Category Archives: Economy

By Kevin Buckland

TOKYO (Reuters) – The dollar traded close to a two-week high versus the yen on Wednesday ahead of a highly anticipated reading of U.S. inflation that could provide clues on the pace of Federal Reserve interest rate cuts.

The Australian dollar sagged near a four-month low after a dovish tilt to the central bank’s policy outlook a day earlier. That also weighed on New Zealand’s , which languished near a one-year trough.

Investors will also watch headlines from China’s closed-door Central Economic Work Conference, which runs this week.

The anitipodean currencies got a boost at the start of the week after Beijing pledged more fiscal and monetary support for the economy next year, although that was overshadowed by Tuesday’s Reserve Bank of Australia dovish statement. RBA Deputy Governor Andrew Hauser is due to speak later on Wednesday.

The dollar eased 0.12% to 151.80 yen as of 0045 GMT, but remained close to the overnight peak of 152.18 yen, its strongest level since Nov. 27.

The , which measures the currency against the yen and five other major peers, was steady at 106.36, after rising to a one-week high of 106.63 in the previous session.

Traders currently assign 85% odds to a quarter-point rate cut by the Fed on Dec. 18.

Economists expect both headline and core consumer prices to have risen 0.3% in November, from previous increases of 0.2% and 0.3%, respectively.

„Should this scenario materialize, there could be concerns that the Federal Reserve may not be able to cut rates as quickly as hoped, potentially benefiting the U.S. dollar,” said James Kniveton, senior corporate FX dealer at Convera.

In the case of Australia, „while the market anticipates early cuts, the RBA has not confirmed this plan, and there is a precedent for the market getting ahead of the RBA, only to later adjust its expectations,” Kniveton said.

Traders have ramped up bets for a quarter-point reduction in February to 62%, from closer to 50% a day earlier.

The was little changed at $0.6380 after dipping to $0.63655 a day earlier for the first time since Aug. 5. The kiwi was steady at $0.57985 after sliding to $0.5792 on Tuesday, a level not seen since November of last year.

The European Central Bank policy decision on Thursday is the main one investors are focusing for the remainder of this week, with markets certain of at least a quarter-point reduction.

The euro was steady at $1.052975. Sterling was little changed at $1.2777.

The Swiss franc held firm at 0.8830 per dollar, with markets assigning 61% odds to a half-point rate cut on Thursday from the Swiss National Bank.

The Bank of Canada is seen as likely to cut by a half point later on Wednesday, which is helping to pin the near a 4-1/2-year trough to the greenback. One U.S. dollar last bought C$1.4173.

By Jamie McGeever

ORLANDO, Florida (Reuters) -An extraordinary year for investors is poised to end with a monetary policy bang, with almost every G10 central bank scheduled to deliver interest rate decisions over a 10-day period this month.

    Four of the G10 central banks meet this week and five, including the Federal Reserve, meet next week. Remarkably, four of those – Bank of Japan, Bank of England, Riksbank and Norges Bank – will deliver their policy verdicts on the same day, Thursday December 19.

    The sweep of decisions and guidance will be felt most acutely in FX markets, where implied volatility across G10 currencies is already at the highest pitch since April last year.

    Importantly, most of these currencies will be going into these meetings on the back foot. Sterling is the only one that has held its own against the dollar this year, and, even then, only barely. All other G10 currencies are between 4% and 9% weaker against the greenback in 2024.

    It’s easy to see why implied FX ‘vol’ is so elevated going into the end of the year. Uncertainty over U.S. trade policy following Donald Trump’s election victory, rising geopolitical tensions, and the ebb and flow of monetary policy expectations are all playing their part.

On that note, in addition to the nine G10 central banks cited above, monetary policymakers in Brazil, Indonesia, Thailand and Colombia also meet within this 10-day period, just as market liquidity will be thinning out for seasonal reasons.

