(Bloomberg) — Bank of Japan Governor Haruhiko Kuroda shocked markets earlier this week by doubling a cap on 10-year yields, in a move that helps pave the way for possible monetary policy normalization under a new governor.
The change, which blindsided all 47 economists surveyed by Bloomberg ahead of the decision, has the potential upend global markets as the cap has helped keep borrowing costs low worldwide. Later in the week, Japan’s key inflation gauge accelerated to the fastest pace since 1981, continuing to fuel speculation the BOJ will surprise markets again.
In the US, the Federal Reserve’s preferred inflation gauge continued to retreat, but wages are still rising much too fast for policymakers’ liking. Real consumer spending flat-lined, but officials will want to see more than a month of data to indicate demand is substantially cooling.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
Asia
Kuroda’s decision to widen the trading band on 10-year bond yields triggered a jump in the yen and roiled global markets. The move shook markets — boosting the yen and bond yields, while sending stocks lower. The implications go far beyond Japan. With the BOJ — the last advanced economy holdout in a global monetary tightening shift — now letting the benchmark yield trade higher than before, the shock will echo across global financial markets.
China’s broad budget deficit hit a record so far this year, showing how damaging the now abandoned Covid Zero policy and the ongoing housing slump have been to the economy and to the government’s finances. The augmented fiscal deficit was 7.75 trillion yuan ($1.1 trillion) in January to November, according to Bloomberg calculations based on data from the Ministry of Finance.
Economic activity continued to fall in December for China’s small firms, with the business outlook weakening further as Covid cases surge amid reopening, according to Standard Chartered Plc. A gauge of business conditions at small and medium enterprises was in contractionary territory for a third straight month in December.
US & Canada
US inflation continued to ease into the end of 2022 and expectations of future increases dropped, reinforcing hopes that the worst bout of price pressures in a generation has finally passed. However, wages are still climbing much too fast as the job market remains tight.
US sales of previously owned homes fell for a 10th-straight month in November, extending a record decline as high mortgage rates continue to stifle affordability. Contract signings to buy single-family houses slumped to a 12-year low, while sales of condominiums also dropped.
Canada’s inflation rate decelerated in November but key gauges of underlying price pressures trended higher, potentially dashing hopes for a pause in interest-rate increases. Consumer price data show price pressures remain stubbornly high, even as the economy gears down and higher borrowing costs curb domestic demand.
Europe
UK household incomes fell for a fourth straight quarter, leaving Britons on course for the worst period for living standards in memory as officials estimated the economy was weaker than previously thought. Adjusted for inflation, disposable income per person declined 0.5% in the third quarter, while gross domestic product fell 0.3%.
UK government borrowing surged in November as the public finances came under mounting pressure from rising debt-interest payments and the huge cost of subsidizing energy bills for consumers and businesses. The budget deficit stood at £22 billion ($26.8 billion) –- the highest monthly total in records stretching back to 1993 and almost triple the £8.1 billion reading a year ago.
Emerging Markets
Vietnam is on track this year to bump Britain from its long-time place among the US’s top seven goods trading partners, which would be the first time the UK hasn’t been in that group in records going back at least to 2004. The UK’s share of the US merchandise trade slid to 2.6% through the first 10 months of this year while Vietnam’s rose to 2.7%, according to US Census Bureau data.
After some of the world’s most aggressive interest-rate hikes, Brazil’s inflation has plunged by half in the past six months. That sounds like mission accomplished — except the central bank doesn’t see it that way. While the bank’s benchmark now offers an inflation-adjusted return of almost 8% — a global high among major economies – traders reckon its next move is more likely to be another bout of monetary tightening because of fiscal policy.
World
Policymakers in Egypt, Morocco and Indonesia raised interest rates this week while those in Hungary, Paraguay and Czech Republic stayed on hold.
–With assistance from Zoe Schneeweiss, Ailing Tan, Liza Tetley, Randy Thanthong-Knight, Lin Zhu, Yuki Masujima (Economist), Philip Aldrick, Andrew Atkinson, Maria Eloisa Capurro, John Liu, Brendan Murray and Reade Pickert.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
