Economy

The Reserve Bank of Australia said quicker inflation and a pickup in wages growth have moved up the likely timing of the nation’s first interest-rate increase since 2010. The central bank said in minutes of its April policy meeting that annual core inflation in the first three months of this year was likely to be above the top of its 2-3% target. Policy makers also noted that wages growth had picked up.“These developments have brought forward the likely timing of the first increase in interest rates,” the RBA said Tuesday. “Over coming months, important additional evidence will be available on both inflation and the evolution of labor costs.”The currency ticked higher and and three-year government bond yields climbed as the minutes reinforced the RBA’s more hawkish message from its April 5 meeting. At the time, it scrapped a reference to remaining “patient” on policy and signaled inflation on April 27 and wages on May 18 will be key readings.Australia’s shift reflects a hawkish turn among central banks worldwide as they struggle to cool consumer prices fueled by pandemic-era stimulus and exacerbated by Russia’s war on Ukraine. South Korea and Singapore tightened on Thursday after Canada and New Zealand implemented jumbo half-percentage point hikes the day before. “An updated set of bank forecasts will be published in May,” the RBA said in the minutes. “The speed of the resolution of the various global supply-side issues, developments in global energy markets and the evolution of overall labor costs were key sources of uncertainty about the inflation outlook.”(Updates with further details.)©2022 Bloomberg L.P. More

The meeting would take place later this week. Authorities in both countries agreed late last month to communicate closely on currency issues following a sharp weakening in the yen.The prospect of aggressive U.S. interest rate hikes and the Bank of Japan’s determination to continue powerful monetary easing have helped push the yen to 20-year lows against the dollar. More

Spending on new energy vehicles (NEVs) should also be supported, said Meng Wei, spokeswoman for the National Development and Reform Commission (NDRC).Data on Monday showed March retail sales contracted the most on an annual basis since April 2020 due to widespread COVID-19 curbs across the country. More

ORLANDO, Fla. (Reuters) – Hedge funds remain bullish on the dollar, holding a net long dollar position in currency futures markets for more than nine months. But remove the Japanese yen from the equation, and the picture is much more blurred.U.S. futures market data show that speculators trimmed the value of their overall long dollar position against a range of currencies for a second week, but increased their net short yen position to the largest in three and a half years. Indeed, there are only a handful of periods since Commodity Futures Trading Commission (CFTC) yen futures contracts were launched in 1986 where funds have been more bearish on the Japanese currency than they are right now.The latest CFTC data for the week ending April 12 show that funds increased their net short yen position to 111,827 contracts from the previous week’s 103,829. That is the biggest since October, 2018. As the following chart shows, it is approaching historic levels.CFTC Funds’ Yen Position https://fingfx.thomsonreuters.com/gfx/mkt/egvbkenobpq/CFTCYEN2.jpgDollar/Yen Vs CFTC Positions https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkmqylvx/CFTCYEN1.jpgThe size of that bet against the yen in dollar terms is large, but not quite as extreme. It stands at $11.15 billion, the biggest since November last year and up from $10.5 billion the week before. Buying dollars and selling yen has been the one FX trade that speculators have got spectacularly right this year, as the divergence between U.S. and Japanese interest rates and bond yields in the dollar’s favor has exploded. The Federal Reserve is in the early stages of what is shaping up to be the most aggressive inflation-busting cycle of interest rate rises since 1994. The Bank of Japan, meanwhile, is sticking with its massive stimulus program to support a fragile economic recovery.US-Japan 2-Year Yield Spread https://fingfx.thomsonreuters.com/gfx/mkt/movanomqxpa/USJP2Y.pngThe dollar made a fresh 20-year high last week above 125.85 yen and on Monday it nudged 127.00 yen, lifting the broader dollar index to a two-year peak. Japanese policymakers have voiced disquiet about the yen’s decline. But it may require more than well-intentioned words to stop the rot. “The prospects of a change in the yen’s depreciation trend will ultimately be determined by U.S.-Japan monetary policy divergence and, hence, global inflation trends,” Barclays (LON:BARC) analyst Shinichiro Kadota wrote on Monday. Selling pressure on the yen should persist in the near term, he added. Hedge funds’ stance on the dollar against other currencies, however, is much more mixed. The latest CFTC data show that they trimmed their bets on a stronger dollar against a range of six major currencies, including the yen, to $13.22 billion from $14.136 billion. That reduction was mostly driven by the euro.Funds increased their net long euro position by 11,690 contracts to 39,060 contracts, an aggregate bet worth $5.285 billion. That is funds’ most bullish euro view in five weeks.CFTC Dollar, Euro Positions https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgkmlnpb/CFTCEUR.jpgBut it isn’t paying off. The euro last week fell to a one-year low of $1.0756 after comments from European Central Bank (ECB) President Christine Lagarde were viewed as a sign that the ECB was in no rush to match the Fed in raising interest rates.A growing number of analysts are now predicting that the euro could fall towards parity with the dollar in the months ahead. That’s not something funds are positioning for. Related columns: Euro FX reserve demand returns after years of neglect (Reuters, April 13) ‘Japanification’ still lurks behind hawkish Fed frenzy (Reuters, March 29)That rare crisis, when the yen falls (Reuters, March 15) (The opinions expressed here are those of the author, a columnist for Reuters) (By Jamie McGeever; Editing by Kenneth Maxwell) More