    It’s a different story for stock and bonds, at least in the United States. The , Wall Street’s so-called ‘fear index’, and the ‘MOVE’ index of implied volatility in Treasuries are the lowest they’ve been in months. The latter is notable given how much Treasuries have moved since the U.S. presidential election on November 5 and the potential policy changes that could accompany Trump’s return to the Oval Office in January.

LONG VOL

Wall Street analysts are warning that the second Trump administration’s agenda could cause FX volatility to outlast the holiday season.

    In their 2025 outlook, currency analysts at JP Morgan advise clients that „elevated” U.S. policy uncertainty makes a strategic short vol stance „untenable.”

    „2025 will not be a year for the faint-hearted to be short vol,” they wrote on Nov. 28, citing President-elect Trump’s hardline stance on trade and his threats to slap massive tariffs on some of America’s key trading partners.

    Karen Reichgott Fishman at Goldman Sachs last week echoed these statements, noting, „this makes it a good time to assess the value of hedging any exchange rate exposure in global portfolios”.

    But before Trump is sworn in, currency traders will have to navigate the looming tsunami of rate decisions this month. Mark your calendars for a bumpy year end.

    Dec. 10

Reserve Bank of Australia: Markets are pricing in a 90% probability that the cash rate will be held at 4.35%, with around 70 basis points of easing expected by the end of next year. The RBA hasn’t yet started its easing cycle.

    Dec. 11

    Bank of Canada: Markets are pricing in a quarter point cut and a 75% probability of a half point move, with around 115 bps of cuts over the next year. The BOC has already cut its Bank Rate by 125 bps in this cycle, the most among all G10 central banks.

Dec. 12

European Central Bank: Markets are pricing in a quarter point cut, with around 150 bps of easing expected over the next 12 months.

    Swiss National Bank: Markets are pricing in a quarter point rate cut and a 65% chance of a half point reduction. Traders are expecting around 85 bps of easing over the next 12 months. SNB Chairman Thomas Jordan recently floated the idea that the SNB could return to negative interest rates, if necessary.

Dec. 18

    Federal Reserve: Markets are pricing in a 90% probability of a quarter point cut, with around 80 bps of easing expected by the end of next year.

Dec. 19

    Bank of Japan: Traders expect the key policy rate to be raised by 10 bps, and around 45 bps of tightening anticipated over the next 12 months.

    Norges Bank: Markets are pricing in a 20% chance of a quarter point cut, with around 120 bps of easing expected over the next year.

    Riksbank: Markets are pricing in a 70% likelihood of a quarter point cut, with around 100 bps of rate cuts expected by the end of next year.

    Bank of England: No rate change anticipated at this meeting, but markets are pricing in around 75 bps of easing over the next 12 months.

    (The opinions expressed here are those of the author, a columnist for Reuters.)

Investing.com – BCA Research challenged the assumption that Trump’s immigration policies will tighten the labor market and stoke inflation in a note to clients this week. 

An analyst at the firm said that while a smaller labor supply is a likely outcome, this will also reduce labor demand.

“Immigrants’ contribution to aggregate demand goes beyond their spending on goods and services,” the firm states.

“It also includes spending that takes place on their behalf. For example, while illegal immigrants are ineligible for most government welfare programs, they have access to emergency Medicaid services. They can also collect benefits on behalf of US-born children,” BCA adds.

They explain that the construction of multifamily housing to accommodate displaced housing demand can generate $40,000–$80,000 in additional construction per immigrant.

They also believe the pace of policy implementation will also matter. 

BCA acknowledges that a swift deportation campaign could indeed tighten the labor market, but they consider such an outcome unlikely. 

“The infrastructure to deport millions of workers simply does not exist,” and any slower-paced reduction in immigration growth would likely reduce labor demand more than supply.

BCA also argues that the historical relationship between immigration and interest rates supports this view. 

