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Week in Review
- Asian equities had another mixed week as South Asia outperformed North Asia, and the Yen strengthened on speculation of another adjustment to the Bank of Japan’s yield curve control policy.
- Contract medical research giant WuXi Biologics saw steep declines this week on a negative medium-term growth outlook primarily due to the fading of COVID windfalls and less funding for global biotechs in a higher interest rate environment.
- Moody’s downgraded its outlook for China following a similar downgrade for the US from Fitch despite China’s sovereign debt-to-GDP ratio of 50% compared to the US’ 121%.
- In China, increased corporate buybacks and better-than-expected trade data failed to lift markets, though we did see strong buying in Hong Kong from Mainland investors.
Friday’s Key News
Asian equities were mixed overnight as Mainland China outperformed Hong Kong. A US jobs report that came in below 2023’s average for November gave more confidence that the Fed could be finished hiking interest rates.
China’s Politburo met today, and President Xi made it clear that attracting foreign capital was a top priority, in a statement. The top policymaking committee also discussed prioritizing “sustainable economic growth.” The meeting is in preparation for the Central Economic Work Conference (CEWC), which will be held later this month and will outline economic policy priorities for the coming year. Will this mean another big stimulus announcement? Not necessarily, but policy is expected to remain accommodative.
The Caixin Services PMI was released on Monday, showing a reading of 51.5, which is expansionary territory, versus an estimated 50.7. This was only a slight beat, but is still an indication that China’s economic data may have bottomed out.
Tencent unveiled a new console game overnight: The Last Sentinel. Console games are a new field for the technology giant. Reportedly, the company is working with former Rockstar Games developers on the project.
The electric vehicle ecosystem was mostly lower overnight. NIO said it would be laying off about 10% of its workforce in a push to cut costs in the face of increasing competition.
Health care stocks were higher in Mainland China. Evidently, investors in Mainland China are not as pessimistic about the industry as their Hong Kong counterparts.
Consumer discretionary was the only positive sector in Hong Kong, helped by Alibaba, which gained +1% and was one of Hong Kong’s most traded stocks. The internet sector overall was higher overnight. Google’s successful launch of its Gemini AI model could provide some positive momentum for Baidu.
The Hang Seng and Hang Seng Tech indexes both closed slightly lower by -0.07% and -0.38%, respectively, on volume that decreased -2% from yesterday. Mainland investors bought a net $430 million worth of Hong Kong stocks overnight via Southbound Stock Connect. The top-performing sectors overnight were Consumer Discretionary, which gained +0.17%, Consumer Staples, which fell -0.14%, and Energy, which fell -0.15%. Meanwhile, the worst-performing sectors were Real Estate, which fell -3.28%, Materials, which fell -2.48%, and Health Care, which fell -1.25%.
Shanghai, Shenzhen, and the STAR Board diverged to close 0.11%, -0.13%, and 2.45%, respectively, on volume that increased +17% from yesterday. Foreign investors bought a net $59 million worth of Mainland stocks via Northbound Stock Connect. The top-performing sectors overnight were Information Technology, which gained +2.64%, Health Care, which gained +1.18%, and Communication Services, which gained +0.45%. Meanwhile, the worst-performing sectors were Real Estate, which fell -1.40%, Consumer Discretionary, which fell -1.01 %, and Financials, which fell -0.56%. CNY depreciated slightly versus the US dollar, government bonds were flat, and copper and steel were both higher.
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Last Night’s Performance
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Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.17 versus 7.15 yesterday
- CNY Per EUR 7.71 versus 7.72 yesterday
- Yield on 1-Day Government Bond 1.22% versus 1.20% yesterday
- Yield on 10-Year Government Bond 2.66% versus 2.66% yesterday
- Yield on 10-Year China Development Bank Bond 2.78% versus 2.78% yesterday
- Copper Price +1.30%
- Steel Price +0.30%
A look at the day ahead in U.S. and global markets from Mike Dolan
A more modest yearend schedule of Treasury debt sales than many feared helped bonds rally overnight while the Bank of Japan closed out a scary October for world markets on Tuesday with another modest tightening tweak.
A hectic Halloween of policy meetings, big macro reports and another slew of company earnings is seeing most world markets shave off the sharpest edges of a rough month, just as the Federal Reserve kicks off its latest two-day gathering.
