Economy

These adjustments, expected to lower the policy rate from 1.00% to 0.50%, come in response to persistently low inflation, which has dropped below 1% and is expected to remain under this threshold into 2025.UBS notes that keeping the policy rate at its current level would create a restrictive stance.“In our view, such a monetary policy stance would not be warranted in an environment where inflation is expected to settle at the lower end of the target range and the economic outlook remain uncertain,” strategists led by Maxime Botteron said in a note.The team emphasizes that “maintaining the policy rate unchanged in the current global economic environment where most central banks are lowering their policy rates could excessively raise appreciation pressures on the Swiss franc.”This would result in tighter monetary conditions, severely reducing inflation and hindering growth.Although foreign exchange interventions remain a potential tool for the SNB, UBS suggests that the bank may not need to rely on such actions extensively.The bank suggests that while sporadic currency purchases could occur if the franc appreciates sharply, “persistent foreign currency purchases” are unlikely, as current rate cuts offer adequate maneuverability for the SNB.Looking forward, UBS’s forecast hinges on balanced risks. A growth uptick, potentially spurred by China’s fiscal support, could diminish the need for a dovish stance.Conversely, if Germany’s economic stagnation persists, UBS warns of a greater likelihood for the SNB to edge its policy rate closer to zero.In a severe scenario involving recessionary or deflationary pressures, UBS sees potential for the SNB to adopt a negative rate and more frequent currency interventions.On the currency front, UBS expects the Swiss franc to strengthen modestly against both the euro and the US dollar, with the latter likely to face further depreciation due to US fiscal and trade deficits.UBS’s 12-month forecast sets USD/CHF at 0.80, citing a convergence in interest rate differentials as an additional supportive factor for the franc. Against the euro, the bank sees limited upside, maintaining its EUR/CHF outlook at 0.93 due to the franc’s existing overvaluation relative to the euro.Meanwhile, UBS anticipates a relatively stable yield environment, particularly for the 10-year Swiss government bonds, with yields expected to hover around 0.5% over the next year.This stability reflects market pricing of a continued SNB easing stance and international policy trends, as rate cuts from the US Federal Reserve and the European Central Bank are likely to keep long-term yields in check. More

As per Paul Donovan, Chief Economist at UBS, inflation can indeed be controlled in the long term, but it depends heavily on societal willingness to bear the costs associated with stabilizing prices. These costs are influenced by structural forces that, while they may increase inflation pressures, are often countered by equally powerful disinflationary forces.Donovan identifies five key areas that could impact long-term inflation: global trade, aging populations, technological advancement, government debt, and decarbonization efforts. Each of these factors can drive prices up or down, depending on how economies adapt to them. For instance, while deglobalization can lead to higher costs by disrupting efficient supply chains, localization and technological advancements in production could offset these inflationary pressures by enhancing efficiency and reducing waste.Aging populations present a nuanced picture. The belief that an older population increases inflation by reducing the labor force does not hold up well in practice, according to Donovan. Many people continue to work past traditional retirement age, contributing to the economy and mitigating inflationary risks. Furthermore, as older demographics typically favor low inflation to protect their savings, they may support policies that maintain price stability, fostering a deflationary environment over time​.Technological progress, while generally disinflationary due to increased efficiency, can cause fluctuations within certain sectors. For example, new technology may drive up demand for specific resources or labor skills, creating temporary price increases in those areas. However, the broader impact of technology, such as automation, tends to reduce costs across industries, making inflation control more manageable in the long run​.Regarding government debt, Donovan argues that inflation is not an effective tool for reducing long-term debt. While some may think inflation erodes debt by increasing nominal GDP, this effect is usually negated by the bond market demanding higher interest rates in response to inflationary expectations. Consequently, rather than easing debt burdens, inflation often increases the cost of debt servicing, further straining public finances.Decarbonization, while initially raising energy costs as economies transition from fossil fuels to renewable sources, ultimately supports a deflationary trend. Renewable energy sources, once established, are typically low-cost and can reduce inflationary pressures in the long term. The impact of this shift will largely depend on how governments handle the capital costs of transitioning to green energy, with subsidies and regulatory policies playing a crucial role in determining the inflationary outcome. More

