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Tag: Currency markets

  • Chicago PMI weakens further in October

    Chicago PMI weakens further in October

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    The Chicago Business Barometer, also known as the Chicago PMI, dropped to 45.2 in October from 45.7 in the prior month, according to data released Monday.

    Economists polled by the Wall Street Journal forecast a 47 reading. 

    Readings below 50 indicate contraction territory.

    The index is produced by the ISM-Chicago with MNI. It is released to subscribers three minutes before its release to the public at 9:45 am Eastern.

    The Chicago PMI is the last of the regional manufacturing indices before the national factory data for October is released on Tuesday.

    Economist polled by the Wall Street Journal expect the closely-watched Institute for Supply Management’s factory index to barely remain above the 50 breakeven level in October. 

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  • Another jumbo Fed rate hike is expected this week — and then life gets difficult for Powell

    Another jumbo Fed rate hike is expected this week — and then life gets difficult for Powell

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    First the easy part.

    Economists widely expect Federal Reserve monetary-policy makers to approve a fourth straight jumbo interest-rate rise at its meeting this week. A hike of three-quarters of a percentage point would bring the central bank’s benchmark rate to a level of 3.75%- 4%.

    “The November decision is a lock. Well, I would be floored if they didn’t go 75 basis points,” said Jonathan Pingle, chief U.S. economist at UBS.

    The Fed decision will come at 2 p.m. on Wednesday after two days of talks among members of the Federal Open Market Committee.

    What happens at Fed Chairman Jerome Powell’s press conference a half-hour later will be more fraught.

    The focus will be on whether Powell gives a signal to the market about plans for a smaller rise in its benchmark interest rate in December.

    The Fed’s “dot plot” projection of interest rates, released in September, already penciled in a slowdown to a half-point rate hike in December, followed by a quarter-point hike early in 2023.

    The market is expecting signals about a change in policy, and many think Powell will use his press conference to hint that a slower pace of interest-rate rises is indeed coming.

    A Wall Street Journal story last week reported that some Fed officials are not keen to keep hiking rates by 75 basis points per meeting. That, alongside San Francisco Fed President Mary Daly’s comment that the Fed needs to start talking about slowing down the pace of hikes, were taken as a sign of a slowdown to come by the stock and bond markets.

    “No one wants to be late for the pivot party, so the hint was enough,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

    Luke Tilley, chief economist at Wilmington Trust, said he thinks Powell will signal a smaller rate hike in December by focusing on some of the good wage-inflation news that was published earlier Friday.

    There was a clear slowdown in private-sector wage growth, Tilley said.

    See: U.S. third-quarter wage pressures cool a little from elevated levels

    But the problem with Powell signaling he has found an exit ramp from the jumbo rate hikes this year is that his committee members might not be ready to signal a downshift, Pingle of UBS said. He argued that the inflation data writ large in September won’t give Fed officials any confidence that a cooling in price pressures is in the offing.

    See: U.S. inflation still running hot, key PCE price gauge shows

    Another worry for Powell is that future data might not cooperate.

    There are two employment reports and two consumer-price-inflation reports before the next Fed policy meeting on Dec. 13–14.

    So Powell might have to reverse course.

    “If you pre-commit and the data slaps you in the head — then you can’t follow through,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

    This has been the Fed’s pattern all year, Stanley noted. It was only in March that the Fed thought its terminal rate, or the peak benchmark rate, wouldn’t rise above 3%.

    While the Fed may want to slow down the pace of rate hikes, it doesn’t want the market to take a downshift in the size of rate rises as a signal that a rate cut is in the offing. But some analysts believe that the first cut in fact will come soon after the Fed reduces the size of its rate rises.

    In general terms, the Fed wants financial conditions to stay restrictive in order to squeeze the life out of inflation.

    Pingle said he expects Kansas City Fed President Esther George to formally dissent in favor of a slower pace of rate hikes.

    There is growing disagreement among economists about the “peak” or “terminal rate” of this hiking cycle. The Fed has penciled in a terminal rate in the range of 4.5%–4.75%. Some economists think the terminal rate could be lower than that. Others think that rates will go above 5%.

    Those who think the Fed will stop short of 5% tend to talk about a recession, with the fast pace of Fed hikes “breaking something.” Those who see rates above 5% think that inflation will be much more persistent.

    Ultimately, Amherst Pierpont’s Stanley is of the view that the data aren’t going to be the deciding factor. “The answer to the question of what either forces or allows the Fed to stop is probably not going to come from the data. The answer is going to be that the Fed has a number in mind to pause,” he said.

    The Fed “is careening toward this moment of truth where it has very tight labor markets and very high inflation, and the Fed is going to come out and say, ‘OK, we’re ready to pause here.’ “

    “That strikes me that is going to be a very volatile period for the market,” he added.

    Fed fund futures markets are already volatile, with traders penciling in a terminal rate above 5% two weeks ago and now seeing a 4.85% terminal rate.

    Over the month of October, the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    4.046%
    rose steadily above 4.2% before softening to 4% in recent days.

    “When you get close to the end, every move really counts,” Stanley said.

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  • Another jumbo Fed rate hike is expected this week — and then life gets difficult for Powell

    Another jumbo Fed rate hike is expected this week — and then life gets difficult for Powell

    [ad_1]

    First the easy part.

    Economists widely expect Federal Reserve monetary-policy makers to approve a fourth straight jumbo interest-rate rise at its meeting this week. A hike of three-quarters of a percentage point would bring the central bank’s benchmark rate to a level of 3.75%- 4%.

    “The November decision is a lock. Well, I would be floored if they didn’t go 75 basis points,” said Jonathan Pingle, chief U.S. economist at UBS.

    The Fed decision will come at 2 p.m. on Wednesday after two days of talks among members of the Federal Open Market Committee.

    What happens at Fed Chairman Jerome Powell’s press conference a half-hour later will be more fraught.

    The focus will be on whether Powell gives a signal to the market about plans for a smaller rise in its benchmark interest rate in December.

    The Fed’s “dot plot” projection of interest rates, released in September, already penciled in a slowdown to a half-point rate hike in December, followed by a quarter-point hike early in 2023.

    The market is expecting signals about a change in policy, and many think Powell will use his press conference to hint that a slower pace of interest-rate rises is indeed coming.

    A Wall Street Journal story last week reported that some Fed officials are not keen to keep hiking rates by 75 basis points per meeting. That, alongside San Francisco Fed President Mary Daly’s comment that the Fed needs to start talking about slowing down the pace of hikes, were taken as a sign of a slowdown to come by the stock and bond markets.

    “No one wants to be late for the pivot party, so the hint was enough,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

    Luke Tilley, chief economist at Wilmington Trust, said he thinks Powell will signal a smaller rate hike in December by focusing on some of the good wage-inflation news that was published earlier Friday.

    There was a clear slowdown in private-sector wage growth, Tilley said.

    See: U.S. third-quarter wage pressures cool a little from elevated levels

    But the problem with Powell signaling he has found an exit ramp from the jumbo rate hikes this year is that his committee members might not be ready to signal a downshift, Pingle of UBS said. He argued that the inflation data writ large in September won’t give Fed officials any confidence that a cooling in price pressures is in the offing.

    See: U.S. inflation still running hot, key PCE price gauge shows

    Another worry for Powell is that future data might not cooperate.

    There are two employment reports and two consumer-price-inflation reports before the next Fed policy meeting on Dec. 13–14.

    So Powell might have to reverse course.

    “If you pre-commit and the data slaps you in the head — then you can’t follow through,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

    This has been the Fed’s pattern all year, Stanley noted. It was only in March that the Fed thought its terminal rate, or the peak benchmark rate, wouldn’t rise above 3%.

    While the Fed may want to slow down the pace of rate hikes, it doesn’t want the market to take a downshift in the size of rate rises as a signal that a rate cut is in the offing. But some analysts believe that the first cut in fact will come soon after the Fed reduces the size of its rate rises.

    In general terms, the Fed wants financial conditions to stay restrictive in order to squeeze the life out of inflation.

    Pingle said he expects Kansas City Fed President Esther George to formally dissent in favor of a slower pace of rate hikes.

    There is growing disagreement among economists about the “peak” or “terminal rate” of this hiking cycle. The Fed has penciled in a terminal rate in the range of 4.5%–4.75%. Some economists think the terminal rate could be lower than that. Others think that rates will go above 5%.

    Those who think the Fed will stop short of 5% tend to talk about a recession, with the fast pace of Fed hikes “breaking something.” Those who see rates above 5% think that inflation will be much more persistent.

    Ultimately, Amherst Pierpont’s Stanley is of the view that the data aren’t going to be the deciding factor. “The answer to the question of what either forces or allows the Fed to stop is probably not going to come from the data. The answer is going to be that the Fed has a number in mind to pause,” he said.

    The Fed “is careening toward this moment of truth where it has very tight labor markets and very high inflation, and the Fed is going to come out and say, ‘OK, we’re ready to pause here.’ “

    “That strikes me that is going to be a very volatile period for the market,” he added.

