Economy

The European Central Bank is this week set to strengthen its commitment to prop up vulnerable eurozone countries’ debt markets if they are hit by a sell-off, as policymakers prepare to raise rates for the first time in more than a decade.The bulk of the 25 governing council members are expected to support a proposal to create a new bond-buying programme if needed to counter borrowing costs for member states, such as Italy, spiralling out of control, according to several people involved in the discussions. Even without a new scheme, the ECB already has an additional €200bn to spend on purchasing stressed government debt under its existing bond-buying programme. That €200bn would come from bringing forward reinvestments of maturing assets by up to a year.Italian government debt rallied on Monday morning, pushing the yield on the country’s benchmark 10-year bond down as much as 0.1 percentage points to 3.3 per cent. The gap between Italy’s 10-year borrowing costs and those of Germany, a key measure of perceived financial risk in the euro area, fell from 2.14 percentage points at the end of last week to 2.07 percentage points. The spread rose last week to its highest level since a sell-off in southern European bond markets at the start of the pandemic in 2020.Rate-setters, who meet in Amsterdam on Wednesday and Thursday, are likely to clash over when to stop buying more bonds. Some plan to call for purchases to be halted as soon as Thursday, several weeks ahead of schedule, although they concede that only a minority may support the idea.The bank is under pressure to react to record-high inflation, but has lagged behind its counterparts in the US and UK in tightening monetary policy. Many of the council’s hawks have accepted they will need to provide more support for bond markets to clear the way for being more aggressive in raising rates. Almost all of the council accept that the ultra-loose monetary policy it has pursued for more than a decade needs to end. A rise of at least 25 basis points is all but certain to happen at the ECB’s next policy meeting on July 21. The deposit rate is now minus 0.5 per cent. Citizens in the region are facing a surge in the cost of living, aggravated by Russia’s invasion of Ukraine. Consumer prices in the eurozone rose 8.1 per cent in the year to May — quadruple the ECB’s 2 per cent target and double the previous high since the single currency was launched in 1999 — forcing governments to pay subsidies to cushion the impact of higher energy and food prices on households.However, some are concerned about the market fallout from raising rates and want a firmer commitment to launch a new bond-buying scheme to counter any unwarranted surge in the borrowing costs of heavily indebted countries.ECB president Christine Lagarde said in a blog last month: “If necessary, we can design and deploy new instruments to secure monetary policy transmission as we move along the path of policy normalisation, as we have shown on many occasions in the past.”Several council members said they would support adding similar language to its statement on Thursday, building on a promise made after its meeting in April to maintain flexibility when its price stability target is threatened “under stressed conditions”.The central bank has previously said its continuing €20bn-a-month asset purchase programme would not end until early July and only “some time” after that would it consider raising interest rates.

The policymakers planning to call for an immediate end to additional bond purchases this week believe there is no longer any justification in continuing a policy designed to boost inflation. Others insisted it was more credible to stick to the plan for bond-buying to continue until early July. The ECB declined to comment.Carsten Brzeski, head of macro research at ING, said bringing forward the end of bond purchases by a few weeks would “be a clear hawkish surprise” and could even open the door to the possibility of raising interest rates before its meeting on July 21.The ECB has bought more than €4.9tn of bonds in total, equivalent to more than a third of eurozone gross domestic product, since launching its quantitative easing programme to tackle the dual threat of deflation and a sovereign debt crisis in 2014.Over the past two years, it has bought more than all the extra bonds issued by the eurozone’s 19 governments, giving it vast sway over borrowing costs in the region. The ECB has also been slower to stop buying more bonds than most western central banks. Some, such as the US Federal Reserve, have even started shrinking their balance sheets by not reinvesting the proceeds from maturing bonds.Additional reporting by Adam Samson More

