Chinese Business

China’s consumer inflation hit two-year high in September, official data showed Friday, fuelled by soaring pork prices and as extreme weather hit farmers.

Consumers in China have been largely spared the impact of a global surge in food and energy costs following Russia’s invasion of Ukraine.

But data showed Friday that the country’s consumer price index (CPI), the main gauge for retail inflation, hit 2.8 percent last month, up from 2.5 percent in August.

The reading is the highest since April 2020, when the country was emerging from its first wave of Covid-19 lockdowns.

It also follows weeks of record temperatures above 40 Celsius (104 Fahrenheit), China’s hottest summer on record that caused a crippling drought in August.

“Impacted by high temperatures and low rainfall, fresh vegetable prices rose 6.5 percent” on-year, NBS senior statistician Dong Lijuan said in a statement.

The price of pork — the country’s favourite meat — shot up 36 percent, according to the NBS.

“With bullish expectations, some pork farmers are reluctant to sell, and prices continued to rise,” Dong said.

Chinese authorities have repeatedly dipped into pork reserves in recent weeks as soaring prices triggered inflation concerns.

Meanwhile, the country’s factory-gate inflation dropped to 0.9 percent, its lowest in more than a year, data showed, on the back of falling raw material prices.

The figure was down from a 2.3 percent rise in August and the lowest since January 2021, according to official data.

“In September, the international prices of crude oil and other bulk commodities continued to decline,” Dong said.

Analysts polled by Bloomberg had expected consumer prices to rise by 2.9 percent and producer prices by one percent

Asian equities soared Friday to extend a surge on Wall Street, where all three indexes saw extreme swings in response to a forecast-beating inflation report that cemented expectations for more big Federal Reserve rate hikes.

Sterling also held on to its big gains sparked by speculation the UK government was set to perform another u-turn on its controversial debt-fuelled mini-budget, though the yen remained stuck around three-decade lows against the dollar.

The hotly awaited US inflation report showed prices rose last month at a faster clip than expected despite a series of interest rate increases this year, which have fanned fears of a global recession.

The month-on-month reading came in double estimates, while core inflation — which strips out volatile energy and food prices — was also elevated.

The figures sparked a sharp plunge on Wall Street but the selling quickly reversed, and all three main indexes finished the day with gains of more than two percent with analysts suggesting several reasons for the extreme move.

Some said the initial selling may have been a knee-jerk reaction before traders accepted the data was not as bad as other recent reports, while technical factors were also flagged.

Others speculated that equities had finally reached their bottom after a year of selling that has seen many indexes plunge into correction territory having lost more than 20 percent from their recent peaks.

“The market reversal was a head-scratcher”, said OANDA’s Edward Moya. “Some investors are convinced core inflation will soon start trending lower. Fed tightening will remain aggressive at 75 basis points in November and possibly December,” he added.

“Monetary policy is quickly getting restrictive and that will undoubtedly send inflation lower. It looks like rates will peak slightly above five percent and for some that is good enough of a reason to get back into stocks.”

However, he warned that “given the path for rates is higher, this market reversal won’t last long”.

– Yen weakness –

Still, Asian investors took the opportunity to buy up some bargains after another torrid week.

Tokyo, Hong Kong and Taipei put on more than three percent apiece, while Seoul was up more than two percent. Shanghai, Sydney, Singapore, Wellington, Manila and Jakarta were also sharply higher.

The pound was also still enjoying some much-needed support after breaking higher Thursday on reports that the new government was looking at rowing back on more tax-cut pledges in its mini-budget, which sparked turmoil on debt markets when released two weeks ago.

Sterling was sitting well above $1.13, having been wallowing below $1.10 early Thursday, with help also coming from Bank of England cash injections to prop up financial markets and prevent a collapse of pension funds.

The pound’s stronger position came despite Prime Minister Liz Truss’s insistence that there would be no more u-turns, after she was previously forced to scrap a plan to cut the higher rate of income tax.

However, the strong inflation data pushed the already strong dollar further up against other currencies and it hit a 32-year high of 147.67 yen, with traders now looking to see if Japanese officials intervene again to protect the struggling unit.