(Reuters) – Firefighters started gaining control on Friday over a stubborn wildfire near Los Angeles that destroyed at least 132 buildings and damaged 88 others, as many of the more than 10,000 people forced to evacuate were able to return home.Some 2,400 firefighters were aided by more favorable winds coming from the Pacific Ocean after previously hot and dry winds coming from the desert fanned the so-called Mountain Fire, which broke out on Wednesday about 50 miles (80 km) northwest of Los Angeles.The fire had consumed 20,630 acres (8,350 hectares) by Friday, virtually unchanged from 24 hours earlier, and was 14% contained, up from 7%, Cal Fire officials told a press conference.”We had no external or lateral movement today. That is fantastic,” Ventura County Fire Chief Dustin Gardner told a news briefing.Residents of 3,500 homes were able to return home but another 2,000 homes remained under evacuation orders, Ventura County Sheriff Jim Fryhoff said.Fueled by dry brush and steep, rugged terrain, the fire remained a threat to critical infrastructure and islands would continue to burn within its footprint.Among those who lost a home was Dennis Gottlieb of Ventura County. He counted himself lucky to be alive as he waited early on Friday morning at a shelter at Padre Serra Parish Catholic Church in Camarillo, California. He said he lost all his possessions except his truck.”It was windy, real windy, but that’s all, so I just started my regular day until I saw the smoke and then the fire,” he said. Gottlieb said he grabbed some garden hoses and thought he could keep the blaze away from the house.”Suddenly the smoke got real heavy and embers were falling all around,” he said. “It was hot, real hot, like 150 degrees (65 C). So I grabbed the keys to my truck,” he said. He and his wife, Linda Fellerman, barely made it out. One road was blocked by a fallen tree until a neighbor with a chainsaw cut it away.He went back on Thursday to see if he could salvage any keepsakes but said, “Everything is gone. All gone. Burned up.”A red flag warning for the area was lifted as winds were expected to calm to less than 15 miles per hour (24 kph) and humidity was due to climb, the National Weather Service said.The dry Santa Ana winds that fanned the flames at first with gusts of 80 mph to 100 mph earlier this week are expected to stay calm over the weekend, topping out at 20-to-25 mph, said Ariel Cohen, a meteorologist with the NWS office in Oxnard, California.”The rain chances are low to none,” he said. “But while the winds are calmer now, they’re going to pick up again by Tuesday.”Officials braced people for a difficult recovery.”The only thing left standing of our house is the two chimneys,” Darren Kettle told the Los Angeles Times. “My heart dropped to my stomach. It’s just shocking, traumatic.”Climate scientists say warming temperatures have created wet winters that allowed California’s coastal chaparral – areas dominated by small trees, shrubs and bushes – to thrive. Record-high temperatures this summer dried out hillsides, priming them for wildfire.The United States is experiencing a strong wildfire year with 8.1 million acres (3.3 million hectares) burned to date, compared with an annual, full-year average of around 7 million acres over the last decade, according to National Interagency Fire Center data.So far this year, California wildfires have burned more than three times as much land as last year at this time, according to Cal Fire data. More