BENGALURU (Reuters) – Thailand’s central bank will leave interest rates unchanged at their record low for the rest of the year to support economic recovery, but there are growing calls for an earlier rate rise amid inflationary risks, a Reuters poll found. Driven by higher food and energy prices, inflation in Thailand rose to 4.65% in April and was expected to stay over 5% in the coming months, well above the Bank of Thailand’s (BOT) target range of 1% to 3%.Despite those price pressures, economists forecast the central bank will keep policy accomodative to support growth until the end of 2022.Following a drop in COVID-19 cases and eased restrictions, Thailand’s economy expanded a seasonally adjusted 1.1% in the March quarter from the previous three months, beating an expected 0.9% increase in a separate Reuters poll.But China’s zero-COVID policy and low tourist arrivals still pose a challenge to the recovery.All 20 economists in the May 30-June 3 poll predicted the central bank will hold its one-day repurchase rate at 0.50% at its June 8 meeting and keep it there for the remainder of the year.”While our baseline view is for the Bank of Thailand (BOT) to remain on hold in 2022, we see rising risks of policymakers shifting hawkish and normalising monetary policy in 2H22, amid upside inflation pressures,” said Chua Han Teng, economist at DBS.”By ‘hawkish shift’, we mean specifically the scenario where BOT explicitly shifts its focus away from economic support and towards taming inflation or keeping up with global rate hikes and signals that rate hikes would be imminent in 2H22.”EARLIER MOVE While the median forecasts from the poll showed the first rate hike will come only in the first quarter of 2023 – unchanged from the April poll – some economists expected an earlier move from the BOT.Over a third, or seven of 20 respondents, pencilled in at least one 25 basis point rate hike to come by Q4 2022, including two who expected it to come as early as next quarter. In the April poll, only two economists expected a quarter point hike in 2022.”We think the BOT will turn increasingly less dovish given the backdrop of rising domestic inflation and an accelerating global rate-hiking trend,” noted Krystal Tan, economist at ANZ. “A sustained recovery would give the BOT scope to start shifting its focus towards anchoring domestic inflation expectations in the coming months and gradually withdraw pandemic-era stimulus.”Though forecast medians showed interest rates reaching their pre-pandemic levels of 0.75% in Q1 2023, predictions ranged from 0.50% to 1.50%, suggesting uncertainity around policy direction.While six of 17 saw rates at 0.75% by end-March, four said 1.00% or higher. The remaining seven forecast rates to stay at 0.50%.Expectations for a subsequent 25 basis point rate hike were brought forward to Q2 2023 from Q3 2023 in the last poll, taking the rate to 1.00%, where it was expected to remain until the end of next year. More

SYDNEY (Reuters) – Asian shares made a muted start on Monday as caution gripped ahead of a critical reading on U.S. inflation, while the euro gained on the yen amid wagers the European Central Bank will take a major step toward policy tightening this week.Oil prices jumped in early trade after Saudi Arabia raised prices sharply for its crude sales in July, an indicator of how tight supply is even after OPEC+ agreed to accelerate its output increases over the next two months.MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.1%, while Japan’s Nikkei eased 0.3%. S&P 500 futures and Nasdaq futures both edged up 0.1%.Markets will be on tenterhooks for the U.S. consumer price report on Friday, especially after EU inflation shocked many with a record high last week.Forecasts are for a steep rise of 0.7% in May, though the annual pace is seen holding at 8.3% while core inflation is seen slowing a little to 5.9%. A high number would only add to expectations of aggressive tightening by the Federal Reserve with markets already priced for half-point hikes in June and July and almost 200 basis points by the end of the year.Some analysts thought Friday’s upbeat payrolls report suggested the Fed was on track for a soft landing.”May’s numbers came in about as good as the Fed could expect,” said Jonathan Millar, an economist at Barclays (LON:BARC).”It’s a good sign that the Fed’s plans to cool the labour market are playing out favourably so far, with solid gains in employment