Economy
Stocks slip, short-term yields leap with inflation
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Tech shares slipped and short-term Treasury yields jumped on Tuesday as investors expect inflation to prompt interest rate hikes, with a hotter-than-forecast reading in Australia the latest sign of prices pressuring central bankers to act.
The Australian dollar also rose about 0.4% and short-dated Aussie government bonds sold heavily after the data release, which showed Australian core inflation hitting a six-year high.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5% – although it remains on course for its best month of the year – led by tech shares falling in Hong Kong. Japan’s Nikkei fell 0.6%.
Strong earnings had earlier propelled Wall Street indexes to fresh records and U.S. stock futures were flat in early trade.
“There are a couple of things that are of concern to investors, and inflation news is everywhere,” said Khoon Goh, head of Asia research at ANZ Bank in Singapore.
“This is where expectations of when the Fed might start to lift interest rates is starting to come in to focus. The announcement of tapering next week is pretty much a done deal – markets have moved past tapering and are focused on tightening.”
Two-year U.S. Treasury yields leapt nearly 5 basis points to 0.4970%, a 19-month high. The Federal Reserve meets next Tuesday and Wednesday with crude oil and soft commodity prices hovering near multi-year peaks. [O/R][GRA/]
The Fed has all but confirmed it will soon start to whittle back its asset purchases, though has said that shouldn’t signal rate hikes are imminent. Nevertheless, Fed funds futures are priced for a liftoff in the second half of next year.
“We updated our Fed call to show a hike in Q4 2022 and four hikes in 2023,” analysts at NatWest said in a note.
“The inflation overshoot has been persistent,” they said. “There is (only) so much the Fed can tolerate before reacting … it feels inevitable that that conversation will be brought up more and more as we go into next year.”
Before the Fed meeting the European Central Bank, Bank of Japan and Bank of Canada set policy this week. No changes are expected from Tokyo, but traders are expecting the ECB to push back on market inflation forecasts and are looking for hawkish clues from the Bank of Canada as prices put pressure on rates.
PRICES UP DOWN UNDER
Australia’s unexpected surge in consumer prices, which showed broad gains from rents to petrol prices, has further emboldened bond traders aggressively betting that the Reserve Bank of Australia will back away from its dovish guidance.
The print follows a decade-high inflation reading in New Zealand last week and has hammered bond markets and pulled forward rate hike expectations to mid-2022.
The yield on Australia’s April 2023 government bond, which the RBA has targeted at 0.1% as a signal that the cash rate will be at record lows for years, rose as far as 0.237% in a direct challenge to the bank’s intentions.
Three year Australian government bond futures, which are traded more heavily than cash bonds, plunged about 19 basis points to their lowest since mid-2019. [AUD/]
The Australian dollar rose to $0.7536, though broader currency markets were quiet as traders look to central bank meetings over the next week or so for guidance. The Canadian dollar hovered just below last week’s four month high.
Oil prices eased from overnight peaks, with Brent crude futures down 0.75% at $85.75 a barrel and U.S. crude down by the same margin to $84.02 a barrel.
Gold was steady at $1,788 an ounce and bitcoin held at $60,000 after a late-session drop on Tuesday.
(Reporting by Tom Westbrook; Editing by Lincoln Feast.)
Economy
Limiting Global Warming to 1.5C Would Avoid Two-Thirds of Economic Toll – Bloomberg
Climate inaction will depress the world’s economy more than previously estimated, according to a new study that takes into account the impacts of weather extremes and variability such as temperature spikes and intense rainfall.
A scenario in which global temperatures rise 3C on average will reduce the world’s gross domestic product by about 10%, doctoral researcher Paul Waidelich of ETH Zurich and colleagues write, with less developed countries paying the worst toll. By comparison, limiting global warming by 2050 to 1.5C — as sought by the Paris Agreement — will reduce that impact by about two-thirds.
