Economy

The country, the European Union’s second poorest member state, had an initial funding plan of 181 billion lei, based on a deficit target of 5% of economic output, and debt managers have so far covered it up to 91%.However, high spending has effectively put the deficit target out of reach, with ratings agencies and analysts expecting tax increases from 2025.”To limit currency exchange risks and develop the domestic market given its capacity to absorb bond volumes, we estimate … the additional net funding for 2024 will be balanced between domestic sources as well as foreign Eurobond issues, private placements, withdrawals from international financial institutions and other sources,” the debt agency said.Debt chief Stefan Nanu told Reuters the finance ministry aimed to launch further non-green Eurobonds this year.Romania has sold just over 83.0 billion lei worth of domestic bonds and treasury bills so far this year, supported by high demand, and has tapped foreign markets four times, borrowing $4 billion and 7.2 billion euros including 2036 green bonds. It has also increased its retail bond sale volumes.Romania has raised its funding target for 2023 twice, arriving at 203 billion lei from 160 billion lei initially, to accommodate a larger-than-expected budget shortfall.Major rating agencies have assigned Romania their lowest investment grades with a stable outlook.Fitch affirmed Romania’s credit rating at BBB- with a stable outlook on Saturday, underpinned by strong inflows of EU funds, but said the country needs to enforce “meaningful” fiscal adjustment in the medium term, although fiscal slippage has damaged policy credibility.”Despite the increasing debt, the interest payment to revenues ratio is 6.4%, more favourable than the 7.5% (BBB) peer median,” Fitch said.($1 = 4.4931 lei) More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

Nomura anticipates that the Reserve Bank of India’s (RBI) rate setting panel will reduce rates by a total of 100 basis points from October to mid-2025, more than its previous forecast of 75 bps of rate cuts for the same period.”We believe that an inflection in India’s monetary policy cycle is around the corner, and it is unlikely to be shallow,” Nomura economists said in a note. “While the initial easing will realign nominal rates with lower inflation, rate cuts in 2025 will likely be triggered by weaker growth.”Data released on Friday showed India’s gross domestic product (GDP) grew at a slower-than-expected pace of 6.7% on an annual basis in the April-June quarter due to a decline in government spending during the national elections.Following the data, Nomura lowered its economic growth forecast for the current fiscal to 6.7% from 6.9% a year earlier.”Overall, Q2 GDP data are weaker than expected, although the role of transitory factors like elections, versus more persistent factors like slowing profit growth is still unclear,” Nomura said in a separate note dated Aug. 30.Even as government spending picks up, lower corporate profit growth and a moderation in credit growth are likely to persist as growth drags, it said.Last month, the RBI kept key policy rate unchanged for a ninth consecutive meeting amid inflationary pressures and maintained its ‘withdrawal of accommodation’ policy stance, with the governor flagging stubborn food inflation.”High-frequency data show that prices of vegetables, cereals and pulses have already declined sequentially in August. We expect a moderation beyond August too,” Nomura said. It expects India’s headline inflation to ease further to 3% year-on-year in August, and average at 3.6% in July-September, below the RBI’s inflation target of 4%. More

The central bank has hinted that the U.S. economy might achieve a “soft landing,” meaning inflation will decrease without causing a severe economic slowdown. However, analysts at BCA Research in a note dated Monday question this optimism, arguing that the economy is still facing challenges.“Investor sentiment is highly positive, with little cash on the sidelines, and US equities trading at 21x (very optimistic) forward earnings expectations,” the analysts said. This bullish outlook reflects confidence in the Fed’s ability to manage the economy without causing a recession. Both individual and institutional investors are fully invested in the equity markets, leaving minimal cash on the sidelines. As per analysts at BCA, such extreme optimism is often followed by market corrections, particularly if economic conditions begin to deteriorate.Historically, stock markets have often seen a decline after the Federal Reserve’s first rate cut in a cycle. This pattern has been observed in past instances, such as in 2001 and 2007. An exception was 1995, when the Fed successfully cut rates without causing a recession. However, today’s economic conditions are markedly different from those of the mid-1990s. Unemployment is on the rise, and the job market is showing signs of weakness. This is supported by the Sahm rule, which was triggered last month, suggesting a potential recession is looming.Analysts at BCA paint a bleak picture of the labor market. Job creation has plummeted by over a million in the last two years, and revised nonfarm payroll data reveals that job growth has been exaggerated. Although unemployment claims haven’t skyrocketed, the overall trend indicates a weakening labor market. This decline raises concerns about the long-term viability of the economic expansion and the Fed’s ability to achieve a gradual slowdown.Even if the Fed proceeds with rate cuts as anticipated, monetary policy will remain restrictive for some time. BCA analysts warn that the benefits of easier monetary policy may not materialize quickly enough to avert a downturn.The lag between rate cuts and their impact on the economy, which typically spans about 12 months, means that the economy could still face significant challenges even after the Fed begins to ease policy​.BCA Research suggests investors to be cautious with their portfolios due to current economic risks. They recommend holding fewer stocks and bonds, preferring government bonds as a safer bet in case of a recession. Within stocks, they favor defensive sectors like consumer staples, healthcare, and utilities, which are less likely to be affected by a downturn. While they slightly prefer U.S. stocks, they warn that tech stocks could drop in value if the economy gets worse. More