But relief in Treasuries, the villain of the piece for several weeks, is probably the most significant marker for the remainder of the year.
On Monday, the U.S. Treasury said it expects to borrow $776 billion in the fourth quarter of the year, less than $852 billion it has previously indicated and below Wall St forecasts.
Officials said the reduced tally was down to an increased revenue estimate and that was mainly because tax payments from California and other states that had been previously deferred due to natural disasters were now flowing to Treasury coffers.
Given that the announcement in July of third-quarter borrowing of more than trillion dollars was largely responsible for the bond market selloff since, the more benign forecast for the final three months dragged 10-year benchmark yields back further from bruising 16-year peaks above 5%.
With hopes the resurfaced risk premium for holding long-term debt may ease as a result, 10-year yields were as low as 4.82% on Tuesday – some 20 basis points off recent highs.
Even though the Bank of Japan further loosened its grip on long-term interest rates on Tuesday by re-defining 1.0% as a loose “upper bound” rather than a rigid cap, markets took some solace it wasn’t more draconian. Even though 10-year Japanese government yields jumped as much as 7bps to 0.96%, the yen weakened again sharply past 150 per dollar and the Nikkei 225 index of leading stocks rose (.N225).
And there were further soothing noises for world bonds, even if not for global growth, from surprisingly weak Chinese business surveys for October. Chinese stocks (.CSI300) underperformed and closed lower yet again.
Adding to the mix on Monday was a retreat in crude oil prices to their lowest since the October 7 attacks on Israel, as Israel’s land invasion into Gaza advanced slowly and pressure to up stuttering humanitarian aid to the besieged citizens there increased.
Crude prices steadied around $83 per barrel on Tuesday, with market speculation about a rise in U.S. shale oil output circulating following recent major acquisitions by Big Oil firms.
In Europe, falling energy stocks (.SXEP) bucked a more positive wider market due to a 4.2% fall in BP (BP.L) after third-quarter earnings missed analysts’ forecasts.
Overall, the picture pointed to another positive day for Wall Street stocks, with futures marginally positive ahead of the open as the Fed meeting gets underway. The S&P500 (.SPX) rebounded after an awful month on Monday to clock its best day’s gain since August – but it remains on course to record its third straight month of losses since 2020.
The U.S. central bank is expected to leave policy rates unchanged again on Wednesday as it assess the final-quarter trajectory of inflation and the economy after a bumper Q3.
With the October jobs report due Friday, the latest consumer confidence reading for this month tops the economic diary on Tuesday in the meantime. The likes of pharma giant Pfizer and construction bellwether Caterpillar are on a heavy earnings slate.
In other positive news, General Motors (GM.N) and the United Auto Workers struck a tentative deal late on Monday, ending the union’s unprecedented six-week campaign of coordinated strikes that won record pay increases for workers at the Detroit Three automakers.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* U.S. Oct consumer confidence, Oct Chicago business survey, Oct Dallas Fed service sector survey, Q3 employment costs, Aug house prices
* Federal Reserve starts 2-day policy meeting
* U.S. corporate earnings: Pfizer, Caterpillar, AMD, Amcor, Amgen, Marathon, MSCI, Caesars, Global Payments, Sysco, Eaton, Franklin Resources, Allegion, Assurant, AMETEK, Equity Residential, GE Healthcare, First Solar, Incyte, Paycom, Match, Bio-Techne, WEC Energy, Hubbell, Echolab, Zebra, ONEOK, Xylem
* U.S. Treasury auctions 12-month bills
By Mike Dolan, editing by Christina Fincher, <a href=”mailto:mike.dolan@thomsonreuters.com” target=”_blank”>mike.dolan@thomsonreuters.com</a>. Twitter: @reutersMikeD
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
BENGALURU, Oct 23 (Reuters) – The Bank of Canada is probably done raising interest rates and will hold them at 5.00% for at least six months, according to a Reuters poll of economists that found a majority expecting a reduction in the second quarter of 2024 as the economy slows.
Up until recent days, the prospect of another quarter-point rate rise on Oct. 25 remained a serious risk, but a report this week showing inflation fell more than expected in September has mostly solidified views that no more is needed for now.