Economy
PM: Millennials and Gen Z drive Canadian economy – CTV News Montreal
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- Canada’s budget 2024 and what it means for the economy Financial Post
- Federal budget is about ensuring fair economy for ‘everyone’: Trudeau Global News
Economy
Climate Change Will Cost Global Economy $38 Trillion Every Year Within 25 Years, Scientists Warn – Forbes
Topline
Climate change is on track to cost the global economy $38 trillion a year in damages within the next 25 years, researchers warned on Wednesday, a baseline that underscores the mounting economic costs of climate change and continued inaction as nations bicker over who will pick up the tab.
Key Facts
Damages from climate change will set the global economy back an estimated $38 trillion a year by 2049, with a likely range of between $19 trillion and $59 trillion, warned a trio of researchers from Potsdam and Berlin in Germany in a peer reviewed study published in the journal Nature.
To obtain the figure, researchers analyzed data on how climate change impacted the economy in more than 1,600 regions around the world over the past 40 years, using this to build a model to project future damages compared to a baseline world economy where there are no damages from human-driven climate change.
The model primarily considers the climate damages stemming from changes in temperature and rainfall, the researchers said, with first author Maximilian Kotz, a researcher at the Potsdam Institute for Climate Impact Research, noting these can impact numerous areas relevant to economic growth like “agricultural yields, labor productivity or infrastructure.”
Importantly, as the model only factored in data from previous emissions, these costs can be considered something of a floor and the researchers noted the world economy is already “committed to an income reduction of 19% within the next 26 years,” regardless of what society now does to address the climate crisis.
Global costs are likely to rise even further once other costly extremes like weather disasters, storms and wildfires that are exacerbated by climate change are considered, Kotz said.
The researchers said their findings underscore the need for swift and drastic action to mitigate climate change and avoid even higher costs in the future, stressing that a failure to adapt could lead to average global economic losses as high as 60% by 2100.
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How Do The Costs Of Inaction Compare To Taking Action?
Cost is a major sticking point when it comes to concrete action on climate change and money has become a key lever in making climate a “culture war” issue. The costs and logistics involved in transitioning towards a greener, more sustainable economy and moving to net zero are immense and there are significant vested interests such as the fossil fuel industry, which is keen to retain as much of the profitable status quo for as long as possible. The researchers acknowledged the sizable costs of adapting to climate change but said inaction comes with a cost as well. The damages estimated already dwarf the costs associated with the money needed to keep climate change in line with the limits set out in the 2015 Paris Climate Agreement, the researchers said, referencing the globally agreed upon goalpost set to minimize damage and slash emissions. The $38 trillion estimate for damages is already six times the $6 trillion thought needed to meet that threshold, the researchers said.
Crucial Quote
“We find damages almost everywhere, but countries in the tropics will suffer the most because they are already warmer,” said study author Anders Levermann. The researcher, also of the Potsdam Institute, explained there is a “considerable inequity of climate impacts” around the world and that “further temperature increases will therefore be most harmful” in tropical countries. “The countries least responsible for climate change” are expected to suffer greater losses, Levermann added, and they are “also the ones with the least resources to adapt to its impacts.”
What To Watch For
The fundamental inequality over who is impacted most by climate change and who has benefited most from the polluting practices responsible for the climate crisis—who also have more resources to mitigate future damages—has become one of the most difficult political sticking points when it comes to negotiating global action to reduce emissions. Less affluent countries bearing the brunt of climate change argue wealthy nations like the U.S. and Western Europe have already reaped the benefits from fossil fuels and should pay more to cover the losses and damages poorer countries face, as well as to help them with the costs of adapting to greener sources of energy. Other countries, notably big polluters India and China, stymie negotiations by arguing they should have longer to wean themselves off of fossil fuels as their emissions actually pale in comparison to those of more developed countries when considered in historical context and on a per capita basis. Climate financing is expected to be key to upcoming negotiations at the United Nations’s next climate summit in November. The COP29 summit will be held in Baku, the capital city of oil-rich Azerbaijan.
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