Economy

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is an FT contributing editorEstimating how much people need to save to provide an adequate retirement can be a challenge. An even greater challenge is working out how to invest these savings to protect them against inflation.Over the past three years — in part prompted by conflict in Ukraine and reopening the economy after Covid — UK consumer prices have risen by a fifth, leaving many pension savers poorer in real terms. I spent more than a decade designing and managing portfolios for large pension and insurance funds that aimed to beat inflation, and then some. There is no simple formula that guarantees success.One of the reasons why inflation is so corrosive to asset market returns is precisely because central banks are focused on targeting inflation. They do this by raising short-term interest rates: increasing the cost of finance for businesses and cooling economic growth. Higher short-term rates raise longer-term bond yields, pulling down the price at which long-term cash flows can be purchased — and hence bond prices.Given that stocks are just claims on uncertain long-term corporate profits, and that the size of these future cash flows will be related to the strength of the economy, inflation and the higher interest rates they bring also tend to be bad for stock prices — at least in the short-run.To put some numbers to this, in 2022, inflation surged beyond 10 per cent in the UK. This was bad news for UK consumers but, more importantly, for many UK investors. In the US, inflation peaked at 9 per cent in mid-2022 before falling towards 6 per cent by the end of that year. In response, the US Federal Reserve — the global monetary hegemon — raised rates by 4.25 per cent by the end of that year, helping bonds to shed 16 per cent of their value, and global stocks 9 per cent in sterling terms that year. This was followed by further rises in 2023 to 5.5 per cent to further squeeze inflation, ahead of the Fed rate cut of half a percentage point announced last Wednesday.Stock returns would have been worse, had the value of sterling not plunged by more than 10 per cent in 2022, boosting the returns of dollar-denominated and other non-sterling assets. UK large-cap stocks did better, given their heavy weighting in oil companies that made hay during the energy crisis, providing investors a return of just over 6 per cent, although still losing money in real terms.Those not working in the bond markets would be forgiven for thinking that inflation-linked gilts would have helped investors weather this inflationary storm. These types of bonds, issued mostly by governments, see their coupon and principal payments increase with inflation, preserving the real value of savings. But this real preservation of capital is true only if investors hold these inflation-linked bonds to maturity. In the short run, these instruments are often loaded with interest rate risk, which can cause their value to plummet when inflation spikes. So, in 2022, rather than bailing out investors, inflation-linked gilts lost them 34 per cent.Gold, another inflation-hedge favourite, did better, although this may well have been luck. Statistically, the relationship between gold and inflation has been a coin-flip from year-to-year. Some content could not load. Check your internet connection or browser settings.So what is to be done? For my part, I invest in a portfolio of global and UK equity exchange traded funds, bonds, and alternatives that I hope will not only protect against inflation over the medium-term, but also deliver real-terms capital growth. But I am close to 50 in age, and so what works for me may not work for all.Individuals assessing their pension portfolio need to bear in mind their time horizon for investing. Bouts of unexpected inflation can deliver a devastating hit to pension pots in the short term. Since the turn of the century, we have had two major global stock market crashes, each of which wiped out over 40 per cent of capital value. And those are on top of the Covid shock which took a cool quarter off the real value of UK stocks in the first ten months of 2020, although this had recovered by March 2022.Indeed, global stocks have lagged inflation almost one in every three calendar years this century. And yet investing savings in stocks even at the peak of the dotcom bubble at the turn of the millennium — just ahead of them losing half their real value — now looks smart, as they more than doubled in real terms since then, for those that held on.And so, while history has favoured the bold who hold everything in stocks, this has only been the case for investors who have been young enough to enjoy the sometimes drawn-out recoveries