Asia shares, oil prices rally as China speculation swirls

Asia shares, oil prices rally as China speculation swirls
© Reuters. FILE PHOTO: A pedestrian stands to look at an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo, Japan, February 26, 2016. REUTERS/Yuya Shino/File Photo

By Wayne Cole

SYDNEY (Reuters) – Asian shares rallied on Tuesday as Beijing’s latest move to support developers boosted the property sector and rumours swirled that recent public unrest might prompt an earlier loosening in COVID-19 restrictions.

The speculation was stoked by reports Chinese health officials would hold a news conference later on Tuesday to discuss coronavirus control measures.

“News of the press conference at 3pm (0700 GMT) came out, and I think that has gotten the market excited over the possibility that we could see China continue to ease up,” said Khoon Goh, head of Asia research at ANZ.

“The yuan has rallied, and basically Chinese equities and everything else in Asia has responded positively to that.”

Shares of Chinese property companies certainly surged after the country’s securities regulator lifted a ban on equity refinancing for listed property firms.

That helped Chinese blue chips jump almost 3%, in the largest one-day rally in a month and a marked reversal of Monday’s steep falls.

MSCI’s broadest index of Asia-Pacific shares outside Japan followed with gains of 1.8%, while Hong Kong’s climbed 3.9%.

The sudden bout of optimism on China combined with talk of possible output cuts by OPEC+ to help oil prices rally. [O/R]

futures bounced $1.24 to $78.48 a barrel, having hit their lowest this year overnight, while climbed $1.64 to $88.83.

Not all markets seemed convinced the rally would last. slipped 0.5%.

EUROSTOXX 50 futures were flat and futures up 0.1%.

inched up 0.2% and Nasdaq futures 0.4%.

Underlining the far-reaching impact of Beijing’s policies, Apple Inc (NASDAQ:) shares had fallen 2.6% on reports COVID-19 restrictions would cause a sizable shortfall in production of iPhone Pro units.

“The zero China COVID policy has been an absolute gut punch to Apple’s supply chain,” said Daniel Ives, an analyst at Wedbush.

“We estimate that Apple now has significant iPhone shortages that could take off roughly at least 5% of units in the quarter and potentially up to 10% depending on the next few weeks in China around Foxconn production and protests.”

HIGHER FOR LONGER

Richmond Federal Reserve Bank President Thomas Barkin became the latest official to douse speculation the U.S. central bank would reverse course on interest rates relatively quickly next year.

That heightened tensions ahead of speech by Fed Chair Jerome Powell on Wednesday that is shaping up to be a major messaging event as markets yearn for a pivot on policy.

Analysts suspect they may be disappointed.

“We envision him basically confirming a slower pace of hikes at the December meeting, which is almost entirely priced in,” said Jan Nevruzi, an analyst at NatWest Markets. “But we also think he will reiterate that the Fed intends to stay in restrictive territory through next year.”

“The softening in the October CPI was welcome news, but hardly a complete victory yet, while growth and labour market data are still strong,” he added “It doesn’t feel like there is upside for Powell to dial back on the hawkishness.”

The Fed is not alone in being hawkish, with European Central Bank President Christine Lagarde warning that euro zone inflation has not peaked and could go even higher.

Figures for inflation in Germany and Spain are due later on Tuesday, ahead of the main euro zone report on Wednesday.

The competing comments on policy made for volatile currency trading, with the euro edging up to $1.0377, having hit a five-month peak of $1.0497 overnight before falling back.

The dollar dipped to 138.65 yen, after briefly touching a three-month trough of 137.50 overnight. The eased 0.3% to 106.29, but had been as low as 105.31 the previous session.

The dollar also shed 0.9% against the offshore yuan to 7.1830, erasing all the gains made on Monday.

was again choppy after major cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection along with eight affiliates.

