Economy

(Reuters) – A look at the day ahead in Asian markets. Investors in Asia will be hoping that the recovery in global sentiment and risk assets on Tuesday extends into Wednesday, although the rebound in U.S. bond yields and the dollar may cool some of that optimism.Nothing epitomized ‘Turnaround Tuesday’ more than the whoosh in Japanese stocks – a day after tumbling 12% in their second biggest fall on record, stocks rallied 10% for their third biggest rise on record.In some ways, however, day-to-day swings of that magnitude based on not a lot of fresh or major market-moving news are red flags. They’re typical of more protracted and volatile downturns, and many investors are retaining a cautious stance.That said, any respite is welcome. Implied yen volatility remains elevated but eased off on Tuesday, and Wall Street and MSCI’s emerging, Asian and world stock indices all gained more than 1%.Fears of impending U.S. recession will have been allayed further too, as the Atlanta Fed’s GDPNow growth tracker estimate for third quarter GDP growth was raised to 2.9% from 2.6%. Little wonder that U.S. bond yields and the dollar rose. That’s a twin dynamic that is rarely positive for emerging markets, but if it is part of a broader market recovery and cooling off in volatility then investors may be more forgiving.Emerging market participants will also note that the steep fall in U.S. yields in recent weeks has more than offset the decline in stock prices. So much so that emerging market financial conditions are now the loosest since January, according to Goldman Sachs.Wednesday’s calendar in Asia includes Chinese trade figures for July, the latest FX reserves holdings from China, Japan and Hong Kong, and earnings reports from Singapore’s top bank DBS and Japan’s SoftBank (TYO:9984) Group. China’s trade data will be under even particular scrutiny given the ratcheting up of U.S. trade and tariff tensions. Export growth is seen quickening, a potential silver lining to the world’s second-largest economy still struggling under a property sector bust, weak consumer demand and the threat of deflation. Monthly changes in countries’ FX reserves holdings rarely have an immediate impact on financial markets, but anyone with an interest in the dollar’s reserve status will cast an eye towards the latest updates from Beijing, Tokyo and Hong Kong. That’s nearly $5 trillion of reserves, 40% of the global total. China holds the world’s largest stash, with $3.22 trillion, and Japan is the largest overseas holder of U.S. Treasuries, with $1.13 trillion. Several leading policymakers in the Asia and Pacific region are scheduled to speak on Wednesday, including Reserve Bank of Australia assistant governor Sarah Hunter, Bank of Japan deputy governor Uchida Shinichi and Bank of Thailand governor Sethaput Suthiwartnarueput. Here are key developments that could provide more direction to Asian markets on Wednesday:- China trade (July)- China, Japan, Hong Kong FX reserves (July)- Softbank (OTC:SFTBY) earnings (Q1) More

Days of havoc in global markets have analysts rushing to calculate the size of a global carry trade in which investors have borrowed money from economies with low interest rates, such as Japan or Switzerland, to fund investments in higher-yielding assets elsewhere.The strategy, which kept money flowing into global risk assets for years, was shaken after the Bank of Japan raised interest rates last week, forcing some investors to abandon the trade as the yen surged higher. The resulting unwind sparked huge losses in global stock markets and saw Japan’s Nikkei notch its worst day since 1987.”I’d guess the carry trade is only about 50% unwound,” wrote James Malcolm, a UBS Japan macro strategist based in London, in a Tuesday note to clients. Malcolm estimates the dollar-yen carry trade grew to at least $500 billion at its peak. He calculated that some $200 billion of the carry trade has been unwound over the last two to three weeks. “How much the carry trade could unwind depends not so much on the level of the interest rate differential but the change in the interest rate differential,” he said. Comparing the current move with the carry trade unwind of 1998 suggests more unwinds could be ahead, he said.Shaun Osborne of Scotiabank echoed that sentiment, noting that two gauges of the carry trade – the Bloomberg G10 Carry Index and the Bloomberg GSAM FX Carry Index – had shed around 5%, only half of what they lost in three notable carry trade unwinds in the past. “The adjustment in carry positioning over the past few weeks has been rapid but it may have further to run,” he said in a Tuesday note.Hedge funds and other speculative investors, whose positioning is captured in a weekly report by the Commodity Futures Trading Commission, have only reduced their short yen positions by about 50%, Osborne said. The latest report was released last week.The report “is a small window on FX positioning but the data along with the (so far) relatively limited correction in carry trade index returns suggest that there is more room for the carry trade to unwind in the short run,” he said. “That would suggest more volatility in risk assets ahead and more strength in the JPY ahead.” More

