Economy

SINGAPORE (Reuters) – The U.S dollar extended its rally on Monday, hitting a five-week high on the yen after U.S. Federal Reserve Chair Jerome Powell signalled interest rates would be kept higher for longer to bring down soaring inflation.The dollar rose 0.5% and back above 138 against the Japanese yen to hit 138.34 in early Asia trade, its highest since July 21. Sterling fell 0.4% to a 2-1/2-year low of $1.1680. The euro fell 0.3% to $0.9932.The moves extended dollar gains made on Friday when Powell warned there’d be “some pain” for households and businesses as it will take time for the Fed to control inflation.”Powell made it clear that there is no dovish pivot as some market participants had expected,” Carol Kong, senior associate for currency strategy and international economics at Commonwealth Bank of Australia (OTC:CMWAY).”I think for this week, the (U.S. dollar index) is going to track even higher towards 110 points, just as market participants continue to price in more aggressive tightening cycles by the major central banks.”The U.S. dollar index last stood at 109.24, within a whisker of the two-decade high of 109.29 it hit in July.Markets are now pricing in about a 64.5% chance of a 75 basis point rate hike at the next Fed meeting in September.Despite the potential for a hike that big at the European Central Bank’s September policy meeting, the single currency has struggled with investors more focused on an energy crisis in the bloc.Russian state energy giant Gazprom (MCX:GAZP) is expected to halt natural gas supplies to Europe via its main pipeline from Aug. 31 to Sept. 2 for maintenance.”Fears over a complete shutdown of Russian gas are going to keep euro/dollar heavy and below parity,” said CBA’s Kong.The risk-sensitive Australian and New Zealand dollars were likewise weighed down by fear that aggressive rate hikes around the world will put the brakes on economic growth. The Aussie was down 0.31% to $0.6870, while the kiwi hit a new one-month low of $0.6107 and last traded $0.6113. More

SYDNEY (Reuters) – Asian shares slid on Monday as the mounting risk of more aggressive rate hikes in the United States and Europe shoved bond yields higher and tested equity and earnings valuations.Federal Reserve Chair Jerome Powell’s promise of policy “pain” to contain inflation quashed hopes that the central bank would ride to the rescue of markets as so often in the past.The tough love message was driven home by European Central Bank board member Isabel Schnabel who warned over the weekend that central banks must now act forcefully to combat inflation, even if that drags their economies into recession.”The main takeaways are taming inflation is job number one for the Fed and the Funds Rate needs to get to a restrictive level of 3.5% to 4.0%,” said Jason England, global bonds portfolio manager at Janus Henderson Investors.”The rate will need to stay higher until inflation is brought down to their 2% target, thus rate cuts priced into the market for next year are premature.”  Futures are now pricing in around a 60% chance the Fed will hike by 75 basis points in September, and see rates peaking in the 3.75-4.0% range.Much might depend on what the August payrolls figures show this Friday when analysts are looking for a moderate rise of 285,000 following July’s blockbuster 528,000 gain.The hawkish message was not what Wall Street wanted to hear and S&P 500 futures were down a further 1.1%, having shed almost 3.4% on Friday. Nasdaq futures lost 1.5% with tech stocks pressured by the outlook for slower economic growth.MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7%. Japan’s Nikkei dropped 2.3%, while South Korea shed 2.3%. EURO STRUGGLESThe aggressive chorus from central banks lifted short-term yields globally, while further inverting the Treasury curve as investors priced in an eventual economic downturn. [US/]Two-year U.S. yields were up at 3.44%, far above the ten-year at 3.08%. Yields climbed across Europe with double digit gains in Italy, Spain and Portugal.All of which benefited the safe-haven U.S. dollar as it climbed to 109.15 and just a whisker from a 20-year high of 109.29 reached in July.The dollar scored a five-week high on the yen at 138.21, with bulls looking to re-test its July top of 139.38.The euro was struggling at $0.9937, not far from last week’s two-decade trough of $0.99005, while sterling slipped to a one-month low of $1.1686.”EUR/USD can remain below parity this week,” said Joseph Capurso, head of international economics at CBA.”Energy security fears will remain front and centre this week as Gazprom (MCX:GAZP) will shut its mainline pipeline to deliver gas to Western Europe for three days from 31 August to 2 September,” he added. “There are fears gas supply may not be turned back on following the shut-down.”Those fears saw natural gas futures in Europe surge 38% last week, adding further fuel to the inflation bonfire.The rise of the dollar and yields has been a drag for gold, which was hovering at $1,735 an ounce. [GOL/]Oil prices were little changed in early trading, and have been generally underpinned by speculation OPEC+ could cut output at a meeting on Sept 5. [O/R]Brent dipped 9 cents to $100.90, while U.S. crude firmed 6 cents to $93.12 per barrel. More