In commodity markets, the gyrations in the dollar saw rise 0.5% to $1,751 an ounce. [GOL/]

Yuan gains on hopes of COVID policy easing; dollar slides

Yuan gains on hopes of COVID policy easing; dollar slides
© Reuters. U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Harish Sridharan

(Reuters) – The yuan jumped on Tuesday ahead of a COVID-19 press briefing in China later in the day that is spurring hopes of a potential easing in the country’s strict pandemic restrictions following an unprecedented episode of unrest.

The offshore yuan was nearly 0.9% stronger at 7.1832 per dollar after a statement from the country’s National Health Commission said its representatives and others from two agencies involved in disease control and prevention would speak at a COVID press briefing at 0700 GMT on Tuesday.

“People are getting quite excited about some sort of reopening,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

The U.S. dollar, which rallied in the previous session on mounting worries over China’s COVID situation, pared some of its overnight gains and moved broadly lower.

The , often used as a liquid proxy for the yuan, rose 0.77% to $0.6704. The similarly gained 0.71% to $0.6204.

Sterling edged 0.36% higher to $1.2001.

Rising tensions in China over the country’s stringent pandemic measures sent investors flocking to the safe-haven dollar in the previous session, which triggered a slide of more than 1% in the antipodean currencies and sterling overnight.

Police on Monday stopped and searched people at the sites of weekend protests in Shanghai and Beijing, after crowds there and in other Chinese cities demonstrated against the country’s strict zero-COVID policy.

Protests have spread to at least a dozen cities around the world in a show of solidarity.

Elsewhere, the euro was up 0.38% at $1.03795, after surging to a five-month peak of $1.0497 overnight.

European Central Bank President Christine Lagarde said overnight that euro zone inflation had not peaked and it risked turning out even higher than currently expected, hinting at a series of interest rate hikes ahead.

Flash euro zone inflation figures for November are due on Wednesday, with economists polled by Reuters expecting inflation to come in at 10.4% year-on-year. Ahead of that, inflation numbers from Spain and Germany are expected later on Tuesday.

“The central bank commentary that we’ve had this week, including from Lagarde, has got the market on guard for the risk that the ECB is going to raise rates by 75 basis points at its December meeting rather than 50 basis points, which had been a strong consensus up until the last few days,” said Ray Attrill, head of FX strategy at National Australia Bank (NAB).

The Japanese yen last traded about 0.2% higher at 138.68 per dollar.

Against a basket of currencies, the fell 0.31% to 106.29, after rising 0.5% overnight.

The greenback remained marginally supported by hawkish Federal Reserve speakers overnight.

St. Louis Fed President James Bullard said the Fed needed to raise interest rates quite a bit further. Similarly, New York Fed President John Williams said the U.S. central bank needed to press forward with rate rises, but he did not say how fast or how far it would need to boost short-term borrowing costs.

“The Fed rhetoric we’ve heard from some of the speakers in the last 24 hours is sending a relatively hawkish message, which is somewhat at odds with market pricing,” said NAB’s Attrill.

Comments from Fed Chair Jerome Powell on Wednesday will be watched for new signals on further tightening, with key U.S. jobs data for November due on Friday. The U.S. central bank is widely expected to hike rates by an additional 50 basis points when it meets on Dec. 13-14.

Asia shares take comfort in China property rally

Asia shares take comfort in China property rally
© Reuters. FILE PHOTO: A pedestrian stands to look at an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo, Japan, February 26, 2016. REUTERS/Yuya Shino/File Photo

By Wayne Cole

SYDNEY (Reuters) – Asian shares edged higher on Tuesday as Beijing’s latest move to support developers boosted the property sector, though it was still not clear what new damage public unrest over China’s zero-COVID policy might do to the economy.

Shares of Chinese property companies surged after the country’s securities regulator lifted a ban on equity refinancing for listed property firms.

That helped Chinese blue chips bounce 1.1%, while MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.7%.

lagged with a drop of 0.4%, while South Korea firmed 0.3%.

and Nasdaq futures both nudged up 0.1%. EUROSTOXX 50 futures lost 0.2% and futures 0.1%.