Holding the benchmark rate was backed by 12 of 22 analysts polled, while the 10 others forecast a 25 basis point cut.In late June, the central bank’s board voted to keep the rate at 11% after cutting it in March for the first time since launching its monetary tightening cycle in 2021. But the bank has signaled that a slowing inflation rate could pave the way for future cuts.Since then, Mexico’s consumer price index has shown upward pressure on inflation. Prices monitored by the index shot up during the first half of July to their highest rate in nearly a year, even as core inflation has slowed and currently hovers close to the central bank’s target of 3%, plus or minus one percentage point.This week, Mexico’s peso currency weakened to its lowest level in more than two years versus the U.S. dollar, due largely to volatility in global markets, a development seen by most analysts supporting a potential decision to leave the benchmark rate unchanged.The central bank will publish its monetary policy statement on Thursday at 1:00 p.m. local time (1900 GMT), shortly after official data on July’s full-month inflation rate is set to be released.Poll data: More

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SAO PAULO (Reuters) -Brazil’s central bank won’t hesitate to raise interest rates if necessary to bring inflation down to its target, minutes from its July 30-31 policy meeting showed on Tuesday.The monetary authority called for greater “vigilance” as inflation expectations have shown further de-anchoring, and policymakers left the door open for a potential rate hike ahead, although they said they were not committed to a policy strategy.Brazil’s central bank last week kept interest rates unchanged at 10.50% for a second consecutive meeting, as expected, flagging worsening inflation expectations and recent market swings. The decision was unanimous.The rate-setting committee, known as Copom, said it “unanimously believes that the current stage is of even greater caution and of diligent monitoring of inflation conditioning factors,” according to the minutes.”Copom unanimously reinforced that it will not hesitate to raise the interest rate to ensure inflation convergence to the target if it deems it appropriate.”Following publication of the minutes, the real strengthened 1% against the dollar and Brazil interest rate futures now price in a 62% chance of a 25-basis-point rate hike at Copom’s next meeting in September, up from 43% on Monday.”The minutes came in a lot more hawkish than the policy statement,” said BNP Paribas (OTC:BNPQY) economist Laiz Carvalho. “The central bank is effectively saying that it could hike rates, and I think the most important thing is that it is unanimous.”Inflation projections in Latin America’s largest economy have been climbing and now stand at 4.12% for 2024 in the central bank’s weekly survey of economists.Estimates for 2025 and 2026 are currently at 3.98% and 3.60%, respectively, also above the bank’s 3% target.Sticky services inflation pushed up consumer prices more than forecast in the month to mid-July, recent data from statistics agency IBGE showed.”Various measures of underlying inflation are above the inflation target in recent releases,” the central bank said.Copom said that market doubts about the Brazilian government’s ability to meet its goal of eliminating its primary deficit this year have had significant impact on asset prices and inflation expectations.The real has plunged nearly 15% so far in 2024, pressured by concerns about domestic public finances and a strong U.S. dollar. According to the central bank, the recent exchange rate moves could have “significant” inflationary impacts.Copom reinforced that the lack of commitment to fiscal discipline has the potential to raise Brazil’s neutral interest rate, with “harmful impacts on the power of monetary policy and, consequently, on the cost of disinflation.”Meanwhile, economic and labor market indicators continue to show more strength than expected, making the process of inflation convergence to the target more challenging, the policymakers added. More

