Economy

BERLIN (Reuters) -The leader of Germany’s conservative Christian Democrats (CDU) Friedrich Merz said he could be open to reforming the debt brake, which limits the public deficit to 0.35% of gross domestic product, in certain circumstances.Merz, who is in pole position to become Germany’s next chancellor, had previously argued the country should stick with the constitutionally enshrined debt brake, which was introduced by his party in 2009 under Angela Merkel.Within the CDU, the debate about a debt brake reform was reopened this year by Kai Wegner, the conservative mayor of Berlin. Several powerful CDU leaders from other regional governments have joined the push for reform because the states are more constrained than the federal government, having no structural leeway to incur new debt. Pressure is building within the party, with CDU state premiers pushing Merz to include reform plans in the election programme in recent party meetings.”Of course it can be reformed,” said Merz, at an event on Wednesday. “The question is, why? For what purpose? What is the result of such a reform?”Merz said he would not be open to reform to increase spending on consumption or welfare policies, but if extra borrowing were to boost investment “then the answer may be different”. He noted that the debt brake was a technical issue and he did not want to get into that discussion now.DEBT BRAKE DILEMMAThe debt brake played a part in the collapse of Germany’s coalition government that precipitated the calling of a snap election on Feb. 23.Christian Lindner, the leader of the fiscally conservative Free Democrats party who was last week sacked as finance minister by Social Democrat Chancellor Olaf Scholz, said the chancellor had attempted to force him to suspend the debt brake.Suspending the brake in an emergency, citing special circumstances, is possible with a government majority. Germany reimposed the debt brake in 2024 after four years in which it was suspended to allow extra spending due to the coronavirus pandemic and the energy crisis following Russia’s full-scale invasion of Ukraine.However, reforming the debt brake would require a two-thirds majority in the upper and lower houses of parliament.The CDU state premiers of eastern states support reform, while the head of Bavaria’s conservatives, Markus Soeder, is against it. Christian Social Union (CSU) leader Soeder said “nonsensical additional expenditure” would have to be cut first, including the citizens’ allowance and heating subsidies. Migration should also be limited, he said. “Generally speaking, before we talk about the debt brake, the financial equalization of the federal states must be changed,” Soeder said, in reference to Germany’s system of revenue redistribution. The rich state of Bavaria recently had to hand over more than nine billion euros ($9.57 billion) to other federal states. “It can’t go on like this,” Soeder said.($1 = 0.9408 euros) More

BENGALURU (Reuters) – Donald Trump’s presidential election win has forced bond strategists to make a material change in their outlook towards higher longer-dated Treasury yields, a Reuters poll found, as the risk of a U.S. inflation resurgence escalates.Since Trump’s victory, the benchmark U.S. 10-year Treasury yield has risen nearly 15 basis points. That stems from expectations of his proposed policies of tax cuts and tariffs, which, according to estimates from the Committee for a Responsible Federal Budget, could push up U.S. fiscal debt by $7.75 trillion over the next decade.Coupled with continued resilience in U.S. economic data, that has thrown a wrench into the Federal Reserve’s easing plans. Benchmark 10-year yields, which move inversely to prices, are up over 70 basis points cumulatively since the Fed’s large September half-percentage point rate cut.Interest rate futures are now fully priced for just three more quarter-point interest rate cuts by end-2025, half of what was predicted even a few weeks ago.Nearly two-thirds of respondents, 19 of 30, said their overall view of longer-dated Treasury yields, which account for future growth and inflation expectations, had materially changed since the U.S. election in a Nov. 8-13 Reuters survey.”The situation is two-fold. Initially, we were skeptical about the U.S.’s need to cut rates as much as they were saying, or as much as the market was pricing. Central banks typically cut rates if there is a crisis or if inflation is too low, neither of which we’re currently seeing,” said Lars Mouland, chief rates