continuing to generate steady income gains that will help allay recession worries, for the time being.”NOT SO NEGATIVEThe European Central Bank meets on Thursday and President Christine Lagarde is considered certain to confirm an end to bond buying this month and a first rate hike in July, though the jury is out on whether that will be 25 or 50 basis points.Money markets are priced for 125 bps of hikes by year-end, and 100 bps as soon as October.”Recent communication by ECB officials have looked to 25bp increases at July and September to exit negative rates by the end of Q3, though with some members preferring to leave the door to larger 50bp hikes open,” said analyst at NAB. “Lagarde’s post-meeting press conference will be closely watched.”The prospect of rates turning positive this year has helped the euro steady at $1.0722, some way from its recent trough of $1.0348, though it has struggled to clear resistance around $1.0786.The euro also made a seven-year peak on the yen at 140.35, after climbing 2.9% last week, while the dollar was up at 130.84 yen having also gained 2.9% last week.Against a basket of currencies, the dollar stood at 102.110 after firming 0.4% last week.In commodity markets, gold was stuck at $1,852 an ounce having held to a tight range for the past couple of weeks. [GOL/]Oil prices got an added lift after Saudi Arabia set higher price for shipments to Asia, while investors are wagering supply increases panned by OPEC will not be enough to meet demand especially as China is easing its lockdowns. [O/R]”Perhaps only a third to half of what OPEC+ has promised will come online over the next two months,” said Vivek Dhar, a mining and energy analyst at CBA.”While that increase is sorely needed, it falls short of demand growth expectations, especially with EU’s partial ban on Russian oil imports also factored in. We see upside risks to our near term Brent oil price forecast of $US110/bbl.”Indeed, Brent is already well past that adding $1.61 on Monday to reach $121.33 a barrel. U.S. crude rose another $1.56 to $120.43 per barrel. More

The value of initial public offerings in the US and Europe has fallen 90 per cent this year as the Ukraine war, rising inflation and interest rates have forced businesses to shelve plans to go public. Just 157 companies raised a total of $17.9bn in the first five months of 2022, compared with 628 that raised $192bn in the same period last year, according to data from Dealogic. The first three quarters of 2021 were the busiest period ever for listings, as companies rushed to go public after putting plans on hold during the coronavirus pandemic. But market volatility, the war in Ukraine and the threat of global recession have made companies much less willing to do so this year. Globally, the value of IPOs dropped 71 per cent — from $283bn to $81bn — in the period and the number of listings fell from 1,237 to 596. “A lot of people were raring to go and then a confluence of factors hit them all at once,” said Martin Glass a partner at law firm Jenner & Block who advises companies on IPOs. “Once things stabilise, we will see a return of activity, even if it does not reach last year’s levels. People are not abandoning ship — they are pausing.” Happy Monday, and thanks for reading FirstFT Asia. If you have any thoughts about the newsletter, please let us know at [email protected]. Here’s the rest of today’s news. — SophiaFive more stories in the news1. Authorities snuff out Tiananmen Square commemorations Six people were arrested on the June 4 anniversary of the Tiananmen Square massacre in 1989. It’s one of the most sensitive events for Chinese authorities — discussion of the demonstrations are censored on the mainland and survivors or victims’ families are routinely detained or interrogated.2. Ukraine hits back at Macron’s warning against ‘humiliating’ Putin Yesterday, President Zelensky’s chief of staff Andriy Yermak responded to the French president’s comment that it was important not to “humiliate” Russia over the war in Ukraine, saying “The aggressor’s responsibility is not humiliation, but justice,” pointing to the shelling of Ukrainian cities and the “genocide” of its people.3. Ryanair forces South African customers to take Afrikaans test In a crackdown on fake passports, the airline is barring South African nationals from boarding flights if they fail a general knowledge quiz in a language they may not speak. The unannounced test has sparked accusations of racial discrimination because of its use of Afrikaans, a language with a history of enforced use under apartheid.

