adplus-dvertising
Connect with us

Economy

Bonds are sending a stark message about the economy – CNN

Published

 on


A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

New York (CNN Business)Turmoil in stocks has been grabbing headlines. But warning signs are also flashing in global bond markets, revealing the extent to which investors are on edge about the economy, inflation and what central bankers will do next.

What’s happening: The yield on benchmark 10-year US Treasuries — which moves opposite prices — jumped to 3.36% on Monday, its highest level since 2011.
But the yield on the 2-year Treasury climbed even higher as investors dumped those notes, too. That created an unusual phenomenon known as a “yield curve inversion.”
Breaking it down: Usually, the yield on longer-dated bonds is higher than that on shorter-dated bonds. It’s harder to predict what will happen further into the future, and investors want to be compensated for that extra risk.
However, after the surprise jump in US inflation in May, when prices rose at the fastest rate in 40 years, traders are bracing for dramatic action from the Federal Reserve later this week. That could spell trouble for the economy near-term.
Former Fed Chair Ben Bernanke told CNN’s Fareed Zakaria on Sunday that he thinks Jerome Powell, the current Fed chief, can still bring down inflation without causing a recession.
“Economists are very bad at predicting recessions, but I think the Fed has a decent chance — a reasonable chance — of achieving what Powell calls a ‘soft-ish landing,’ either no recession or a very mild recession to bring inflation down,” Bernanke said.
Bond traders, for their part, seem more skeptical. A yield curve inversion has preceded every single recession since 1955, according to research by the Federal Reserve Bank of San Francisco.
Over in Europe, the bond market is also showing signs of anxiety.
The gap between yields on 10-year German and Italian government bonds was at its widest since March 2020 on Monday, according to Tradeweb. It was the same for 10-year German and Greek bonds before a market holiday in Greece on Monday.
That indicates concern that the European Central Bank — which announced last week that it will raise interest rates in July for the first time in 11 years — could strain EU countries with high debt loads as it hikes borrowing costs. The more they have to pay servicing debt, the less for other purposes.
“It’s definitely a worry,” Andrew Kenningham, chief Europe economist at Capital Economics, told me.
At the end of 2021, Greece had the highest debt-to-GDP ratio in Europe at 193%. Italy was next at 151%.
Europe is in better shape than it was the last time the ECB started raising rates in the run-up to the region’s debt crisis.
Greece’s economy, in particular, has been beating expectations for growth, and it has favorable conditions on its debt that make repayment less of a concern. But that’s not the case in Italy, which will need to refinance its liabilities sooner, and where growth has been dragging.
“Italy has not done enough serious reforms,” said Holger Schmieding, chief economist at Berenberg Bank.
The ECB has said it would step in and resume bond-buying if the situation deteriorates rapidly. Yet exactly when it would intervene isn’t clear, making investors increasingly nervous.
“The ECB can contain the problem if they want to,” Kenningham said. But they haven’t laid out their “pain threshold,” he added.

US stocks finish in a bear market

US stocks finished Monday’s trading session in a bear market, with the S&P 500 (SPX) closing more than 20% below the all-time high it notched in early January.
The latest: Inflation and recession fears had eased somewhat at the end of May, and stocks regained some ground. But Friday’s miserable report on consumer prices caused the mood to deteriorate again as investors fretted about the Fed’s next moves.
That brought an end to the eye-popping rally stocks had experienced since March 23, 2020.
Remember: Stocks had briefly fallen into bear market territory on May 20. Then a late-day rally rescued the market from closing below that level for the first time since the early days of the pandemic.
Now it’s official. The latest bull market lasted just over 21 months — the shortest on record, according to Howard Silverblatt, an analyst at S&P Dow Jones Indices. Over the past century, bull markets have lasted an average of about 60 months.
Still, the most recent iteration was powerful, lifting the S&P 500 to 70 record highs in 2021.
Cryptocurrencies also rode positive sentiment higher last year. Bitcoin touched a record high of almost $68,790 last November.
It’s now in free fall, hitting its lowest level since late 2020 on Monday, and sliding again Tuesday. Two of the world’s biggest crypto platforms restricted activity amid the meltdown, raising concerns about market stability.