    Fed fund futures markets are already volatile, with traders penciling in a terminal rate above 5% two weeks ago and now seeing a 4.85% terminal rate.

    Over the month of October, the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    4.030%
    rose steadily above 4.2% before softening to 4% in recent days.

    “When you get close to the end, every move really counts,” Stanley said.

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  • Japan Cabinet OKs $200B spending plan to counter inflation

    Japan Cabinet OKs $200B spending plan to counter inflation

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    TOKYO — Japanese Prime Minister Fumio Kishida’s government approved Friday a hefty economic package that will include government funding of about 29 trillion yen ($200 billion) to soften the burden of costs from rising utility rates and food prices.

    Kishida was set to give a news conference in the evening.

    Inflation has been rising in Japan along with globally surging prices. A weakening of the yen against the dollar has amplified costs for imports.

    The stimulus package includes subsidies for households that are largely seen as an attempt by Kishida to lift his plunging popularity. His government has been rocked by the ruling Liberal Democratic Party’s close ties to the South Korean-based Unification church, which surfaced after the assassination of former leader Shinzo Abe in July.

    “We will make sure to deliver the measures to everyone and do our utmost so that people can feel supported in their daily lives,” Kishida said after preliminary approval of the package earlier in the day.

    Any market reaction to another flood of stimulus was likely already taken into account earlier in the week as share prices fell in Tokyo, with the benchmark Nikkei 225 losing 0.9% to 27,105.20.

    Japan has stuck to using fiscal measures, or government spending, to counter current economic challenges. While central banks around the world are raising interest rates aggressively to try to tame decades-high inflation, Japan’s inflation rate is a relatively moderate 3% and the greater fear is that the economy will stall, not overheat.

    The Bank of Japan, which has kept its benchmark rate at minus 0.1% since 2016, kept its longstanding lax monetary policy at a policy making meeting that wrapped up on Friday.

    In doing so, it runs the risk of seeing the yen weaken further since the Federal Reserve is still raising rates, which tends to push the dollar higher. That in turn will raise prices in Japan since it imports much of what it consumes.

    The overall size of the package, including private-sector funding and fiscal measures, is expected to amount to 71.6 trillion yen ($490 trillion), Kishida said.

    The plan includes about 45,000 yen ($300) subsidies for household electricity and gas bills and coupons worth 100,000 yen ($680) for women who are pregnant or rearing babies.

    The 29 trillion yen ($200 billion) spending package will be part of a supplementary budget that still must be approved by the parliament.

    Kishida vowed to compile and submit a budget plan and get it approved as soon as possible.

    His support ratings have sunk since July amid public criticisms over his Liberal Democratic Party’s longstanding cozy ties with the Unification Church, which is accused of brainwashing adherents into making huge donations, causing financial hardships and breaking up families.

    An LDP internal survey showed about half of its 400 lawmakers were tied to the church, though not as followers. Kishida’s economy minister, Daishiro Yamagiwa, was obliged to resign earlier this week because of his ties with the church and failure to explain them. He was replaced by former health minister Shigeyuki Goto.

    The hefty spending package will require issuing of more government bonds, further straining Japan’s worsening national debt that has piled up as the government spent heavily to counter the impact of the pandemic. Japan now has a long-term debt exceeding 1.2 quadrillion yen ($8.2 trillion), or more than 200% of the size of its economy.

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  • Global shares mixed after China economy slows, HK down 6.4%

    Global shares mixed after China economy slows, HK down 6.4%

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    TOKYO — Global shares were mixed, while Hong Kong’s benchmark plunged 6.4% on Monday as dismay over a lack of fresh policy initiatives from a Chinese Communist Party congress overshadowed a report that the No. 2 economy grew at a faster pace in the last quarter.

    The dollar rose to nearly 150 yen, a day after the Japanese central bank reportedly again moved to stem the yen’s decline.

    Britain’s FTSE 100 slipped 0.7% to 6,918.15 after former Prime Minister Boris Johnson announced he will not run to lead the Conservative Party. Former Treasury chief Rishi Sunak is now the favorite to replace Liz Truss, who quit last week after her tax-cutting economic package caused turmoil in financial markets.

    France’s CAC 40 rose nearly 0.6% in early trading to 6,068.71. Germany’s DAX added 0.6% to 12,807.23. The future for the Dow industrials was down 0.4% and that for the S&P 500 shed 0.5%.

    Beijing’s report that the Chinese economy gained momentum in the last quarter was better than expected and up from the previous quarter’s 0.4%, but that was among the slowest expansions in decades as the country wrestled with repeated closures of cities to fight virus outbreaks.

    There were no new market-boosting initiatives from the Communist Party congress, where Xi Jinping, the most powerful leader in decades, gained a free hand in setting policy. The ruling party named a seven-member Standing Committee made of Xi’s allies and dropped supporters of free enterprise like Premier Li Keqiang, the party’s No. 2 before the party’s once in five years congress.

    Xi wants a bigger Communist Party role in business and technology development. That has prompted warnings tighter control of entrepreneurs who generate jobs and wealth will depress growth that already was in long-term decline.

    The 6.4% plunge in Hong Kong’s Hang Seng index, to 15,180.69, took it to its lowest level since 2006.

    The Shanghai Composite index shed 2.0% to 2,977.56.

    Xi also gave no sign of plans to change the severe “zero-COVID” strategy that has crimped business and trade. He indicated no changes in policies straining relations with Washington and Asian neighbors.

    Japan’s benchmark Nikkei 225 added 0.3% to finish at 26,974.90. Australia’s S&P/ASX 200 gained 1.5% to 6,779.40. South Korea’s Kospi gained 1.0% to 2,236.16.

    Wall Street ended last week with a broad rally, with technology stocks, retailers and health care companies powering a big share of the gains.

    The S&P 500 rose 2.4%, notching a weekly gain of 4.7%, its biggest such gain since June. The Dow climbed 2.5% and the Nasdaq composite added 2.3%. The Russell 2000 index rose 2.2%.

    Investors have been focusing on corporate earnings as they search for clues about how inflation and rising interest rates are shaping global economies.

    The Federal Reserve is expected to raise interest rates another three-quarters of a percentage point at its meeting in November. That’s triple the size of the Fed’s usual move.

    In currency trading, the U.S. dollar rose to 149.28 Japanese yen from 147.65 yen. The Bank of Japan was reported to have intervened Friday to prop up the yen after the dollar rose above the 150 yen level. The dollar fell after the reported intervention but bounced back.

    The euro cost 98.25 cents, down from 98.62 cents.

    The dollar has gained in strength as the U.S. Federal Reserve has raised interest rates to fight inflation. Its growing strength against the yen and other currencies has added to inflationary pressures in those countries by pushing up the costs of imports and of debt repayments.

    In energy trading, benchmark U.S. crude fell $1.32 to $83.73 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, declined to $1.29 to $92.21 a barrel.

    ———

    Yuri Kageyama is on Twitter https://twitter.com/yurikageyama

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  • Japanese yen hits 150 against the U.S. dollar, weakest levels not seen since August 1990

    Japanese yen hits 150 against the U.S. dollar, weakest levels not seen since August 1990

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    The Japanese yen weakened past 150 against the U.S. dollar Thursday, hitting a key psychological level that hasn’t been seen since August 1990.

    The Bank of Japan’s two-day meeting is slated for next week. Policymakers have ruled out a rate hike in order to defend against further weakening of the currency.

    On Thursday, Japan’s 10-year government debt yields breached the 0.25% ceiling that the central bank vowed to defend – last standing at 0.252%. The yield on the 20-year bond also rose to its highest since September 2015.

    The Bank of Japan also announced emergency bond-buying operations Thursday. It offered to buy 100 billion yen ($666.98 million) worth of Japanese government bonds with maturities of 10-20 years and another tranche worth 100 billion yen with maturities of 5-10 years.

    The central bank has repeatedly vowed to buy an unlimited amount of bonds at a fixed rate in order to cap 10-year government debt yields at 0.25% as part of its stimulus measures for the economy.

    Stock picks and investing trends from CNBC Pro:

    On Thursday, Reuters reported Japanese Finance Minister Shunichi Suzuki said the government will take “appropriate steps against excess volatility.”

    “Recent rapid and one-sided yen declines are undesirable. We absolutely cannot tolerate excessively volatile moves driven by speculative trading,” he said.

    Levels ‘not destabilizing’

    When asked how concerning is USD/JPY reaching levels around 150, ANZ chief economist Richard Yetsenga said he’s “not that worried.”

    “I don’t think we’re into destabilizing currency territory yet,” he said on CNBC’s “Squawk Box Asia.”

    “There’s lots of emotive words around it, but what problems has it engendered?” he said.

    Shortly after the Bank of Japan’s latest decision to maintain low interest rates to support the country’s sluggish economy last month, officials confirmed they intervened to support the currency against further weakening.

    That intervention briefly pushed the yen to 142 against the dollar. The spread between the highest and lowest points intraday was also at its widest since 2016.

    In April 1990, the yen traded around 159.8 against the dollar and last breached 160 in December 1986.