Markets were still nervous that the widening web of restrictions in China would lead to more public unrest and further undermine growth.

Analysts at Nomura said their index of lockdowns now showed the equivalent of 25% of China’s GDP was affected, compared to a previous peak of 21% last April.

“Although Shanghai-style full lockdowns may be avoided, partial lockdowns in a rising number of cities may be more costly than full lockdowns in just a couple of cities,” noted Nomura.

Underlining the far reaching impact of Beijing’s policies, Apple Inc (NASDAQ:) shares had fallen 2.6% on reports COVID-19 restrictions would cause a sizable shortfall in production of iPhone pro units.

“The zero China COVID policy has been an absolute gut punch to Apple’s supply chain,” said Daniel Ives, an analyst at Wedbush.

“We estimate that Apple now has significant iPhone shortages that could take off roughly at least 5% of units in the quarter and potentially up to 10% depending on the next few weeks in China around Foxconn production and protests.”

HIGHER FOR LONGER

Sentiment also soured when Richmond Federal Reserve Bank President Thomas Barkin became the latest official to douse speculation the central bank would reverse course on interest rates relatively quickly next year.

That heightened tensions ahead of speech by Fed Chair Jerome Powell on Wednesday that is shaping up to be a major messaging event as markets yearn for a pivot on policy.

Analysts suspect they may be disappointed.

“We envision him basically confirming a slower pace of hikes at the December meeting, which is almost entirely priced in,” said Jan Nevruzi, an analyst at NatWest Markets. “But we also think he will reiterate that the Fed intends to stay in restrictive territory through next year.”

“The softening in the October CPI was welcome news, but hardly a complete victory yet, while growth and labour market data are still strong,” he added “It doesn’t feel like there is upside for Powell to dial back on the hawkishness.”

The Fed is not alone in being hawkish, with European Central Bank President Christine Lagarde warnings euro zone inflation has not peaked and could go even higher.

Figures for inflation in Germany and Spain are due later on Tuesday, ahead of the main eurozone report on Wednesday.

Lagarde’s comments had initially helped the euro spike to a five-month peak of $1.0497 overnight, only for a rebound in the U.S. dollar to slap it back to $1.0350.

The dollar also bounced to 138.87 yen, after briefly touching a three-month trough of 137.50 overnight. The rallied to 106.57, having been as low as 105.31 overnight.

The dollar did ease back on the offshore yuan at 7.2161, after jumping 0.7% on Monday.

fell after major cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection along with eight affiliates.

In commodity markets, the gyrations in the dollar saw ease back to $1,744 an ounce after briefly getting as high as $1,763. [GOL/]

U.S. oil prices hit their lowest this year overnight as concerns over Chinese demand warred with talk of possible OPEC+ output cuts. [O/R]

futures slipped 34 cents in early trade to $76.90 a barrel, though that was off a trough of $73.60, while lost 28 cents to $82.91.

Dollar holds firm as China’s COVID-related worries weigh

Dollar holds firm as China's COVID-related worries weigh
© Reuters. U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Harish Sridharan

(Reuters) – The dollar held its overnight gains on Tuesday as concerns about unrest in China over COVID-19 restrictions dampened market sentiment, and as hawkish remarks from Federal Reserve officials gave the greenback an additional leg up.

Rising tensions in China over the country’s stringent pandemic measures sent investors flocking to the safe-haven dollar, triggering a slide of more than 1% in the , and sterling overnight.

The euro, which surged to a five-month peak of $1.0497 overnight, later reversed those gains following a rebound in the U.S. dollar. It was last marginally lower at $1.0339.

European Central Bank President Christine Lagarde said overnight that euro zone inflation has not peaked and it risks turning out even higher than currently expected, hinting at a series of interest rate hikes ahead.