The economy is showing signs of strain from 475 basis points of rate hikes since early 2022, likely giving policymakers enough reason to wait and see how much more past rate decisions will crimp demand and an already cooling housing market.
In the meantime Canada’s job market remains tight, with explosive payrolls growth in September, which has left BoC Governor Tiff Macklem confident that while the economy is slowing, it is not headed for a serious recession.
The risk of a revival in inflation, last measured at 3.8%, has led most to forecast now is not the time for the central bank to strongly signal they are done raising rates.
Twenty-nine of 32 economists polled Oct. 13-20 expect no change to the central bank’s 5.00% overnight rate (CABOCR=ECI), with the remaining three expecting a 25 basis point hike.
“The Bank of Canada’s rate decision next week is going to be a hawkish hold,” said Randall Bartlett, senior director of Canadian economics at Desjardins.
“It will recognize the economy has cooled more quickly than it anticipated back in July and inflation in September, particularly core inflation, demonstrated a pace of slowing that provides us with some room for cautious optimism.”
While most are confident the central bank is done hiking, a significant minority of economists who answered an additional question, 8 of 18, said the risk of the BoC raising rates at least once more is “high”.
With inflation still running at nearly double the BoC’s 2.0% target and not expected to fall that low until at least 2025, the central bank does not yet have leeway for policy easing.
Still, a two-thirds majority, 20 of 30, see the BoC cutting its overnight rate at least once before end-June 2024. That is a slightly higher proportion than in a poll published this week on rate expectations for the U.S. Federal Reserve, which is overseeing a stronger economy.
The distribution of where economists saw the overnight rate by end-June was split many ways. Seven economists held the median view of 4.75%, 12 see it at 4.50% or lower and 11 expect it to be at 5.00% or 5.25%.
The most recent BoC business outlook survey showed the weakest conditions since the COVID-19 pandemic, underscoring worries the economy could be headed for trouble in coming months.
Housing market activity has dropped off and house prices are also falling as higher mortgage rates put pressure on households among the most indebted in the world.
While most in the latest poll do not expect a major downturn, one-third of economists surveyed had an official recession in their forecasts, defined as two consecutive quarters of contracting economic output.
“In our view, monetary policy tightening is only now fully working its way through the economy,” said Tony Stillo, director of Canada economics at Oxford Economics.
“Unlike the Bank that predicts a soft landing, we expect Canada has slipped into a recession that will help return inflation back to target by late next year. However, the Bank may choose to err on the side of over-tightening rather than under-tightening.”
(For other stories from the Reuters global economic poll:)
Reporting by Milounee Purohit, Polling by Maneesh Kumar; Editing by Ross Finley and Jonathan Oatis
Our Standards: The Thomson Reuters Trust Principles.
An employee works on the production line at Jingjin filter press factory in Dezhou, Shandong province, China August 25, 2022. REUTERS/Siyi Liu/File Photo Acquire Licensing Rights
BEIJING, Sept 30 (Reuters) – China’s factory activity expanded for the first time in six months in September, an official survey showed on Saturday, adding to a run of indicators suggesting the world’s second-largest economy has begun to bottom out.
The purchasing managers’ index (PMI), based on a survey of major manufacturers, rose to 50.2 in September from 49.7, according to the National Bureau of Statistics, edging above the 50-point level demarcating contraction in activity from expansion. The reading beat a forecast of 50.0.
The PMI, the first official statistics for September, adds to signs of stabilisation in the economy, which had sagged after an initial burst of momentum early in the year when China’s ultra-restrictive COVID-19 policies were lifted.
Preliminary signs of improvement had emerged in August, with factory output and retail sales growth accelerating while declines of exports and imports narrowed and deflationary pressures eased. Profits at industrial firms posted a surprise 17.2% jump in August, reversing July’s 6.7% decline.
“The manufacturing PMI, plus the good industrial profit figures, suggest that the economy is gradually bottoming out,” said Zhou Hao, chief economist at Guotai Junan International.
China’s non-manufacturing PMI, which incorporates sub-indexes for service sector activity and construction, also rose, coming in at 51.7 versus August’s 51.0.
The composite PMI, including manufacturing and non-manufacturing activity, climbed to 52.0 in September from 51.3.
Near-term data on the radar of economists include consumer spending for the longest public holiday this year. “Golden Week” kicked off on Friday with the Mid-Autumn Festival, which will be followed by the National Day break through Oct. 6.