strategist at Nordea.”Plus, its hard to argue against a lot of what Trump has proposed as being inflationary. Imported goods will become more expensive, and even if substituted with American goods, which are pricier from the onset, prices will rise … Perhaps we need to revisit the highs in rates and go even higher in the long end of the curve.”POLICY CLARITY SOUGHTDan Ivascyn, group chief investment officer at bond giant PIMCO, told Reuters last week the Treasury market selloff on and around the election reflected “reflationary theme” as well as higher fiscal risks.But strategists have not yet fully factored in these concerns to their official point forecasts.The 10-year Treasury yield, currently 4.43%, was seen falling about 20 bps to 4.25% in three months and to 4.20% by end-April, according to the median forecasts from nearly 40 bond strategists. Those forecasts were sizeable upgrades from October’s survey.”There are two opposing forces here for the market. One is the expectation of fiscal stimulus in 2025, which keeps an upward bias to yields. However, at the same time, there is also the fact the labor market has been weakening. The Fed is on an easing path, which acts in the opposite direction, pulling down yields,” said Jabaz Mathai, head of G10 rates and FX strategy at Citi.”Between these two forces, we find ourselves somewhat neutral at current levels – 4.2% is a reasonable target in the near term.”Several others in the survey also cited the need for greater clarity around whether Trump’s proposed policies will be implemented in full before taking a definitive call on the future path of yields.While results are still coming in for the House of Representatives, most expect the Republican Party to be in control of both Houses of Congress.”From here, yields will clearly look for more information not only from economic data, but also from fiscal policy,” said Vishal Khanduja, portfolio manager, Total (EPA:TTEF) Return Bond Fund at Morgan Stanley (NYSE:MS) Investment Management.”We need to see more details not only about who will lead certain aspects in the administration and certain departments, but also about their focus and actual numbers, whether it’s tax cuts or tariffs … This will give us more direction for Treasury yields.”Asked what was more likely for the U.S. yield curve over the coming month, 95% of survey respondents, 20 of 21, said it would steepen, 13 of whom said it would be led by longer-term yields rising faster than short-term ones, or “bear steepening”.Seven said “bull steepening” was more likely, one said “bull flattening”. More

(Reuters) – The main UK stock indexes slipped on Wednesday as traders awaited key U.S. inflation data to gauge the path of monetary policy, while defence company Smiths Group (OTC:SMGZY) rallied to record highs after upgrading its revenue outlook.The blue-chip FTSE 100 was down 0.1% at 1146 GMT, while the FTSE 250 index of midcap companies dipped 0.2%.Global stocks were sluggish ahead of the U.S. inflation data at 1330 GMT, which is expected to show that core consumer prices held steady in October. Traders are currently pricing a 59% chance of a 25 bps rate cut by the Federal Reserve in December.”The consensus is for the annual rate of inflation to move from 2.4% to 2.6%. Any higher could trouble the market, particularly given the incoming Trump administration raising the prospect of higher inflation through various policies,” said Russ Mould, investment director at AJ Bell.UK and European markets have fluctuated since Donald Trump’s re-election as U.S. president, as investors fretted over the possibility of a trade war hurting the European economy and disappointment over China’s stimulus steps.Meanwhile, still high inflation in Britain poses a risk that some drivers of price growth could be heading upwards, Bank of England interest rate-setter Catherine Mann said.The BoE last week cut borrowing costs for only the second time since 2020 and said further reductions were likely to be gradual as it assessed the persistence of inflation pressures.Smiths Group rallied 10%, having touched a record high earlier, after the British engineering firm upgraded its annual organic revenue outlook following strong demand for its next-generation scanning and explosives detectors.Babcock jumped 5.9% after the defence group said it was on track to meet forecasts for the full year as the backdrop of geopolitical instability drives demand for its defence equipment and services. More