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  • UK leader in peril after Treasury chief axes ‘Trussonomics’

    UK leader in peril after Treasury chief axes ‘Trussonomics’

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    LONDON — The U.K.’s new Treasury chief ripped up the government’s economic plan on Monday, dramatically reversing most of the tax cuts and spending plans that new Prime Minister Liz Truss announced less than a month ago. The move raises more questions about how long the beleaguered British leader can stay in office, though Truss insisted she has no plans to quit.

    Chancellor of the Exchequer Jeremy Hunt, said he was scrapping “almost all” of Truss’ tax cuts, along with her flagship energy policy and her promise — repeated just last week — that there will be no public spending cuts.

    While the reversal of policy calmed financial markets and helped restore the government’s economic credibility, it further undermined the prime minister’s rapidly crumbling authority and fueled calls for her to step down before her despairing Conservative Party forces her out.

    Truss declined to attend the House of Commons to answer a question on the economy from the leader of the opposition, sending House of Commons leader Penny Mordaunt in her place. Mordaunt denied a lawmaker’s suggestion that Truss was “cowering under her desk” to avoid scrutiny.

    “The prime minister is not under a desk,” Mordaunt said, words hardly likely to inspire confidence in the leader who only came to power last month.

    Truss’ spokesman said the prime minister and Hunt had jointly agreed on the economic changes. But Hunt told Conservative lawmakers that Truss “backed him to the hilt in making difficult decisions” — suggesting he has a free hand to make policy.

    With Truss sitting silently beside him, Hunt told lawmakers that he was canceling Truss’ plan to reduce the basic rate of income tax by 1 percentage point and most of her other libertarian economic policies. In a message aimed squarely at reassuring the financial markets, he said Britain was “a country that funds our promises and pays our debts.”

    “And when that is questioned, as it has been, this government will take the difficult decisions necessary to ensure there is trust and confidence in our national finances,” Hunt said.

    Hunt was appointed Friday after Truss fired his predecessor Kwasi Kwarteng, who spent less than six weeks in the Treasury job. Hunt is seeking to restore the Conservative government’s credibility for sound fiscal policy after Truss and Kwarteng rushed out a plan for tax cuts without detailing how they would pay for them.

    Truss and Kwarteng jointly came up with a Sept. 23 announcement of 45 billion pounds ($50 billion) in unfunded tax cuts that immediately spooked the financial markets. The cuts fueled investor concerns about unsustainable levels of government borrowing, which pushed up government borrowing costs, raised home mortgage costs and sent the pound plummeting to an all-time low against the dollar. The Bank of England was forced to intervene to protect pension funds, which were squeezed by volatility in the bond market.

    Over the weekend, Hunt has been dismantling that economic plan. The government had already ditched parts of its tax-cutting plan and announced it would make a medium-term fiscal statement on Oct. 31, weeks earlier than previously scheduled.

    On Monday, Hunt went further. He scaled back a cap on energy prices designed to help households pay their bills. It will now be reviewed in April rather than lasting two years — sweeping away one of Truss’ signature plans to help Britons facing a cost-of-living crisis as food, fuel and mortgage prices soar.

    Hunt told lawmakers that the measures he announced would save 32 billion pounds a year, but that spending cuts were also coming.

    “There remain, I’m afraid, many difficult decisions to be announced” in the fuller budget statement on Oct. 31, he said.

    Hunt also said he was setting up a new Economic Advisory Council of economists and investment bankers to help inform policy — a far cry from Truss’ bid to throw out economic “orthodoxy.”

    The pound rose more than 1% to above $1.13 in London after Hunt’s announcements. That pushed the U.K. currency back above where it was trading on Sept. 22, the day before Kwarteng announced the tax cuts.

    Yields on 10-year government bonds, an indicator of government borrowing costs, fell to 3.947% from 4.327% on Friday. It was 3.495% on Sept. 22. Bond yields tend to rise as the risk of a borrower defaulting increases.

    Paul Johnson, director of the Institute for Fiscal Studies think tank, said Monday’s announcements would not be enough “to undo the damage caused by the debacle of the last few weeks. But they are big, welcome, clear steps in the right direction.”

    The financial fiasco has turned Truss into a lame-duck prime minister. She took office just six weeks ago after winning a party election to replace Prime Minister Boris Johnson, who was forced out in July after ethics scandals ensnared his administration. Many Conservatives now believe their only hope is to replace Truss — but they are divided about who should take over.

    In a BBC interview, Truss conceded that she had made mistakes. But, she vowed, “I will lead the Conservatives into the next general election.”

    Few believe that possible. The Conservative Party still commands a large majority in Parliament, and — in theory — has two years until a national election must be held. Polls suggest holding an election now would be a wipeout for the Tories, with the Labour Party winning a big majority.

    Labour Party economics spokeswoman Rachel Reeves said Truss was “barely in office, and she is certainly not in power,” and claimed the Conservatives could not fix the problems they had caused.

    “The truth is an arsonist is still an arsonist, even if he runs back into the burning building with a bucket of water,” she said.

    Chris Beauchamp, chief market analyst at online trading firm IG, said the markets were reassured by the presence of Hunt, a former U.K. foreign secretary and health chief.

    “I think markets in some ways would rather things just stayed as they are for a while,” he said. “OK, the PM has found her authority quite truncated. But at least you’ve got the chancellor in place almost running the country.

    “I think they’re quite content with that slightly odd state of affairs, for the moment.”

    ———

    Jo Kearney contributed to this story.

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  • Asian shares mixed as markets eye China meeting

    Asian shares mixed as markets eye China meeting

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    TOKYO — Asian shares were mixed Monday as investors kept their eyes on the weeklong Communist Party congress in China.

    Benchmarks dropped in Tokyo, Sydney and Hong Kong, but they recovered in afternoon trading in Seoul and Shanghai. Mumbai gained. Oil prices and U.S. futures rose.

    The meeting in China, which opened Sunday, is expected to reappoint Xi Jinping as leader for the next five years, reaffirming his grip on power and stronger state control over the economy. Analyst expect no change to the “zero-COVID policy.”

    “Fresh updates from China’s Party Congress are being scrutinized, with the emphasis on technological advancement and national security seemingly brought up as high priorities for China’s longer-term direction. Further de-coupling f rom U.S. technology seems to be the story,” said Yeap Jun Rong, market strategist at IG in Singapore.

    Japan’s benchmark Nikkei 225 slipped 1.2% in afternoon trading to 26,775.79. Australia’s S&P/ASX 200 dipped 1.4% to 6,664.40. South Korea’s Kospi rebounded to gain 0.3% to 2,219.71. Hong Kong’s Hang Seng lost 0.2% to 16,561.97, while the Shanghai Composite rose 0.5% to 3,086.38. In Mumbai, the Sensex gained 0.5%.

    Clifford Bennett, Chief Economist at ACY Securities, noted the U.S. dollar will likely continue to rise as interest rates are pushed higher to counter inflation.

    “The outlook is grim. The economic horizon is dark,” he said of the American economy. “”The U.S. dollar will continue to strengthen for the moment, particularly against other Western currencies.”

    In currency trading, the euro cost 97.37 cents, up from 97.21 cents.

    The U.S. dollar rose to 148.74 Japanese yen from 148.63 yen. That’s a nearly 32-year low for the yen against the dollar.

    Japan’s industrial production for August showed moderate signs of improvement, the government said. Industrial production rose 3.4% from the previous month, and 5.8% from the previous year, according to Ministry of Economy, Trade and Industry data released Monday.

    Worries about inflation, though cooling in some parts of the economy around the world, remain overall. On Wall Street, stocks ended last week with a broad slide, wiping out earlier gains.

    A report showing U.S. consumers’ expectations for inflation was another signal the Federal Reserve may keep aggressively raising interest rates, although that strategy raises the risks of a recession.

    The S&P 500 fell 2.4% on Friday. The Dow Jones Industrial Average fell 1.3% and the Nasdaq composite ended 3.1% lower. Both indexes also turned lower after marching higher in early trading.

    The Russell 2000 gave up 2.7%

    The Fed has already raised its benchmark interest rate five times this year, with the last three increases by three-quarters of a percentage point. Wall Street expects another raise of three-quarters of a percentage point at its next meeting in November.

    Investors have also been focusing on the latest earnings reports.

    In energy trading, benchmark U.S. crude added 66 cents to $86.27 a barrel in electronic trading on the New York Mercantile Exchange. U.S. crude oil prices fell 3.9% on Friday. Brent crude, the international standard, added 78 cents to $92.41 a barrel.

    ———

    Yuri Kageyama is on Twitter https://twitter.com/yurikageyama

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  • Closing prices for crude oil, gold and other commodities

    Closing prices for crude oil, gold and other commodities

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    Benchmark U.S. crude oil for November delivery fell $3.50 to $85.61 a barrel Friday. Brent crude for December delivery fell $2.94 to $91.63 a barrel.

    Wholesale gasoline for November delivery fell 7 cents to $2.63 a gallon. November heating oil fell 11 cents to $3.98 a gallon. November natural gas fell 29 cents to $6.45 per 1,000 cubic feet.