Japanese finance minister Shunichi Suzuki told the Group of 20 gathering in Washington DC that authorities were “watching the foreign exchange markets with a high sense of urgency, and we’ll take appropriate responses against excessive moves”.

Officials refused to say if they intervened Thursday following a big drop in response to the greenback’s spike.

The yen’s weakness comes from the Bank of Japan’s refusal to lift interest rates — citing a need to support the economy — at the same time as the Fed presses ahead with a series of big rate hikes.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 3.4 percent at 27,141.18 (break)

Hong Kong – Hang Seng Index: UP 3.2 percent at 16,912.09

Shanghai – Composite: UP 1.4 percent at 3,059.30

Pound/dollar: DOWN at $1.1330 from $1.1333 Thursday

Dollar/yen: UP at 147.28 yen from 147.22 yen

Euro/dollar: UP at $0.9792 from $0.9780

Euro/pound: UP at 86.38 pence from 86.28 pence

West Texas Intermediate: UP 0.1 percent at $89.22 per barrel

Brent North Sea crude: UP 0.1 percent at $94.67 per barrel

New York – Dow: UP 2.8 percent at 30,038.72 (close)

London – FTSE 100: UP 0.4 percent at 6,850.27 (close) 

Singapore’s economy expanded by 4.4 percent on-year in the third quarter of 2022, the government said Friday while warning of ongoing global challenges such as inflation.

Economists often see the performance of the city-state’s open, trade-driven economy as a barometer for global trading activity.

The Q3 reading was slightly lower than the previous quarter’s 4.5 percent, according to advance estimates released by the trade ministry.

“The expansion was underpinned in part by a stronger-than-expected recovery in the domestic-oriented and travel-related sectors as more Covid-19 restrictions abroad and locally were relaxed,” the Monetary Authority of Singapore said Friday.

Singapore has removed all Covid restrictions, except for mask-wearing inside buses and metro trains, after vaccinating most of its population of nearly six million and deciding to live with the coronavirus.

On a quarter-to-quarter basis, Singapore’s economy expanded by 1.5 percent, avoiding a technical recession by reversing the 0.2 percent contraction in Q2.

However, manufacturing output and financial services weakened because of softening external demand, according to the central bank.

The MAS said it would further tighten monetary policy to fight inflation — its fifth such move since October 2021.

“In the quarters ahead, the drag on economic activity from the globally synchronised tightening in monetary policy will intensify,” it said.

“While inflation should moderate, it will remain high for some time.”

The MAS slightly raised its inflation forecasts, predicting around 4.0 percent core inflation and around 6.0 percent headline inflation for 2022.

“However, further shocks, including from geopolitical tensions, could drive inflation higher and cause full-year recessions in some key economies,” the bank added.

Singapore’s economy is projected to expand by 3.0-4.0 percent in 2022, after officials trimmed the earlier forecast of 3.0-5.0 percent.

Wall Street stocks finished a topsy-turvy session with strong gains Thursday following disappointing inflation data, while the pound rallied and the yen hit a new multi-decade low.

US consumer prices rose 0.4 percent in September compared to August, twice the 0.2 percent projected by analysts, even as the annual increase in the consumer price index slowed slightly to 8.2 percent from 8.3 percent.

The data are the latest sign inflation is becoming more ingrained in the US economy, despite numerous Federal Reserve actions to counter the trend.

US stocks initially plummeted on the report, which exacerbated recession worries on the increased odds of more aggressive Fed interest rate increases.

But equities soon reversed course, working their way back into positive territory by late morning and rising from there.

The broad-based S&P 500 ended 2.6 percent higher, joined in positive territory by bourses in Paris and Frankfurt that had earlier closed up at least one percent.

The early action after the inflation report was “knee-jerk” selling, said Briefing.com analyst Patrick O’Hare, adding that the inflation data — while disappointing — was not shocking given other recent economic reports.

The initial reversal was due to technical trading factors. When stocks refused to drop below a key trading level, they did a 180-degree turn and pushed higher.

“Maybe now there’s a bottom in place for the time being,” O’Hare said.

Also on Thursday, the British pound soared against the dollar and other currencies amid media speculation the government may cut back on its fiscal stimulus plans and increase corporate taxes in its latest policy U-turn.