Passenger travel by rail on Friday reached 20 million trips, a single-day record, state media reported on Saturday, in a bullish start to what authorities had forecast to be “the most popular Golden Week in history”.
PROPERTY RISKS
More stable economic indicators will be welcomed by policymakers as they continue to grapple with a property sector debt crisis that has rattled global markets. The authorities have announced a series of measures to shore up the property market, including cutting mortgage rates, although the sector is far from being out of the woods.
New home prices fell the fastest in 10 months in August and property investment declined for an 18th straight month.
China Evergrande Group (3333.HK), the world’s most indebted property developer with more than $300 billion in liabilities, said on Thursday its founder was being investigated over suspected “illegal crimes”.
The Asian Development Bank last week trimmed its 2023 economic growth forecast for China to 4.9% from a July forecast of 5.0% due to the weakness in the property sector.
Analysts say more policy support will be needed to ensure China’s economy can hit the government’s growth target of about 5% this year.
“China’s economy stabilised partly driven by the loosening of property sector policies,” said Zhiwei Zhang, chief economist of Pinpoint Asset Management.
“The key issue going forward is whether fiscal policy will become more supportive. I think it will, but timing-wise the change of fiscal policy stance may happen next year instead of this year.”
Reporting by Ryan Woo, Tina Qiao and Joe Cash; Editing by Michael Perry and William Mallard
Our Standards: The Thomson Reuters Trust Principles.
A look at the day ahead in U.S. and global markets by Mike Dolan
A renewed surge in long-term Treasury yields is stifling world markets yet again as Federal Reserve officials hang tough on one more rate rise, some $134 billion of new government debt sales hit this week and a government shutdown looms.
The yield spike has supercharged the U.S. dollar worldwide – both a reflection and aggravator of mounting financial stress far and wide.
Despite wariness of Bank of Japan intervention, the dollar/yen exchange rate hit its highest for the year on Tuesday – as did the dollar’s DXY (.DXY) index and the dollar’s rate against the South Korea’s won . Sterling hit a 6-month low.
Treasury tremors continue to reverberate from last week’s upgraded Fed forecasts, its insistence on signalling one more rate rise in the current tightening cycle and an uncompromising ‘higher-for-longer’ mantra.
Short term Fed futures haven’t moved much. All the action is in longer-dated U.S. Treasuries, which may now be repricing the economy’s resilience over multiple years and more persistent inflation pressures.
Ten-year Treasury yields , which have added a whopping 25 basis points in just a week, hit another 16-year high at 4.5660% early on Tuesday. As Deutsche Bank notes, this is historically significant territory as the average of the 10-year yield going back to 1799 is around 4.50%.
Thirty-year bond yields , meantime, have jumped over 30bp in a week to a 12-year high of 4.6840%.
And as an indication of how the long-term sustainable interest rate structure as whole is being re-thought, the 10-year real, inflation-adjusted yield has also leaped 26bp to 2.20% – its highest since 2009.
Significantly, this is shifting the deeply-inverted 2-to-10 year yield gap – which has for more than a year indicated recession ahead but which now looks to be closing that negative spread to its smallest since May.
The latest wobble – which has seen exchange-traded funds in U.S. Treasuries deepen year-to-date losses to more than 6% and losses over three years to more than 20% – comes as another heavy supply of new paper goes up for auction this week.
The Treasury sells $48 billion in two-year notes on Tuesday, $49 billion in five-year paper on Wednesday and $37 billion in seven-year notes on Thursday.
A government shutdown from this weekend is still looming with no budget deal in Congress yet to avert it and Moody’s warning of sovereign credit rating implications.
The Fed seems in no mood to calm the horses.
Minneapolis Fed Bank President Neel Kashkari said on Monday the Fed probably needs to raise borrowing rates further.
“If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off,” Said Kashkari.
Even a typically more dovish Chicago Fed boss Austan Goolsbee sounded hawkish. “The risk of inflation staying higher than where we want it is the bigger risk,” he said, adding the Fed would now have to “play by ear” in conducting policy.
Private sector bankers are starting to brace for the worst, with JP Morgan chief Jamie Dimon reported overnight as warning: “I am not sure if the world is prepared for 7% (Fed rates).”