    Gold for December delivery fell $28.10 to $1,648.90 an ounce. Silver for December delivery fell 85 cents to $18.07 an ounce and December copper fell 2 cents to $3.42 a pound.

    The dollar rose to 148.68 Japanese yen from 147.17 yen. The euro fell to 97.25 cents from 97.85 cents.

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  • UK Treasury chief out as prime minister plans U-turn

    UK Treasury chief out as prime minister plans U-turn

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    LONDON — Embattled British Prime Minister Liz Truss fired her Treasury chief ahead of a hastily arranged news conference on Friday as she struggled to calm markets and hang on to her job following the release of a controversial economic plan.

    Kwasi Kwarteng’s departure comes after just over a month in the job — and three weeks after he announced a tax-cutting “mini budget” that sent the pound plunging to record lows against the dollar.

    Kwarteng tweeted his departure letter to Truss, saying “You have asked me to stand aside as your Chancellor. I have accepted.”

    He defended the government’s economic plan, saying the country faces an “incredibly difficult” situation and “following the status quo was not an option.”

    Truss is due to hold a news conference later Friday. She is under intense pressure to scrap some of the 43 billion pounds ($48 billion) in unfunded tax cuts that roiled financial markets and led the Bank of England to step in to prevent a wider economic crisis.

    Senior members of the Conservative Party were publicly advising the government to take action. The pound rose as much as 1.7% against the dollar on Thursday and bond markets stabilized amid expectations that Truss would revise the economic growth plan.

    Truss, a free-market libertarian, came to power last month pledging to cut taxes to spur growth. But her ability to deliver on that commitment is now in doubt.

    Analysts suggest the most likely change in her program would be to abandon a promise to halt her predecessor’s plan to increase corporation tax from 19% to 25%. That would reduce the bill for her program by about 18 billion pounds a year.

    James Athey, the investment director at abrdn, said that it now seemed certain that the government “is about to U-turn on its decision not to U-turn on its profligate tax-cutting policies.″ The rumors are calming markets, he said.

    “The risk now is that investors have forgotten that there are significantly more problems than just an ill-advised and ill-timed fiscal easing to deal with,″ he said. “Inflation is at multi-decade highs, government borrowing is huge as is the current account deficit. The housing market is likely to suffer a hammer blow from the jump in mortgage rates and the war in Ukraine rumbles on. We may well be through the worst of the volatility but I fear that the U.K. is nowhere near out of the woods.”

    Conservative lawmakers are agonizing over whether to try to oust their second leader this year. Truss was elected last month to replace Boris Johnson, who was forced out in July. Some reports suggest senior Conservatives are plotting to replace Truss with a joint ticket of Rishi Sunak and Penny Mordaunt, her two closest rivals in the summer contest for leadership of the party, though it’s unclear how that could be achieved.

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  • British finance minister races back to London as pressure builds for another policy U-turn

    British finance minister races back to London as pressure builds for another policy U-turn

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    Kwarteng on Monday sought to assuage lingering concerns by bringing forward the date of his plan to balance the government’s finances to Oct. 31.

    Ian Forsyth | Getty Images News | Getty Images

    LONDON — U.K. Finance Minister Kwasi Kwarteng cut short his visit to the International Monetary Fund this week, dashing back to London amid reports Prime Minister Liz Truss is considering a U-turn on parts of her government’s market-rocking tax cuts.

    Kwarteng told reporters Thursday that he was returning from the U.S. ahead of schedule, without providing further details. Reuters reported, citing unnamed sources, that the finance minister planned to meet with colleagues to work on the government’s medium-term budget plan.

    Earlier, Kwarteng insisted that he is “not going anywhere” and that he and Truss would “100%” still be in their jobs next month.

    Kwarteng’s abrupt departure from a series of international finance meetings in Washington, D.C. comes amid a growing political backlash against the Conservative government’s proposed tax cuts.

    The debt-funded measures, announced on Sept. 23 and estimated to total £43 billion ($48.7 billion), sent financial markets into a tailspin. The British pound plummeted to an all-time low against the U.S. dollar, borrowing costs rose sharply and the Bank of England was forced to intervene.

    Sky News reported Thursday that discussions were underway in Downing Street over whether to reconsider some of the tax cuts that Kwarteng announced in the government’s so-called “mini-budget.” It is thought changes to corporation tax and dividend tax could be in the cards.

    Sterling popped on the news.

    The British pound rose by 2% to trade at $1.1319 on Thursday, shrugging off stronger-than-expected U.S. inflation data. Sterling was last seen trading down 0.3% at $1.129.

    Meanwhile, long-dated U.K. government bonds — known as gilts — rallied on Friday morning, with 30-year yields trading at 4.38%.

    Truss is under immense pressure to rethink her economic policies as opinion polls show support for her government has collapsed.

    Jacob King | Pa Images | Getty Images

    Truss and Kwarteng have repeatedly defended the government’s radical spending plan, insisting the proposals are necessary to stimulate economic growth.

    Last week, Kwarteng reversed a plan to scrap the top 45% rate of income tax paid on earnings above £150,000 ($167,646) a year.

    Speaking from the U.S. on Thursday, Kwarteng responded to questions about a possible U-turn by saying he is “totally focused on delivering the growth plan.”

    However, Truss is under immense pressure to rethink the policies as opinion polls show support for her government has collapsed and investors continue to fret about the potential impact on public finances.

    Truss’s official spokesperson told CNBC on Thursday that the government’s position had not changed when asked about reports of a possible U-turn.

    ‘Let’s wait and see’

    Asked by Sky News Friday morning if reversals on some aspects of the government’s mini-budget were possible, U.K. International Trade Minister Greg Hands replied: “Let’s wait and see. You won’t have long to wait for the 31st of October for the chancellor to lay out those plans.”

    Hands said both Truss and Kwarteng were “absolutely resolute” on their plans to grow the economy.  

    “The growth plan [is] the centerpiece, but we’ll have to see some of the detail including a full forecast from the Office for Budget Responsibility on the 31st of October.”

    Downing Street and the Bank of England have taken steps to try to reassure financial markets throughout the week, albeit with limited success.

    Kwarteng on Monday sought to assuage lingering concerns by bringing forward the date of his plan to balance the government’s finances to Oct. 31. The decision was welcomed by the International Monetary Fund. Kwarteng had initially said the government would not offer more details on its fiscal plan until Nov. 23.

    The Bank of England on Tuesday announced an extension of its emergency bond-buying operation as the pound fell and borrowing costs soared. It warned that “the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.”

    The Bank of England on Tuesday warned that “the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.”

    Bloomberg | Bloomberg | Getty Images

    The intervention marked the second expansion of the Bank’s rescue package in as many days after it increased the limit for its daily gilt purchases on Monday ahead of the planned end of the purchase scheme on Friday.

    By the middle of the week, Truss told lawmakers in the House of Commons that she would not be making cuts to public spending to help pay for the government’s tax cuts.

    — CNBC’s Elliot Smith contributed to this report.

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  • Strikes, possible blackouts and a plunging currency: Brits are being hit by a wave of bad news

    Strikes, possible blackouts and a plunging currency: Brits are being hit by a wave of bad news

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    Pensioners protest over rising fuel prices at a demonstration outside Downing street called by The National Pensioners Convention and Fuel Poverty Action on February 7, 2022 in London, England.

    Guy Smallman | Getty Images

    LONDON — “The brains of humans and other animals contain a mechanism designed to give priority to bad news,” former Nobel Prize-winning economist Daniel Kahneman once said.

    For Brits, this mechanism has been taking a beating in recent months.

    The Bank of England this week has added to its emergency rescue package for British pension funds, while the government brought forward its medium-term fiscal policy plan, having plunged the markets into chaos with its widely-criticized announcements last month.

    A number of pension funds were hours from collapse when the central bank intervened on Sep. 28, and policymakers continue to battle against market volatility with further expansions of the bond-buying scheme on Monday and Tuesday. 

    The spike in interest rate expectations following new Finance Minister Kwasi Kwarteng’s so-called “mini-budget” also caused mayhem in the mortgage market, leading banks to withdraw products and rates to surge for prospective homeowners.

    Meanwhile the British pound fell to an all-time low against the dollar in the aftermath of Kwarteng’s policy announcements, only regaining some ground when the government U-turned on some of its most radical policies, such as the abolition of the top rate of tax for the country’s highest earners.

    Kwarteng on Monday announced that his scheduled expansion on last month’s controversial fiscal plans — and an independent assessment of their impact from the Office for Budget Responsibility — would be brought forward by three weeks to Oct. 31, as the Treasury and the Bank of England look to temper market concerns and restore credibility.

    The same day, the central bank is expected to begin selling gilts (U.K. sovereign bonds), part of its delayed quantitative tightening efforts as it unwinds pandemic-era monetary stimulus in the hope of tackling runaway inflation.

    Economists expect further volatility in the bond market, and peril for pension funds, in the coming weeks ahead of the full budget statement, while the Bank of England continues to walk a tightrope between ensuring fiscal stability and reining in inflation.