that have followed market downturns.The old rule of thumb that you should allocate a percentage of your portfolio to bonds that matches your age has cost older savers dearly in recent years, with bonds taking steep losses. But now, with higher yields, the rule looks close to fair.Bonds offered little value ahead of the post-pandemic rise in interest rates. While they will not make individual investors rich, yields are high enough to balance the risks of significant losses from investing in stocks. And, with yields where there are, they finally provide a reasonable standalone cushion against real-terms capital erosion from inflation.For decades, we thought we had seen the last of double-digit inflation. It took truly exceptional global shocks to reawaken them, and I for one do not expect them to repeat anytime soon. But I do feel comforted that a balanced portfolio has a good chance to preserve the real value of my pension savings if I’m wrong. More

BENGALURU (Reuters) -India’s NSE Nifty 50 and S&P BSE Sensex are trailing only Wall Street’s Nasdaq and S&P 500 as top-performing indexes this year, with analysts expecting the rally to extend into 2025.The Nifty and Sensex have gained 18.7% and 17% respectively in 2024, securing the third and fourth spots among major global bourses.The Nasdaq and S&Phave added approximately 22% and 20.5%, slightly ahead of the Indian benchmarks. Japan’s Nikkei 225 and Germany’s DAX follow India, rising 13% and 12%, respectively. Earlier this week, India’s weightage in a key MSCI index topped China for the first time.”We expect the Fed rate cut to accelerate foreign inflows and create enough momentum in domestic markets to protect against downsides,” analysts at Emkay Global said in a note. India’s stock market rally, driven by expectations of policy continuity following national elections in June and a robust growth outlook, gained further momentum after the U.S. Federal Reserve’s significant rate cut on Sept. 18. Foreign portfolio inflows, which had moderated in August, are on course for to hit a six-month high in September.The rally has pushed the 12-month forward price-to-earnings ratios of the Sensex and Nifty to 23.6 and 24.4, respectively—the highest among emerging markets. Technical indicators show both indexes are now in overbought territory.Expectations of soft landing for the U.S. economy will also likely boost sectors like information technology and pharma which earn a significant share of their revenue from the U.S., according to analysts. Realty, autos, public sector enterprises, pharma and energy are among the top performing sectoral indices so far this year. Domestic institutional and retail investors have also fueled the stock market buying into all dips.Domestic institutional investors picked up shares worth a net of 3.23 trillion rupees since the start of the year, according to provisional data from National Stock Exchange. Mutual funds too have remained net buyers since February 2021 with contributions through the systematic investment plan hitting record highs for 14 months in a row. This has raised some concerns, with analysts at Jefferies saying the combined domestic inflows through mutual funds, direct participation, insurance and pension funds are “unsustainably high” of $7.5 billion per month between January and August. The brokerage said it maintained a near-term cautious view on markets, small- and mid-caps. More

The dollar strengthened against the yen last week after policy meetings in both the United States and Japan, hitting its highest level in two weeks at 144.50 yen. It was around 144.08 early on Monday. The Bank of Japan (BOJ) left interest rates unchanged last week and indicated it was not in a hurry to hike them again. That decision, coming just days after the Fed’s 50 basis points rate cut, put a pause to the yen’s sharp gains this month. The currency is up 1.4% in September.With Japan closed for Autumnal Equinox Day, the main driver of trade was expectations around further Fed rate cuts and the gains those have spurred in equities, commodity currencies and other risk assets.Bitcoin was up 0.8% above $63,200 and not far from one-month highs. The Australian dollar was flat around $0.68, digesting its rise of more than 3% in less than two weeks. The U.S. dollar index, which measures the greenback against major currencies, gained slightly to 100.8, continuing to stay above the one-year low it hit last week.The Fed’s rate cut “appears to have calmed market fears of a U.S. recession”, Goldman Sachs said in a note. “Our G10 FX team expect a slight rebound for the U.S. dollar over the next 3 months, before easing again on a 6- and 12-month view.” Fed futures traders have priced in 75 bps in rate cuts by the end