LONDON (Reuters) -The collapse of Germany’s government could have a silver lining for the euro zone’s ailing economy with potentially higher spending likely to support its currency and stock markets, even if the path remains uncertain.Markets are already moving in anticipation of more government borrowing that would help stimulate the economy, pushing a closely-watched bond market gauge of debt issuance to a record. One reason for the collapse of the ruling coalition was disagreement on whether to suspend Germany’s debt brake, which limits borrowing, and the early read out from markets is that fresh elections in February could bring more certainty for an economy that just dodged recession.German stocks outperformed European peers on news that the government collapsed last Wednesday, another sign of a more positive mood taking hold – just hours after Donald Trump’s U.S. election win raised the threat of tariffs in a fresh blow to Europe’s biggest economy.”The German growth dynamic has been anaemic and a large part of that has been self-inflicted as Germany has stuck with the debt brake at a time when the economy needs support,” said Zurich Insurance Group (OTC:ZFSVF)’s chief markets strategist Guy Miller.”The collapse of the coalition is constructive and we hope there could be more fiscal leeway in the 2025 budget.”Friedrich Merz, leader of the conservative opposition Christian Democrats leading the polls, said on Wednesday that the debt brake could “of course” be reformed, having previously said Germany should stick to it. DEBT BRAKE DILEMMAEconomists have long blamed the debt brake, adopted in 2009, for holding back Germany’s economy, which is expected to shrink this year. A rise in government spending by 1% to 2% of output for 10 years could boost potential growth to at least 1% from around 0.5% currently, ING’s head of global macro Carsten Brzeski estimates. “Germany is not in any public finance problem,” Brzeski said, as given debt at just 63% of output, it has more room to spend than peers like France and Italy.”If you can combine reforms with looser fiscal policies, please do it,” he added. The International Monetary Fund has also said Germany should consider easing its debt brake and any signs that higher spending is coming could bolster European shares.The pan-European STOXX 600 is up just 5% this year, less than a quarter of the U.S. S&P 500’s 25% gain.Hopes of a pro-growth policy turn “would be much needed for German equity valuations to re-rate,” Barclays (LON:BARC) reckons.Citi expects tax cuts the conservatives have proposed would support equities.The euro, which fell to its lowest in a year just below $1.06 on Wednesday , with talk of a drop to parity resurfacing as tariff worries weigh, could also benefit. Societe Generale (OTC:SCGLY)’s chief FX strategist Kit Juckes notes that Germany overtook Japan this year as the country owning the most foreign assets, meaning it has plenty of capital that could be used to invest in its own economy. Such money “could be used to buy high-yielding German government bonds to get the economy moving,” Juckes said, adding that could eventually have a “big impact” on the euro if the government signals a material change to its policy approach. The hope is a German policy turn could also open the door to more joint European spending. Trump’s election may require the bloc, which already faces calls for massive investments to boost competitiveness, to increase defence spending.”A change in tone at the top in Germany is essential to move toward greater European integration,” said Gilles Guibout, head of European equity strategies at AXA Investment Managers.He called the sacking of finance minister Christian Lindner, a fiscal hawk, “great news” for Europe, but added whether it will prove enough remains to be seen. HOLD ON!For sure, political uncertainty means more near-term pain for industry and could hurt sentiment.And it’s not clear to what extent Merz’s conservatives would be open to raising spending. On Wednesday Merz said he would not be open to reform if more money was spent on consumption and welfare policies, but “the answer may be different” if it were to boost investment. Previously, Merz said he wanted to see the right conditions to invest in pro-growth programmes. He has also opposed further common European Union debt. Economists are debating whether the debt brake itself could see reform or whether Germany could launch fresh off-budget spending, tough asks requiring a large majority in parliament.Goldman Sachs said last week it expected the