Flash euro zone inflation figures for November are due on Wednesday, with economists polled by Reuters expecting inflation to come in at 10.4% year-on-year. Ahead of that, inflation numbers from Spain and Germany are expected later on Tuesday.

“The central bank commentary that we’ve had this week, including from Lagarde, has got the market on guard for the risk that the ECB is going to raise rates by 75 basis points at its December meeting rather than 50 basis points, which had been a strong consensus up until the last few days,” said Ray Attrill, head of FX strategy at National Australia Bank (NAB).

In China, police on Monday stopped and searched people at the sites of weekend protests in Shanghai and Beijing, after crowds there and in other Chinese cities demonstrated against the country’s strict zero-COVID policy.

Protests have spread to at least a dozen cities around the world in a show of solidarity.

“I think the currency moves today will again be driven by views on China’s COVID policy, as well as the broad risk sentiment,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

Market sentiment remained cautious in early Asia trade on Tuesday, with the Aussie nursing some of its deep 1.5% overnight loss. It was last 0.02% higher at $0.6654.

The New Zealand dollar gained 0.19% to $0.6172, while sterling edged 0.07% higher to $1.19665.

Against a basket of currencies, the was marginally lower by 0.1% at 106.50, after rising 0.5% overnight.

The greenback had extended gains after St. Louis Fed President James Bullard said overnight that the Fed needs to raise interest rates quite a bit further.

Similarly, New York Fed President John Williams said the U.S. central bank needs to press forward with rate rises but did not say how fast and how far it will need to boost short-term borrowing costs.

“The Fed rhetoric we’ve heard from some of the speakers in the last 24 hours is sending a relatively hawkish message, which is somewhat at odds with market pricing,” said NAB’s Attrill.

Comments from Fed Chair Jerome Powell on Wednesday will be watched for any new signals on further tightening, with key U.S. jobs data for November due on Friday. The U.S. central bank is widely expected to hike rates by an additional 50 basis points when it meets on Dec. 13-14.

Elsewhere, the Japanese yen last traded at 139.04 per dollar.

The offshore yuan reversed some of its losses in the previous session and was about 0.4% higher at 7.2136 per dollar.

extended overnight losses after cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection, the latest crypto casualty to follow the collapse of the FTX exchange earlier this month.

The cryptocurrency was last down 0.3% at $16167. It fell 1.3% and recorded its worst session in over a week on Monday.

Investors hope Beijing will lift COVID curbs faster as protests rattle markets

Investors hope Beijing will lift COVID curbs faster as protests rattle markets
© Reuters. FILE PHOTO: Police officers stand guard as people protest coronavirus disease (COVID-19) restrictions and hold a vigil to commemorate the victims of a fire in Urumqi, as outbreaks of the coronavirus disease continue, in Beijing, China, November 27, 2022.

By Karin Strohecker and Dhara Ranasinghe

LONDON (Reuters) -Rare protests rippling across China over Beijing’s zero-COVID-19 policy may have unleashed a fresh wave of political uncertainty but could also hasten the reopening of the world’s number two economy, foreign investors said on Monday.

China’s stocks on Monday suffered their worst day in a month and its currency also took a tumble, while global stocks came under pressure and oil prices slumped more than 3% as protesters made a show of civil disobedience unprecedented since President Xi Jinping assumed power a decade ago.

“Protests are a concern in the short-term,” Seema Shah, chief strategist at $500 billion asset manager Principal Global Investors told Reuters, adding that latest events supported the view that winds were changing.

“While we have been cautious, there is an important shift going on with the COVID reopening.”

China’s markets have had a challenging year, suffering from a mix of political risk aversion in the wake of Russia’s invasion of Ukraine in February as well as worries over its economic growth given stringent COVID curbs and the fallout from its property sector woes.

Chinese bond portfolios have posted outflows every month since Russia invaded Ukraine in February, totalling $105.1 billion over nine months, according to data from the Institute of International Finance (IIF). Chinese stock portfolios lost $7.6 billion in October alone, the most since March.