Even though the European Central Bank seems shier of even higher rates, the higher-for-longer message there too is clear. ECB chief Christine Lagarde said on Monday the central bank can meet its 2% inflation target if record high rates are maintained for “a sufficiently long duration.”
In a thin data diary on Monday, the Dallas Fed’s September manufacturing survey showed a deterioration of activity there this month. The Chicago Fed’s national business poll for August also fell.
And a retreat in energy prices would have soothed some inflation worries, with U.S. crude falling back to $88 per barrel for the first time in almost two weeks,
Nationwide consumer confidence tops the slate on Tuesday.
Despite a late rally in Wall St stocks on Monday, futures are back about 0.5% in the red – as were bourses in Asia and Europe as the end of the third quarter hoves into view on Friday.
China Evergrande (3333.HK) shares slid for a second day, dropping as much as 8% after a unit of the embattled property developer missed an onshore bond repayment.
There was no sign of a breakthrough in the widening U.S. autoworkers labor dispute, seen as inflationary by some due to potential supply outages.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* US Sept consumer confidence, US Aug new home sales, July house prices, Richmond Fed Sept business survey, Dallas Fed Sept service sector survey, Philadelphia Fed Sept services survey
* Federal Reserve Board Governor Michelle Bowman gives pre-recorded remarks to Washington conference
* U.S. Treasury auctions $48 billion of 2-year notes
* U.S. corporate earnings: Costco, Cintas
Reporting by Mike Dolan; Editing by Christina Fincher
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
House prices in Germany declined in the second quarter at the fastest pace since 2000, adding further evidence to the adverse impact of rising interest rates on the real estate market in the biggest euro area economy.
Prices of residential property decreased by an average 9.9 percent year-on-year, the statistical office Destatis said Friday. This was the biggest annual fall since the start of the time series in 2000.
In the same quarter last year, the house price index hit a record high. But they have been falling quarter-on-quarter since then, the statistical office observed.
In the second quarter, house prices fell 1.5 percent from the previous three months after a 2.9 percent slump in the first quarter. In the fourth quarter of 2022, prices had declined 5.1 percent.
Official data released earlier this month showed that apartment permits granted during January to July were 27.8 percent lower than in the same period last year.
Separate survey data suggest the crisis in the German residential construction sector has intensified in recent months.
The number of housing project cancellations hit a new high in August, mainly due to rising costs and higher interest rates the ifo Institute said last week.
“The uncertainty in the market is huge,” Head of Surveys at ifo Klaus Wohlrabe said.
In addition to the surge in construction costs and higher interest rates, which have made many projects that were still profitable in early 2022 no longer viable, the scaling back of subsidies due to tighter energy regulations is putting a strain on builders’ calculations, ifo said.
The ifo survey also showed that 44.2 percent of companies reported a lack of orders for housing in August, up from 40.3 percent in July. In the same month last year, the share was only 13.8 percent.
The latest purchasing managers’ survey by S&P Global had shown that Germany’s construction activity continued its downward trend in August amid a steep fall in residential building projects due to the impact of rising interest rates.
The PMI survey showed that housing activity contracted at the fastest rate in thirteen-and-a-half years.
Both the ifo and the PMI surveys showed that business expectations among house builders deteriorated as they expect further decline in business going forward.
The European Central Bank raised its key interest rates for a tenth policy session last week, but has signaled a pause ahead, despite policymakers assessing inflation to remain “too high, too long”, as Eurozone economy slows.
by Jyotsna V
For comments and feedback: contact editorial@rttnews.com
Paramilitary police officers stand guard in front of the headquarters of the People’s Bank of China, the central bank (PBOC), in Beijing, China September 30, 2022. REUTERS/Tingshu Wang/File Photo Acquire Licensing Rights
Sept 15 (Reuters) – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.
Asian markets are set to end the week strongly following risk-friendly moves in the U.S. and Europe on Thursday, although a deluge of top-tier economic data from China on Friday could sour the mood at a stroke.
The latest indicators from the region’s largest economy to be released include house prices, fixed asset investment, retail sales, industrial production and unemployment, all for August.
The annual pace of retail sales and industrial production growth is expected to pick up, but fixed asset investment growth is predicted to slow to a new low of 3.3% going back to the 1990s, if pandemic-related distortions in early 2020 are excluded.
