Economy

The first leg of this week’s U.S. inflation double bill is scheduled for later Tuesday, with July U.S. producer price data due before the U.S. open and will likely sway markets before focus switches to the consumer price index on Wednesday. The producer price index, which measures changes in prices for producers as opposed to consumers, is expected to rise 0.2% on the month in July, an annual headline rise of 2.3%, down from 2.6% the prior month.The core figure, which excludes volatile food and energy components, is also expected to rise 0.2% on a monthly basis, down from 0.4% in June, with an annual rise of 2.7%, a drop from 3.0%.Investors will parse through the dataset to try and decide whether the Federal Reserve will go for a 50 basis point cut or a 25 bps cut in its September meeting – traders are currently evenly split between the two, according to the CME FedWatch tool.The Fed at the end of July kept the policy rate in the same 5.25%-5.50% range it has been for more than a year, but signaled that a rate cut could come as soon as September if inflation continued to cool. U.S. stock futures rose Tuesday ahead of the release of the first of two important inflation releases, which could influence the Federal Reserve’s thinking regarding interest rate cuts. By 04:20 ET (08:20 GMT), the Dow futures contract was 84 points, or 0.2%, higher, S&P 500 futures climbed 20 points, or 0.4%, and Nasdaq 100 futures rose by 104 points, or 0.6%.The main Wall Street indices saw choppy trading on Monday, with investors seemingly reluctant to commit ahead of the inflation data.The blue chip Dow Jones Industrial Average fell 140 points, or 0.4%, while the broad-based S&P 500 ended flat and the tech-heavy Nasdaq Composite gained 0.2%.The producer price index is expected to show small monthly gains in July [see above], and will be a tasty starter ahead of Wednesday’s consumer price index.The corporate earnings season continues with results before the bell from retail giant Home Depot (NYSE:HD) the highlight of Tuesday’s session. Republican presidential candidate Donald Trump held a discussion with Elon Musk, the owner of the social media platform X on Monday, in an event that the former president no doubt hoped would help revive his campaign after a difficult few weeks.The three weeks since President Joe Biden dropped out of the race and endorsed Vice President Kamala Harris, now the Democratic nominee, have rattled Trump and his presidential campaign, with the polls now seeming to put the Democrat candidate in front.Monday’s talk was delayed by around 40 minutes by an apparent cyberattack, and represented Trump’s return to X, formerly known as Twitter, after an over three-year hiatus from the website.Trump’s account was blocked in 2021 after he was accused of inciting political violence during the 2021 Capitol attacks. Musk had restored Trump’s account after his 2022 takeover of Twitter and its subsequent rebranding to X.Shares of Trump Media & Technology Group (NASDAQ:DJT) sank over 5% on Monday as Truth Social – the social media platform operated by the company – had been seen as Trump’s go-to social media platform in his absence from X.Wall Street’s main indices rebounded last week after the sharp selloff at the start of the week, and institutional investors were very much part of the rebound, according to data from Bank of America released earlier Tuesday.The bank’s clients last week were net buyers of U.S. stocks, to the tune of almost $6 billion, for the first time in five weeks, the bank said in a note, in the 10th largest inflow since 2008.Bank of America’s institutional clients last week were net buyers for the first time in five weeks, while hedge funds and private clients were net sellers, the bank said.It added that tech and communication services stocks saw the largest inflows, while tech stocks saw inflows for the first time in four weeks.Crude prices slipped lower Tuesday, breaking a five-day winning streak as traders banked gains amid concerns about demand growth this year. By 04:20 ET, the U.S. crude futures (WTI) dropped 0.4% to $79.75 a barrel, while the Brent contract fell 0.4% to $81.98 a barrel.Both crude benchmarks gained more than 3% on Monday, boosted by elevated tensions in the Middle East amid fears that a bigger war in the Middle East will disrupt oil supplies from the crude-rich region. However, despite these gains, the crude benchmarks have fallen around 3% over the course of the last month as demand for oil remains tepid, especially when compared to the growing supply.The Organization of the Petroleum Exporting Countries cut its global demand forecast for 2024 on Monday, the first cut since it was made in July 2023, and comes after mounting signs that demand in China has lagged expectations. More