On Monday, the offshore yuan weakened against the dollar to 7.2468 and the risk sensitive dollar, which is strongly tied to Chinese growth, was the worst performing major currency, falling 1.61% to $0.6649.

Shares in Apple Inc (NASDAQ:) slid, down 2.7% as worker unrest at the world’s biggest iPhone factory in China stoked fears of a deeper hit to the already constrained production of higher-end phones.

Protests against China’s strict zero-COVID policy and restrictions on freedoms have spread to at least a dozen cities around the world in a show of solidarity with rare displays of defiance in China over the weekend.

“Record cases across multiple cities are putting the (zero-COVID) policy to the test and the unrest highlights the enormity of the challenge facing President Xi Jinping and his commitment to zero-Covid,” said Craig Erlam, senior market analyst at OANDA.

“The combination of these creates huge uncertainty, both in terms of how the protests are handled and what the whole experience means for the future of the policy and the economy.”

The protests were the strongest public defiance during Xi’s political career, China analysts said.

DEMOGRAPHICS

Hopes that Beijing could ease some of its harsh COVID restrictions had recently lifted markets off their lows in a year that has seen domestic blue chips and the Hong Kong index tumble more than 20% year-to-date.

“The latest events will reinforce the case for reopening,” said Vincent Mortier, group chief investment officer at Amundi, Europe’s largest asset manager.

The economic pain linked to COVID had started to become a political issue in China, given the impact on youth unemployment in big cities, and adding to pressure on Beijing, which was keen on “avoiding some social unrest”, said Mortier.

Demographics have been a major pressure point for China, which has seen youth unemployment hit a record high of around 20% in July.

If protests were to continue, this would add to the risk premium, said Sean Taylor, chief investment officer for Asia-Pacific at DWS Group.

The 833 billion euro asset manager expects that Chinese stocks could see a 15-20% rally once China exits zero-COVID, though markets could be “quite challenging” until then.

Richard Tang, equity research analyst for Asia at Julius Baer, said offshore investors were more worried about recent events than their onshore peers, potentially lifting onshore equity markets.

Tang predicted that if there was no major escalation in the situation, investors would soon shift focus back onto the ruling Communist Party’s Central Economic Working Conference in December, which sets the economic agenda for the parliament session, and could confirm a COVID ‘policy pivot’.

Others were more cautious. Social discontent stemming from the zero-COVID policy added to risks in executing and implementing government policies, said Mark Haefele, global wealth management CIO at UBS in Zurich.

“We do not expect economic or market headwinds in China to abate significantly over the coming months,” Haefele said in a note to clients.

“As a result, we remain neutral on Chinese equities. We also view China’s sluggish recovery as a risk for the global economy and markets.”

U.S. dollar net shorts hit largest since July 2021 -CFTC, Reuters data

U.S. dollar net shorts hit largest since July 2021 -CFTC, Reuters data
© Reuters. Signage is seen outside of the US Commodity Futures Trading Commission (CFTC) in Washington, D.C., U.S., August 30, 2020. REUTERS/Andrew Kelly/File Photo

NEW YORK (Reuters) – Speculators raised net short U.S. dollar positioning in the latest week to its largest level since July 2021, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Monday.

The value of the net short dollar position hit $1.82 billion in the week ended Nov. 22 from a net short of $10.5 million in the previous week. Speculators have been net short the dollar for a second straight week.

Investors have flipped their net long dollar positions, anticipating weakness in the U.S. currency on expectations that the Federal Reserve will slow the pace of interest rates increases after raising them by 75 basis points multiple times.

Last week, the dollar fell another 0.9%. For the month of November, the has so far dropped about 4.3%, on track for its largest monthly fall since September 2010.

However, record COVID cases in China and citizens protesting against the country’s zero-COVID rules have increased safe-haven flows to the U.S. dollar.