(Reuters) -Malaysian budget carrier AirAsia plans to resume deliveries of 362 Airbus SE (OTC:EADSY) A321neos remaining on order starting in 2024, the chief executive of parent Capital A Bhd said, having postponed the arrivals during the pandemic.The airline, one of Airbus’ biggest customers, had only taken four A321neos before COVID-19 decimated air travel. It last year agreed with Airbus to restructure the order with deliveries due through 2035, though it had not provided a start date for the resumption at that time.”We will…be taking delivery of the new Airbus A321neos from 2024, which will further reduce our emissions per seat by 20% while further driving our business growth,” Capital A Chief Executive Tony Fernandes said in a statement late on Friday after the group posted a narrower second-quarter operating loss.The airline said it operated 65 planes during the quarter ended June 30, up from just 15 a year earlier when there were lockdowns and widespread border closures throughout Southeast Asia.”As of August, a total of 108 operating aircraft have returned to the skies and this is expected to increase to 160 by the end of this year to support strong and growing consumer demand,” AirAsia Aviation Group Chief Executive Bo Lingam said, adding a return to full operations was expected by the second quarter of 2023.Capital A posted an operating loss of 491.3 million ringgit ($110.03 million) for the three months ended June 30, compared to a loss of 792.2 million ringgit in the year-ago period.Lingam said the combination of weaker currencies against the U.S. dollar and higher maintenance costs required to bring airplanes back into service had “slightly prolonged” the process of returning the aviation business to profitability.The company last month reported its airline load factor, a measure of the percentage of seats filled, rose to 84% in the second quarter, similar to pre-pandemic levels.Capital A said in June it was evaluating fundraising options for a planned U.S. listing, as it looks to shake off its classification as a financially distressed firm by Malaysia’s stock exchange.($1 = 4.4650 ringgit) More

Annual profit at Fortescue Metals Group, the world’s fourth-largest iron ore miner, took a hit as iron ore prices are pressured due to persistent worries over demand from top steel producer China. Its margins were further crimped by rising costs and a labour shortages.As a result, the Perth-based miner earned average revenue per dry metric tonne (dmt) of iron ore of $99.80 during the year, down from $135.32/dmt for the previous year, when the miner saw record earnings.Also underpinning the drop in profit was the shortage of skilled labour in the aftermath of the COVID-19 pandemic, which has raised personnel costs across Australia’s mining sector.Fortescue, which is about 37%-owned by billionaire Andrew Forrest, reported annual underlying net profit after tax of $6.20 billion, down from a record $10.35 billion a year ago. It was largely in line with a Refinitiv estimate of $6.24 billion. The miner declared a final dividend of A$1.21 per share, down from A$2.11 apiece declared last year. The bleak earnings report comes weeks after rival Rio Tinto (NYSE:RIO)’s earnings and dividend also suffered a blow from iron ore prices retreating from 2021 highs due to worries that demand from top consumer China will slow down. More