Democrats call for a windfall tax on oil profits

Last week, I wrote about how Exxon’s surging profits have lifted its stock to its highest level in years. But it’s not just investors that are paying attention.
Progressive Democrats are also honing in on the good fortune of oil and gas companies as they hunt for ways to show they’re working to address the consequences of rampant inflation.
Calls are growing for Exxon and its peers to give some of their hefty profits back to Americans who are struggling under the weight of higher prices, especially after the Conservative government in the United Kingdom introduced just such a measure last month.
“The oil companies are raking in record profits and yet they are increasing their prices at the pump. To me that just makes no sense,” Robert Reich, who served as Labor Secretary under President Bill Clinton, recently told CNN.
The White House may agree.
“It’s outrageous that oil and gas companies are able to take advantage and make four times the profits that they made when there wasn’t a war,” Bharat Ramamurti, deputy director of the National Economic Council, said last week. He did not rule out support for a windfall profit tax.
Big Oil is pushing back hard. The American Petroleum Institute said in a statement that raising taxes on the industry will discourage investment in new production, which it said is “exactly the opposite of what needs to happen.”
“It’s unfortunate that some policymakers continue to be more focused on scoring political points with tried-and-failed policies rather than advancing solutions that could actually address the factors behind rising prices,” said the industry lobby’s senior vice president of policy, economics and regulatory affairs.

Up next

The Producer Price Index for May arrives at 8:30 a.m. ET.

Adblock test (Why?)

728x90x4

Source link

300x250x1
Continue Reading

Economy

Britain's economy went into recession last year, official figures confirm – The Globe and Mail

Published

 on


Open this photo in gallery:

People walk over London Bridge, in London, on Oct. 25, 2023.SUSANNAH IRELAND/Reuters

Britain’s economy entered a shallow recession last year, official figures confirmed on Thursday, leaving Prime Minister Rishi Sunak with a challenge to reassure voters that the economy is safe with him before an election expected later this year.

Gross domestic product shrank by 0.1 per cent in the third quarter and by 0.3 per cent in the fourth, unchanged from preliminary estimates, the Office for National Statistics (ONS) said on Thursday.

The figures will be disappointing for Mr. Sunak, who has been accused by the opposition Labour Party – far ahead in opinion polls – of overseeing “Rishi’s recession.”

300x250x1

“The weak starting point for GDP this year means calendar-year growth in 2024 is likely to be limited to less than 1 per cent,” said Martin Beck, chief economic adviser at EY ITEM Club.

“However, an acceleration in momentum this year remains on the cards.”

Britain’s economy has shown signs of starting 2024 on a stronger footing, with monthly GDP growth of 0.2 per cent in January, and unofficial surveys suggesting growth continued in February and March.

Tax cuts announced by finance minister Jeremy Hunt and expectations of interest-rate cuts are likely to help the economy in 2024.

However, Britain remains one of the slowest countries to recover from the effects of the COVID-19 pandemic. At the end of last year, its economy was just 1 per cent bigger than in late 2019, with only Germany faring worse among Group of Seven nations.

The economy grew just 0.1 per cent in all of 2023, its weakest performance since 2009, excluding the peak-pandemic year of 2020.

GDP per person, which has not grown since early 2022, fell by 0.6 per cent in the fourth quarter and 0.7 per cent across 2023.

Sterling was little changed against the dollar and the euro after the data release.

The Bank of England (BOE) has said inflation is moving toward the point where it can start cutting rates. It expects the economy to grow by just 0.25 per cent this year, although official budget forecasters expect a 0.8-per-cent expansion.

BOE policy maker Jonathan Haskel said in an interview reported in Thursday’s Financial Times that rate cuts were “a long way off,” despite dropping his advocacy of a rise at last week’s meeting.

Thursday’s figures from the ONS also showed 0.7 per cent growth in households’ real disposable income, flat in the previous quarter.

Thomas Pugh, an economist at consulting firm RSM, said the increase could prompt consumers to increase their spending and support the economy.