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4. Japan passes stablecoin law As part of a five-year effort to protect consumers investing in cryptocurrencies, Japan has passed a landmark law clarifying the legal status of stablecoins. The bill imposes a link with the yen and enshrines the right to redeem stablecoins at face value.5. Investors return to Chinese stocks Global investors are returning to China’s stock markets after a widespread sell-off earlier this year triggered by draconian Covid-19 restrictions, the geopolitical implications of Russia’s war in Ukraine and the lingering effects of regulatory crackdowns.The day aheadApple’s WWDC Apple’s annual Worldwide Developers Conference begins today. The company will announce future updates to its software platforms, and may unveil or tease new products.D-Day anniversary Today marks the 78th anniversary of the 1944 Normandy landings in France, one of the largest amphibious military assaults in history, in which Allied forces began liberating mainland Europe from Nazi Germany during World War II.Chinese spacecraft China has launched a spacecraft with three astronauts to the core module of the unfinished Chinese space station on a six-month mission.South Korean Memorial Day South Korea observes a day of remembrance today to commemorate those who died during the Korean war.What else we’re reading Ukraine’s ‘lost’ oligarchs The war in Ukraine is changing the fortunes of Ukraine’s business elite. Some of the country’s richest men played a vital role in propping up the country against Russian aggression in 2014, cementing their political influence and their financial interests. But eight years later, they have become more marginalised and their economic clout has waned.Crunch time for Boris Johnson The prime minister faces a crucial by-election in rural Devon and mounting pressure to quit as Conservative MPs debate his future. Johnson’s reputation has been battered by partying scandal during Covid lockdowns and pessimism over soaring inflation and the worst cost-of-living squeeze in a generation.Don’t romanticise the global south It is easy, and right, to implore Europe to do more for Ukraine. It is more transgressive to suggest that poorer nations are being cavalier in their attitude to the global order or selectively critical of imperialism. But transgress we must, writes Janan Ganesh, because the global south loses, too, by way of infantilisation.‘Facebook would not be Facebook without Sheryl’ Sheryl Sandberg intended to spend just five years at Facebook when she joined in 2008 as Mark Zuckerberg’s right-hand woman. Instead, she stayed 14 years, becoming one of the most recognisable, and polarising, figures in Silicon Valley. When she steps down as chief operating officer of Facebook, now known as Meta, this autumn, she will leave behind a mixed legacy.

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‘All the power is in his hands’ Lockdowns and other restrictions in China have been costly and crushed economic activity, but President Xi Jinping’s aggregation of power over the past decade has been so complete that he is unlikely to pay a significant political price for the considerable costs of his zero-Covid strategy, analysts said, even as he attempts to secure an unprecedented third term in power. MusicThe new virtual Abba Voyage show, in which avatars of the stars as their younger selves perform a live concert, could pave the way for us to enjoy gigs for all the other bands we missed the first time around. And, if the tech proves successful beyond concerts, these types of avatars could be used as stand-ins anywhere.

© Lucas Varela More

Hello and welcome to the working week.This could be seen as seven days of contrasts. While the Ukraine war grinds on and Nato conducts military exercises in the Baltics and central Europe, this week will commemorate the D-Day landings that enabled the liberation of Europe in the second world war. There will be sporting thrills with the 24-hour Le Mans race in France as well as sporting scandal with the opening of the fraud case against Sepp Blatter and Michel Platini, the former heads of world and European football, in Switzerland’s Federal Criminal Court.France heads to the polls again for parliamentary elections, while the Belgian royal family heads to the Democratic Republic of Congo, where the Congolese hope for an apology for colonial oppression.We will be reaching for the skies with several space mission launches, as well as the FT’s Investing in Space conference, while looking down (with some concern) on World Ocean Day, created to commemorate and act to protect our blue planet.Thank you for the emails about the future of the working week. As was noted, many people — most obviously freelancers — have been working different forms of working schedules since before the worldwide web was even a twinkle in Tim Berners-Lee’s eye, and usually much longer than corporate Monday to Friday or the mythical nine to five.But the future of our working week is an interesting debate. What is the highlight of your schedule? Can this newsletter better inform you? Email me at the