Profits at China’s industrial firms fell 1.1% in January-July from a year earlier, wiping out the 1.0% growth logged during the first six months, the National Bureau of Statistics said on Saturday.The bureau did not report standalone figures for July.Factory production and activities in major manufacturing hubs like Shenzhen and Tianjin were hit in the month as fresh COVID curbs were imposed.In July, China’s industrial output growth slowed to 3.8% on-year from 3.9% in June.Searing heatwaves have swept across China’s vast Yangtze River basin since mid-July, hammering densely populated cities from Shanghai to Chengdu.Liabilities at industrial firms jumped 10.5% from a year earlier in July, matching the 10.5% increase in June, the statistics bureau said.China’s economy narrowly escaped contraction in the three months to June, as strict COVID control restrictions and a distressed property sector pummelled demand.Policymakers are striving to prop up the flagging economy by doubling down on infrastructure spending. The industrial profit data covers large firms with annual revenues of over 20 million yuan ($3 million) from their main operations.($1 = 6.8715 Chinese yuan renminbi) More

ORLANDO, Fla. (Reuters) – “Don’t fight the Fed” is a well-worn market maxim, and hedge funds are sticking to it like glue.U.S. futures markets positioning data show that speculators are heeding the increasingly clear signals from Federal Reserve officials that interest rates will be raised as high as is necessary to bring inflation back under control.The Commodity Futures Trading Commission report for the week to August 23 – three days before Fed Chair Jerome Powell’s Jackson Hole speech – show that funds increased their record bet on higher interest rates, and amassed their largest short position in two-year Treasuries futures in over a year.In light of Powell’s relatively hawkish speech in Wyoming, which slammed Wall Street and pushed up the Fed’s ‘terminal rate’ market pricing implied by ‘SOFR’ interest rate futures, it is proving to be a winning strategy.The latest CFTC report shows that speculators’ net short position in three-month SOFR futures stood at a record 1.052 million contracts in the week through Aug. 23.That is up from 956,971 contracts the week before. The net short position has doubled in the space of a month.Funds also increased their net short position in two-year Treasuries to 241,143 contracts, the biggest bearish bet on short-dated bonds since May last year. A short position is essentially a wager that an asset’s price will fall, and a long position is a bet it will rise. In bonds and rates, yields fall when prices rise, and move up when prices fall.JOB NOT DONEAfter Powell’s speech on Friday, traders pushed the Fed’s terminal rate implied by Secured Overnight Financing Rate futures, to be reached by March next year, above 3.80%. Early this month, the terminal rate was around 3.20% and priced for December this year.What’s even more striking than this rise of around 60 basis points is the jump in implied rates for the end of next year. The December 2023 SOFR contract on Friday implied a fed funds rate of 3.45%, 90 bps higher than the 2.55% implied on Aug. 1.Traders’ are molding a pretty firm ‘higher for longer’ view of the Fed, and thoughts of a pivot next year are evaporating. Only 35 bps of easing is priced in for the back end of next year, down from 60 bps a few weeks ago.Even though inflation appears to be cooling, Powell was clear that the Federal Market Open Committee is taking no chances.”The bottom line was that the FOMC’s job is not done, and that it will need to follow through with additional hikes — despite potential economic pain — … and then keep policy restrictive for a time,” economists at Barclays (LON:BARC) wrote on Friday.(The opinions expressed here are those of the author, a columnist for Reuters.) (By Jamie McGeever; Editing by Alistair Bell) More