Builder confidence fell for the fourth straight month in April.
The average rate on the 30-year fixed mortgage stood at around 3.90% at the beginning of March, and is now up to 5.15%, according to Mortgage News Daily.
Elevated mortgage rates are only exacerbating high prices for both new and existing homes.

A contractor uses a hammer while working on townhouse under construction at the PulteGroup Metro housing development in Milpitas, California.
David Paul Morris | Bloomberg | Getty Images

Sharply rising mortgage rates are taking their toll on the nation’s homebuilders, as already pricey new construction becomes even less affordable. 
Builder confidence in the market for new single-family homes fell 2 points to 77 in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Any reading above 50 is considered positive sentiment, but the reading marks the fourth straight month of declines for the index, which stood at 83 in April 2021.

Of the index’s three components, current sales conditions fell 2 points to 85. Buyer traffic dropped 6 points to 60, and sales expectations in the next six months increased 3 points to 73 following a 10-point drop in March.

“Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market,” said NAHB Chairman Jerry Konter, a builder and developer from Savannah, Georgia.
The average rate on the 30-year fixed mortgage stood at around 3.90% at the beginning of March, and is now up to 5.15%, according to Mortgage News Daily. That is the highest rate in more than a decade. The rate loosely follows the yield on the U.S. 10-year Treasury, which has been on the rise, but is also being impacted as the Federal Reserve pulls out of the mortgage-backed bond market.
Elevated mortgage rates are only exacerbating high prices for both new and existing homes. The median price of a newly built home in February was up over 10% from the year prior.
“The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market,” said NAHB Chief Economist Robert Dietz.
Regionally, on a three-month moving average, builder sentiment in the Northeast rose 1 point to a reading of 72. In the Midwest it fell 3 points to 69, in the South it fell 2 points to 82 and in the West it fell 1 point to 89.

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(Reuters) – The company behind a cannabis mega-factory in California is hoping federal legalization of the substance will allow it to expand distribution of joints, oils and edibles beyond the borders of the most populous U.S. state.California legalized recreational cannabis in 2016, but it remains on the federal list of controlled substances.The U.S. House of Representatives passed a bill on April 1 to end the federal ban on marijuana, though the measure is seen as unlikely to pass the Senate.Joshua Krane, vice president of operations for cannabis operator 4Front, said the company’s 170,000-square-foot (15,793 square meter) manufacturing and processing space outside of Los Angeles has the capacity to supply the U.S. west coast with cannabis products, if restrictions are lifted”This facility was designed to really be future-proof for us in terms of being able to service not just the entire California market, but once we have the ability to transport cannabis and sell cannabis across state lines, to be able to really feed the West Coast of the country,” he said.The factory, which opened in November 2021, is operating at 20-25% of capacity, Krane said.”As we see the natural ramp-up of the industry, that will likely meet an additional demand curve as we get into federal legalization,” he added. “And so we would continue to ramp up more and more production from this building as the state and hopefully this side of the country would require.”Krane said the highly automated facility is the largest in California. It manufactures both in-house and partner brands, including oils, tinctures and several types of candies.Edible items are the most popular, and demand has soared since the coronavirus pandemic began in 2020, Krane said.”It’s been somewhat difficult to keep up with the additional demand in terms of manufacturing enough for those new customers. There’s been a tremendous pivot from alcohol and other vices to cannabis.”In March 2020 as lockdowns went into effect, sales of recreational cannabis across key U.S. markets rose almost 50% from a year earlier, according to cannabis point of sale and data platform Flowhub.With a machine that can roll 2,000 joints per hour and a kitchen capable of producing 400,000 pieces of candy in a single shift, the factory in Commerce, California, is ready for the demand to continue. More