usual address [email protected] dataThe OECD will be giving its periodic outlook for the global economy on Wednesday, but we will also be getting updates on the more immediate situation with inflation figures for the US and China on Friday.Monetary policy will again be centre stage with the rate-setting committees of the European Central Bank, Reserve Bank of Australia and the Central Bank of Russia all meeting this week.CompaniesAs we come into land with the end of this quarter’s earnings season, the European budget airline Wizz Air will be reporting full-year numbers. It has not been a good week for the aviation sector with inadequate staffing levels to cope with a rush of holidaymakers creating chaos at airports — a problem predicted to last into the summer. However, Wizz has ambitious growth plans. Can it convince investors that it has clear skies ahead?Inditex rules the retailing catwalk bringing new trends to the high street. But inflation in input costs — from labour to freight to energy — is the biggest challenge for new chair Marta Ortega, daughter of Inditex’s co-founder Amancio Ortega, who will be shepherding her first earnings call on Wednesday after she took the position in April.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayChina, Caixin general services purchasing managers’ index (PMI) figuresTuesdayAsia, Europe, Global: S&P Global sector PMI figuresEurozone, France, Germany: S&P Global construction PMI figuresAustralia, Reserve Bank of Australia’s monthly monetary policy meetingGermany, March industrial production figuresSouth Africa, Q1 GDP figuresUK, retail sales figures, share index provider FTSE Group quarterly review of series members plus S&P Global/Cips services PMI figuresUS, April consumer credit figuresWednesdayEU, the OECD Economic Outlook reportEU, eurozone Q1 GDP and household consumption figuresFrance, March trade balance dataItaly, April retail sales figuresJapan, Q1 GDP figures, plus April trade balance dataPoland, National Bank of Poland’s monetary policy committee meets in WarsawRussia, May consumer price index (CPI) dataUK, S&P Global/Cips construction figures plus British Retail Consortium NielsenIQ May shop price index dataResults: Inditex Q1, Wizz Air FYThursdayChina, May trade balance figuresEU, governing council of the European Central Bank holds its latest monetary policy meeting to decide interest rates in AmsterdamUK, Royal Institution of Chartered Surveyors May residential market surveyResults: Tate & Lyle FYFridayChina, May CPI and producer price index (PPI) dataCanada, May unemployment figuresIndia, Italy: April industrial production dataItaly, industrial production figuresRussia, central bank interest rate announcementUK, Bank of England quarterly survey of public expectations for inflationUS, May CPI figuresWorld eventsFinally, here is a rundown of other events and milestones this week. MondayAustria, International Atomic Energy Agency’s board of governors meets in ViennaChina is expected to launch a spacecraft with three astronauts to the core module of the unfinished Chinese space station on a six-month missionDenmark, France, Germany, Ireland, Norway, Switzerland: Pentecost/Whitsun public holidayFrance, 78th anniversary of the second world war D-Day landings in Normandy. A US ceremony will also be held at the World War Two Memorial in WashingtonSouth Korea, Memorial day to commemorate those who died during the Korean warTonga, public holiday for Emancipation Day, commemorating independence from British protectorate statusThe UN marks Russian Language Day, recognised as one of the six official languages of the UNUK, chancellor Rishi Sunak appears before the Treasury Committee to answer questions on his recently announced cost of living support package, plus a strike is planned by 4,000 rail, maritime and transport union members on Transport for London after the RMT criticised TfL for threatening 600 job lossesUS, the ninth Summit of the Americas begins in Los Angeles, bringing together representatives from the US, Canada and Mexico to discuss common goals. This year’s motto is Building a Sustainable, Resilient, and Equitable FutureTuesdayChina’s nationwide university entrance exam, or ‘gaokao’, beginsDemocratic Republic of Congo, Belgium’s King Philippe and Queen Mathilde, the first visit of a Belgian royal couple in 12 years, is expected to include a long awaited apology to the Congolese people over the country’s colonial pastNato hosts a press event to discuss Exercise Ramstein Legacy 22 involving missile defence exercises across Poland, Lithuania, Latvia and EstoniaSwitzerland, a ministerial meeting of the general council of the World Trade Organization begins in GenevaGlobal Boardroom FT Live event with speeches from among others Gina Raimondo, US commerce secretary, on the semiconductor crisis and FT columnist Martin Wolf talking to Bank of Japan governor Haruhiko KurodaWednesdaySwitzerland, corruption trial due to begin of former Fifa president Sepp Blatter and ex-Uefa chief Michel Platini in the Swiss Federal Criminal CourtUK, FT Live Investing in Space conference begins online and in person at the Pan