The IMF reiterated its criticism of the new British government’s policies, with Chief Kristalina Georgieva calling for “coherent and consistent” measures.

Throughout this week’s meetings of finance chiefs in Washington, the IMF has stressed that the priority was for central banks to control inflation with monetary policy tightening and for governments to keep their budgets tight.

“Our message to everybody, not just to the UK, to everybody at this time: fiscal policy should not undermine monetary policy,” Georgieva said.

The Japanese yen on Thursday also hit its lowest level against the dollar since 1990 after the US inflation data, a reflection of the gulf between the US and Japanese central banks in monetary policy.

“The Bank of Japan continues to keep monetary policy easy because inflation and wages remain relatively low” in Japan, said Carol Kong, an economist and currency strategist at Commonwealth Bank of Australia.

– Key figures around 2100 GMT –

New York – Dow: UP 2.8 percent at 30,038.72 (close)

New York – S&P 500: UP 2.6 percent at 3,669.91 (close)

New York – Nasdaq: UP 2.2 percent at 10.649.15 (close)

London – FTSE 100: UP 0.4 percent at 6,850.27 (close) 

Frankfurt – DAX: UP 1.5 percent at 12,355.58 (close)

Paris – CAC 40: UP 1.0 percent at 5,879.19 (close)

EURO STOXX 50: UP 0.9 percent at 3,362.40 (close)

Tokyo – Nikkei 225: DOWN 0.6 percent at 26,237.42 (close)

Hong Kong – Hang Seng Index: DOWN 1.9 percent at 16,389.11 (close)

Shanghai – Composite: DOWN 0.3 percent at 3,016.36 (close)

Pound/dollar: UP at $1.1333 from $1.1100 Wednesday

Dollar/yen: UP at 147.22 yen from 146.91 yen

Euro/dollar: UP at $0.9780 from $0.9703

Euro/pound: DOWN at 86.28 pence from 87.41 pence

Brent North Sea crude: UP 2.3 percent at $94.57 per barrel

West Texas Intermediate: UP 2.1 percent at $89.11 per barrel

burs-jmb/des

Equities fell sharply on Thursday after data showed US inflation jumped more than expected in September, before quickly bouncing higher.

The data was seen as solidifying expectations of further interest rate hikes, and helped push the dollar higher. The greenback hit its highest level against the Japanese yen since 1990.

US consumer prices rose 0.4 percent in September compared to August, twice the 0.2 percent projected by analysts even as the annual increase in the consumer price index slowed slightly to 8.2 percent from 8.3 percent.

But core inflation, excluding volatile energy and food prices, climbed to 6.6 percent from 6.3 percent in August.

The US Federal Reserve has raised interest rates at an aggressive clip of 0.75 percentage points at its last three meetings. It has signalled plans to continue doing so until rampant inflation is brought under control.

That has led to a slump in stock prices in recent months, as higher interest rates will reduce consumer spending power.

Last month saw a brief rally in stocks after data suggested the US economy was slowing. Investors hoped that it would allow a “pivot” by the Fed to a slower rate of interest rate hikes.

“The strong CPI only reinforces the view that there is no way the Federal Reserve can contemplate a ‘pivot’ this year,” said Stephen Innes at SPI Asset Management. 

Wall Street stocks plunged after the opening bell, the Nasdaq Composite quickly dropping more than three percent.

But by late morning, Wall Street’s main indices were all solidly higher.  

“In the aftermath of the hotter US CPI report, we saw risk assets tumble as the dollar and bonds jumped,” said market analyst Fawad Razaqzada at City Index and FOREX.com.

“Much — or in some cases, all — of those moves have since been undone due to profit-taking, while banks and energy stocks rose thanks to even higher yields and rebounding crude oil prices,” he added.

– Europe stocks recover –

European stocks also bounced back from sharp losses.

Frankfurt closed 1.5 percent higher and Paris rose 1.0 percent.

The FTSE 100 in London added 0.4 percent amid media speculation the government may cut back on its fiscal stimulus plans and increase corporate taxes in its latest policy U-turn.

The speculation sent the pound soaring 1.9 percent against the dollar. 