WELLINGTON (Reuters) -New Zealand central is bank focused on constraining inflation expectations and expects to put into effect more interest rate increases in coming quarters, the country’s top policymaker said in a speech released on Tuesday.Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr said there was a risk that if the central bank increased interest rates too slowly then inflation expectations could get away from them. “At the moment, the risks as far as the Monetary Policy Committee is concerned, is very much weighted toward constraining those inflation expectations in the medium term to be within the target range,” he said in a recorded interview with the International Monetary Fund.The central bank raised interest rates by a hefty 50 basis points to 1.50% last Wednesday, its fourth hike in a row. It expects annual inflation to peak around 7% in the first half of this year, well above its 1-3% target, underlining the urgency to temper price-setting behaviour.Orr added that the bank had to balance inflation expectations with concerns that if interest rates rose too fast or too far it ran the risk of having a sharp slowdown in economic activity.Although New Zealand’s central bank has been aggressive in its cash rate hikes to date, Orr said that the decision to lift the cash rate by 50 basis points in the April meeting was “about doing it sooner rather than believing we have to do more.”He said the central bank remain focused on low and stable inflation and contributing to maximum sustainable employment, and while house prices were not specifically part of their remit they did contribute to inflation.”House prices were well above any measure of sustainable and our actions have been bringing house prices back towards a sustainable level,” he said.House prices have come off slightly in the first quarter of 2022 and the market is expecting further falls in the coming months.At the February meeting the RBNZ announced plans to wind down its NZ$50 billion bond holdings acquired under the Large Scale Asset Purchase (LSAP) programme, through both bond maturities and managed sales.Orr said this was about creating fiscal headroom for the future if needed.”Quantitative easing has had its moment for now,” he added. More

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen will convene a high-level panel on Tuesday to discuss the global response to an ongoing food security crisis exacerbated by Russia’s war against Ukraine, the Treasury Department said in a statement.The meeting will include the heads of the International Monetary Fund, the World Bank and the International Fund for Agricultural Development, as well as ministers representing the G7 and G20 countries and technical experts from international financial institutions, it said on Monday.Treasury officials aim to ensure that international financial institutions are sharing knowledge about the key drivers of rising food insecurity, including Russia’s invasion of Ukraine, and push them to step up the scale and urgency of their response, a senior Treasury official said.”Secretary Yellen is deeply concerned about impacts that Russia’s reckless war are having on the global economy, including the risk of rising food insecurity in emerging markets and developing countries around the world,” a second senior Treasury official said.Russia says it is engaged in a “special military operation” in Ukraine.The crisis was hitting emerging market and developing countries that were still struggling to recover from the COVID-19 pandemic particularly hard, the official noted.A third senior Treasury official said Treasury had no specific aid target in mind for the meeting, noting that officials were still analyzing the extent of the problem.Yellen is expected to warn against export bans, drawing on lessons from the last big world food crisis in 2008, the official said, while ensuring efforts to boost food production in Africa and other regions highly dependent on imports.Treasury officials will also call for continued research and innovation to ensure that agricultural production is adapted to climate change factors such as heat and drought.Yellen first announced plans for the meeting last week, noting that over 275 million people worldwide were facing acute food insecurity. Treasury officials expect to release an action plan after the event to help structure the urgently needed global response, one of the officials said.The World Bank, IMF, UN World Food Program and World Trade Organization have also called for urgent, coordinated action on food security, and appealed to countries to avoid banning food or fertilizer exports.They said the crisis was compounded by a sharp increase in the cost of natural gas, a key ingredient of nitrogenous fertilizer, which could threaten food production in many countries.Treasury’s Office of Foreign Assets Control this week will reiterate its commitment to allow the free flow of agricultural goods, including humanitarian aid to the Russian people, despite sweeping sanctions imposed on Russia, a senior official said. More