The U.S., with the highest immigration rates among G3 economies, has historically maintained the highest interest rates, whereas Japan, with minimal immigration, has seen the lowest rates. 

They believe a reduced immigration rate could, therefore, lead to a lower equilibrium interest rate in the U.S.

BCA concludes that the economic implications of Trump’s immigration policies are more complex than a simple tightening of the labor market, with broader impacts on demand and interest rates shaping the outcomes.

(Reuters) -The U.S. government has approved the export of advanced artificial intelligence chips to a Microsoft-operated facility in the United Arab Emirates as part of the company’s highly-scrutinized partnership with Emirati AI firm G42, Axios reported on Saturday, citing two people familiar with the deal.

Microsoft (NASDAQ:) invested $1.5 billion in G42 earlier this year, giving the U.S. company a minority stake and a board seat. As part of the deal, G42 would use Microsoft’s cloud services to run its AI applications.

The deal, however, was scrutinized after U.S. lawmakers raised concerns G42 could transfer powerful U.S. AI technology to China. They asked for a U.S. assessment of G42’s ties to the Chinese Communist Party, military and government before the Microsoft deal advances.

The U.S. Commerce Department, Microsoft and G42 did not immediately respond to Reuters’ requests for comment.

The approved export license requires Microsoft to prevent access to its facility in the UAE by personnel who are from nations under U.S. arms embargoes or who are on the U.S. Bureau of Industry and Security’s Entity List, the Axios report said.

The restrictions cover people physically in China, the Chinese government or personnel working for any organization headquartered in China, the report added.

U.S. officials have said that AI systems could pose national security risks, including by making it easier to engineer chemical, biological and nuclear weapons. The Biden administration in October required the makers of the largest AI systems to share details about them with the U.S. government.

G42 earlier this year said it was actively working with U.S. partners and the UAE’s government to comply with AI development and deployment standards, amid concerns about its ties to China.

Abu Dhabi sovereign wealth fund Mubadala Investment Company, the UAE’s ruling family and U.S. private equity firm Silver Lake hold stakes in G42. The company’s chairman, Sheikh Tahnoon bin Zayed Al Nahyan, is the UAE’s national security advisor and the brother of the UAE’s president.

By Nate Raymond (NS:)

(Reuters) -A federal judge in Texas rejected on Friday a request by the Consumer Financial Protection Bureau to lift an order that has blocked a new U.S. regulation capping credit card late fees at $8, a policy challenged by business and banking groups.

U.S. District Judge Mark Pittman in Fort Worth declined to dissolve an injunction he issued in May that barred the rule – part of Democratic President Joe Biden’s administration’s broader crackdown on „junk fees” – from taking effect.

The regulation would block card issuers with more than one million open accounts from charging more than $8 for late fees unless they can prove higher fees are necessary to cover their costs.

In asking the judge to revisit the injunction, the CFPB said the action had rested entirely on an appeals court’s ruling declaring the agency’s funding structure unconstitutional – a decision subsequently overturned by the U.S. Supreme Court.

But Pittman agreed with groups including the U.S. Chamber of Commerce and the American Bankers Association that had sued to challenge the regulation that the rule could still be blocked on other grounds.

Pittman, who was appointed by Republican President-elect Donald Trump during his first term, said the rule violated the Credit Card Accountability and Disclosure Act, a 2009 U.S. law designed to protect consumers from unfair practices by card issuers.

The law regulated excessive fees but allowed card issuers to impose „penalty” fees when a customer violated a credit card agreement, including by failing to make an on-time payment, Pittman said.

„Congress assigned the CFPB as an umpire to call balls and strikes on the reasonableness and proportionality of penalty fees,” Pittman said, using a baseball analogy.

But by preventing card issuers from actually imposing penalty fees, the CFPB impermissibly „established a strike-zone only large enough for pitches right down the middle,” Pittman wrote.

The judge also rejected the CFPB’s latest request to transfer the case out of Texas to Washington.

