.” This is good news but she cannot act without the support of the IMF board. So all eyes are now on what the US and European governments do at next month’s IMF autumn meeting. There is much at stake — for both Kyiv and the [email protected] More

Average US mortgage rates have topped 6 per cent for the first time since the 2008 financial crisis, showing how the Federal Reserve’s aggressive policy of monetary tightening is ratcheting up the cost of financing the purchase of a home. The average 30-year fixed-rate mortgage rose to 6.02 per cent, up from 5.89 per cent a week ago and 2.86 per cent in the same week last year, according to Freddie Mac’s weekly survey. The borrowing benchmark has nearly doubled since January in the steepest and fastest increase in interest rate in more than 50 years.The rapid rises in mortgage rates track with the Fed’s campaign to lift its own benchmark interest rate in a drive to damp surging US inflation. Futures markets predict the central bank will raise the rate by 0.75 percentage points for the third consecutive time when it meets next week. Higher interest rates are typically associated with slower home price increases and home sales. Though price increases have decelerated in recent months, prices continue to grow at a double-digit pace driven by tight supply and determined buyers.The S&P CoreLogic Case-Shiller US national home price index rose 18 per cent in the latest reading in June, down from 19.9 per cent the month before.“Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate,” said Sam Khater, chief economist at Freddie Mac, the government-backed mortgage group. “While home price declines will probably continue, they should not be large.”Historically high home prices and rate volatility have started to spook potential buyers after more than a year of frenzied buying throughout the pandemic.“Consumer sentiment has declined at a rapid pace — levels not seen in more than a decade,” said Julie Booth, chief financial officer of Rocket Cos, the largest mortgage originator in the US. “Consequently . . . potential homebuyers are staying on the sidelines.”Some lenders, including Rocket, have begun offering special incentives to borrowers in attempt to jump-start demand.Existing home sales in July fell 5.9 per cent compared with the previous month and 20 per cent from a year ago, according to the National Association of Realtors. NAR said the median price was $403,800, up 10.8 per cent from a year ago but down $10,000 from an all-time high recorded in June.In the week ended September 9, new mortgage applications dropped 1.2 per cent compared with the week before, driven by a decline in refinance applications which have plunged by more than 80 per cent over the past year. Applications for new homes were essentially unchanged compared to the prior week and down 29 per cent from a year ago. More

The World Bank has warned that leading central banks risk sending the global economy into a “devastating” recession next year if policymakers raise interest rates too high over the months ahead and stress financial markets.The Washington-based organisation called on monetary authorities in the big economies to co-ordinate their actions to reduce the overall amount of tightening.Central banks, led by the US Federal Reserve, have embarked on a series of aggressive rate rises over the course of 2022 in a bid to tame inflation that is at, or close to, double figures in several advanced economies for the first time in decades.Energy and food prices have surged following Russia’s invasion of Ukraine in late February, triggering a cost of living crisis.To avoid letting inflation rip, the World Bank urged governments to provide targeted relief to vulnerable households instead of relying on tighter monetary policy.World Bank president David Malpass said momentum in the global economy was sliding and more countries were already falling into recession. “My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies,” he added.He called for more action to boost production to ease inflationary pressure, rather than all the focus being on curbing spending. Increased investment would, he said, “improve productivity and capital allocation, which are critical for growth and poverty reduction”.The World Bank did not produce new forecasts for the global economy, but noted that the outlook for 2023 had been sliding as rich and poor countries alike responded to high inflation this year by seeking to limit spending.“Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades — a trend that is likely to continue well into next year,” the World Bank said.The warnings come ahead of crucial policy votes at the Fed and Bank of England next week. The US central bank is expected to raise rates by 75 basis points for the third meeting in a row on Thursday, while UK borrowing costs are likely to rise by 50 basis points.The expected rises in global interest rates would bear down on inflation, but not enough to meet central banks’ targets, which are usually around 2 per cent, the World Bank warned. Core global inflation, excluding energy, was still likely to be running at a rate of 5 per cent next year — twice the pre-coronavirus pandemic rate.If such a level of inflation persuaded central banks to become even more aggressive, global economic growth would drop to 0.5 per cent in 2023, according to the World Bank.That would meet most definitions of a global recession just three years after the last one, the World Bank added, because with population growth, average global incomes would be falling.In its modelling, the bank said there needed to be some tightening of monetary policy, but this should be accompanied by every effort to ease bottlenecks both internationally and domestically to allow production to increase without stoking inflation.This includes boosting the supply of commodities, food and energy to alleviate much of the global inflationary forces, alongside investing to decarbonise economic growth.The bank’s findings have been echoed by former IMF chief economist Maurice Obstfeld, now a senior fellow at the Peterson Institute for International Economics.“Just as central banks, especially those of the richer countries, misread the factors driving inflation when it was rising in 2021, they may also be underestimating the speed with which inflation could fall as their economies slow,” said Obstfeld, urging them to be less “zealous” in raising interest rates.“By simultaneously all going in the same direction, they risk reinforcing each other’s policy impacts without taking that feedback loop into account,” he added. More

