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    The inflation risk for emerging markets

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    Save over 65%$99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More

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    Labor-focused Fed to continue rate cuts, Morgan Stanley Wealth Management says

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    (Reuters) – The U.S. Federal Reserve will continue cutting interest rates in November, but policymakers are walking a thin line as inflation is no longer cooling at an accelerated pace, Morgan Stanley Wealth Management’s chief investment officer said.The Fed is focused on a labor market that has shown evidence of being “mixed in pockets”, Lisa Shalett told the Reuters Global Markets Forum (GMF).”They’re not going for the 2% (inflation) target; they’ve abandoned it,” she said.Most Fed policymakers last week gave the green light for more rate cuts in coming months, while Atlanta Fed President Raphael Bostic said skipping a move in November may be in order.”The equity market hasn’t woken up to that yet, but the bond market looks like it’s starting to back up on the long end as higher inflation expectations are being discounted,” Shalett said.Data last week showed U.S. consumer prices rose slightly more than expected in September and producer prices were unchanged last month.Traders currently have 89% odds on a 25 basis-point rate cut at the Fed’s Nov. 6-7 policy meeting, abandoning expectations for a half-point cut after a blowout September employment report and other rosy economic data.Meanwhile, Shalett said she does not expect a clear outcome on Nov. 5, the day of the U.S. presidential election, given how close the race is.Last week’s polls had Democratic Vice President Kamala Harris and former Republican President Donald Trump neck-and-neck across seven battleground states.”We’ve encouraged clients to anchor position in what we call real assets … including gold, commodities, real estate, energy infrastructure assets,” Shalett said, to “hide out” from rising market volatility.”We also like market-neutral hedge fund strategies,” she added.(Join GMF on LSEG Messenger for live interviews: ) More

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    Romanian fiscal adjustment plans challenge timeline for interest rate cuts

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    Earlier this month, Romania’s central bank held its benchmark interest rate at 6.50% after two consecutive cuts, saying inflation’s downward path would be more erratic. With high spending ahead of presidential and parliamentary elections in November and December, analysts said the bank’s scope to cut the benchmark rate further was limited by widening budget and current account deficits.The European Union state’s widening budget deficit has aggravated Romania’s inflation, which will likely stay above target through 2027, S&P Global Ratings said in its latest ratings review. The bank expects inflation to return to its 1.5%-3.5% target band by end-2025. Speaking at a financial seminar on Tuesday, central bank board member Csaba Balint said it would be important to see what the budget deficit adjustment plan entailed.Asked about the interest rate outlook, he said “I believe the general trajectory is downwards. The budget correction would mean a lower fiscal impulse and demand aligned with production capacity, therefore inflation should come down, which would enable us to continue easing monetary policy.””However, it is very difficult to anticipate a timeline or the dosage.”Romania has yet to unveil a 2025 budget, with the coalition government mulling a seven-year timeframe to bring the country’s deficit below the bloc’s 3% ceiling. The coalition government raised its 2024 consolidated fiscal deficit target to 6.94% of economic output in September, but the country’s independent fiscal watchdog said the shortfall would likely rise to around 8% of economic output. Analysts and ratings agencies expect tax hikes from 2025. More

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    China stimulus to accelerate on weakening export momentum – Citi

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    Exports from the world’s second-largest economy expanded by 2.4% versus the year-ago period last month, far below estimates of 6% and easing from 8.7% in August. It was the slowest pace in five months.Imports also ticked up by 0.3%, cooler than projections of 0.9%. The figure in particular points to potential weakness in future re-exports, a key portion of China’s total exports.The data also suggested that manufacturers are cutting prices in a bid to offload inventory prior to possible tariffs on China from several key trading partners.Momentum in exports had been one bright spot in otherwise sluggish Chinese economy that has grappled with tepid consumer spending and a faltering real estate market.In a note to clients, the Citi analysts noted that there could be some one-off disturbances to exports from extreme weather conditions and a US port workers strike.”[W]e reckon that China’s exports growth might have reached its peak in the previous months. Trade policy could become even more uncertain ahead,” they wrote.A slackening in exports, however, could be inducive for more stimulus from the Chinese government, the analysts argued.China has been grappling with about two years of sluggish economic growth, although Beijing has rolled out a slew of recent stimulus measures aimed at helping the country meet its 5% annual gross domestic product target in 2024.Over the weekend, China’s Ministry of Finance outlined plans for even more aid, including local government bond issuances, increased fiscal spending and some supportive measures for the property market.But investors were underwhelmed by a lack of explicit measures to support personal consumption. Recent data has also showed a sustained deflationary trend in the country.The Ministry of Finance also did not provide any details on how and when the planned fiscal measures will be implemented, raising more uncertainty.”Policy remains the most important thing to watch,” the Citi analysts said.(Reuters contributed reporting.) More