“Consumer confidence has been improving gradually over the last year … as the impact of rising real wages filters through into people’s pockets, even though consumers remain cautious overall,” Mr. Pugh said.

Britain’s current account deficit totalled £21.18-billion ($36.21-billion) in the fourth quarter, slightly narrower than a forecast of £21.4-billion ($36.6-billion) shortfall in a Reuters poll of economists, and equivalent to 3.1 per cent of GDP, up from 2.7 per cent in the third quarter.

The underlying current account deficit, which strips out volatile trade in precious metals, expanded to 3.9 per cent of GDP.

Adblock test (Why?)

728x90x4

Source link

Continue Reading

Economy

How will a shrinking population affect the global economy? – Al Jazeera English

Published

 on


Falling fertility rates could bring about a transformational demographic shift over the next 25 years.

It has been described as a demographic catastrophe.

The Lancet medical journal warns that a majority of countries do not have a high enough fertility rate to sustain their population size by the end of the century.

300x250x1

The rate of the decline is uneven, with some developing nations seeing a baby boom.

The shift could have far-reaching social and economic impacts.

Enormous population growth since the industrial revolution has put enormous pressure on the planet’s limited resources.

So, how does the drop in births affect the economy?

And regulators in the United States and the European Union crack down on tech monopolies.

The gender gap in tech narrows.

Adblock test (Why?)

728x90x4

Source link

Continue Reading

Economy

John Ivison: Canada's economy desperately needs shock treatment after this Liberal government – National Post

Published

 on


Lack of business investment is the main culprit. Canadians are digging holes with shovels while our competitors are buying excavators

Get the latest from John Ivison straight to your inbox

Article content

It speaks to the seriousness of the situation that the Bank of Canada is not so much taking the gloves off as slipping lead into them.

Senior deputy governor, Carolyn Rogers, came as close to wading into the political arena as any senior deputy governor of the central bank probably should in her speech in Halifax this week.

Article content

But she was right to sound the alarm about a subject — Canada’s waning productivity — on which the federal government’s performance has been lacklustre at best.

Advertisement 2

Article content

Productivity has fallen in six consecutive quarters and is now on a par with where it was seven years ago.

Lack of business investment is the main culprit.

In essence, Canadians are digging holes with shovels while many of our competitors are buying excavators.

“You’ve seen those signs that say, ‘in emergency, break glass.’ Well, it’s time to break the glass,” Rogers said.

She was explicit that government policy is partly to blame, pointing out that businesses need more certainty to invest with confidence. Government incentives and regulatory approaches that change year to year do not inspire confidence, she said.

Recommended from Editorial

  1. Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, holds a press conference at the Bank of Canada in Ottawa on Wednesday, March 6, 2024.

    Canada’s lagging productivity at crisis level, BoC official says

  2. Homes for sale at the Juniper condo development in North Vancouver, British Columbia, Canada, on Tuesday, Sept. 13, 2022.

    Expected BoC rate cuts luring buyers back into housing market

The government’s most recent contribution to the competitiveness file — Bill C-56, which made a number of competition-related changes — is a case in point. It was aimed at cracking down on “abusive practices” in the grocery industry that no one, including the bank in its own study, has been able to substantiate. Rather than encouraging investment, it added a political actor — the minister of industry — to the market review process. The Business Council of Canada called the move “capricious,” which was Rogers’s point.

Article content

Advertisement 3

Article content

While blatant price-fixing is rare, the lack of investment is a product of the paucity of competition in many sectors, where Canadian companies protected from foreign competition are sitting on fat profit margins and don’t feel compelled to invest to make their operations more efficient. “Competition can make the whole economy more productive,” said Rogers.

The Conservatives now look set to make this an election issue. Ontario MP Ryan Williams has just released a slick 13-minute video that makes clear his party intends to act in this area.

Using the Monopoly board game as a prop, Williams, the party’s critic for pan-Canadian trade and competition, claims that in every sector, monopolies and oligopolies reign supreme, resulting in lower investment, lower productivity, higher prices, worse service, lower wages and more wealth inequality.