Inflation in Nigeria hit a 17-year high of 20.5 per cent in August, driven by soaring prices of food, diesel and a weakened currency, data released by the statistics agency on Thursday showed.Nigeria has been experiencing double-digit inflation since March 2016, but the situation has been exacerbated by a chronic shortage of dollars and global pressure on prices because of the war in Ukraine. The National Bureau of Statistics said food inflation in August was 23 per cent, up from 22 per cent in July, on the back of an increase in the cost of essentials such as bread, cereals, meat and other items. The rise, the seventh consecutive of the year, follows July’s 19.6 per cent. Lagos-based Financial Derivatives Company said in a note that “the combined effects of insecurity, global supply disruptions and higher logistics costs are still taking a toll on general prices”. While food prices have declined in the wake of an agreement between Russia and Ukraine over grain supplies, a weaker naira has meant that Nigeria has not benefited, FDC said. The Nigerian currency has depreciated by almost 25 per cent against the dollar since the start of the year. Core inflation, which excludes food and energy prices, has risen to 17.2 per cent as the depreciating currency and high transportation costs take their toll.

Nigeria’s central bank has increased interest rates by 250 basis points to 14 per cent since May. Analysts say an increase of 50bp could be implemented at the bank’s next monetary policy committee meeting on September 26.But Pieter Scribante, of Oxford Economics Africa, an advisory group, said an interest rate rise was unlikely to be effective in tamping down inflation. “Inflation is being driven by supply-side factors like higher input costs and food shortages which limits overall policy effectiveness of higher interest rates,” said Scribante, who predicted that inflation will peak in the fourth quarter of 2022, with a tapering off expected only next year.Nigeria’s economy relies on US dollars to foot import bills and a chronic shortage of the greenback has adversely affected prices. Oil receipts contribute almost 90 per cent of the country’s foreign exchange earnings. Nigeria, however, has not benefited from the oil price boom caused by Russia’s full-scale invasion of Ukraine. Rampant oil theft has left a dent in Nigeria’s coffers, estimated by the state-owned oil company to be $1bn in the first quarter of the year. In August, crude oil production was 1.1mn barrels a day, far below Nigeria’s 1.8mn Opec quota. High oil prices have also meant the government is paying more for the petroleum subsidies enjoyed by its citizens.The central bank has introduced tight currency controls as it seeks to ration dwindling reserves. Businesses such as airlines have struggled to repatriate revenue from ticket sales in Nigeria. Importers and other businesses without access to dollars from the bank have been forced to source dollars from the black market where the naira trades freely against the dollar at almost 50 per cent higher than the official rate. More

“I estimate that a rise in rates from where they are to about 4.5 percent will produce about a 20 percent negative impact on equity prices,” Bridgewater Associates’ founder Dalio wrote in a LinkedIn post on Tuesday.His comments came the day data showed U.S. consumer prices unexpectedly rose in August. The inflation data raised fears of another outsized interest rate hike next week and sent stock markets into a downward spiral.”…interest rates will go up … other markets will go down … the economy will be weaker than expected,” Dalio wrote.”This will bring private sector credit growth down, which will bring private sector spending and, hence, the economy down with it.”Dalio’s bearish view further ignites concerns about valuations in U.S. stocks.While the S&P 500 index’s forward price-to-earnings multiple is far below what it commanded at the start of the year, investors believe stock valuations may have to fall further to reflect the risks of rising bond yields and a looming recession.Rising mortgage rates are already weighing on the housing sector as the average interest rate on the most popular U.S. home loan rose above 6% for the first time since 2008.A significant economic contraction will be required, but it will take a while to happen because cash levels and wealth levels are now relatively high, Dalio wrote.”We are now seeing that happen. For example, while we are seeing a significant weakening in the interest rate and debt dependent sectors like housing, we are still seeing relatively strong consumption spending and employment.” More

LAGOS (Reuters) – Inflation in Nigeria rose for a seventh straight month to 20.52% in August, the statistics bureau said on Thursday ahead of a central bank rate decision next week.The central bank meets on Tuesday to decide on rates in Africa’s largest economy. It has previously said it would continue with rate hikes if inflation remained elevated.Refinitiv data showed that year-on-year inflation in Nigeria remained at its highest level since September 2005. On a monthly basis, the consumer price index rose 1.77% in August, compared to 1.82% in July, the National Bureau of Statistics said. Food inflation quickened to 23.12% from 22.02% the previous month as Nigerians continued to face higher prices for staples like rice and bread.The price of diesel has soared this year due to high global oil prices, which has led to higher electricity costs for citizens, while a weakening naira currency on the parallel market has made some imports expensive.Inflation has been in double digits in Nigeria since 2016, driven partly by the weakening naira.”In Nigeria, inflation is fueled by several factors but the paramount factors are exchange rate pressure and price of diesel,” the Financial Derivatives Company said in a note to investors.Nigerians head to the polls in February to choose President Muhammadu Buhari’s successor, with rising inflation and the state of the economy seen as major issues for voters.Policy-makers in Nigeria maintain that persistent inflationary pressures are structural and largely imported. More