The People’s Bank of China insists it will take “appropriate” steps to support the economy, although a growing number of economists are skeptical Beijing will meet its 5% GDP growth target this year and many are cutting their 2024 outlooks.
The PROC on Thursday announced its second 25-basis point cut to banks’ reserve requirement ratio this year. Unsurprisingly, the move stopped the yuan’s recent mini-revival in its tracks, and pressure on the currency on Friday will probably be to the downside again.
China’s deteriorating trade relations with the West, meanwhile, is a darkening cloud that shows no sign of lifting.
Beijing has hit back at a European Commission probe into China’s electric vehicle subsidies as protectionist, warning it would damage economic relations, and analysts have warned that if the probe results in punitive tariffs, Beijing will take retaliatory action.
However, all that could be parked for another day if investors decide to run with Thursday’s bullish momentum.
It was a case of ‘good news is good news’ for Wall Street as investors welcomed hot U.S. retail sales and accelerating producer prices as a sign of economic resilience rather than fret about the hawkish rate implications.
Coupled with falling euro zone bond yields and implied rates after the European Central Bank’s ‘dovish hike’ – perhaps the central bank’s last in the cycle – risk assets got a shot in the arm, paving the way for a positive open in Asia on Friday.
The big three U.S. indexes rose between 0.8% and 1.0%, European stocks had their best day in six months and the MSCI Asia ex-Japan Index had its best day in 10 days on Thursday. The rise in oil to new 2023 highs and another dollar surge failed to dampen investors’ mood.
Another positive portent for Asian markets on Friday: the VIX gauge of implied S&P 500 equity volatility – Wall Street’s so-called ‘fear index’ – registered its lowest close on Thursday since before the pandemic.
Here are key developments that could provide more direction to markets on Friday:
– China ‘data dump’ (August)
– Indonesia trade (August)
– New Zealand manufacturing PMI (August)
By Jamie McGeever; Editing by Josie Kao
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
A sign is seen outside the 11 Wall St. entrance of the New York Stock Exchange (NYSE) in New York, U.S., March 1, 2021. REUTERS/Brendan McDermid Acquire Licensing Rights
A look at the day ahead in U.S. and global markets from Mike Dolan
World markets stayed remarkably buoyant even as the chances of one more U.S. interest rate hike have moved firmly onto the radar, with China’s bourses extending Monday’s rally and the state of U.S. employment now top of mind.
For the first time since before the regional banking crisis in March, U.S. futures now see more than a 50% chance of yet another Federal Reserve rate rise to 5.5-5.75% – where the median of Fed policymaker forecasts from their June meeting still lies. Early Tuesday, futures priced almost a two-thirds chance of that additional quarter-point move in November.
After almost two months of stability in assuming peak rates would be where they are now, the chances of another tightening have been creeping higher again over the past 10 days and appear to be cementing following Fed Chair Jerome Powell’s relatively hawkish speech at Jackson Hole on Friday.
And yet – perhaps with the uncertainty dissipating, the economy still robust and bond markets better priced – world markets appear to be taking the tighter odds in their stride.
Wall St’s S&P500 (.SPX) clocked only its second-consecutive gain of the month so far on Monday, while MSCI’s all-country index (.MIWD00000PUS) is on course for its sixth gain in seven trading days.
More impressively in the circumstances, restive bond markets calmed down and bond yields continued to dial back from their highest in over a decade last week. Two-year Treasury yields fell back below 5%, with 10-year yields eyeing their lowest in almost two weeks at 4.17% and equity risk gauges such as the VIX (.VIX) of implied volatility touching two-week lows too.
The dollar (.DXY) was firm, but stayed off last week’s near three-month high.
With the Atlanta Fed’s real-time estimate of quarterly real GDP growth running as high as 5.9% – about 9% in nominal terms – the Fed will likely need to see some considerable softening of incoming economic data to prevent it moving again.
This week the onus falls largely on the labor markets, with the national payrolls report due Friday but with July readings on job openings due later on Tuesday – alongside August consumer confidence numbers and June house price data.
Friday’s August payrolls report is expected to show a slowdown in monthly hiring to about 150,000 but an unchanged unemployment rate of just 3.5%.