Pacific hotel in London, including an interview with astronaut Samantha Cristoforetti speaking from the International Space Station.US, 21st Tribeca Film Festival, co-founded by Robert De Niro, opens in New YorkWorld Ocean Day to raise awareness of environmental damage to the seasThursdayUS, SpaceX Cargo Dragon launches to the International Space Station from Nasa’s Kennedy Space Center in FloridaFridayChina, 25th Shanghai International Film Festival opensPortugal, public holiday for Day of PortugalSaturdayFrance, 90th European 24hr Le Mans race, the world’s oldest active sports car race in endurance racing, startsPapua New Guinea, general election beginsUK, London Fashion Week opensSundayFrance, parliamentary election for the 577 members of the Assemblée NationaleGermany, meeting of G7 science ministers begins in FrankfurtItaly, municipal electionsPhilippines, a public holiday commemorating the country’s independence from Spain in 1898Russia Day, commemorating the country’s declaration of independence from the Soviet Union in 1990US, 75th annual Tony Awards for the best Broadway productions presented at Radio City Music Hall in New York More

WASHINGTON (Reuters) – U.S. Commerce Secretary Gina Raimondo said on Sunday that President Joe Biden has asked his team to look at the option of lifting some tariffs on China that were put into place by former President Donald Trump, to combat the current high inflation.”We are looking at it. In fact, the president has asked us on his team to analyze that. And so we are in the process of doing that for him and he will have to make that decision,” Raimondo told CNN in an interview on Sunday when asked about whether the Biden administration was weighing lifting tariffs on China to ease inflation.”There are other products – household goods, bicycles, etc – and it may make sense” to weigh lifting tariffs on those, she said, adding the administration had decided to keep some of the tariffs on steel and aluminum to protect U.S. workers and the steel industry.Biden has said he is considering removing some of the tariffs imposed on hundreds of billions of dollars worth of Chinese goods by his predecessor in 2018 and 2019 amid a bitter trade war between the world’s two largest economies.China has also been arguing that tariff reductions would cut costs for American consumers.Raimondo also told CNN she felt the ongoing semiconductor chip shortage could likely continue until 2024.”There is one solution (to the semiconductor chip shortage)”, she added. “Congress needs to act and pass the Chips Bill. I don’t know why they are delaying.”The legislation aims to ramp up U.S. semiconductor manufacturing to give the United States more of a competitive punch against China.Raimondo said she disagreed with the characterization that Biden’s $1.9 trillion American Rescue Plan had contributed to the current high inflation. Congress passed the COVID-19 relief package a year ago before it was signed into law, marking a signature achievement of Biden’s first year in office. More

Treasury yields have swung back at forth since last month as traders try to game out whether the Federal Reserve will need to stick with an aggressive series of interest-rate hikes or have room to ease up if the economy slows enough to snap the steepest inflation in four decades. The Friday release of the May consumer-price index report may help clarify the outlook, potentially holding the key to whether the benchmark 10-year Treasury yield stages another retreat or retests May’s high by pushing back over the psychologically key 3% level. It flirted with that Friday, when the yield rose as much as 8 basis points to 2.98% after the monthly jobs report underscored the economy’s continued strength. With wages rising steeply amid a tight labor market, swaps contracts are pricing in certainty that the Fed will raise its target rate by a half-percentage point at its June and July meetings. But there’s still no strong consensus on whether policymakers will continue that pace at the September meeting or enact a quarter-point move, a step they may take if they’re worried about driving the economy into a recession or feel confident inflation is coming down. “The jury is still out in terms of the inflationary trajectory,” said Jeffrey Rosenberg, senior portfolio manager for systematic multi-strategy at BlackRock Inc (NYSE:BLK)., said on Bloomberg Television. “You can’t really get the Fed out of the business of focusing on the number one priority — of getting inflation down — until you really start to see that definitively show up. Until that happens, it’s going to be a very tough time.”That uncertainty ahead of the end-of-week release is adding to other forces promising to keep Treasuries volatile in the days ahead, including potential liquidity pressure. Also this week, the Treasury will hold its first auctions since the Fed has decided to stop reinvesting the proceeds of some of its maturing debt, another tool it’s using to tightening financial conditions. Treasury yields rose across the board Friday after the Labor Department reported that US firms hired at a faster-than-expected pace in May. It also showed that average hourly earnings were up 5.2% from a year earlier, down slightly from 5.5% in April but still well above pre-pandemic levels. The May CPI figure is forecast to show an annual increase of 8.3%, matching April’s pace and down from as much as 8.5% in March.But there are signs of faith in the Fed’s ability to rein it in. Its monetary policy tightening has started to drive down inflation expectations as higher yields ripple through the financial system. That mix has pushed real rates, or those adjusted for the anticipated rate of inflation, above zero this year from deeply negative territory, signaling less accommodative financial conditions.