of this year, and nearly 200 bps in cuts by December 2025 that will take the Fed’s policy rate by the end of 2025 to 2.75%, according to CME FedWatch. The U.S. Treasury yield curve has been steepening after the Fed’s rate cut, and investors added to bets favoring a second outsized rate cut after Fed Governor Christopher Waller said on Friday he was worried inflation may soon be running substantially below the central bank’s 2% target.Meanwhile, the majority of economists polled by Reuters anticipate two more 25 bps rate cuts at the Fed’s final two meetings this year.In weekend news, U.S. House Republicans unveiled a three-month stopgap bill to avert a government shutdown. For the yen, an upcoming ruling party vote later this week to choose a new prime minister makes the BOJ’s job challenging in the coming months. A snap election is seen as likely in late October. Liberal Democratic Party frontrunners to replace outgoing Prime Minister Fumio Kishida have presented diverse views on monetary policy.Sanae Takaichi – who would become the nation’s first female premier – is a reflationist who has accused the Bank of Japan of raising rates too soon. Shigeru Ishiba has said the central bank is “on the right policy track”, while Shinjiro Koizumi, son of charismatic ex-premier Junichiro Koizumi, has so far only said he will respect the BOJ’s independence.The selection presents two-way risks for yen, Barclays analysts wrote on the weekend. “The main risk here is if Abenomics advocate Takaichi wins, this could pose headwinds to the BOJ’s policy-normalization plan and raise concerns about fiscal discipline,” they said. That could lead to a steeper Japanese bond curve and downside pressure on the yen as investors pare expectations for another rate rise, they said. The Bank of England kept rates unchanged on Thursday, with its governor saying the central bank had to be “careful not to cut too fast or by too much.”The pound was down 0.1% at $1.3310, staying near highs it hit on Friday after the release of strong British retail sales data. More

SYDNEY (Reuters) – Asian stocks were steady on Monday ahead of central bank meetings that are widely expected to deliver two more rate cuts and key U.S. inflation figures that should flash a green light for more easing there.A holiday in Japan made for thin trading and MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed, after bouncing 2.7% last week.Japan’s Nikkei was shut but futures were trading at 38,300 compared to a cash close of 37,723. The index rallied 3.1% last week as the yen eased from its highs and the Bank of Japan (BOJ) signalled it was in no rush to tighten policy further.S&P 500 futures and Nasdaq futures were both up 0.1%. The S&P is up 0.8% so far in September, historically the weakest month for stocks, and has gained 19% year-to-date to reach all-time highs.[.N]More than 20 billion shares changed hands on U.S. exchanges on Friday, the busiest session since January 2021. Analysts at BofA noted the S&P rises an average of 21% when there is no recession in the 12-months after the start of Fed cuts.Markets were still basking in the afterglow of the Federal Reserve’s half-point rate cut, with futures implying a 51% probability it will deliver another outsized move in November.”While the move was well flagged, its importance is hard to overstate, given the Fed’s role in USD liquidity conditions worldwide,” said Barclays economist Christian Keller.”We note that initiating a cycle with a 50bp move without an imminent financial crisis or jobs actually being lost is quite unusual for the Fed,” he added. “We thus think the step reveals the Fed’s determination to avoid a deterioration in labour market conditions, or, in market jargon: to achieve a soft landing.”At least nine Fed policy makers are speaking this week including prepared remarks from Chair Jerome Powell, two governors and New York Fed President John Williams.MORE CUTSMuch will depend on what the Fed’s preferred inflation gauge, the core personal consumption expenditures (PCE) show on Friday. Analysts expect a 0.2% month-on-month rise taking the annual pace to 2.7%, while the headline index is seen slowing to just 2.3%.The coming week also includes surveys on global manufacturing, U.S. consumer confidence and durable goods.The Swiss National Bank meets Thursday and markets are fully priced for a quarter-point cut to 1.0%, with a 41% chance it will ease by 50 basis points.Sweden’s central bank meets on Wednesday and is also expected to ease by 25 basis points, again with some chance it might go larger. One bank not easing is the Reserve Bank of Australia (RBA) which meets on Tuesday and is considered almost certain to hold at 4.35% as inflation proves stubborn. (0#RBAWATCH >Investors were also keeping a wary eye on negotiations to avoid a U.S. government shut down with just days before the current $1.2 trillion in funding runs out on Sept. 30. Republican U.S. House of Representatives Speaker Mike Johnson on Sunday proposed a three-month stopgap funding bill but now it has to go to vote. In currency markets, the dollar edged up to 143.95 yen, having bounced 2.2% last week from a 139.58 low. The euro gained almost 3% last week to reach 160.71 yen, while holding firm on the dollar at $1.1163.Japan’s LDP, which has a parliamentary majority, will elect a new leader on Sept. 27, with the winner to replace outgoing Prime Minister Fumio Kishida.The U.S. rate cut combined with lower bond yields helped keep gold up at $2,620 an ounce, just off an all-time peak of $2,625,59. [GOL/]Net long positions in Comex gold futures hit their highest level in four years last week, suggesting some risk of a pullback in the near term.Oil prices were steady having rallied around 4% last week on hopes lower borrowing costs would support global economic growth and demand. [O/R]Brent added one cent to $74.47 a barrel, while U.S. crude also firmed one cent to $71.01 per barrel. More

WASHINGTON (Reuters) -U.S. Vice President Kamala Harris plans to roll out a new set of economic policies this week that aim to help Americans build wealth and set economic incentives for businesses to aid that goal, three sources with knowledge of the matter said.The new policies, which have not been previously reported and could be announced in Pittsburgh on Wednesday, come as undecided voters continue to ask for more information about how Harris would help them economically if she were elected president in November, including those in critical swing states, the sources said. Harris, speaking to reporters on Sunday after Reuters reported the expected rollout, said she would outline her vision for the economy in a speech this week.She added that the plan is about investing in the aspirations and ambitions of the American people while addressing the challenges they face.The rollout would follow heated debate in Democratic circles over whether releasing more economic policies so close to election day is a smart strategy. “It’s not just about affordability, it’s also about showing (voters) they have a path to building wealth,” said one of the sources with direct knowledge of Harris’s economic plans, adding she wanted to show Americans how they can “get a foot in the door.”None of the sources would provide specific details on the expected new policies, and the Harris campaign would not comment on any new proposals. However, Harris’ 2020 presidential run and President Joe Biden’s administration included plans with similar goals. In her 2020 campaign, Harris proposed significant pay hikes for the millions of public school teachers, forcing companies to disclose their pay gap between men and women and penalizing those who are not narrowing it. The Biden and Harris administration have pushed to eliminate bias in home appraisals and use the over $700 billion federal contracting budget to buoy minority businesses. Harris has released a basket of economic policies focused on the high cost of housing, taxes, small business expenses, childcare and goods. Her plans often build on Biden’s policies, like increasing the child tax credit and lifting the corporate tax rate to 28%.Campaign spokesman James Singer did not comment on the story. He told Reuters that Harris “will continue to present her opportunity economy agenda to lower costs, make housing more affordable, and spur economic growth across America.” Releasing new economic policy with less than 50 days left in a tight presidential election race could mean the new measures never reach crucial voters, some advisers acknowledge.”Typically you’d see a campaign wrap up persuading voters by September and move to mobilizing people but this is not a typical campaign,” said a source with knowledge of the new plans, referring to Harris’ jump to the top of the ticket in late July. “We have to continue persuading and mobilizing folks at the same time until the very end.”Republican Donald Trump’s economic proposals aimed at working-class Americans include eliminating taxes on tips and Social Security benefits, opening up federal lands to housing construction and deporting millions of immigrants to the country who Republicans say are driving up costs. The former president has also proposed new across-the-board tariffs on goods not made in the U.S. that could raise costs for American consumers and inflation, but that is backed by a slim majority of voters.Trump has tried to pin on Democrats inflation that popped globally as the COVID-19 pandemic shutdowns eased