(As an aside, it was a marked improvement on last year’s “Justinflation” rap video.)

Williams said that Canadians pay among the highest cell phone prices in the world and that Rogers, Telus and Bell are the priciest carriers, bar none. The claim has some foundation: in a recent Cable.co.uk global league table that compared the average price of one gigabyte, Canada was ranked 216th of 237 countries at US$5.37 (noticeably, the U.S. was ranked even more expensive at US$6).

Advertisement 4

Article content

Williams noted that two airlines control 80 per cent of the market, even though Air Canada was ranked dead last of all North American airlines for timeliness.

He pointed out that six banks control 87 per cent of Canada’s mortgage market, while five grocery stores — Sobeys, Metro, Loblaw, Walmart and Costco — command a similar dominance of the grocery market.

“Competition is dying in Canada,” Williams said. “The federal government has made things worse by over-regulating airlines, banks and telecoms to actually protect monopolies and keep new players out.”

So far, so good.

The Conservatives will “bring back home a capitalist economy” — a market that does not protect monopolies and creates more competition, in the form of Canadian companies that will provide new supply and better prices.

That sounds great. But at the same time, the Conservative formula for fixing things appears to involve more government intervention, not less.

Williams pointed out the Conservatives opposed RBC buying HSBC’s Canadian operations, WestJet buying Sunwing and Rogers buying Shaw. The party would oppose monopolies from buying up the competition, he said.

Advertisement 5

Article content

The real solution is to let the market do its work to bring prices down. But that is a more complicated process than Williams lets on.

Back in 2007, when Research in Motion was Canada’s most valuable company, the Harper government appointed a panel of experts, led by former Nortel chair Lynton “Red” Wilson, to address concerns that the corporate sector was being “hollowed out” by foreign takeovers, following the sale of giants Alcan, Dofasco and Inco.

The “Compete to Win” report that came out in June 2008 found that the number of foreign-owned firms had remained relatively unchanged, but recommended 65 changes to make Canada more competitive.

The Harper government acted on the least-contentious suggestions: lowering corporate taxes, harmonizing sales taxes with a number of provinces and making immigration more responsive to labour markets.

But it did not end up liberalizing the banking, broadcasting, aviation or telecom markets, as the report suggested (ironically, it was a Liberal transport minister, Marc Garneau, who raised foreign ownership levels of air carriers to 49 per cent from 25 per cent in 2018).

Advertisement 6

Article content

The point is, Canada has a competition problem but solving it requires taking on vested interests. Conservative Leader Pierre Poilievre has indicated he is willing to do that, calling corporate lobbyists “utterly useless” and saying he will focus on Canadian workers, not corporate interests.

“My daily obsession will be about what is good for the working-class people in this country,” he said in Vancouver earlier this month.

Even opening up sectors to foreign competition is no guarantee that investors will come. There are no foreign ownership restrictions in the grocery market (in addition to the five supermarkets listed above, there is Amazon-owned Whole Foods). When the Competition Bureau concluded last year that there was a “modest but meaningful” increase in food prices, it recommended Ottawa encourage a foreign-owned player to enter the Canadian market. It was a recommendation adopted by Industry Minister Francois-Philippe Champagne, to no avail thus far.

But it is clear from the Bank’s warning that the Canadian economy requires some shock treatment.

Robert Scrivener, the chairman of Bell and Northern Telecom in the 1970s, called Canada a nation of overprotected underachievers. That is even more true now than it was back then.

It’s time to break the glass.

jivison@criffel.ca

Get even more deep-dive National Post political coverage and analysis in your inbox with the Political Hack newsletter, where Ottawa bureau chief Stuart Thomson and political analyst Tasha Kheiriddin get at what’s really going on behind the scenes on Parliament Hill every Wednesday and Friday, exclusively for subscribers. Sign up here.

Article content

Get the latest from John Ivison straight to your inbox

Comments

Join the Conversation

This Week in Flyers

Adblock test (Why?)

728x90x4

Source link

Continue Reading

Trending