A CFPB spokesperson said the judge’s ruling „allows big banks to extract $27 million in excessive late fees from American families every single day.”

The agency estimates that without the rule, people will spend more than $56 billion on credit card fees over the next five years.

The Chamber had no immediate comment.

By Brigid Riley

TOKYO (Reuters) – Major currencies steadied on Friday as markets considered the impact of a politically turbulent week that saw the collapse of France’s government and the brief imposition of martial law in South Korea.

In cryptocurrencies, bitcoin took a breather after catapulting above $100,000 for the first time a day earlier, and even sceptics now expect a crypto-friendly Trump administration to feed an extended rally.

On the broader economic front, the spotlight will be on the U.S. non-farm payrolls report for November due later in the day as investors look to second guess the pace of future Federal Reserve rate cuts.

Payrolls are expected to have increased by 200,000 jobs last month, according to a Reuters survey, after rising by only 12,000 in October, the lowest number since December 2020.

„The Fed will be wary of placing too much weight on the expected steep rebound in payrolls in November,” said Sean Callow, senior FX analyst at InTouch Capital Markets.

„So long as the unemployment rate doesn’t fall back to 4.0%, markets should be comfortable about leaning towards a rate cut this month.”

Markets currently see about a 72% chance that the Federal Reserve will deliver a 25-basis-point rate cut when it meets on Dec. 17-18, up from 66.5% a week ago, CME FedWatch tool showed.

Ahead of the data, the , which measures the U.S. currency against six rivals, rose 0.05% to 105.77 after slipping towards a three-week low in the previous session.

The euro was down 0.05% at $1.0582 after bouncing on Thursday as French bonds stabilised, pulling further away from a two-year low of $1.03315 hit at the end of November as traders braced for a drawn-out reckoning for France.

French President Emmanuel Macron met allies and parliament leaders on Thursday as he sought to swiftly appoint a new prime minister to replace Michel Barnier, who officially resigned a day after opposition lawmakers voted to oust his government.

For now, the European Central Bank isn’t expected to react to heightened political turmoil in Europe when it meets next week.

All but two of 75 economists polled by Reuters believe the ECB will trim 25 basis points from its deposit rate on Dec. 12.

Traders are also all but certain about a rate cute next week.

The euro bloc currency was on track to post a loss this week, the fourth in the last five weeks.

In cryptocurrencies, bitcoin hovered lower as traders locked in profit after Thursday’s break above the $100,000 milestone.

The world’s best known cryptocurrency has been on a tear since November on bets that Donald Trump’s U.S. presidential election win will usher in a friendly regulatory environment for cryptocurrencies.

It briefly slid to a one-week low and was last down 1.41% at $97,616, well off its all-time-high of $103,649 hit the previous day.

In Asia, the dollar was flat against the yen at 150.07 after government data showed Japanese household spending dropped 1.3% in October from a year earlier, coming in better than expected.

Traders are pondering the likelihood of a rate hike at the Bank of Japan’s meeting on Dec. 18-19 after media reports published on Wednesday suggested the BOJ may stand pat this month, muddling market expectations.

But comments from typically dovish policymaker Toyoaki Nakamura that he’s not opposed to rate hikes helped push the currency higher on Thursday.

The South Korean won held steady 1415.5, licking its wounds after the chaos that followed President Yoon Suk Yeol declaring and then rescinding martial law earlier this week.

Elsewhere, sterling traded at $1.27545, down 0.04% so far on the day.

The Australian dollar fetched $0.64465, hovering not far off Wednesday’s four-month low of $0.63992.

The traded at $0.5878, down 0.12%

By Lucinda Elliott, Lisandra Paraguassu and Anthony Boadle

MONTEVIDEO/BRASILIA (Reuters) -South America’s Mercosur trade bloc will meet in Uruguay on Thursday with fresh signs the group could use the event to announce a long-delayed deal with the European Union after last-minute negotiations to get it over the line.