Meanwhile the UK government’s 30-year bond yield eased to 4.56 percent and the 10-year fell to 4.23 percent.

The ten-year yield on Wednesday struck 4.64 percent, the highest since the 2008 global financial crisis and higher than the level that prompted the BoE’s recent bond market intervention.

The drop in UK bond yields helped fuel a rebound in stocks of home builders and mortgage lenders.

The dollar rose as high as 147.67 yen, its highest level since 1990, as US and Japanese monetary policy increasingly diverge.

The Bank of Japan has so far refused to raise interest rates, making yen investments less attractive than dollar investments.

“The Bank of Japan continues to keep monetary policy easy because inflation and wages remain relatively low” in Japan, said Carol Kong, and economist and currency strategist at Commonwealth Bank of Australia.

– Key figures around 1530 GMT –

New York – Dow: UP 1.3 percent at 29,576.35 points

EURO STOXX 50: UP 0.9 percent at 3,362.40

London – FTSE 100: UP 0.4 percent at 6,850.27 (close) 

Frankfurt – DAX: UP 1.5 percent at 12,355.58 (close)

Paris – CAC 40: UP 1.0 percent at 5,879.19 (close)

Tokyo – Nikkei 225: DOWN 0.6 percent at 26,237.42 (close)

Hong Kong – Hang Seng Index: DOWN 1.9 percent at 16,389.11 (close)

Shanghai – Composite: DOWN 0.3 percent at 3,016.36 (close)

Pound/dollar: UP at $1.1310 from $1.1100 Wednesday

Dollar/yen: UP at 147.25 yen from 146.91 yen

Euro/dollar: UP at $0.9764 from $0.9703

Euro/pound: DOWN at 86.33 pence from 87.41 pence

Brent North Sea crude: UP 1.4 percent at $93.72 per barrel

West Texas Intermediate: UP 1.4 percent at $88.53 per barrel

burs-rl/jj

Equities fell sharply on Thursday after data showed US inflation jumped more than expected in September.

The data solidified expectations of further interest rate hikes, helping push the dollar higher, including striking its highest level against the Japanese yen since 1990.

US consumer prices rose 0.4 percent in September compared to August, twice the 0.2 percent projected by analysts even as the annual increase in the consumer price index slowed slightly to 8.2 percent from 8.3 percent.

But core inflation, excluding volatile energy and food prices, climbed to 6.6 percent from 6.3 percent in August.

The US Federal Reserve has  raised interest rates at an aggressive clip of 0.75 percentage points at its last three meetings, and signalled plans to continue doing so until rampant inflation is brought under control.

That has led to a slump in stock prices in recent months, as higher interest rates will reduce consumer spending power.

Last month saw a brief rally in stocks after data suggesting that the US economy was slowing, as investors hoped that it would allow a “pivot” by the Fed to a slower rate of interest rate hikes.

“The strong CPI only reinforces the view that there is no way the Federal Reserve can contemplate a ‘pivot’ this year,” said Stephen Innes at SPI Asset Management. 

Wall Street stocks plunged at the open, with the Dow falling 1.1 percent. The S&P 500 slumped 2.1 percent and the tech-heavy Nasdaq Composite 2.8 percent. 

European stocks, which had drifted higher before the US inflation data, turned lower. Frankfurt shed 1.1 percent and Paris 1.6 percent.

The FTSE 100 in London was down 1.3 percent, with media speculating the government may cut back on its fiscal stimulus plans and and increase corporate taxes in its latest policy U-turn.

But the speculation sent the pound soaring 1.4 percent against the dollar. Meanwhile the UK government’s 30-year bond yield eased to 4.63 percent and the 10-year fell to 4.31 percent.

The ten-year yield on Wednesday struck 4.64 percent, the highest since the 2008 global financial crisis and higher than the level that prompted the BoE’s recent bond market intervention.

Oil prices fell after the US inflation data, which reinforced recession concerns and about sliding demand prospects.

The dollar rose as high as 147.67 yen, its highest level since 1990, as US and Japanese monetary policy increasingly diverge. The Bank of Japan has so far refused to raise interest rates, making yen investments less attractive than dollar investments.