“The (dollar index) has certainly shown some signs of life around its 200-day average and support in the 1.0500-1.0540 area. But it is far too early to say whether this will turn into a full-on rally,” wrote Fawad Razaqzada, market analyst at City Index and Forex.com in London, in a research note.

He added that 200-day moving average is a key support and the dollar is still inside a long-term bull trend.

“After the recent sell-off, the downside risks have now diminished in my view,” said Razaqzada.

The increase in net short dollar positioning came as euro net longs soared to 123,112 contracts, the highest since February 2021.

In the cryptocurrency market, net longs on bitcoin futures rose to 706, the highest since the week of Oct. 11, CFTC data showed. Speculators have been net long bitcoin for a third straight week.

The increase in net longs on bitcoin came as the crypto market grappled with the fallout from the collapse of crypto exchange FTX when it filed for bankruptcy a few weeks ago.

U.S. cryptocurrency lender BlockFi said on Monday it had filed for Chapter 11 bankruptcy protection along with eight affiliates in a New Jersey court.

was last down 1.31% at $16,209. Since the beginning of the year, bitcoin has plunged 65%.

Japanese Yen (Contracts of 12,500,000 yen)

$5.909 billion

22 Nov 2022 Prior week

week

Long 30,800 33,797

Short 95,650 99,639

Net -64,850 -65,842

EURO (Contracts of 125,000 euros)

$-14.573 billion

22 Nov 2022 Prior week

week

Long 239,598 239,369

Short 116,486 126,703

Net 123,112 112,666

POUND STERLING (Contracts of 62,500 pounds sterling)

$2.433 billion

22 Nov 2022 Prior week

week

Long 30,917 34,699

Short 66,859 67,533

Net -35,942 -32,834

SWISS FRANC (Contracts of 125,000 Swiss francs)

$2.228 billion

22 Nov 2022 Prior week

week

Long 1,910 2,271

Short 16,386 19,098

Net -14,476 -16,827

CANADIAN DOLLAR (Contracts of 100,000 Canadian dollars)

$0.973 billion

22 Nov 2022 Prior week

week

Long 36,733 37,456

Short 48,405 50,376

Net -11,672 -12,920

AUSTRALIAN DOLLAR (Contracts of 100,000 dollars)

$3.023 billion

22 Nov 2022 Prior week

week

Long 32,825 33,214

Short 75,611 77,963

Net -42,786 -44,749

MEXICAN PESO (Contracts of 500,000 pesos)

$-1.753 billion

22 Nov 2022 Prior week

week

Long 188,446 197,700

Short 125,127 129,849

Net 63,319 67,851

NEW ZEALAND DOLLAR (Contracts of 100,000 New Zealand dollars)

$0.408 billion

22 Nov 2022 Prior week

week

Long 15,536 15,285

Short 19,820 21,913

Net -4,284 -6,628

Marketmind: China + policy hawks = drag on markets

Marketmind: China + policy hawks = drag on markets
© Reuters. FILE PHOTO: A woman holds a white sheet of paper with the date of a fire in Urumqi, during a commemoration of its victims, as outbreaks of the coronavirus disease (COVID-19) continue, in Beijing, China, November 27, 2022. REUTERS/Thomas Peter

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.

The social unrest flaring up across China – and how Beijing responds to it – remains front and center for Asian markets, suggesting the sentiment driving trading on Tuesday will again be negative.

Just to compound investors’ caution, two U.S. Federal Reserve officials on Monday reiterated their conviction that monetary policy must be tightened further and kept at restrictive levels for some time yet in order to get inflation under control.

Let’s start with China, where the protests against strict zero-COVID policy and restrictions on freedoms are spreading. Chinese assets are, unsurprisingly, under pressure – the offshore yuan fell on Monday for a fifth straight day and Chinese stocks had their biggest decline in a month.

A little more surprising, however, given the scale of the unrest, is that the declines have been contained and orderly. There is no obvious sense of forced selling. Yet.