Uruguay’s president penciled in a meeting with European Commission President Ursula von der Leyen at the presidential residence in Montevideo for Thursday afternoon, in a positive signal for trade talks.

The trade deal, supported by most of the South American countries and being pushed by Germany and Spain, has met strong opposition from France due to fears about agricultural imports to Europe that would hit the nation’s powerful farming sector.

Negotiators from all sides came together in Brazil last week, senior diplomatic and government sources told Reuters, with plans that delegations could travel to Montevideo if a deal is clinched during virtual talks continuing this week.

All four founding members of Mercosur support the current terms, two sources told Reuters on Wednesday.

Their support has further raised hopes the EU chief will travel to the Dec. 5-6 summit in Uruguay’s capital with the intention of finalizing the agreement, two European sources said, though most cautioned that nothing was likely to be signed. One source said von der Leyen had reserved a plane ticket just in case.

„The last round of negotiations ended with important progress,” Mauricio Lyrio, secretary of economic affairs at the Brazilian foreign ministry, said on Monday.

„We’re hopeful. Pending issues are being submitted to the leaders to be finalized.”

Bernd Lange, a German Social Democrat who chairs the European Parliament’s trade committee, on Tuesday said the domestic situation in the EU was the main obstacle to a deal and the decision whether to travel this week remained uncertain.

„They are discussing on the 13th floor (office of the Commission president) taking the luggage and going to the airport or not. It’s a little bit complicated,” Lange said during a briefing.

In the works for over two decades, the trade deal has been delayed by European concerns over farming competition, while Brazil, Argentina, Paraguay and Uruguay, all major producers of soy, corn and beef, have criticized European protectionism.

Brazilian President Luiz Inacio Lula da Silva said last week, however, that the deal was being negotiated directly with von der Leyen as a new round of in-person talks took place in Brazil. He is confident a deal will be finalized this year.

Others voiced skepticism. „If Ursula goes to Montevideo it will be to show EU commitment to concluding the deal, but it will not be signed,” one European diplomat in Brasilia said.

Another diplomat in Uruguay said: „I’m still 60-40 that it fails to go anywhere.”

DEAL OR NO DEAL?

Paris, which is in crisis after lawmakers passed a no-confidence vote against the government, has tried to convince other EU members to form a blocking minority. Poland recently joined in opposition. France needs a minimum of three countries making up over 35% of the EU’s population to jam up the deal.

Other EU countries including Germany and Spain are leading a coalition of 11 member states in favor. They want new trade routes that would reduce reliance on China and insulate members from U.S. President-elect Donald Trump’s planned trade tariffs.

An EU-Mercosur deal was initially struck in 2019, but never ratified due to EU demands for commitments on deforestation and climate change. Some officials feared the same could happen again now even if a final text is agreed.

„While we will applaud if something is signed in Montevideo this week, let’s see when it actually takes effect,” said Ignacio Bartesaghi, from Uruguay’s Catholic University.

A final and legally binding version of the agreement would also need to be carefully reviewed and translated into some two dozen languages before it could be formally signed, Brazilian negotiator Lyrio said. That could take months still.

ARGENTINA’S MILEI MAY MAKE DEBUT

The Montevideo summit is also expected to see Argentine libertarian President Javier Milei debut at a Mercosur event, following thinly veiled threats to pull out of the bloc unless allowed to pursue bilateral trade deals outside it, including with the United States.

Like outgoing Uruguayan President Luis Lacalle Pou, Milei wants the group to be more flexible. Uruguay under Lacalle Pou had entered into formal negotiations on a free-trade agreement with China, a decision that his successor is unlikely to pursue.

Some diplomats said the EU-Mercosur talks would impact Milei’s likely approach to the group.

If the EU-Mercosur deal goes ahead, Uruguayan foreign policy adviser Bartesaghi said it would „pour cold water” on any plans Milei has to break ties with the bloc because it would prove it could achieve something.