NEW YORK (Reuters) – Investors are increasingly factoring what potential Republican control of government could mean for stocks, bonds and currencies, even as the first feverish market reactions to Donald Trump’s presidential victory begin to settle.A so-called red sweep scenario, in which Republicans control the White House and both houses of Congress, could clear the way for Trump to implement his economic proposals with a freer hand. Many, such as tax cuts, are seen as being growth-friendly but also driving up inflation risks. Republicans held a narrow edge on Friday as election officials tallied the final votes that will determine control of the U.S. House of Representatives, though Democrats succeeded in flipping a pair of New York state seats.”With many of Trump’s policies geared to support stocks, particularly small caps, markets are likely to respond well to a red sweep,” said JJ Kinahan, CEO of IG North America and president of online broker Tastytrade.Expectations that such policies will be pushed through under Trump to some degree have helped lift corners of the stock market higher, boost the dollar and weigh on Treasuries, as investors recalibrated their portfolios for stronger growth, looser regulations and the possibility that inflation worries could keep the Federal Reserve from cutting rates too deeply next year.One notable move has been in small cap stocks, with the Russell 2000 index up about 8% this week. While some of those moves have lost steam in recent days, investors are still gaming out how Trump’s policies could affect markets and the economy over the long-term, especially under a red sweep scenario.Trump has promised to slash federal regulations that he says limit job creation. He has pledged to keep in place a 2017 tax cut he signed while in office, and Trump’s economic team has discussed a further round of individual and corporate tax cuts beyond those enacted in his first term. Strategists at Goldman Sachs said their earnings per share estimates for the S&P 500 would rise by about 4% if Trump reduced the statutory domestic corporate tax from 21% to 15%. Deutsche Bank (ETR:DBKGn) analysts said they would upgrade their 2025 U.S. growth forecast to 2.5-2.75% from 2.2% in the event of a red sweep. However, they expect to reduce their 2026 growth forecast in anticipation of economic uncertainty associated with an intensifying trade war.Republican control of government could also provide a longer-term boost for the dollar, which has already risen to its highest level in four months against a basket of its peers following a post-election surge this week.Strategists at JP Morgan see the euro sinking to $1.00-$1.02, down about 6% from its current level, if there is a sweep, as opposed to a drop to $1.05 in the case of a split Congress. History may also be on the side of continued strong stock performance if a red sweep comes to pass. The S&P 500 rose an average of 9.1% in years of such unified control against a 6.7% average annual return for divided government, in which the opposing party holds at least one of the Senate or House of Representatives, according to an analysis by Evercore ISI of data since 1928. The index is up 26% this year and hit 6,000 points for the first time ever on Friday.To be sure, even with the Republican Congressional majority, some investors believe the narrow margins faced in both the House and Senate may still present challenges to implementing fiscal and regulatory changes.”We may not get everything that has been promised. The discussion on the campaign trail is always very different than the legislation that gets passed,” said Paul Nolte, senior wealth advisor and market strategist for Murphy & Sylvest. “I think a lot of that is already in the pricing for stocks today.” More

When President Biden addressed the nation this week after a gutting election, his reflections on his economic legacy offered a glimpse into why Democrats were resoundingly defeated.The efforts by the Biden-Harris administration to reshape American manufacturing were the most ambitious economic plans in a generation, but most voters had yet to see the fruits of those policies.“We have legislation we passed that’s only now just really kicking in,” Mr. Biden said, explaining that a “vast majority” of the benefits from federal investments that his administration made would be felt over the next decade.Legislation enacted by the Biden-Harris administration was designed to pump hundreds of billions of dollars into the United States economy to develop domestic clean energy and semiconductor sectors. The investments were likened to a modern-day New Deal that would make American supply chains less reliant on foreign adversaries while creating thousands of jobs, including for workers without a college degree.But anger over more immediate and tangible economic issues — including rapid inflation and high mortgage rates — dwarfed optimism about factories that had yet to be built. That reality helped topple Vice President Kamala Harris’s campaign and showed the limits of industrial policy as a winning political strategy.In the days since Mr. Trump’s victory, current and former Biden administration officials have been grappling both privately and publicly with why their economic strategy did not prove to be more popular. They have comforted themselves with the fact that inflation has led to the defeat of incumbent leaders around the world, although most of those governments were also struggling with weak economies, whereas growth in the United States remains robust.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