    ‘The recession has begun’

    The U.K. is the only G-7 economy not to have re-attained its pre-pandemic GDP level by the second quarter of 2022, Citibank Chief U.K. Economist Benjamin Nabarro pointed out in an Institute for Fiscal Studies event on Tuesday.

    The U.K. economy shrank by 0.3% in August, the Office for National Statistics estimated Wednesday, potentially beginning what economists expect will be a lengthy recession through the winter.

    The ONS said GDP was only just returning to its pre-pandemic level, highlighting the challenge facing Prime Minister Liz Truss’ “growth, growth, growth” agenda. The prime minister has committed to a radical overhaul of the country’s economic policy, vowing to address anemic growth over the past decade or more, despite her party having been in power since 2010.

    UK government's U-turn on tax cut won't placate markets, says analyst

    The government’s growth plan must also overcome the impact of Brexit, which most economists project will reduce real per capita GDP. The government’s independent Office for Budget Responsibility (OBR) calculated that Brexit would reduce the U.K.’s potential productivity by 4% over the long term, while the OECD projects that the U.K. will have the lowest growth in the G-20 in 2023, apart from heavily sanctioned Russia.

    “Real GDP is likely to retreat again in September in line with double-digit inflation eroding household purchasing power and the resulting output loss from additional bank holiday to coincide with Queen Elizabeth’s funeral on Monday 19 September,” said Raj Badiani, economics director at S&P Global Market Intelligence.

    Queen Elizabeth II, the world’s longest-reigning monarch, died on Sep. 8 after 70 years on the throne, ushering in 10 days of national morning and a public holiday on the day of her funeral.

    “We now believe the recession in the U.K. has begun in the third quarter of 2022 and will likely last for three quarters. Our near-term GDP outlook anticipates a recession spilling into 2023 because of a tight and prolonged squeeze on household budget fueling a consumer-led recession,” Badiani added.

    We'll continue to see a hawkish Bank of England, chief economist says

    S&P also expects the economy to contract over the full year of 2023, despite substantial fiscal stimulus such as the government’s energy price guarantee and income tax cuts, due to rising household borrowing costs, softer demand in critical export markets and persistent volatility in financial markets.

    The latest labor market statistics showed U.K. unemployment falling to 3.5%, its lowest rate since 1974, fueled by a rise in the inactivity rate, which now stands at 21.7%.

    From June to August, annual growth in average total pay (including bonuses) for employees was 6% while growth in regular pay (excluding bonuses) was 5.4%, representing a real terms decline of 2.4% and 2.9%, respectively.

    U.K. inflation slipped slightly to 9.9% in August, with soaring food and energy prices having driven annual consumer price inflation to a 40-year high of 10.1% the previous month, but economists expect it to rise through the remainder of the year.

    A worst-case scenario laid out by national electricity system operator the National Grid warned that households and businesses may face three-hour power outages over winter to prevent a collapse of the grid. However, senior cabinet minister Nadhim Zahawi told the BBC this week that this scenario is “extremely unlikely.” 

    Jamie Dimon says UK government deserves benefit of the doubt after sparking market turmoil

    Prime Minister Liz Truss is also coming under pressure from lawmakers in her own party to guarantee an increase to welfare benefits in line with inflation, with reports suggesting she could opt for raising them in line with earnings instead, heaping further pain on the country’s lowest-income households.

    New research by British investment house Charles Stanley found that 22% of U.K. adults said they were having sleepless nights over market volatility, soaring inflation and the rising cost of living, while one in 10 said they had experienced panic attacks.

    “Even under ‘precedented’ circumstances, financial pressures can get the better of us, but we’re living in unprecedented times, and the term ‘financial stress’ has taken on a whole new meaning,” said Lisa Caplan, director of OneStep Financial Planning at Charles Stanley. 

    “The cost of living crisis is having a detrimental effect on individuals, not only financially, but physically and mentally too.”

    Widespread strikes

    Postal workers, rail workers, journalists and public barristers have all carried out strikes in recent months in protest over pay and conditions, as wages fail to keep up with inflation running at around 10%.

    Rail strikes carried out by members of the RMT union, in protest over pay and conditions have brought the country to a standstill on multiple days throughout the summer and into fall.

    Members of the CWU (Communication Workers Union) also continue to strike, including 115,000 postal employees of former state monopoly Royal Mail. CNBC reported Friday that CWU representatives had entered into talks with Royal Mail executives, but 19 days of further postal strikes are still set to go ahead in the runup to the festive period unless substantial progress is made in the coming days.

    Meanwhile, the Royal College of Nursing (RCN) is currently holding its first industrial action ballot in its 106-year history for 300,000 members, demanding a pay rise in line with inflation. The RCN cited new analysis from London Economics, which found that nurses’ real earnings have fallen at twice the rate of the private sector over the last decade.

    The reality is the UK is a low-growth economy: Fund manager

    The government imposed a minimum pay rise to most NHS staff of 4.5% in July, representing a real terms pay cut of more than £1,000 per year when adjusted for inflation.

    Waiting times for access to the country’s National Health Service are at an all-time high, with public hospitals beset by staff shortages and a lack of beds. 

    The GMB union is also holding ballots for ambulance staff in various regions of the country, with paramedics’ real pay down £1,500 per year. Junior doctors will ballot for industrial action in early January, after the government refused to meet the British Medical Association’s demand to restore pay increases to 2008/9 levels by the end of September. 

    Junior doctors were excluded from the 4.5% NHS uplift, with the government instead imposing an increase of just 2%, which the BMA said is “derisory” in the face of the ongoing cost of living crisis and in the aftermath of the Covid-19 pandemic.

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  • The yen may be weak, but Japan’s tourism isn’t expected to get a ‘bona fide’ rebound without Chinese visitors

    The yen may be weak, but Japan’s tourism isn’t expected to get a ‘bona fide’ rebound without Chinese visitors

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    After more than two years of strict Covid-19 border controls, Japan reinstated visa-free travel to 68 countries on Tuesday.

    Maki Nakamura | Digitalvision | Getty Images

    The Japanese yen’s slump against the U.S. dollar has sparked some worry in Japan, but that could encourage more travelers to visit the country again, according to analysts — though they say a significant rebound in the tourism sector won’t happen without the return of Chinese tourists.

    After more than two years of strict Covid border controls, Japan reinstated visa-free travel to 68 countries on Tuesday. 

    Package tours are no longer necessary, the Japan National Tourism Organization (JNTO) reported. 

    The daily entry limit of 50,000 people and the on-arrival PCR test at the airport have been scrapped. However, it is still mandatory for travelers from all countries and regions to submit a negative Covid test certificate or proof of vaccination, JNTO said.  

    With the easing of restrictions and the depreciating yen, tourism to the country will return quickly — especially from Asia, said Jesper Koll, director of financial services firm Monex Group told CNBC.

    Koll said that although travelers from Europe and the U.S. are important in aiding Japan’s tourism recovery, “the bulk of the enthusiasm and the bulk of travel” still come from countries like Singapore, the Philippines and Thailand. 

    “The cheapness of the yen obviously increases the probability of tourism contributing greatly to the economy,” Koll said. “As the restrictions get rolled back further, and the capacity of inbound flights open up, I expect that we will see inbound spending and inbound tourism accelerate very, very quickly.” 

    In 2019, Japan welcomed 32 million foreign visitors and they spent about 5 trillion yen, but inbound spending is now only one-tenth of that, according to a Goldman Sachs note from September. 

    The investment bank estimated that inbound spending could reach 6.6 trillion yen ($45.2 billion) after a year of full reopening, as travelers will be encouraged to spend more because of the weak yen.

    “Our ball-park estimation points to potentially larger inbound spending of ¥6.6 tn (annual) post full reopening versus the pre-pandemic level of ¥5 tn, partly helped by the weak yen,” the note said. 

    The Japanese currency plunged to a fresh 24-year low and was at 146.98 against the greenback during London’s trading hours on Wednesday.

    Japanese officials intervened in the forex market in September when the dollar-yen hit 145.9.

    “I don’t think the yen has been as cheap as it is now in living memory,” said Darren Tay, Japan economist at Capital Economics, said on CNBC’s “Squawk Box Asia” on Tuesday. “Tourists were already clamoring for borders to reopen … So I think the weak yen will serve as another motivating factor” for them to travel to Japan again. 

    Although flight ticket prices to Japan have increased since the announcement was made, tourists will still get a bang for their buck when they spend in Japan, Koll said.

    “You can eat twice as many hamburgers, twice as much sushi for your dollar here in Japan compared to the United States, and even compared to the rest of Asia,” he added. 

    Chinese tourists ‘hold the key’

    The outlook for Japan’s tourism recovery looks promising, but “the overall impact on Japan’s economy may not be a net positive” as Chinese tourists have yet to return, Tay said.

    “Chinese tourists actually make up a large amount of what foreign tourists spent back in 2019 … They’re still pursuing a zero-Covid strategy so they won’t be returning anytime soon,” he said. 

    Why China shows no sign of backing away from its 'zero-Covid' strategy

    Goldman Sachs said Chinese tourists, who made up 30% of foreign visitors to Japan in 2019, could return only in the second quarter of 2023. 