“The jobs data was aligned to more of a soft-landing story,” said Alan Ruskin, chief international strategist at Deutsche Bank AG (NYSE:DB). However the risk is that inflation stays sticky and lags a slowing economy, he said, a “dilemma that policy officials wish to avoid but which appears likely.”The 10-year breakeven rate, which uses the difference between nominal and inflation-protected Treasury yields as a gauge of expected inflation, has fallen to around 2.75% from 3.1% in early April.Kathy Jones, chief fixed-income strategist at Charles Schwab (NYSE:SCHW) & Co., which manages over $7 trillion in total assets, says those expectations should remain in check as long as the Fed continues to follow through on its promise to tame consumer-price increases.Fed speakers “are all almost repeating the same script — that bringing inflation down is job one,” Jones said. “As long as they talk the talk and walk the walk, long-term inflation expectations will stay pretty well anchored.” She expects half-point hikes in June and July before the Fed starts reducing the size of its increases, though she says a broadly strong CPI report would likely reinforce speculation of a 50-basis-point move in September.Separately, the week’s upcoming auctions will be the first affected by the Fed’s balance-sheet reduction plan. Instead of reinvesting its $15 billion of Treasury debt maturing on June 15 into those auctions, which settle the same day, the bank will reinvest only about $5.6 billion. The Fed’s reinvestment purchases are done with so-called auction add-ons, which reduce the amount the Treasury has to borrow from the public. While for now that lost Fed support won’t require the Treasury to sell more debt since out-sized tax revenue has reduced the deficit, strategist anticipate that the Fed’s reduced hand in the marketplace will hurt liquidity and boost volatility.Meanwhile, a potential corporate-debt sale from Oracle Corp (NYSE:ORCL). connected to a $28 billion acquisition could spur volatile hedging-related activity.“You have a market that might not be able to withstand some of the run-off that we are going to have,” said Ira Jersey, chief US interest-rate strategist at Bloomberg Intelligence, referring to the Fed’s balance sheet reduction. “So you are going to see significantly higher volatility in rates markets.”What to Watch©2022 Bloomberg L.P. More

“It’s now really clear that the inflation challenge that Australians are facing is worse,” Chalmers told News Corp (NASDAQ:NWSA). in an interview Sunday, saying he’ll likely raise the forecast in next month’s economic statement to parliament. “People should anticipate that it will be higher than it is now. Significantly higher.”Australia is in the grips of the soaring power prices that swept Europe and the US following Russia’s invasion of Ukraine and exacerbated inflationary pressures. The Reserve Bank meets Tuesday and is expected to execute back-to-back rate hikes for the first time in 12 years as it tries to cool prices.The RBA in early May predicted inflation will hit 6% by year’s end, before easing to 3% by mid-2024 in response to rising rates and as higher energy costs wash through the data. It aims to keep inflation between 2-3% over time.Chalmers, who took office about two weeks ago after a Labor party election victory that ended nine years of center-right rule, had campaigned hard on rising living costs. First-quarter inflation was more than double the 2.4% pace of pay gains, producing the biggest fall in real wages in about 20 years.“This is the defining challenge in the economy,” he said in the interview. “Not easily fixed, not easily addressed. But a challenge, which is even more substantial than my predecessors ’fessed up to.”Australia’s economy is growing solidly and unemployment is at the lowest level in 48 years. Yet the budget is deep in the red and government debt at record levels following heavy fiscal spending to support the economy through the pandemic.Chalmers will deliver an economic statement to parliament when it reconvenes in late July setting out the outlook. He plans to deliver a budget in the second half of October, despite the former government handing one down just over two months ago, ahead of the May 21 election.Chalmers said in the interview Sunday that the budget would “implement our commitments and our economic plan to try to get the economy growing faster, without adding to these inflationary pressures.”©2022 Bloomberg L.P. More