Moraes, whom X owner Elon Musk has labeled a “dictator,” has called a virtual session of the court’s first chamber – of which he is a member – so peers can review his decision.Brazil’s Supreme Court has 11 justices split between two chambers of five members each, not including the chief justice. They can vote to maintain or reject decisions by a single judge.Justices Carmen Lucia, Luiz Fux, Cristiano Zanin and Flavio Dino sit on the first chamber alongside Moraes.X was taken down in Brazil, one of its largest markets, in the early hours of Saturday following a decision by Moraes, who has been locked in a months-long feud with Musk.The popular social media platform missed a court-imposed deadline on Thursday evening to name a legal representative in Brazil as required by local law, triggering the suspension.The dispute over X has its roots in a Moraes order earlier this year that required the platform to block accounts implicated in probes of alleged misinformation and hate.Musk has argued that Moraes was trying to enforce unjustified censorship and closed the X office in Brazil in August, without appointing a new representative. The judge has insisted that social media needs hate speech regulations.Moraes’ latest decision was backed by Chief Justice Luis Roberto Barroso.”A company that refuses to name a legal representative in Brazil cannot operate in Brazilian territory,” Barroso said in an interview with newspaper Folha de S.Paulo published on Sunday. More

The upcoming release of the August jobs report on September 6 is expected to play a vital role in determining whether the market’s recent rebound can continue or if renewed worries about economic growth will lead to further downward pressure on stock valuations. Morgan Stanley analysts forecast that this report will significantly influence the market’s future trajectory.The market downturn earlier this summer was primarily triggered by a series of disappointing economic indicators, culminating in a weak employment report on August 2. The most important factor was a 0.2 percentage point increase in the unemployment rate, which activated the Sahm Rule—a key recession indicator—and heightened fears of a potential hard landing for the economy. This spooked investors, leading to a broad-based sell-off in equities.While some positive economic data, including better-than-expected jobless claims, retail sales, and the ISM non-manufacturing survey, have since emerged, the recovery in equity markets has been uneven. Many indices have rallied back near all-time highs, yet the bond market, the yen, and commodities suggest lingering caution among investors. Furthermore, equity market “internals,” such as the performance of cyclical versus defensive stocks, have not rebounded significantly, indicating a cautious market sentiment.Morgan Stanley analysts say that the August jobs report will be a critical test for the market’s recovery. “A stronger-than-expected payroll number and lower unemployment rate would likely provide markets with greater confidence that growth risks have subsided, paving the way for equity valuations to remain elevated and a potential catch-up in some other markets/stocks that have lagged,” the analysts said.Conversely, another weak jobs report, particularly if it shows a further rise in the unemployment rate, could reignite fears of a hard landing and put renewed pressure on equity valuations. Morgan Stanley’s economists are forecasting a non-farm payroll increase of 185,000 jobs and a decrease in the unemployment rate to 4.2%, which aligns with market consensus. However, they caution that the stakes are high, given the market’s current valuation levels.Morgan Stanley flags the challenge for equity investors in the current environment. The S&P 500 is trading at 21 times earnings, which places it in the top decile of its historical valuation range. This is based on consensus earnings per share (EPS) growth estimates of 11% for this year and 15% for next year—well above the longer-term average of 7%. Given these elevated valuations and high earnings expectations, Morgan Stanley sees limited upside at the index level over the next 6-12 months, particularly in a soft-landing scenario, which is their base case.The market’s current valuation levels make it vulnerable to a downturn in case of a hard landing.  The upcoming labor report is crucial as it could either strengthen or weaken the current market sentiment.Morgan Stanley also notes that the Bloomberg Economic Surprise Index, which tracks the degree to which economic data exceeds or falls short of expectations, has not yet reversed its downward trend that began in April. Additionally, cyclical stocks continue to underperform relative to defensive stocks, further suggesting that growth concerns remain prevalent.Unlike previous corrections in 2022 and early 2023, where inflation was the primary risk, the current market dynamics are driven by growth worries. This shift supports the idea that, until there is clearer evidence of improving economic growth, investors should favor high-quality defensive stocks in their portfolios.Analysts believe that AI stocks have been a major force in the U.S. market, but recent disappointing earnings have caused a decline in many of these stocks.While Morgan Stanley doesn’t think the AI trend is over, they suggest investors might be looking for a new market theme that can attract a lot of investment.In this context, the analysts advise against rotating into small-cap or other cheap cyclical stocks that have underperformed in recent years. They argue that in a late-cycle, soft-landing scenario where the Federal Reserve is cutting rates, these areas of the market typically do not perform well.Morgan Stanley flags that the bond market has already expected some of the Federal Reserve’s potential interest rate cuts. With back-end rates falling by more than 100bp over the past 10 months, making borrowing cheaper for things like mortgages. Despite this, sectors highly sensitive to interest rates, such as housing, car purchases, and credit card spending, haven’t seen a boost yet.This lack of response from the cyclical parts of the equity market further supports the analysts’ cautious outlook. Unless the Fed cuts rates more than the market is currently expecting, the economy strengthens, or additional policy stimulus is introduced, Morgan Stanley expects minimal returns at the index level over the next 6-12 months. More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More