conservatives would only support amending the debt brake for modest additional spending, around 0.5% of output, expecting fiscal policy to remain a “drag” on growth.Macquarie strategist Thierry Wizman recommended betting against the euro with no guarantee of a reformist government. For others, change is a matter of time.Davide Oneglia at consultancy TS Lombard expects snap elections to bring debates on Germany’s growth model and EU security risks “to the fore in all their urgency”. “The main risk to our view is that they fail to grasp the need of a paradigm shift and fall back on old, now unviable, economic recipes,” he said. “A still harsher reckoning would then come for the German and EU economy.” More

LONDON (Reuters) -High inflation in Britain has not been vanquished and it is more likely to overshoot than undershoot Bank of England forecasts over the medium term, BoE interest rate-setter Catherine Mann said on Wednesday.Mann cast the lone vote against cutting borrowing costs at a meeting of the BoE’s Monetary Policy Committee last week which decided by an 8-1 margin to lower the Bank Rate to 4.75% from 5%, and she also opposed an initial rate cut in August. “We have an upside bias to inflation … which tends to enable inflation to become embedded, and in that environment it’s important to hold (interest rates) for longer,” Mann said at a conference hosted by BNP Paribas (OTC:BNPQY).”When I have evidence that there has been a removal or moderation of inflation persistence – sufficient moderation of inflation persistence – then I will move in a bigger step,” she said.Last week the BoE revised up its inflation forecasts due to a higher minimum wage and short-term fiscal stimulus in the first budget of the new Labour government. The BoE predicted inflation would rise from 1.7% in September to 2.5% by the end of the year and not return to its 2% target until mid 2027, a year later than it previously thought.Financial markets only expect the BoE to cut rates twice next year, compared with at least five quarter-point cuts they predict for the European Central Bank as the euro zone economy slows.Mann said services price inflation in Britain remained “pretty sticky”, though there were some early signs that hospitality businesses were finding it harder to push through price rises or pay higher wages.Energy prices were more likely to rise than fall over the coming years, adding to the overall risk of higher inflation, she said.”There are some possibilities about downward pressure on inflation coming from export prices coming out of China, for example. But against that … one piece of news that is downward bias, the rest of it is upward bias and likely to be more volatile going forward over the medium term,” Mann said.U.S. President-elect Donald Trump’s threat of high U.S. tariffs on imports from China might lead to more Chinese goods heading to Europe at discounted prices, analysts have said. More

BAKU (Reuters) – COP29 negotiators welcomed a pledge by major development banks to lift funding to poor and middle-income countries struggling with global warming as an early boost to the two-week summit.A group of lenders, including the World Bank, announced on Tuesday a joint goal of increasing this finance to $120 billion by 2030, a roughly 60% increase on the amount in 2023.”I think it’s a very good sign,” Irish Climate Minister Eamon Ryan told Reuters on Wednesday.”It’s very helpful. But that on its own won’t be enough”, Ryan said, adding countries and companies must also contribute.China’s Vice Premier Ding Xuexiang said on Tuesday that Beijing has already mobilized around $24.5 billion to help developing countries address climate change. Ryan’s view was echoed by Patrick Verkooijen, CEO of the Global Center on Adaptation who welcomed the announcement as “a shot in the arm for the climate finance discussion””But there is so much more work ahead,” he added.The chief aim of the conference in Azerbaijan is to secure a wide-ranging international climate financing agreement that ensures up to trillions of dollars for climate projects.Developing countries are hoping for big commitments from rich, industrialized nations that are the biggest historical contributors to global warming, and some of which are also huge producers of fossil fuels.”Developed countries have not only neglected their historical duty to reduce emissions, they are doubling down on fossil-fuel-driven growth,” said climate activist Harjeet Singh.Wealthy countries pledged in 2009 to contribute $100 billion a year to help developing nations transition to clean energy and adapt to the conditions of a warming world. But those payments were only fully met in 2022 and the pledge expires this year.’GET IT DONE’Hopes for a strong deal have been dimmed by Donald Trump’s U.S. election win. The President-elect has promised to again withdraw the U.S. from international climate cooperation.The United States is already the world’s largest oil and gas producer and Trump has vowed to maximize output. Officials representing President Joe Biden’s outgoing administration at COP29 have said China and the European Union may need to pick up the slack if Washington cedes leadership.”We have a clear choice between a safer, cleaner, fairer future and a dirtier, more dangerous, and more expensive one. We know what to do. Let’s get to work. Let’s get it done,” U.S. climate envoy John Podesta told the conference.With 2024 on track to be the hottest year on record, scientists say global warming and its impacts are unfolding faster than expected. Climate-fuelled wildfires forced evacuations in California and triggered air quality warnings in New York. In Spain, survivors are coming to terms with the worst floods in the country’s modern history.Indigenous leaders from Brazil, Australia, the Pacific and Eastern Europe said on Wednesday they intend to work together to ensure indigenous people have a say in future climate decisions.The group said it was pushing for an indigenous co-presidency at next year’s COP, which is meant to be held in Brazil’s Amazon (NASDAQ:AMZN), as well as at future COP conferences.Albania’s Prime Minister Edi Rama told the conference he was concerned that the international process to address global warming, now decades old, was not moving swiftly enough.”Life goes on with its old habits, and our speeches, filled with good words about fighting climate change, change nothing,” Rama said.  More

December futures on the S&P/TSX index were down 0.07% at 6:04 a.m. ET (11:04 GMT).Wall Street futures edged lower as an uptick in Treasury yields weighed on rate-sensitive equities. [.N]Investors are focused on the U.S. consumer price index, due at 8:30 a.m. ET, to gauge the Federal Reserve’s policy easing path. Traders see a 63% chance for a 25-basis-point rate cut in the United States next month. However, markets also assume that President-elect Donald Trump’s proposed policies could fuel economic growth and inflation, potentially impeding the path to lower Fed interest rates.Trump’s reelection comes with his proposed tariffs for all imports that could potentially hurt the United States’ trade relations, including with Canada.Canada’s energy sector grabbed the limelight on Wednesday as oil prices rose on signs of near-term supply tightness. [O/R]The materials sector could take its cues from gold prices that rose after falling to a near two-month low in the previous session and copper prices, which touched a two-month low against a stronger U.S. dollar.The TSX composite index notched a record closing high on Tuesday, boosted by the technology sector after e-commerce firm Shopify (NYSE:SHOP) reported strong quarterly results. In corporate news, Suncor Energy (NYSE:SU) raised its quarterly dividend after the integrated oil and gas firm beat estimates for third-quarter profit on higher oil production and demand for refined products.COMMODITIES Gold: $2,608.67; +0.44% [GOL/]US crude: $68.62; +0.73% [O/R]Brent crude: $72.4; +0.71% [O/R]FOR CANADIAN MARKETS NEWS, CLICK ON CODES:TSX market report (TO)Canadian dollar and bonds report [CAD/] [CA/]Reuters global stocks poll for CanadaCanadian markets directory($1 = 1.3955 Canadian dollars) More

CHICAGO/EVANSVILLE, Wisconsin (Reuters) – American farmers are worried that President-elect Donald Trump’s sweeping tariff plans will curb their access to top soy buyer China, but tariffs could also lure companies to build more U.S. crushing plants, hungry for domestic supplies.Trump’s plans to roll out blanket import tariffs could slam the door on imported vegetable oil supplies, which renewable energy analysts said could in turn lure the U.S. crush industry to revive lagging plans to build new plants and expand capacity.Such expansion has faltered over the past year, as the U.S. market was flooded with cheaper global supplies of diesel feedstocks like used cooking oil (UCO) from China, tallow from Brazil and canola oil from Canada. Now, these supplies are likely targets for Trump’s tariffs while global supplies of other vegoils