    Once China fully reopens, inbound spending from Chinese visitors has the potential to increase from 1.8 trillion yen in 2019 to 2.6 trillion yen — 0.5% of Japan’s gross domestic product, said Yuriko Tanaka, economist at Goldman Sachs. 

    “Chinese visitors hold the key to a bona fide rebound in inbound spending,” Tanaka said.

    It's 'pure speculation' that China's zero-Covid policy will be eased after party congress: Moody's

    Without visitors from China, it could take some time before inbound spending in Japan returns to pre-pandemic levels, Koll said. But strong demand from the rest of Asia could drive inbound spending to return “relatively quickly” to over $3 trillion by March 2023.

    Outlook for yen 

    As markets expect the U.S. Federal Reserve to hike interest rates by 75 basis points in November, the yen will continue to weaken as the dollar continues to strengthen, said Koll. 

    “You’ve got the widening interest rate differential [between Japan and the U.S.], and the Federal Reserve is not done yet. There is at least one more interest rate hike in the cards,” he said. 

    He added that yen could weaken further toward the 155 level, strengthening only next spring — and that wouldn’t be the result of action from Japan, but of the Fed signaling that it has “stepped enough on the brake.”

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  • Asian stocks moving lower in wake of latest volatile session on Wall Street

    Asian stocks moving lower in wake of latest volatile session on Wall Street

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    TOKYO (AP) — Asian shares were mostly lower on Wednesday following another volatile day on Wall Street, as traders braced for updates on inflation and corporate earnings.

    Benchmarks fell in Tokyo
    NIY00,
    +0.09%    ,
    Shanghai
    SHCOMP,
    -1.12%
    and Hong Kong
    HSI00,
    -2.90%
    but rose in Sydney.

    South Korea’s Kospi
    180721,
    +0.34%
    lost 0.1% to 2,189.86 after the Bank of Korea raised its key rate by 0.5 percentage point, amid the backdrop of Fed rate hikes in the U.S. and growing inflation risks from the weak won and rebounding global oil prices.

    In currency trading the Japanese yen declined to a 24-year low against the U.S. dollar
    JPYUSD,
    -0.24
    at 146 yen-levels, raising expectations of another intervention by Tokyo to prop up the yen. By midday the dollar
    USDJPY,
    +0.24%
    was at 146.17 yen, up from 145.80 late Tuesday. The euro
    EURUSD,
    +0.12%
    cost 96.96 cents, inching down from 97.07 yen.

    The weaker yen raises costs for both consumers and businesses who rely on imports of food, fuel and other needs, but the bigger purchasing power for foreign currencies is expected to boost tourism. Japan reopened fully to individual tourist travel this week after being closed for more than two years because of the pandemic.

    Japan’s benchmark Nikkei 225 lost 0.2% to 26,348.73 in morning trading. Australia’s S&P/ASX 200
    ASX10000,
    -1.54%
    gained nearly 0.2% to 6,656.00. Hong Kong’s Hang Seng slipped 2% to 16,491.39, while the Shanghai Composite shed 1.2% to 2,943.24.

    On Tuesday, the S&P 500
    SPX,
    -0.65%
    fell 0.7%, marking its fifth straight loss, closing at 3,588.84. The Nasdaq
    COMP,
    -1.10%
    dropped 1.1% to 10,426.19. The Dow Jones Industrial Average
    DJIA,
    +0.12%
    added 0.1% to 29,239.19, while the Russell 2000 index
    RUT,
    +0.06%
    rose 1 point, or about 0.1%, to 1,692.92.

    Recession fears have been weighing heavily on markets as stubbornly hot inflation burns businesses and consumers. Economic growth has been slowing as consumers temper spending and the Federal Reserve and other central banks raise interest rates.

    The International Monetary Fund on Tuesday cut its forecast for global economic growth in 2023 to 2.7%, down from the 2.9% it had estimated in July. The cut comes as Europe faces a particularly high risk of a recession with energy costs soaring amid Russia’s invasion of Ukraine.

    See: Global economy most vulnerable since COVID crisis, with housing market at potential ‘tipping point,’ IMF warns

    Wall Street is closely watching the Federal Reserve as it continues to aggressively raise its benchmark interest rate to make borrowing more expensive and slow economic growth. The goal is to cool inflation, but the strategy carries the risk of slowing the economy too much and pushing it into a recession.

    “The market desperately wants a reason for the Fed to be able to stop tightening and the data recently hasn’t given them that opening with respect to inflation,” said Willie Delwiche, investment strategist at All Star Charts.

    Computer-chip manufacturers continued slipping in the wake of the U.S. government’s decision to tighten export controls on semiconductors and chip manufacturing equipment to China. Qualcomm
    QCOM,
    -3.99%
    fell 4%.

    See: Intel reportedly plans to lay off thousands of workers, with details potentially emerging alongside quarterly earnings

    Uber
    UBER,
    -10.42%
    fell 10.4% and Lyft
    LYFT,
    -12.02%
    slumped 12% following a proposal by the U.S. government that could give contract workers at ride-hailing and other gig economy companies full status as employees.

    The Fed will release minutes from its last meeting on Wednesday, possibly giving Wall Street more insight into its views on inflation and next steps.

    Investors still expect the Fed to raise its overnight rate by three-quarters of a percentage point next month, the fourth such increase. That’s triple the usual amount, and would bring the rate up to a range of 3.75% to 4%. It started the year at virtually zero.

    Rex Nutting: Leading indicators show inflation is slowing, but Fed policy makers are too busy looking in rearview mirror to notice

    The government will also release its report on wholesale prices Wednesday, providing an update on how inflation is hitting businesses. The closely watched report on consumer prices will be released on Thursday, and a report on retail sales is due Friday.

    “Everyone is still hoping that every inflation report will be the one that shows that pressure is alleviating,” Delwiche said.

    Wall Street is also gearing up for the start of the latest corporate earnings reporting season, which could provide a clearer picture of inflation’s impact.

    Among the companies reporting quarterly results this week: PepsiCo
    PEP,
    +0.48%    ,
    Delta Air Lines
    DAL,
    -1.97%
    and Domino’s Pizza
    DPZ,
    -1.99%    .
    Banks including Citigroup
    C,
    -2.76%
    and JPMorgan Chase
    JPM,
    -2.89%
    will also report results.

    In energy trading, benchmark U.S. crude
    CL00,
    -0.75%
    lost 82 cents to $88.53 a barrel in electronic trading on the New York Mercantile Exchange. U.S. crude-oil prices fell 2% Tuesday. Brent crude
    BRN00,
    -0.56%    ,
    the international pricing standard, fell 62 cents to $93.67 a barrel.

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  • Asian stock markets fall ahead of US employment update

    Asian stock markets fall ahead of US employment update

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    BEIJING — Asian shares followed Wall Street lower Friday ahead of U.S. jobs data investors hope will persuade the Federal Reserve to ease off plans for more interest rate hikes.

    Tokyo and Hong Kong, the region’s biggest markets, retreated. Chinese markets were closed for a holiday. Oil prices were little-changed.

    Wall Street’s benchmark S&P 500 index fell 1% on Thursday after a private sector report said U.S. employers hired slightly more workers than forecast in September. That gives ammunition to Fed officials who say more rate hikes are needed to cool the economy and rein in inflation that is at a four-decade high.

    Investors were watching for Friday’s release of U.S. government data that are expected to show fewer people were hired compared with previous months. They hope that will help persuade the Fed five rate hikes this year are working and it can scale down plans for more.

    “What the market seems to be crying out for is a Fed pivot,” said Robert Carnell of ING in a report. “For its part, the Fed is sticking to its ‘higher for longer’ mantra.”

    The Nikkei 225 in Tokyo sank 0.6% to 27,149.75 and Hong Kong’s Hang Seng tumbled 1% to 17,823.29.

    The Kospi in Seoul gained 0.2% to 2,241.87 while Sydney’s S&P ASX 200 shed 0.6% to 6,777.00.

    New Zealand lost 0.2% while Singapore and Bangkok advanced.

    The Fed and central banks around the world are focused on extinguishing inflation that is running at multi-decade highs, but investors worry their unusually large and rapid pace of rate hikes might tip the global economy into recession.

    On Wall Street, the S&P 500 fell to 3,744.52. The index is up 4.4% for the week following its best two-day rally in 2 1/2 years.

    The Dow Jones Industrial Average lost 1.1% to 29,926.94. The Nasdaq composite slid 0.7% to 11,073.31.

    The yield on U.S. government debt, or the difference between market price and the payout at maturity, widened. That indicates traders expect more rate hikes.

    The yield on the 10-year Treasury, which helps set rates for mortgages, rose to 3.81% from 3.75% late Wednesday. The yield on the two-year Treasury rose to 4.22% from 4.14% late Monday.

    Strong U.S. hiring is positive for job hunters but a sign of enduring economic strength, which might make the Fed think more rate hikes are needed.

    U.S. government data showed the number of applications for unemployment benefits hit a four-month high last week. That suggests the job market might be cooling.