Overseas, China’s embattled stock markets managed to advance for a second day – lifted by a series of support measures and hopes of some detente in the economic and financial standoff between Washington and Beijing amid a three-day visit to China by U.S. Commerce Secretary Gina Raimondo.
Although it gave back the bulk of Monday’s 5% early surge by the close of business, China’s CSI300 (.CSI300) push 1% higher again on Tuesday after weekend measures to slash stamp duty on stock purchases and limit new stock listings. With tech and healthcare sectors leading the way, foreigners were net buyers again on Tuesday.
Just how cash-strapped embattled Country Garden Holdings (2007.HK) is will be the focus when China’s largest private property developer is due to report its first-half results on Wednesday.
Asia bourses more widely and European indices were higher, while Wall St futures were flat ahead of the open.
Tropical Storm Idalia closed in on Florida’s Gulf Coast on Tuesday after skirting past Cuba, headed for a U.S. landfall as a powerful Category 3 storm, prompting authorities to order evacuations of vulnerable shoreline areas.
Events to watch for on Tuesday:
* U.S. August consumer confidence, July JOLTS job openings data, June house prices, Dallas Fed Aug service sector survey
* Federal Reserve Vice Chair for Supervision Michael Barr speaks
* U.S. Treasury auctions 7-year notes
* U.S. corporate earnings: Best Buy, HP, JM Smucker, Catalent, Pinduoduo
By Mike Dolan, editing by Susan Fenton <a href=”mailto:mike.dolan@thomsonreuters.com” target=”_blank”>mike.dolan@thomsonreuters.com</a>. Twitter: @reutersMikeD
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
[1/3]A woman walks along Petticoat Lane street market, where discounted clothing is on sale, in London, Britain, August 23 2023. REUTERS/Peter Nicholls Acquire Licensing Rights
LONDON, Aug 23 (Reuters) – Britain’s economy is slowing and might be heading for a recession as it feels the impact of 14 back-to-back interest rate increases by the Bank of England to fight high inflation.
Despite being buffeted by Brexit, the COVID-19 pandemic and last year’s surge in energy prices, the British economy has defied forecasts of contraction so far this year.
But signs of a slowdown are mounting, highlighting the BoE’s dilemma as it continues to grapple with inflation.
A survey published on Wednesday showed activity among businesses shrank by the most since January 2021, when Britain was still in a coronavirus lockdown.
The housing market is weakening and the jobless rate is up.
But the BoE looks set to keep on raising rates with inflation still more than three times its 2% target. Core inflation in July held close to its highest in more than 30 years.
Most worrying for Governor Andrew Bailey and his colleagues, pay growth is at its fastest since at least 2001, raising the risk of persistently high inflation.
Below are key readings of Britain’s economy that the BoE will assess before its next scheduled announcement on interest rates on Sept. 21.
BUSINESSES FEEL THE STRAIN
Britain’s economy is on course to shrink during the current quarter and risks falling into a recession, the preliminary S&P Global/CIPS Purchasing Managers’ Index for August showed.
The composite reading – covering firms in services and manufacturing – of 47.9 raised the risks of a recession in the second half of 2023.
But S&P also said its survey suggested inflation would cool to 4% in the coming months, earlier than the BoE’s forecast.
HOUSING MARKET LOSES STEAM
House prices as measured by mortgage lenders Nationwide and Halifax have fallen by the most in annual terms in more than a decade, although they remain about 20% above levels before the pandemic, when demand for properties surged.
The BoE acknowledges that much of the impact on the housing market from its rate hikes has yet to be felt because most mortgages in Britain are short-term fixed-rate deals which are now renewing at higher rates.
Of nearly 7 million fixed-rate mortgages, which account for 80% of residential home loan deals, around 800,000 end in the second half of 2023 and a further 1.6 million deals end in 2024.
LABOUR MARKET
Employers struggled to fill jobs when the number of people available for work contracted after the pandemic and Britain’s exit from the European Union. Basic wages in the three months to June rose at the fastest pace on record.
But there are also signs that the labour market is losing some of its inflationary pressure with the unemployment rate unexpectedly rising in the last two monthly data sets and vacancies steadily dropping over more than a year.