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SEOUL (Reuters) – South Korea plans to announce guidelines to encourage the use of an alternative benchmark in its $4.3 trillion interest rate swap market and replace Certificate of Deposit (CD) rates that currently dominate transactions, two sources said. The Bank of Korea and the Financial Services Commission are working on transaction guidelines to supplant CD rates with the Korea Overnight Financing Repo rate (KOFR), and at the same time introduce the KOFR-linked Overnight Index Swap market, the sources who were familiar with the matter said. “The BOK and the FSC will make clear their intention to restrict the use of the CD interest rate when conducting future interest rate swap transactions, although they won’t talk about any specific schedules to phase it out,” one of the sources told Reuters, asking not to be named due to the sensitivity of the matter. With the global cessation of the London interbank offered rate, South Korea has been working to develop alternative reference rates locally and address fluctuations in CD rates arising from changes in CD issuances. In South Korea, 5,874 trillion won ($4.3 trillion) worth of interest rate swap transactions are mostly tied to CD rates, and financial authorities have been working to replace CD rates with the KOFR and prepare the market for the benchmark transition. Interest rate swaps are trades of a fixed interest rate for a floating rate or vice versa, widely used by investors and banks to hedge risks in financial markets. CD rates have been South Korea’s most widely used reference rates used to determine the cost of borrowing, from interest rate swaps and collateralized loan obligations. ($1 = 1,370.5500 won) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Investors are piling back into bonds as recession replaces inflation as markets’ main fear, and fixed income proves its worth as a hedge against the recent stock market chaos.US Treasuries and other highly rated debt staged a powerful rally during last week’s equity rout, pulling yields to their lowest level in more than a year. While the sharpest moves subsequently reversed, fund managers say they underscored the appeal of bonds in an environment where growth is slowing, inflation is falling, and the Federal Reserve — along with other major central banks — is expected to deliver multiple cuts in interest rates by the end of the year.Investors have poured $8.9bn into US government and corporate bond funds in August, building on inflows of $57.4bn in July, which marked the highest monthly figure since January and the second-biggest since mid-2021, according to flow tracker EPFR. High-grade corporate debt has seen 10 weeks of positive flows, the longest streak in four years.“The best protection against a downside scenario like a recession is Treasury bonds,” said Robert Tipp, head of global bonds at PGIM Fixed Income.“The arguments for fixed income are really strong. Sometimes people need a shove to move out of cash. The drop-off in employment has really made that [happen],” said Tipp. A Bloomberg index that tracks both US government and high-quality corporate bonds has gained 2 per cent since late July, contrasting with a 6 per cent loss for the S&P 500. The biggest gain for bonds came on the day of the employment report when stocks sank sharply.Expectations for Fed rate cuts have shifted dramatically since the weak US jobs report in early August, which showed an unexpected rise in the jobless rate to 4.3 per cent in July from 4.1 per cent in June and that employers added far fewer positions than economists had expected. Traders in the futures market are now expecting the Fed to cut interest rates by just over one percentage point by year-end, implying at least one extra large half-point cut in the Fed’s remaining three meetings of 2024. Before the August payrolls report, traders were only banking on three quarter-point cuts.  That means safer bonds, such as investment grade credit and Treasuries, now offer high yields but without the threat of further rises in Fed borrowing costs that knocked markets earlier in the year, according to Rick Rieder, chief investment officer of global fixed income at BlackRock.  “People don’t like losing money in fixed income,” he said. “But I think you can, today, feel certain that the Fed will not raise interest rates again. The yields available and the rate of return in fixed income today are so attractive. I would anticipate more money will come into fixed income.”Corporate debt was also swept up in last week’s sell-off. But the moves were more muted than the big swings in stocks, particularly in the market for high-quality investment grade credit issued by companies where even a US recession is unlikely to triggers large numbers of defaults. Even “junk”-rated bonds held up better than equities, where high-flying tech companies have been punished with hefty share price declines in recent weeks. A Bloomberg index of US high yield debt lost just 0.6 per cent in last Monday’s global sell-off in risky assets, compared with a 3 per cent drop in the S&P 500.“Credit has held up really well versus the volatility we’ve seen in equities,” said Dan Ivascyn, chief investment officer at bond investing giant Pimco. “We don’t want to be super aggressive there, but you’ve had over the last couple of weeks material widening in high-yield corporate bond spreads. We’re not there yet, but if we continue to see weakness there that’s an area of interest.”Despite the recent inflows, some market participants remain nervous of the implications of an economic slowdown for corporate bonds. “The risk for credit is that we do get some weaker employment data, we get some weaker growth data,” said Ashok Bhatia, Neuberger Berman’s co-chief investment officer of fixed income.The outlook for inflation is likely to prove crucial, given the scale of rate cuts now priced in to markets. Data on Wednesday is expected to show a small decline in US consumer inflation to an annual rate of 2.9 per cent in July. An unexpected rise could see investors reining in their rate cut bets, hurting bonds. “I think bonds are back,” Bhatia said. “But the thing that will support credit at these levels will be the concept that the Fed will react quickly and get the policy rate down” if signs of weakness persist.“Anything that suggests the Fed will not do that is going to be problematic for credit,” he added. More