    Forecasters expect the government to report the economy added 250,000 jobs last month, well below the past year’s monthly average of 487,000 but still a strong number despite inflation and two straight quarters of U.S. economic contraction.

    In energy markets, benchmark U.S. crude rose 2 cents to $88.47 per barrel in electronic trading on the New York Mercantile Exchange. The contract advanced 69 cents on Thursday to $88.45. Brent crude, the price basis for trading international oils, shed 4 cents to $94.38 per barrel in London. It rose $1.05 the previous session to $94.42.

    The dollar declined to 144.92 yen from Thursday’s 145.07 yen. The euro gained to 98.11 cents from 97.94 cents.

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  • Hong Kong shares soar 6%, leading Asian market gains

    Hong Kong shares soar 6%, leading Asian market gains

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    TOKYO — Hong Kong’s share benchmark soared more than 6% on Wednesday as Asian shares tracked gains on Wall Street.

    New Zealand’s share benchmark rose 0.8% after its central bank hiked its benchmark interest rate to 3.5%, saying inflation remained too high and labor scarce. The half-point rate hike was the fifth in a row made by the Reserve Bank of New Zealand since February.

    Statistics New Zealand said inflation was running at 7.3% and unemployment at 3.3%. The rate hike came on the same day the government announced its finances were in better shape than forecast.

    The Hang Seng in Hong Kong rose 6.0% to 18,108.69, catching up with gains elsewhere as markets reopened following a holiday Tuesday. Markets in mainland China remained closed for a holiday.

    Japan’s benchmark Nikkei 225 added 0.5% to 27,138.99. Australia’s S&P/ASX 200 climbed 1.7% to 6,815.70. Shares in Australia got a boost after the Reserve Bank of Australia ordered a smaller-than-expected 25 basis points interest rate hike on Tuesday.

    South Korea’s Kospi gained 0.4% to 2,217.88.

    Analysts said the latest data on South Korea’s inflation may push the Bank of Korea to raise interest rates at its meeting set for next week, but such hikes were expected to slow in pace as inflation is brought under control.

    “We expect headline inflation to rise again in October. Gasoline prices will likely decline further, but city gas and power rates were raised at the beginning of October and fresh food prices will also probably rise ahead of winter,” said a report by Robert Carnell, regional head of research Asia-Pacific at ING.

    On Wall Street, the Dow Jones Industrial Average climbed more 2.8% to 30,316.32. The S&P 500 had its best day since May 2020 on Tuesday as the market clawed back more of the ground it lost over the past miserable several weeks. It surged 3.1% to 3,790.93.

    Twitter surged 22.2% after Elon Musk said he would go ahead with his $44 billion acquisition of the social media company, abandoning efforts to get out of the deal.

    The Nasdaq composite climbed 3.3% to 11,176.41. Small company stocks also made solid gains, lifting the Russell 2000 advanced 3.9% to 1,775.77.

    The two-day rally has hit markets as investors look for signs that central banks might ease up on aggressive rate hikes aimed at taming the hottest inflation in four decades. The rate hike by Australia’s central bank was smaller than previous ones.

    In the U.S., a government report on job openings showed the number of available jobs in the U.S. plummeted in August compared with July. It’s a sign that businesses may pull back further on hiring and potentially cool chronically high inflation, which could allow the Federal Reserve to slow the pace of rate increases.

    Investors are watching closely as central banks raise interest rates to make borrowing more difficult and slow economic growth to try to tame inflation. Investors are hoping that they will eventually ease off their aggressive rate hikes and the move by Australia’s central bank is a hopeful sign for some.

    Investors worry that the rate hikes, especially the increases from the Fed, could go too far in slowing growth and send economies into a recession. The Fed has already pushed its key overnight interest rate to a range of 3% to 3.25%, up from virtually zero as recently as March.

    Economic growth is already slowing globally and the U.S. economy contracted during the first two quarters of the year, which is considered an informal signal of a recession.

    Wall Street will get a more detailed look at the employment situation in the U.S. this week, with a report on hiring by private companies due out Wednesday, the latest tally of weekly applications for unemployment benefits on Thursday and the government’s monthly jobs report for September on Friday.

    In energy trading, benchmark U.S. crude fell 16 cents to $86.39 a barrel in electronic trading on the New York Mercantile Exchange. It surged $2.89 to 86.52 on Tuesday. Brent crude, the international standard for pricing, lost 8 cents to $91.72 a barrel.

    In currency trading, the U.S. dollar rose to 144.19 from 144.12 Japanese yen. The euro cost 99.69 cents, down from 99.87 cents.

    ———

    Damian J. Troise, Alex Veiga and Nick Perry contributed to this report.

    Yuri Kageyama is on Twitter https://twitter.com/yurikageyama

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  • History shows S&P 500’s bounce from 2022 low may not signal bear market’s end, cautions Bespoke

    History shows S&P 500’s bounce from 2022 low may not signal bear market’s end, cautions Bespoke

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    The U.S. stock market is heading higher again Tuesday, with the S&P 500 index continuing to climb above its 2022 low, but Bespoke Investment Group cautions that history shows its recent bounce may not signal the bear market’s end.

    Bespoke’s research on first-day gains from bear-market lows found that bear markets typically end with even bigger moves than the one seen Monday, when the S&P 500 jumped 2.6%. The average move higher is “actually above 4%!” the firm wrote in an Oct. 3 note. 


    BESPOKE INVESTMENT GROUP NOTE DATED OCT. 3, 2022

    U.S. stocks are trading up this week as Treasury yields fall and the soaring U.S. dollar loses some of its strength. The market moves come as investors look for any hints that the Federal Reserve might back off from its aggressive tightening of monetary policy.

    Read: A Bear Stearns moment awaits if actions like the Bank of England intervention don’t calm markets, BofA analysts say

    On Monday, “markets clearly benefitted from huge declines in yields, which benefitted from Richmond Fed President Barkin echoing Governor Brainard’s speech Friday with concerns about the impact of dollar strength,” Bespoke said in its note. The reversal of the U.S. dollar, along with lower yields and higher stocks, showed investors “clearly bought that concern as the latest source of potential Fed dovishness.”

    Bespoke was referring to comments by Fed Vice Chair Lael Brainard and Thomas Barkin, president of the Federal Reserve Bank of Richmond.

    While the U.S. dollar’s strength has eased this week, the ICE US Dollar index
    DXY,
    -1.20%
    is still up around 15% so far this year, according to FactSet data, at last check. The dollar has climbed as the Fed tightens monetary policy to combat high inflation. 

    “On balance, dollar appreciation tends to reduce import prices in the United States,” Brainard said in her speech Friday addressing global financial stability considerations. “But in some other jurisdictions, the corresponding currency depreciation may contribute to inflationary pressures and require additional tightening to offset.”

    The Fed is “attentive to financial vulnerabilities that could be exacerbated by the advent of additional adverse shocks,” Brainard said in her speech. “For instance, in countries where sovereign or corporate debt levels are high, higher interest rates could increase debt-servicing burdens and concerns about debt sustainability, which could be exacerbated by currency depreciation.”

    Read: U.S. dollar’s dominance tends to hurt these sectors of the stock market less, says RBC

    As for the decline in Treasury yields, the 10-year Treasury note dropped 15.2 basis points Monday to 3.650%, while two-year Treasury yield fell 10.3 basis points to 4.103%, according to Dow Jones Market Data. Treasury yields continued to dip on Tuesday, with the two-year
    TMUBMUSD02Y,
    4.104%
    at 4.08% and the 10-year
    TMUBMUSD10Y,
    3.621%
    falling to 3.60%, FactSet data show, at last check.  

    Read: Why 2-year Treasury yields are ‘the base problem’ for the struggling stock market, according to this Morgan Stanley portfolio manager 

    Meanwhile, the ICE US Dollar index, a measure of the dollar’s strength against a basket of rival currencies, was down more than 1% around midday Tuesday. 

    The U.S. stock market was moving sharply higher again on Tuesday, with the Dow Jones Industrial Average
    DJIA,
    +2.17%
    jumping 2.6%, the S&P 500
    SPX,
    +2.40%
    climbing 2.9% and the Nasdaq Composite
    COMP,
    +2.66%
    surging 3.3%, FactSet data show, at last check.

    But after this week’s bounce, the S&P 500 remains down more than 20% this year, based on trading around midday Tuesday.

    “It’s easy to read-in to very high two-way volatility across assets as signaling a Fed pivot is finally here, but we just haven’t seen any reason for that,” Bespoke said. “Until the Fed durably shifts away from their concern over inflation, headwinds for stocks and bonds alongside tailwinds for the dollar will continue.”

    Also read: Rising interest rates, economic slowdown and higher unemployment will drive U.S. households to sell more stocks in 2023: Goldman Sachs

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  • UK’s Truss vows to listen as she reels from policy U-turns

    UK’s Truss vows to listen as she reels from policy U-turns

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    BIRMINGHAM, England — British Prime Minister Liz Truss has insisted she is leading “a listening government” that learns from its mistakes, as she tries to restore her shaky authority and reassure financial markets spooked by her government’s see-sawing economic pledges.

