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    Bank of Canada: AI could boost inflationary pressures in short-term

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    Macklem said strong investment in AI technologies was already boosting the economy and noted surging electricity demand as new data centers are built.”In the short run, AI could boost demand more than it adds to supply through faster productivity growth,” Macklem said in Toronto at an AI conference.”If that happens, AI adoption may add to inflationary pressures in the near term,” he said.With the surge in AI adoption, central bankers, whose primary mandate is to keep stable and low inflation, have been mulling how to use the technology to better predict changes in consumer prices and employment. Macklem said central bankers needed to better understand how AI would affect workers, consumers, the economy and inflation.When combined with a more shock-prone world, the effects of AI suggest inflation could be more volatile than it was in the 25 years before the pandemic, he said.The Bank for International Settlements (BIS), which works with central banks across the world, said in June that central banks should embrace AI’s benefits but should not allow it to replace humans when it comes to setting interest rates.Macklem said there was no evidence labor was being displaced by AI at rates that would lead to declines in total employment, he said, but cautioned that its wide-ranging effects were tough to predict.Macklem said the BoC was already using AI to forecast inflation, track economic sentiment, verify data and improve efficiency, but it is in early stages of adoption.”When you enter a dark room, you don’t go charging in. You cautiously feel your way around,” Macklem said on how the BoC was seeking better information on how the technology worked its way through the economy. Canada last year launched a Voluntary Code of Conduct on the responsible development and management of advanced Generative AI Systems, which highlights measures that companies should apply when they are developing and managing generative artificial intelligence systems.The Bank of Canada, Governor Tiff Macklem said on Friday. More

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    India’s Nifty, Sensex outperform most global markets, behind only Wall Street

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    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&P have 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

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    Investment advisers urge clients away from cash after Fed rate cut

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    (Reuters) -Investment advisers are urging clients to dump hefty cash allocations now that the Federal Reserve has begun its much-anticipated interest-rate easing, a process they expect to limit the appeal of money-market funds in the coming months. Retail money-market funds have attracted $951 billion in inflows since 2022, when the Fed started its rate-hiking cycle to tame inflation, according to the Investment Company Institute, which represents investment funds. Their assets stood at $2.6 trillion on Sept. 18, roughly 80% higher than at the beginning of 2022.”As policy rates fall, the appeal of money-market funds will wane,” said Daniel Morris, chief market strategist at BNP Paribas (OTC:BNPQY) Asset Management.On Wednesday, the U.S. central bank cut the federal funds rate by a larger-than-usual 50 basis points to a range of 4.75% to 5%, which makes holding cash in deposit accounts and cash-like instruments less appealing. “You’re going to have to shift everything … further up in the amount of risk you’re accepting,” said Jason Britton, Charleston-based founder of Reflection Asset Management, who manages or oversees around $5 billion in assets. “Money-market assets will have to become fixed-income holdings; fixed income will move into preferred stocks or dividend-paying stocks.”Money-market funds – ultra low-risk mutual funds that invest in short-term Treasury securities and other cash proxies – are a way to gauge investor interest in the nearly risk-free returns they offer. When short-term interest rates climb, money-market returns rise with them, increasing their appeal to investors.”Investors need to be aware that if they’re counting on a certain level of income from that portion of their portfolio, they may need to look at something different, or longer-term, to lock in rates and not be as exposed to the Fed lowering interest rates,” said Ross Mayfield, investment strategist at Baird Wealth. Carol Schleif, chief investment officer of BMO Family Office, expects investors to keep some cash on the sidelines to wait for opportunities to buy stocks.  It could take a week or more for initial reactions to the Fed’s decision on Wednesday to show up in money-market fund flows and other data, analysts note. While the Investment Company Institute reported an overall decline in money-market holdings in its last weekly report on Thursday, retail positions were little changed to higher and advisers said it has been tough to persuade that group to abandon their cash holdings.Christian Salomone, chief investment officer of Ballast Rock Private Wealth, said clients faced with lower returns on cash are eager to invest in something else.Still, “investors are stuck between a rock and a hard place,” Britton said, faced with a choice between investing in riskier assets or earning a smaller return from cash-like products. More

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    Germany must oppose UniCredit takeover of Commerzbank, employees say

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    FRANKFURT (Reuters) -Commerzbank employees and a prominent labour union on Friday called on the German government to oppose a takeover of the German lender by Italy’s UniCredit as workers fear massive job losses if a deal goes through.The joint statement from the Commerzbank (ETR:CBKG) works council and the Verdi union marks the starkest opposition yet by employees of a possible tie-up between the banks.The two groups said they were calling on the government “to work together with employees for a strong, independent Commerzbank”.The appeal comes days after the Italian bank announced it had bought a 9% stake in Commerzbank – from the German government as well as on the open market – and its chief executive said he wanted to explore a merger. The German government, which still owns a 12% stake in Commerzbank, will play a key role in whether any deal can take place. “We call on the German government not to make any hasty decisions regarding the sale of its shares,” said Uwe Tschaege, the chairman of Commerzbank’s works council.The German government is “thoroughly analysing” the matter, a government spokesperson said in response to the employee and union demands. UniCredit wasn’t immediately available for comment and Commerzbank didn’t immediately respond. Commerzbank, with more than 25,000 business customers, almost a third of German foreign trade payments and more than 42,000 staff, is a linchpin of the German economy. The Italian takeover interest has already prompted a backlash and is an embarrassment for the German government.UniCredit’s swoop is the most ambitious attempt yet at a pan-European bank merger, but it faces considerable political hurdles in Germany.German Finance Minister Christian Lindner, whose ministry manages the Commerzbank holding, said on Thursday the government does not want to stay permanently invested in a bank.But the government does not currently plan further sales, sources have told Reuters, and Commerzbank has also asked the government to retain its stake for now. More