are tightening and prices climbing, analysts said. USDA data projects that global rapeseed oil supplies will shrink by 13% over the coming year with sunflower seed oil stocks down 24%. Indonesian palm oil shipments have dropped as that country plans to boost biodiesel production next year.Potential new demand helped send Chicago Board of Trade soyoil futures jumping nearly 6% last week to the highest in seven months, traders said.Analysts cautioned it remained too soon to know how, or if, the Trump Administration will change President Joe Biden’s law providing a decade of lucrative subsidies for clean-energy projects. Building domestic demand for such crops is key for eating through excess stocks, especially without access to the Chinese export market, agricultural economists said. Hefty global competition could dent incomes for farmers who just harvested the second-largest U.S. soybean crop ever at a time when crop prices hover near four-year lows.If tariffs prompt retaliation by global U.S. soybean importers, big soy processors such as Bunge (NYSE:BG) Global and Archer-Daniels-Midland Co could benefit from a larger and likely cheaper supply of beans for them to crush in the U.S., industry analysts said. “If Trump goes the tariff direction, it is friendly for the U.S. crushing industry and capacity,” said Kent Woods, owner of advisory firm CrushTraders. Woods added that U.S. soyoil demand would also rise if Trump blocks imported oils from benefiting from renewable fuel tax credits.Farmers in rural Evansville, Wisconsin, were still waiting for the state’s first commercial-scale soybean crushing plant, which had been slated to break ground last year. For Nancy Kavazanjian and husband Charlie Hammer, the plant would mean an end to the nearly 400-mile round-trip to haul their soybeans to an Illinois buyer. The savings would be huge, Kavazanjian said. “It’s manpower, it’s fuel and it’s time.”PROMISE OF RICHESSoaring vegoil demand from biofuels makers triggered a flood of projects to build new soy processing plants three years ago.A mix of state and federal programs aimed at boosting lower carbon intensity fuels got a lift from Biden’s Inflation Reduction Act (IRA) climate legislation in 2022. Since 2021, U.S. renewable diesel production capacity soared 200%.Six new soybean processing facilities or plant expansions in Iowa, Nebraska and North Dakota opened in less than two years. At least four more projects in Nebraska, Ohio, Indiana and Louisiana are slated to launch through 2026.Yet in about a half-dozen Midwestern towns, the lucrative promise of riches has stalled. Crushers blame the delays on the flood of biofuel feedstock imports, soaring construction costs and the end of cheap financing as interest rates surged to a 23-year high.U.S. farmers looking to boost domestic soyoil demand have unsuccessfully tried to get Biden’s Treasury Department to exclude imported biofuel feedstocks from IRA subsidies known as 45Z. It remains too soon to know if Trump will try to alter the IRA’s clean energy provisions or limit imports of used cooking oil, said Susan Stroud, founding analyst at No Bull Ag consulting. ELECTION RESULTSSome firms slammed on the brakes on oilseeds plant expansions in order to wait and see how the election will impact biofuels policy. Permitting delays have stalled plant expansions by global oilseeds processor Bunge and joint venture partner Chevron (NYSE:CVX) in Destrehan, Louisiana, and Cairo, Illinois, along with slow approvals by the two companies, Bunge told Reuters.Industry sources said Bunge scrapped plans to expand its massive plant in Council Bluffs, Iowa. Bunge declined to comment.Work on United Cooperative’s smaller-scale plant in Waupun, Wisconsin, lagged after construction costs rose and interest rates soared, said Woods of advisory firm CrushTraders.United Coop CEO David Cramer said it will be online within two years; the only delays were in getting equipment.Soy processors also expect higher construction costs next year. Tariffs on imported steel and processing plant equipment could prove unpalatable for crushers that have yet to break ground.Evansville Mayor Dianne Duggan said CHS had spoken about approving construction of the local facility as early as spring of 2023. The plant would be able to crush 70 million bushels of soybeans annually – or about two-thirds of Wisconsin’s total crop production, according to company and government data. Today, it’s an empty field. CHS said the project is still under consideration. More