WEST PALM BEACH, Florida, SAN FRANCISCO (Reuters) -Prominent investor Scott Bessent met with Donald Trump on Friday as he and fellow investor John Paulson emerge as leading candidates for the key role of U.S. Treasury Secretary, according to two people close to the president-elect. Bessent and Paulson are among several names that have been reported in the media as potential candidates for the role in recent days. A final decision rests with Trump, and Reuters was unable to learn whether others had been ruled out or were still in contention.One of the two sources said Bessent’s meetings at Trump’s Mar-a-Lago Florida estate were “very positive.” Trump’s spokespeople did not respond to a request for comment. Spokespeople for Bessent and Paulson declined to comment. It was unclear whether Paulson had met or had plans to meet with Trump. Trump, who is set to return to the White House on Jan. 20, has begun the process of choosing a Cabinet and selecting high-ranking administration officials. The Treasury Secretary job is a key Cabinet position, with vast influence over economic, regulatory and international affairs. Wall Street has been closely watching who Trump will pick, especially given his plans to remake global trade through tariffs. Bessent and Paulson, both financial backers of Trump’s campaign, have long been in Trump’s sights for such a role. During a January campaign speech, Trump floated Paulson as a potential Treasury Secretary. A source familiar with the matter at the time said Trump wanted Paulson to lead Treasury, and if not him, Bessent.A longtime hedge fund investor who taught at Yale University for several years, Bessent has a warm relationship with the president-elect and has spoken highly of Trump’s use of tariffs as a negotiating tool. Paulson, a billionaire investor and major Trump donor, is a longtime proponent of tax cuts and deregulation. Other names that have been speculated about for the role are FOX Business Network personality Larry Kudlow, Trump’s former U.S. trade representative Robert Lighthizer and Howard Lutnick, the co-chair of Trump’s transition team. Corporate attorney Jay Clayton, former head of the U.S. Securities and Exchange Commission during Donald Trump’s presidency, is meanwhile in talks for several potential roles in a second Trump term, although is seen as less likely for Treasury Secretary. JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon, who has also been speculated, has no plans to join Donald Trump’s administration, a source said earlier this week.According to online betting website Polymarket, Bessent is the lead candidate for Treasury Secretary, with Paulson next likely and Clayton and Kudlow at smaller odds.Trump on Thursday announced that Susie Wiles, one of his two campaign managers, will be his White House chief of staff, in what is expected to be a flurry of staffing announcements.  More

“Positive labour market trends boosted by strong net migration and reform, improved competitiveness, and the absence of macro-financial imbalances, underpin Fitch’s assessment that Spain will continue outperforming its eurozone peers over our forecast horizon,” the agency said, maintaining Spain’s rating at “A-“.The country has been a bright spot in the euro zone, supported by a buoyant tourism-driven service sector and resilient manufacturing, while sluggish industrial demand took a toll on the rest of the region.The Spanish economy grew at a faster-than-expected rate of 0.8% in the third quarter this year from the previous three months, and 3.4% year-on-year, outpacing its European peers.Fitch on Friday projected Spain’s real GDP to grow at 2.9% in 2024, with average growth of 2.2% in 2025 and 2026. However, challenges remain as Socialist Prime Minister Pedro Sanchez relies on a fragile alliance with smaller parties to pass legislation, increasing policy implementation risks.The Sanchez administration is banking on tax reform to achieve its medium-term fiscal targets but will face expenditure pressures, Fitch said. More

LIMA (Reuters) -Peru and China will sign an updated free-trade agreement during President Xi Jinping’s upcoming visit to the Andean nation that would boost commerce by at least 50% between the countries, Peru’s foreign minister said on Friday.In an interview with Reuters, Minister Elmer Schialer said the Chinese president would travel to Peru with a delegation of 400 business people interested in investing in infrastructure and technology projects in the country.The free-trade agreement was originally signed in 2009 and the “optimized” version will be signed alongside 30 other agreements designed to improve cooperation between the countries.”China is our main trading partner, experts say this will increase that dynamism by at least 50%,” Schialer said. Bilateral trade between the two countries reached nearly $36 billion last year according to data from the Peruvian Ministry of Commerce.China has large mining and infrastructure projects in the country, including the Chancay mega port by Cosco Shipping Port.”The port will launch Peru to another level of trade,” Schialer said. The port will be “virtually” inaugurated by Peruvian President Dina Boluarte and Chinese President Xi Xinping from the government palace in Lima on Nov. 14.Schialer added that Peru’s portfolio of mining projects totals $54 billion while its infrastructure projects yet to be developed total $157 billion. He noted that “China is particularly interested” in these projects.The minister said he doesn’t expect changes with the United States given the recent election of President-elect Donald Trump.”The only thing we hope for and are sure that will happen is an expansion of the United States’ presence in investments,” he said, adding that both the outgoing and incoming US administration have “given us clear signals of interest” in terms of investment. More