CONSUMERS KEEP ON SPENDING
Retail sales volumes fell in July from June but it was only the second month-on-month drop so far in 2023 and much of the weakness was due to unusually heavy rain which kept shoppers at home. But many analysts expect the lagged impact of the BoE’s rate rises to hit spending soon, adding to the drag on the economy.
Consumer confidence, as measured by polling firm GfK, fell in July from a 17-month high in June. It remains below levels seen for much of the past 10 years.
INFLATION FALLS, BUT STILL TOO HIGH
Britain’s headline rate of consumer price inflation has fallen from over 11% last October to just under 7% in July but that is still the highest among the world’s major economies and more than three times the BoE’s 2% target. Core inflation, which gives a better signal of underlying inflation, has barely fallen from a three-decade high.
GDP HAS HELD UP, SO FAR
Britain’s economy has defied forecasts that it would fall into a recession in 2023 and has grown in four of the first six months of the year, helped by the still low unemployment and savings built up by households during the pandemic. Many economists think the delayed impact of higher interest rates and still elevated inflation will hit growth in the coming months.
A Reuters poll of analysts in July showed a minority expected a recession to start before the end of the year.
Britain is the only Group of Seven (G7) economy yet to recover its pre-pandemic size.
Graphics by Sumanta Sen; Editing by Devika Syamnath
Our Standards: The Thomson Reuters Trust Principles.
MUMBAI, June 1 (Reuters) – A surge in investments that offset sluggish consumption to boost India’s growth in 2022-23 is expected to power the economy in the current financial year as the government pushes ahead with massive capital expenditure plans, economists said.
This, in turn, could reflect across sectors like construction, which have a multiplier effect on the economy by creating employment, eventually generating consumption demand, they said.
“The investment demand is the only component that has held fort,” Soumya Kanti Ghosh, chief economist at State Bank of India, wrote in a note.
Gross fixed capital formation, which reflects investment, rose 8.9% in the January-March quarter and 11.4% for the full financial year, data released on Wednesday showed.
The central government’s capex push has been “unrelenting,” Sajjid Chinoy, JP Morgan’s chief India economist, said, noting that states that were sluggish in spending earlier in the year also pushed up expenditure by 24% in the January-March quarter.
The central government has budgeted 10 trillion rupees in capex for this fiscal year.
The turn comes after a decade when balance sheet stress in the economy kept investment in check. While government investment has picked up, a “modest crowding-in” of private investment is likely in 2023/24, economists at ICICI Securities said in note.
CONSTRUCTION, MANUFACTURING BUMP
The capex push over the last three years has driven growth in the construction sector closer to pre-pandemic levels, JP Morgan’s Chinoy said.
The sector grew 10.4% in the fourth quarter and at 10% over the full financial year.
The construction sector indirectly helps to absorb excess rural labour and create a multiplier effect on the overall economy in the medium term, said QuantEco Research economists Yuvika Singhal and Vivek Kumar.
Economists are more sceptical about the 4.5% growth spurt seen in gross value added (GVA) in the manufacturing sector.
“We believe higher manufacturing GVA likely reflects the benefit to profits from lower input costs,” said Nomura economists Sonal Varma and Aurodeep Nandi.
The surprising strength in growth is also partly being attributed by economists to a statistical quirk.
The government computes real GDP by adjusting nominal GDP growth with an inflation deflator closely tied to wholesale prices instead of retail prices.
At a time when wholesale inflation has turned negative, this could provide a statistical boost to manufacturing and overall GDP growth. “Therefore, the manufacturing and GDP data for the current quarter will need to be carefully interpreted,” said JP Morgan’s Chinoy.
Other indicators, however, reflect strength in demand as well.
The S&P Global India Manufacturing PMI rose to 58.7 in May – the strongest since October 2022.”Demand conditions demonstrated remarkable strength, with factory orders rising at the fastest pace since January 2021,” per a statement disclosing the PMI data.
CONSUMPTION WEAKNESS
In contrast, private consumption grew at a sluggish 2.8% in the fourth quarter. Sequentially, consumption grew just 0.5% in the January-March period after contracting 2% in the previous three months.
“Higher inflation may be a key reason behind the sluggish performance in private consumption,” said Nomura’s Varma and Nandi.
Reporting by Ira Dugal; Editing by Dhanya Ann Thoppil
Our Standards: The Thomson Reuters Trust Principles.