LISBON (Reuters) – Seeking a more comfortable life, 50-year-old carpenter Andreia Costa moved to Portugal from Brazil in 2022, but within months her hopes were dashed, as the country’s housing crisis left her unable to afford accommodation and forced to live in a tent. On a site on the outskirts of Lisbon she was joined by other migrants and some locals, priced out of a city where rents have soared 94% since 2015 and house prices have risen 186%, according to housing data specialists Confidencial Imobiliario. Meanwhile, Portugal remains one of western Europe’s poorest nations with the region’s lowest average wages.The housing crisis is rooted in a chronic shortage of affordable housing, aggravated by the arrival of wealthy foreigners lured by residency rights linked for some years to property investment and tax breaks offered by the state.A tourism boom has seen a surge in short-term holiday lets, further squeezing the housing market.Costa arrived legally with just 600 euros and could only find cleaning jobs paying the then national minimum wage of 760 euros a month. Rent of 400 euros a month for a small room quickly became unaffordable.”I shouldn’t have to pay more than 50% of my salary for a room,” she said. “Renting really suffocates people’s lives.”Costa bought a small tent and set it up on a nearly empty plot on the outskirts of Lisbon. As months passed, more people moved in before they eventually had to leave the plot for another site as it was privately owned. Life was hard. She had to fetch water from beach showers nearby, use portable cooking devices and walk home in complete darkness as there was no street lighting.Migrants are particularly vulnerable amid the housing crisis, as they are more likely to have precarious jobs and lower salaries, according to the Migration Observatory (OM).’TWO EXTREMES’Portugal’s foreign population stood at more than one million in 2023, more than double 2018’s figure of 480,000. Brazilians make up the biggest migrant community but an increasing number are arriving from Southeast Asia to work in agriculture, hospitality, ride-hailing or delivery.”There are two extremes: migrants who are so-called poor… and a ‘rich’ migration of investors, pensioners and highly qualified professionals,” said housing researcher Simone Tulumello.”This development model, heavily focused on real estate and tourism, is causing this explosion in housing prices, which impacts everyone.”Researcher Marina Carreiras said migrants often face discrimination in accessing housing and have less information on how to seek support.Even those who speak Portuguese, such as Brazilians, face discrimination due to their accents. One migrant cited in a recent study by migration association Casa do Brasil spoke of a rental notice saying they don’t rent to Brazilians.OM data showed 19% of people from outside the European Union in Portugal live in overcrowded accommodation compared to around 8% of Portuguese, with people from nations such as Nepal and Bangladesh particularly affected.”Foreigners with low incomes have to live in overcrowded conditions to somehow have a roof over their heads,” said OM Director Catarina Reis de Oliveira, adding that many were renting beds to rest for a few hours during the day.Tulumello called for rent controls and more social housing, and an end to the need for a guarantor or advanced payments.’VICIOUS CIRCLE’Portugal’s centre-right government announced in June a new plan toughening some migration rules.It outlawed a widely-used mechanism called “manifestation of interest”, which for years allowed non-EU migrants without an employment contract to move to Portugal and request residency after paying social security for a year.A source from the ministry handling migration said the system in place before the new government took power in March had left 400,000 people waiting for their status to be settled.”This situation, with hundreds of thousands of cases pending a decision…was truly despicable from a human perspective,” the source said, adding the new government had closed the door on irregular migration and would speed up visa processes.Oliveira said insecurity about their status could leave migrants even more vulnerable.Portugal also plans to adapt its golden visa scheme to allow wealthy foreigners seeking residency rights to invest in affordable housing for locals or accommodation for migrants.Costa kept a positive mindset through the months living in her tent, and formed a strong camaraderie with another Brazilian campmate, Marcia Leandro. She eventually managed to save enough to buy a small, old caravan.”I don’t need more than this space to be happy,” said Costa, whose dream is to one day buy a plot of land where others affected by the housing crisis can live. More