“The Bank of Japan continues to keep monetary policy easy because inflation and wages remain relatively low” in Japan, said Carol Kong, and economist and currency strategist at Commonwealth Bank of Australia.

– Key figures around 1530 GMT –

London – FTSE 100: DOWN 1.3 percent at 6,740.61 points

Frankfurt – DAX: DOWN 1.1 percent at 12,037.08

Paris – CAC 40: DOWN 1.6 percent at 5,727.54

EURO STOXX 50: DOWN 1.9 percent at 3,269.59

New York – Dow: DOWN 1.6 percent at 28,749.43

Tokyo – Nikkei 225: DOWN 0.6 percent at 26,237.42 (close)

Hong Kong – Hang Seng Index: DOWN 1.9 percent at 16,389.11 (close)

Shanghai – Composite: DOWN 0.3 percent at 3,016.36 (close)

Pound/dollar: UP at $1.1193 from $1.1100 Wednesday

Dollar/yen: UP at 147.19 yen from 146.91 yen

Euro/dollar: DOWN at $0.9666 from $0.9703

Euro/pound: DOWN at 86.38 pence from 87.41 pence

Brent North Sea crude: DOWN 0.4 percent at $92.09 per barrel

West Texas Intermediate: DOWN 1.0 percent at $86.41 per barrel

burs-rl/bp

Indian outsourcing behemoth Infosys approved a $1 billion share buyback on Thursday after strong quarterly profits that reflected sustained demand for digital services.

Tech companies have benefited from higher digital services demand since the pandemic, and India’s second-largest IT company has kept a robust balance sheet despite labour competition driving up sector salaries. 

Net profit rose 11 percent year-on-year to 60.21 billion rupees ($731.4 million) in the September quarter.

Revenues were up 23.4 percent for the same period, helped by strong demand in North America and Europe.

“While concerns around the economic outlook persist, our demand pipeline is strong as clients remain confident in our ability to deliver the value they seek,” chief executive Salil Parekh said in a statement.

The Bangalore-headquartered company reported large deals of $2.7 billion for the quarter, its best result in nearly two years and up $1 billion from the June quarter.

Its board approved plans to buy back shares worth 93 billion rupees ($1.13 billion) at 1,850 rupees per share, a 30 percent premium to Thursday’s closing price.

Chief financial officer Nilanjan Roy said the board had approved an open market share buyback of 93 billion rupees ($1.14 billion) in its meeting before the results announcement.

Infosys also reported a marginally lower employee attrition rate — a key metric for IT companies — compared to the previous quarter.

Competition for employees has increasingly driven up salaries and weighed on operating margins of Indian technology companies.

“While supply side challenges are gradually abating as reflected in the reducing attrition rates, they continue to exert pressure on our cost structure,” Roy said.

Infosys is India’s second-largest information technology company and earns more than 60 percent of its revenues from North American markets.

It was at the forefront of an outsourcing boom that saw India become a back office to the world as Western firms subcontracted work to a skilled English-speaking workforce.

Shares in Infosys closed 0.64 percent lower in Mumbai ahead of the earnings announcement.

Equities fell in Asia and the dollar maintained its strength Thursday ahead of the release of US inflation data that could determine the pace of Federal Reserve interest rate hikes.

The release of the September report comes a day after minutes from the central bank’s latest policy meeting showed officials determined to win their battle against runaway prices by ramping up borrowing costs, though they did note the risk to the economy that posed.

Investors are growing increasingly worried that the strict monetary tightening campaign — including three bumper rate hikes in succession — will plunge the United States into recession.

While there are hopes for signs of a slowdown, traders have taken to the sidelines in case of more volatility.

On Wednesday, figures showed wholesale inflation rose a forecast-beating 0.4 percent.

After another day of losses on Wall Street, Asia was again in the red with Hong Kong, Singapore and Seoul off more than one percent.

Tokyo, Shanghai, Mumbai, Wellington and Taipei were also off.

London and Paris fell but Frankfurt edged up.

“The big rise in core prices would appear to suggest that inflation is likely to be much stickier over the next few months that markets had originally been hoping,” said CMC Markets analyst Michael Hewson.