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SYDNEY (Reuters) – The dollar was in limbo on Tuesday as investors waited to see how U.S. economic data affected the chance of outsized rate cuts, while a rally in Japanese stocks helped staunch the bleeding in yen carry trades.The greenback was idling at 147.17 yen, having briefly touched a one-week high of 148.23 overnight before profit-taking emerged.The euro stood at $1.0931, after creeping higher overnight and nearer to resistance at $1.0944 and $1.0963. The dollar index was flat at 103.08.Producer price figures due later will provide an appetizer for the main inflation report on Wednesday, and could move markets since they feed through to the core personal consumption (PCE) measure favoured by the Federal Reserve.Forecasts are for a 0.2% rise in both the headline PPI and the core measure.More important will be the consumer price report and retail sales for July which could have a material impact on whether the Fed eases by 25 basis points or 50 basis points in September.Currently futures are evenly split on the larger move, having briefly priced it as a dead certainty last week when stock markets were in free fall.”A hot CPI and hot sales would be the most volatile scenario, and see the bond market quickly repricing back to a 25bp cut,” wrote analysts at JPMorgan in a note.”A cool CPI and cool sales could ease some concerns about the stagflation risks, but bring renewed recession concerns to the market,” they added. “We may see the bond market quickly react to this print pricing in 50bps or more of Sept cuts.”The former outcome would likely lift Treasury yields and support the dollar, while the latter would have the opposite effect. Recession talk, in particular, has tended to boost the yen and Swiss franc as safe havens.The futures market clearly still sees recession as a risk with 101 basis points of Fed easing priced in by Christmas, and more than 120 basis points for next year.That seems to sit at odds with much of the economic data which has the influential Atlanta Fed GDPNow estimate of growth running at an annual 2.9%.”The July CPI annual rates are expected at 3.0% y/y and 3.2% y/y for the core,” noted analysts at ANZ. “Although the trend is moderating, inflation is too high for the Fed to justify the market pricing 100bp of rate cuts between September and year-end.””A material deterioration in the data or intensified disinflation process would be required to deliver that.” More

The Westpac-Melbourne Institute index of consumer sentiment rose 2.8% in August from July, when it fell 1.1%. The index reading of 85 showed pessimists still far outnumbered optimists.”Consumers breathed a small sigh of relief in August as the RBA Board left interest rates unchanged and the support coming from tax cuts and other fiscal measures became more apparent,” said Westpac senior economist Matthew Hassan.In particular, a measure of family finances jumped 11.7% in August, the biggest monthly gain in nine years, with gains most strong among low-income earners, Hassan said. The Reserve Bank of Australia (RBA) held rates steady at its August policy meeting after debating whether or not to raise it further. It all but ruled out a near-term rate cut as core inflation is only projected to slow gradually. Markets are now wagering on an easing by the year-end, having only recently implied there was a risk of a further hike.The survey found the proportion of respondents expecting higher mortgage rates in the next 12 months fell 14.9% in August.The index measuring whether it was a good time to buy major household items bounced 0.6%, but remains historically low at 82.6. More

The trade ministry said it had adjusted its GDP growth forecast range for 2024 to 2.0% to 3.0%, from 1.0% to 3.0% previously.Economists in a Reuters poll forecast growth of 2.7% for the second quarter.On a quarter-on-quarter, seasonally adjusted basis, GDP expanded 0.4% in the April to June period, also matching the advance estimate.”On balance, Singapore’s external demand outlook is expected to be resilient for the rest of the year,” the trade ministry said, though it noted downside risks remained from any intensification of geopolitical and trade conflicts or if global financial conditions stayed tighter for longer than expected.”Against this backdrop, Singapore’s manufacturing sector is expected to see a gradual recovery in the second half of the year,” the ministry said.Last month, the Monetary Authority of Singapore (MAS), the central bank, said it expected the economy to strengthen over the rest of 2024, with growth coming in closer to its potential rate of 2–3%.For the whole of 2023, GDP grew 1.1%, slower than 3.8% in 2022.The MAS left monetary policy settings unchanged last month in its third review of the year as inflation pressures continued to moderate and growth prospects improved. More