and has made the still-high cost of groceries, particularly bacon, a rally speech staple. From 2019 to 2023, the food Consumer Price Index rose by 25%, the U.S. Department of Agriculture reported. HARRIS GAINS ON ECONOMY Republicans have traditionally polled better on the economy than Democrats, and Trump beat Biden and then Harris on the topic earlier this year. Some polls, however, are shifting in her direction. A Financial Times-Michigan Ross poll this month showed 44% of registered voters trusted Harris’ economic stewardship compared with 42% who backed Trump, and Reuters/IPSOS polling in August showed her narrowing the gap on the economy.The Federal Reserve’s decision to cut interest rates by half a percentage point last week, reflecting the belief that inflation risks have fallen, could lower some costs for consumers.Some Harris supporters have urged the campaign to double down on the economic message that is already out there instead of rolling out new ideas.”My recommendation is to do more show-and-tells. Rather than address this with endless white papers, go to grocery stores and apartment buildings and more,” said Donna Brazile, a longtime Democratic strategist.”Inflation may have gone down, but the cost of living hasn’t changed. Some of this is post pandemic and that still must be addressed,” she said.Others believe more economic policy is not a priority. Adam Newar, a money manager and Harris donor said “it’s a character election” and not a policy election.”I’m not sure what more policy information actually brings to the table. She really has to continue articulating a vision, communicate that vision to people who really feel like they’ve been left behind,” Newar said. Many of Harris’ proposals would require congressional approval, and would be unlikely to pass unless Democrats win both the House and Senate. More

(Reuters) – A look at the day ahead in Asian markets.The adrenaline from the Federal Reserve’s bold interest rate cut and signal of intent to keep easing still appears to be coursing through global financial markets, which should see risk assets in Asia start the week on a strong footing on Monday.Nikkei futures are pointing to a rise of more than 1% at the open in Japan, with Japanese shares also getting a boost from the yen’s slide last week. The rise in longer-dated U.S. Treasury yields, however, could temper some of the optimism.Friday’s monetary policy decisions from Japan and China may also reverberate around Asian markets on Monday, and on that score, the picture is more mixed.As was widely expected, the Bank of Japan decided not to raise rates, but it signaled it is in no hurry to raise them again. This helped push the yen to its weakest daily close since September 4, which in turn helped lift Japanese stocks.The People’s Bank of China also left rates on hold but this was more of a surprise. Domestically, China’s weak economic and inflation dynamics appear to be screaming out for lower rates, and internationally, the Fed’s outsized rate cut of 50 basis points gave the PBOC cover to move. But it didn’t, despite the mounting evidence that it perhaps should have. The latest figures to reflect investors’ gloomy view of China were foreign direct investment flows on Friday – in the first eight months of the year they were down 31.5% on the same period last year, the biggest fall since January 2009.The yuan is its strongest in 16 months though, thanks to the central bank’s reluctance to cut rates and rising expectations that authorities will soon unveil stimulus that will revive growth, asset prices and confidence. The yen, meanwhile, starts the week on a soft footing after a roller-coaster ride last week. It rallied through 140.00 per dollar for the first time in over a year but closed near 144.00 per dollar for a weekly loss of 2%, its worst week since April.Japan’s top currency diplomat Atsushi Mimura said yen carry trades of the past are likely to have been mostly unwound, but Tokyo is watching for any rebuild that could heighten market volatility, public broadcaster NHK quoted him as saying.U.S. futures market positioning data shows speculators growing more optimistic on the yen for an 11th straight week, increasing their net long positions to an eight-year high.The Asia and Pacific calendar on Monday is reasonably busy, with inflation figures from Malaysia and Singapore, flash September purchasing managers index (PMI) data from Australia and India, and New Zealand trade figures the highlights.The Reserve Bank of Australia begins its two-day policy meeting too. Here are key developments that could provide more direction to Asian markets on Monday:- Australia flash PMIs (September)- India flash PMIs (September)- Malaysia inflation (August) More