This, he added, was “adding to the risk we could see the Federal Reserve not only be much more aggressive on rate hikes, but keep those rates higher for longer”.

Minutes from the Fed’s September meeting suggested it will press on with a fourth straight 0.75 percentage-point hike next month, with policymakers noting a slowdown of growth and the jobs market would be “required” to tame inflation, adding that prices remained “unacceptably high”.

They also pointed out that prices had “not yet responded” to the previous tightening.

Bank officials had for months stuck to a line that they will continue ramping up rates and hold them until they were satisfied they have slain inflation.

But the minutes said “several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook”.

However, they said the cost of not doing enough to tackle prices outweighed the cost of doing too much.

– Dollar still king –

“The Fed remains purposefully driven to tighten monetary policy further into restrictive territory given the rather gradual cooling of economic activity and slow inflation response,” said Gregory Daco, at Ernst & Young.

But added that “the balance of risks is rapidly shifting”.

“Elevated global economic and financial market uncertainty will make it essential for the Fed to calibrate its policy response.”

They expect to lift rates to around 4.6 percent in 2023, according to the median estimate — from the current 3-3.25 percent.

Expectations for even more tightening kept the dollar elevated across the board, and it hit a fresh 24-year high near 147 yen, more than one yen above the point at which Japanese authorities last month intervened to protect the currency.

Still, sterling held most of the gains it enjoyed Wednesday fuelled by expectations the Bank of England will unveil a huge rate hike next month in the wake of volatility in UK financial markets.

The crisis in London saw the yield on 30-year government bonds bounce above five percent, while that on 10-year bonds hit 4.64 percent, the highest since 2008 during the global financial crisis.

The UK government’s increased borrowing costs are a reflection of market unease regarding the affordability of upcoming tax cuts aimed at supporting Britain’s recession-threatened economy.

Oil prices edged up after dropping Wednesday in response to a report from the industry-funded American Petroleum Institute indicating a huge jump in US stockpiles, suggesting weakening demand.

Meanwhile, OPEC trimmed its estimate for growth in demand this year and next by half a million barrels a day.

A drop in the past few days has eaten into last week’s gains that came in response to a decision by OPEC and other producers to slash output by two million barrels a day. 

– Key figures around 0810 GMT –

Tokyo – Nikkei 225: DOWN 0.6 percent at 26,237.42 (close)

Hong Kong – Hang Seng Index: DOWN 1.9 percent at 16,389.11 (close)

Shanghai – Composite: DOWN 0.3 percent at 3,016.36 (close)

London – FTSE 100: DOWN 0.5 percent at 6,793.63

Pound/dollar: DOWN at $1.1090 from $1.1101 Wednesday

Dollar/yen: UP at 146.83 yen from 146.86 yen

Euro/dollar: DOWN at $0.9704 from $0.9707

Euro/pound: UP at 87.54 pence from 87.41 pence

West Texas Intermediate: UP 0.6 percent at $87.77 per barrel

Brent North Sea crude: UP 0.8 percent at $93.20 per barrel

New York – Dow: DOWN 0.1 percent at 29,210.85 (close)

Equities fell in Asia and the dollar maintained its strength Thursday ahead of the release of crucial US inflation data that could determine the pace of Federal Reserve interest rate hikes.

The release of the September report comes a day after minutes from the central bank’s latest policy meeting showed officials determined to win their battle against runaway prices by ramping up borrowing costs, though they did note the risk to the economy that posed.

Investors are growing increasingly worried that the strict monetary tightening campaign — including three bumper rate hikes in succession — will plunge the United States into recession.

While there are hopes for signs of a slowdown, traders have taken to the sidelines in case of more volatility.

On Wednesday, figures showed wholesale inflation rose a forecast-beating 0.4 percent.

After another day of losses on Wall Street, Asia was again in the red with traders in Hong Kong, Tokyo, Shanghai, Singapore, Seoul, Wellington, Taipei and Manila selling.

“The Fed needs data to start finding an off-ramp,” Carol Schleif, of BMO Family Office, told Bloomberg Television.

“That’s a tough market to be in. Until we get a bunch more data, markets will have to figure out how to find their footing.”