WASHINGTON (Reuters) -Democratic U.S. Senator Elizabeth Warren said on Sunday that she was very worried that the Federal Reserve was going to tip the nation’s economy into recession and that interest rate hikes would put people out of work.”Do you know what’s worse than high prices and a strong economy? It’s high prices and millions of people out of work. I am very worried that the Fed is going to tip this economy into recession,” Warren told CNN on Sunday.The U.S. central bank’s chief, Jerome Powell, warned on Friday that Americans were headed for a painful period of slow economic growth and possibly rising joblessness as the Federal Reserve raises interest rates to fight high inflation.Powell said in a speech on Friday the Fed will raise rates as high as needed, and would keep them there “for some time” to bring down inflation that is running at more than three times the Fed’s 2% goal.”While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” Powell had said in his speech.”What he calls ‘some pain’ means putting people out of work, shutting down small business because the cost of money goes up because the interest rates go up,” said Warren, whose views on the economy are often influential among progressive Democrats.Warren said inflation was high partly due to supply chain problems, the COVID-19 pandemic and the war between Russia and Ukraine. “There is nothing in raising the interest rates, nothing in Jerome Powell’s tool bag, that deals directly with those and he has admitted as much in congressional hearings,” Warren said. More

Tory leadership frontrunner Liz Truss on Sunday faced renewed pressure to outline her plans to tackle the cost of living crisis, as MPs called for increased support for households and small businesses grappling with rising energy bills.The foreign secretary, who has advocated for £30bn in tax reductions, is exploring VAT cuts of up to 5 percentage points and increasing the personal allowance, the level at which people start paying income tax on their earnings.Truss has previously ruled out giving “handouts” to ease income pressures, describing it as “taking money from people in taxes and then giving it back to them in benefits”. Her allies on Sunday indicated that a support package would be unlikely to include additional one-off payments. However, officials close to the foreign secretary have stressed that all options will be considered and that a final decision on financial support will be made after a new party leader is announced on September 5. Rishi Sunak’s allies have dubbed the latest proposed VAT cut, first reported in The Sunday Telegraph and The Sunday Times, as “flawed” and “regressive”. One official from the former chancellor’s team said: “VAT is not paid on basic items such as food therefore does nothing to help families pay their supermarket bills.” “Cutting VAT will benefit higher-income households more, leaving very little to no benefit for lower-income households who will need the most help this winter,” they added.

Former chancellor and Tory leadership candidate Rishi Sunak at a Q&A during a hustings in Birmingham © Reuters

Meanwhile, Conservative MPs have voiced growing concern over the impact of energy price rises on households and business, following the regulator Ofgem’s announcement on Friday that the energy price cap would increase by 80 per cent in October, taking bills up to £3,549 for the average user.“I’m hearing from constituents who are reaching out for the first time worried about how they will get through this winter,” one senior Tory MP told the Financial Times. “Some of the existing help packages don’t even touch the sides.” Another Conservative backbench MP thought that Truss was right not to give details of her plans until elected but said they were concerned about the ability of households to manage energy prices over the winter. “The worry is ‘how long will this go on for?’” they said.Other Tory MPs raised the alarm over the future of small companies. “I’m hearing that companies are seeing 300 per cent increases in bills. Businesses will close as some of these numbers are not viable,” one senior Tory backbencher argued. “We need to be giving small and medium-size businesses more financial support for energy bills,” another added. “If they have to pass on costs to customers that will only drive inflation further.” 

Over the weekend, outgoing prime minister Boris Johnson blamed the cost of living crisis on Moscow, saying that Russia’s president Vladimir Putin wanted the UK to “buckle” in the face of “eye-watering” energy price rises, referring to the gas crisis sparked by the war in Ukraine. Johnson added that the nation had “enough resilience to get through” the coming months, adding that his successor would introduce a “huge package” of financial support.This week Johnson will reiterate the importance of committing to longer-term net zero pledges alongside implementing short-term methods to ease pressures on the cost of living, the Daily Telegraph reported. The cost of living crisis is just one of several pressing issues facing the next prime minister, with concerns over continued NHS waiting list backlogs and ambulance delays.Matthew Taylor, NHS Confederation chief executive, on Sunday argued that an “honest conversation” was needed about the capacity of the health service heading into the winter. Are you facing difficulties managing your finances as the cost of living rises? Our consumer editor Claer Barrett and finance educator Tiffany ‘The Budgetnista’ Aliche discussed tips on the best ways to save and budget as prices across the globe increase in our latest IG Live. Watch it here. More