It’s a hard one to trade. Does the unrest accelerate a re-opening of the economy, or does it prompt President Xi Jingping to double down? Either way, volatility and lack of visibility should prevail in the near term.

One consequence overseas was the slide in Apple Inc (NASDAQ:) shares on Monday, down 2.7% as worker unrest at the world’s biggest iPhone factory in China stoked fears of a deeper hit to the already constrained production of higher-end phones.

Apple is now underperforming the broader market this year.

St. Louis Fed President James Bullard and New York Fed President John Williams dealt another blow to markets on Monday, signaling that rates will reach at least 5% and might not be cut at all next year. Traders are on board with the first bit, but certainly not the second – 40 basis points of easing is still implied in next year’s rates curve.

ECB President Christine Lagarde also struck a hawkish tone on Monday, saying inflation has not peaked and may yet surprise on the upside. If anyone was in any doubt, the hawks at the big central banks are not backing down.

Risk assets are under pressure – Wall Street closed deeply in the red on Monday – while volatility and the dollar both rose. That’s the backdrop to the Asian session on Tuesday, so it looks like being another cautious open.

Three key developments that could provide more direction to markets on Tuesday:

– Japan unemployment (October)

– Japan retail sales (October)

– Germany inflation (November, prelim)

Fed officials insist more hikes needed to tame inflation

Fed officials insist more hikes needed to tame inflation
© Reuters.

By Yasin Ebrahim

Investing.com — Federal Reserve officials Monday continued to push for higher for longer interest to bring down inflation that is running hotter than previously anticipated.

John Williams, president of the Federal Reserve Bank of New York, said Monday he expected inflation to moderate, but flagged drivers of underlying inflation, particularly in a red-hot labor market with “rapid” wage growth, as the most challenging.

The New York Fed chief forecast , the Fed’s preferred inflation measure, to slow from its current level of 5.1% to between 3% and 3.5% next year, driven by slowing global growth and fewer supply chain disruption. That, however, is above the Fed’s September projections for inflation to drop to a range of 2.6% and 3.5%.

“Inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential,” Williams said, reiterating the Fed’s message that ongoing rate hikes would be appropriate to dent growth and the pace of inflation.  

The slowdown in growth is anticipated to push the unemployment rate to between 4.5% and 5% by the end of next year, Williams estimated. A Fed-induced slowdown — at a time when global growth is on the ropes as China wrestles with a COVID-stricken economy — has many worried about a potentially painful recession next year.

Treasury yields appear to have been pricing in the increasing prospect of a recession as a key part of the yield curve – the 2-year treasury yield over – remains deeply inverted, a harbinger for a recession. 

But some Fed officials, who lean more hawkish and warn that markets are underpricing the risk of more aggressive Fed action, have pushed back against recession signals from the market, partly attributing the move in the yield curve to confidence that the Fed’s tightening will lead to disinflation.

“I think in this particular moment, this expected disinflation is partly leading to the yield curve inversion,” Federal Reserve Bank of St. Louis President James Bullard said on Monday. 

“You have markets seeing a lot of inflation today, maybe over the next year or two, but not seeing very much inflation over the next five years or the next 10 years,” Bullard added. “You could interpret that as confidence in the Fed’s programme that we’re going to be able to get inflation back down to 2%.”

Euro eases as Lagarde threatens to hike into restrictive territory

Euro eases as Lagarde threatens to hike into restrictive territory
© Reuters

By Geoffrey Smith

Investing.com — The euro eased on Monday as European Central Bank Christine Lagarde warned that inflation hasn’t peaked yet and left open the possibility of further aggressive interest rate increases – even as the Eurozone economy goes into reverse.

By 11:00 ET (16:00 GMT). the was down 0.1% at $1.0389, unable to hold on to gains made earlier in the day.

“We do not see the components or the direction that would lead me to believe that we’ve reached peak inflation and that it’s going to decline in short order,” Lagarde said in her regular testimony to the European parliament. She added that “Whenever I ask my top-notch economists at the ECB… about the risk, the answer that I get at the moment is (that) risk is to the upside, without qualifying the upside.”