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    China may raise $850 billion in new debt over three years to spur growth, says report

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    BEIJING (Reuters) -China may raise an additional 6 trillion yuan ($850 billion) from special treasury bonds over three years to stimulate a sagging economy, local media reported, a figure that failed to revive sentiment in the country’s stock market.The Caixin Global report, which cited sources with knowledge of the matter, comes after Finance Minister Lan Foan on Saturday said Beijing will “significantly increase” debt, although the absence of details on the size and timing of the fiscal measures disappointed some investors.The size of the expected fiscal package has been the subject of intense speculation in financial markets. Chinese shares hit two-year-highs earlier this month on news of the stimulus, before retreating in the absence of official details.On Tuesday, stocks dipped about 0.3%, suggesting little excitement among investors about the reported amount, although analysts say it would at least stabilise growth in the near-term.”This is in line with our expectations,” said Xing Zhaopeng, ANZ’s senior China strategist. “For next year, we still think a growth target of around 5% is likely to be maintained. So, for a 5% growth rate, that should be enough.”Reuters reported last month that China planned to issue special sovereign bonds worth about 2 trillion yuan ($285 billion) this year as part of fresh fiscal stimulus.Data in recent months, including Monday’s trade and new lending figures for September, missed expectations, raising concern that China may not reach this year’s roughly 5% growth target and will struggle to fend off deflationary pressures.Economic growth is expected to slow to 4.5% in the third quarter from 4.7% in the second, then see a late rebound on the back of stimulus to hit 4.8% for the whole year, a Reuters poll showed on Tuesday.In late September, authorities unleashed monetary stimulus and property sector support measures. Soon after, a meeting of top Communist Party leaders, the Politburo, vowed the “necessary spending” to bring growth back on track.”The probability of reaching a growth rate of about 5% at least in 2024 and 2025 would increase a lot,” Bruce Pang, chief China economist at Jones Lang LaSalle, said of the impact of the reported 6 trillion figure.The Caixin article published late on Monday said the funds would be partly used to help local governments resolve their off-the-books debts, according to the sources. The reported amount is equivalent to nearly 5% of China’s economic output.The International Monetary Fund estimates central government debt at 24% of economic output. But the fund calculates overall public debt, including that of local governments, at about $16 trillion, or 116% of GDP.”Unless the central government voluntarily increases leverage, investment will remain weak, as local governments are saddled with heavy debt and corporate balance sheets are being eroded by a weak economy,” said Xia Haojie, bond analyst at Guosen Futures.’CHALLENGING TASK’A severe downturn in the property sector since 2021 has shrunk local government revenues, as a large portion of their income had relied on auctioning land to real estate developers.The property crisis has weighed on consumer and business activity, exposing China’s overreliance on external markets and government-led, debt-driven investment in infrastructure and manufacturing.Low wages, high youth unemployment and a feeble social safety net mean China’s household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Investment, by comparison, is 20 points above. As a result, China contributes much more to the global economy as a producer than it does as a consumer, which has sparked trade tensions with the United States, Europe and a number of emerging markets. U.S. presidential candidate Donald Trump has called for 60% tariffs on all Chinese goods if he wins next month’s election.These imbalances are fanning concerns over China’s long-term growth potential irrespective of the near-term fiscal impulse.”Consistently hitting 5% over the next few years will still be a challenging task, especially if China faces a less supportive external demand situation,” said Lynn Song, ING’s greater China chief economist.The finance ministry said the looming fiscal stimulus would provide subsidies to low-income households, support indebted local governments and the property market and replenish state banks’ capital. The remaining details are expected to emerge at a meeting of the Standing Committee of the National People’s Congress, the top legislative body, likely to be called in coming weeks.($1 = 7.0870 yuan) More