    Truss told the BBC in an interview broadcast Tuesday that she and her ministers were determined to “reflect on how we could have done things better.”

    “Is everything the government (has) done absolutely perfect? No it’s not,” she said. “I fully acknowledge that. And we have learned from the feedback we’ve received.”

    That “feedback” has been dramatic: Truss’ four weeks in office have seen the pound plunge to record lows against the dollar, the Bank of England take emergency action and the opposition Labour Party surge to record highs against her Conservatives in opinion polls.

    Now Truss also faces a battle with her party over her economic plans, with some lawmakers warning they will oppose any attempt to slash welfare benefits to help pay for lower taxes.

    Truss is on a mission to reshape Britain’s economy through tax cuts and deregulation in a bid to end years of sluggish growth. But she is trying to ride out a series of U-turns over her first big policy: a stimulus package that includes 45 billion pounds ($50 billion) in tax cuts, to be paid for by government borrowing. Its announcement on Sept 23 sent the pound tumbling to a record low against the dollar and increased the cost of government borrowing.

    The Bank of England was forced to intervene to prop up the bond market and stop a wider economic crisis. Fears that the bank will soon hike interest rates caused mortgage lenders to withdraw their cheapest deals, causing turmoil for homebuyers.

    Under political and financial pressure, the government on Monday scrapped the most unpopular part of its budget package, a tax cut on earnings above 150,000 pounds ($167,000) a year.

    Treasury chief Kwasi Kwarteng has also promised to publish a fully costed fiscal plan, alongside an economic forecast from the independent Office for Budget Responsibility. Initially that was due to come Nov. 23, but mounting pressure means it’s likely to arrive weeks sooner.

    What Kwarteng on Monday called the “hullabaloo” over the government’s plans has cast a shadow over the Conservatives’ annual conference in the central England city of Birmingham, where many delegates express fears that the party, in power since 2010, is headed for defeat in the next election.

    The party has a commanding majority in Parliament but is fractious after three years of scandal under former Prime Minister Boris Johnson, followed by a divisive leadership contest between Truss and former Treasury chief Rishi Sunak. Sunak warned during his losing campaign that Truss’ plan to fund tax cuts through borrowing would undermine both the government’s economic credibility and the nation’s finances.

    Truss says her policies will bring economic growth, higher wages and eventually more tax revenue for the government to spend. But critics say the plans do little to help millions of people who are struggling right now with a cost-of-living crisis fueled by soaring energy prices.

    Truss said she was “very committed to supporting the most vulnerable,” pointing to a cap on energy prices that took effect Oct. 1.

    However, she refused to promise benefits and state pensions would increase in line with inflation, which has been the practice for years.

    “We are going to have to make decisions about how we bring down debt as a proportion of GDP in the medium term,” Truss said. “We have to be fiscally responsible.”

    Conservative lawmakers — including government ministers — warned Truss that they would oppose a real-terms cut in welfare benefits.

    “I have always supported, whether it’s pensions, whether it’s our welfare system, keeping pace with inflation. It makes sense to do so,” said Penny Mordaunt, the leader of the House of Commons.

    “That’s what I voted for before and so have a lot of my colleagues,” Mordaunt told Times Radio.

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  • World shares mostly lower as recession fears deepen

    World shares mostly lower as recession fears deepen

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    BANGKOK — Shares dropped in Europe and Asia on Monday while oil prices surged more than $3 a barrel amid dire warnings over energy shortages in Europe if Russia cuts off gas supplies.

    Germany’s DAX fell 1% to 11,998.26 while the CAC 40 in Paris shed 1.2% to 5,690.88. Britain’s FTSE 100 lost 0.8% to 3,305.79. On Wall Street, the future for the S&P 500 was up 0.2% while the contract for the Dow industrials gained 0.4%.

    In its quarterly gas report, the Paris-based International Energy Agency said people will have to save at least 13% over the winter if Russia cuts off the last trickle of gas that’s flowing to Europe.

    Europe faces “unprecedented risks” to its natural gas supplies this winter after Russia cut off most pipeline shipments and could wind up competing with Asia for already scarce and expensive liquid gas that comes by ship, the IEA said.

    Reports that major oil producers plan further production cuts were also exerting upward pressure on energy prices.

    U.S. benchmark crude oil gained $3.18 to $82.67 per barrel in electronic trading on the New York Mercantile Exchange. It lost $1.74 to $79.49 per barrel on Friday.

    Brent crude oil, the standard for pricing international oil, rose $3.29 to $88.43 per barrel.

    OPEC and allied oil-producing countries, including Russia, made a small trim in their supplies to the global economy a month ago, underlining their unhappiness as recession fears help drive down crude prices.

    In Asian trading, Japan’s Nikkei 225 index gained 1.1% to 26,215.79 after a Bank of Japan quarterly survey showed sentiment among manufacturers has darkened, reflecting rising costs, the weakening yen and lingering pandemic-related restrictions.

    The headline measure for the “tankan,” measuring sentiment among large manufacturers, was plus 8, down from plus 9 the previous quarter. The tankan measures corporate sentiment by subtracting the number of companies saying business conditions are negative from those responding they are positive.

    “Today’s Tankan survey suggests that while the services sector is benefitting from the subsiding virus wave, the outlook for the manufacturing sector continues to worsen,” said a report from Capital Economics. It noted it was the third consecutive decline in sentiment for the world’s third largest economy.

    The BOJ has kept interest rates below zero in a longstanding effort to encourage inflation and keep deflation at bay as the country ages and its population shrinks. That has kept the value of the yen weak relative to the U.S. dollar, which has been strengthening as the Federal Reserve raises rates to combat decades-high inflation.

    The dollar was trading at 145.15 yen early Monday, up from 144.68 yen late Friday. That raised speculation that the central bank might once again intervene to prevent the yen from weakening further. The euro was at 97.98 cents, up from 97.96 cents.

    The stunning and swift rise of the U.S. dollar against other currencies, meanwhile, raises the risk of creating so much stress that something cracks somewhere in global markets.

    Elsewhere in Asia, Hong Kong’s Hang Seng index fell 0.8% to 17,079.51. Australia’s S&P/ASX 200 slipped 0.3% to 6,456.90. Taiwan’s Taiex lost 0.9% and Bangkok’s SET declined 1.8%.

    Wall Street closed out a miserable September on Friday with the S&P 500′s worst monthly skid since the coronavirus pandemic crashed global markets. It’s now at its lowest level since November 2020 and is down by more than a quarter since the start of the year.

    The Fed has been at the forefront of the global campaign to slow economic growth and hurt job markets just enough to undercut inflation but not so much that it causes a recession. On Friday, the Fed’s preferred measure of inflation showed it was worse last month than economists expected. That should keep the Fed on track to keep hiking rates and hold them at high levels a while, raising the risk of it going too far and causing a downturn.

    The S&P 500 fell 1.5% on Friday while the Dow Jones Industrial Average dropped 1.7%. The Nasdaq composite slid 1.5% and the Russell 2000 lost 0.6%.

    Other worries hang over global markets, including Russia’s invasion of Ukraine. A U.K. government plan to cut taxes sent bond markets spinning recently on fears it could make inflation even worse. Bond markets calmed a bit only after the Bank of England pledged last week to buy however many U.K. government bonds are needed to bring yields back down.

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  • Business sentiments cool as cheap yen, costs weigh on Japan

    Business sentiments cool as cheap yen, costs weigh on Japan

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    TOKYO — Business sentiment among large manufacturers worsened for the third straight quarter, a Bank of Japan survey showed Monday, as the nation grappled with rising costs, the dropping value of the yen and restrictions on economic activity over the coronavirus pandemic.

    The headline measure for the “tankan,” measuring sentiment among large manufacturers, was plus 8, down from plus 9 the previous quarter.

    The tankan measures corporate sentiment by subtracting the number of companies saying business conditions are negative from those responding they are positive.

    Worries are growing about how the Bank of Japan hasn’t gone along with other central banks in tightening interest rates to curb growing inflation. Japan has been trying to fight deflation in recent years and has kept interest rates at near zero.

    The nose-diving yen is also a concern, although a cheap yen has in the past been lauded as helping the nation’s big exporters like Toyota Motor Corp., by raising the value of overseas earnings.

    The rising costs of imports, including energy as well as food, is hurting Japan, when the U.S. dollar is now trading at nearly 145 yen, when it used to be at 130-yen levels just a few months ago. A year ago, the dollar cost 111 yen.

    Sentiment among large nonmanufacturers improved to 14 from 13, according to the latest tankan.

    The world’s third-largest economy has struggled for decades to keep growth going. But the stagnation has worsened the last two years because of reduced travel and supply shortages caused by the pandemic.

    The war in Ukraine has added to the problems for a resource-poor nation that imports almost all its oil.

    The return of individual visa-free travel later this month is certain to work to boost incoming tourists.

    The pandemic had squelched overseas tourism, which had sustained economic activity in recent years.

    ———

    Yuri Kageyama is on Twitter https://twitter.com/yurikageyama

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