Various ECB officials – including the hawkish Deutsche Bundesbank head Joachim Nagel, have indicated that the ‘s next rate hike may be smaller than the last two moves of 75 basis points each. The obvious slowdown in the Eurozone economy has raised the risk that the central bank could tip it into a recession by tightening policy too far. However, the ECB still has some of the lowest interest rates in the world, despite hitting a euro-era high of 10.6% in October.

Data released earlier on Monday by the ECB showed new lending to households and businesses fell in October, while household deposits in the financial system also rose at their slowest rate since the start of the pandemic, suggesting that consumers are able to save less due to the effects of inflation.

Responding to other questions, Lagarde said that the bank may need to raise interest rates to a level that would actively slow the economy, citing pressures from pent-up demand that have percolated through the economy this year as COVID-19 restrictions have been lifted. She also pointed to the bank’s intention to decide on the key principles for reducing its balance sheet, when its governing council next meets in December.

In addition, Lagarde appeared to take a more hawkish view of current wage developments than the bank’s chief economist Philip Lane, who styled a spate of stronger collective wage settlements across the Eurozone this year as essentially a one-off ‘catching-up’ with inflation rather than a driver of a longer-lasting wage-price spiral.

“Strong labour markets…are likely to support higher wages,” Lagarde said, adding that “Incoming data suggest that wages are picking up, and we will continue to assess their implications.”

Lagarde also warned governments against being too generous in their efforts to support the economy through what is likely to be a difficult winter, with sky-high energy prices and rising unemployment.

Fiscal support, she argued, “should therefore be targeted, tailored and temporary. It should be targeted, so that the size of the fiscal impulse is limited and benefits those who need it most; tailored, so that it does not weaken incentives to cut energy demand; and temporary, so that the fiscal impulse is not maintained longer than strictly necessary.”

Irish privacy regulator fines Facebook 265 million euros

Irish privacy regulator fines Facebook 265 million euros
© Reuters. Facebook app logo is seen in this illustration taken, August 22, 2022. REUTERS/Dado Ruvic/Illustration

By Padraic Halpin

DUBLIN (Reuters) -Ireland’s data privacy regulator imposed a 265 million euro ($277 million) fine on social media giant Facebook (NASDAQ:) on Monday, bringing the total it has fined parent group Meta to almost 1 billion euros.

The penalty resulted from an investigation, started last year, into the discovery of a collated set of personal data that had been scraped from Facebook between May 2018 and September 2019, and made available online.

Facebook was also ordered to make a range of corrective measures.

Meta said it had cooperated fully with the investigation by Ireland’s Data Privacy Commissioner (DPC) and made changes to its systems during the time in question, including removing the ability to scrape its features in this way using phone numbers.

Monday’s fine is the fourth the DPC has levied against one of Meta’s companies. It is Meta’s lead privacy regulator within the European Union, and has 13 more inquiries into the social media group outstanding.

In September the watchdog hit its Instagram subsidiary with a record fine of 405 million euros, which Meta plans to appeal. Meta added in its statement on Monday that it was reviewing the decision related to the latest fine.

The DPC regulates Apple (NASDAQ:), Google (NASDAQ:), Twitter, Tiktok and other technology giants due to the location of their EU headquarters in Ireland. It currently has 40 inquiries open into such firms, including the 13 involving Meta.

The regulator has the power to impose fines of up to 4% of a company’s global revenue under the EU’s General Data Protection Regulation’s (GDPR) “One Stop Shop” regime introduced in 2018.

The DPC said mitigating factors in Monday’s decision – which had been approved by all other relevant EU regulators – included the actions Facebook had taken.

“We’ll keep going until the behaviour does change,” Ireland’s Data Privacy Commissioner (DPC) Helen Dixon told Irish national broadcaster RTE on Monday.

($1 = 0.9584 euros)