A deal strengthens the „argument to keep the group together, it buys time and calms Milei down,” he said, adding that if it fell apart it could however boost Milei’s argument.

SYDNEY (Reuters) -Australia’s economy grew at the slowest annual pace since the pandemic in the third quarter, disappointing hopes for a rebound as government spending did all of the heavy lifting.

Investors reacted by pushing the Australian dollar 0.3% lower to $0.6468, and markets ascribed a slightly higher chance of a rate cut next year, although a first easing is still not fully priced in until May.

Data from the Australian Bureau of Statistics on Wednesday showed real gross domestic product rose 0.3% in the September quarter, missing market forecasts of 0.4%.

Annual growth slowed to 0.8%, from 1.0% the previous quarter, marking the slowest pace since late 2020.

The Reserve Bank of Australia had expected economic growth would pick up to 1.5% by the end of the year as tax cuts flowed through to households’ wage pockets and consumers became more confident that interest rates would not increase again.

However, the surprisingly weak third quarter result is putting that in jeopardy.

For the quarter, government spending made a vital contribution to growth, but household spending, which accounts for half of GDP, added nothing to GDP.

GDP per capita dropped another 0.3%, down for the seventh straight quarter.

The central bank has kept interest rates steady at a 12-year high of 4.35% for the past year and signalled little inclination to ease anytime soon, in part due to the surprising resilience of the labour market.

Headline consumer price inflation slowed sharply to 2.8% in the third quarter, mainly due to government rebates on electricity bills. Core inflation was more persistent at 3.5%, still above the RBA’s target range of 2% to 3%.

Financial markets are pricing in almost no chance of a cut in the 4.35% cash rate at the RBA’s next meeting on Dec. 10.

LONDON (Reuters) – British retailers reported lacklustre sales in November, according to industry data on Tuesday affected by the timing of the Black Friday sales, although it still pointed to weakening consumer confidence.

Sales volumes dropped by 3.3% in the 12 months to November, the weakest reading since April when they fell 4.0%, and below an increase of 0.6% in the year to October, the British Retail Consortium said.

Last month’s decline reflected the fact that this year’s data did not include Black Friday sales in late November, which will be reflected in the December numbers, though they were included in last year’s comparison.

„While it was undoubtedly a bad start to the festive season, the poor spending figures were primarily down to the movement of Black Friday into the December figures this year,” Helen Dickinson, the BRC’s chief executive, said.

„Even so, low consumer confidence and rising energy bills have clearly dented non-food spending.”

The regulated price cap on household energy increased by 10% in October.

The BRC said non-food sales fell 2.1% year-on-year in the three months to November, reflecting a decline in spending on winter clothing. Food sales increased by 2.4% in the same period.

British consumers have also had to contend with high interest rates from the Bank of England in response to a jump in inflation during 2022. The BoE is expected to keep interest rates on hold at 4.75% later this month after cutting Bank Rate in August and November.

Separate data from Barclays (LON:) on Tuesday showed the biggest annual drop in essential spending in over five years, which contracted by 3.1% in November.

Barclays said the fall was due to a slowdown in supermarket spending, which decreased 1.8%. In contrast, spending on non-essential items rose by 0.8%, driven mostly by a 22.8% increase in spending on cinema tickets including for Gladiator II, Paddington in Peru and Wicked movies.

Overall, consumer spending on Barclay’s debit and credit cards fell by 0.5% in November, the first decline since July.

„Understandably, a number of factors weighed on consumer spending in November, notably easing consumer confidence post-summer, and expectations that post-Budget, inflation and interest rates will stay higher in the coming months,” Jack Meaning, chief UK economist at Barclays, said.

Barclays said retail and overall transactions on Black Friday increased 9.5% compared to Black Friday 2023, with overall transactions reaching the highest so far this year.