Minutes from the Fed’s September meeting suggested it will press on with a fourth straight 0.75 percentage-point hike next month, with policymakers noting a slowdown of growth and the jobs market would be “required” to tame inflation, adding that prices remained “unacceptably high”.

They also pointed out that prices had “not yet responded” to the previous tightening.

Bank officials had for months stuck to a line that they will continue ramping up rates and hold them until they were satisfied they have slain inflation.

But the minutes said “several participants noted that, particularly in the current highly uncertain global economic and financial environment, it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook”.

However, they said the cost of not doing enough to tackle prices outweighed the cost of doing too much.

– Dollar still king –

“The Fed remains purposefully driven to tighten monetary policy further into restrictive territory given the rather gradual cooling of economic activity and slow inflation response,” said Gregory Daco, at Ernst & Young.

But added that “the balance of risks is rapidly shifting”.

“Elevated global economic and financial market uncertainty will make it essential for the Fed to calibrate its policy response.”

They expect to lift rates to around 4.6 percent in 2023, according to the median estimate — from the current 3-3.25 percent.

Expectations for even more tightening kept the dollar elevated across the board, and it hit a fresh 24-year high near 147 yen, more than one yen above the point at which Japanese authorities last month intervened to protect the currency.

Still, sterling held most of the gains it enjoyed Wednesday fuelled by expectations the Bank of England will unveil a huge rate hike next month in the wake of volatility in UK financial markets.

The crisis in London saw the yield on 30-year government bonds bounce above five percent, while that on 10-year bonds hit 4.64 percent, the highest since 2008 in the midst of the global financial crisis.

The UK government’s increased borrowing costs are a reflection of market unease regarding the affordability of upcoming tax cuts aimed at supporting Britain’s recession-threatened economy.

Oil prices were broadly flat after another drop Wednesday following a report from the industry-funded American Petroleum Institute indicating a huge jump in US stockpiles, suggesting weakening demand.

Meanwhile, OPEC trimmed its estimate for growth in demand this year and next by half a million barrels a day.

A drop in the past few days has eaten into last week’s gains that came in response to a decision by OPEC and other producers to slash output by two million barrels a day. 

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: DOWN 0.5 percent at 26,260.25 (break)

Hong Kong – Hang Seng Index: DOWN 1.1 percent at 16,507.45

Shanghai – Composite: DOWN 0.3 percent at 3,018.07

Pound/dollar: DOWN at $1.1086 from $1.1101 Wednesday

Dollar/yen: UP at 146.90 yen from 146.86 yen

Euro/dollar: DOWN at $0.9701 from $0.9707

Euro/pound: UP at 87.50 pence from 87.41 pence

West Texas Intermediate: DOWN 0.2 percent at $87.08 per barrel

Brent North Sea crude: FLAT at $92.42 per barrel

New York – Dow: DOWN 0.1 percent at 29,210.85 (close)

London – FTSE 100: DOWN 0.9 percent at 6,826.15 (close) 

The pound rallied and UK government bond yields rose Wednesday as the Bank of England came under criticism for fuelling market uncertainty.

The BoE insisted it would halt on Friday a short-term programme of bond-buying support aimed at quelling volatility triggered by a debt-fuelled UK budget following a Financial Times report the central bank stood ready to intervene further.

“The Bank of England’s messaging to the market over the last 24-hours has been conflicted and confused, causing unnecessary gyrations to the pound and adding to the sense of instability in the markets,” said Interactive Investor analyst Victoria Scholar.

On Wednesday, the yield on the government’s 30-year bond returned above a relatively high level of five percent, and the yield on 10-year bonds hit 4.64 percent, the highest level since 2008 in the midst of the global financial crisis and higher than the level which prompted the BoE’s bond market intervention.

The UK government’s higher borrowing costs are a reflection of market unease regarding the affordability of upcoming tax cuts aimed at supporting Britain’s recession-threatened economy.

The pound rose against the dollar as traders bet on more aggressive interest rate hikes from the BoE on concerns the budget of uncosted tax cuts would further fuel sky-high UK inflation.

Meanwhile, London’s benchmark FTSE 100 index shed 0.9 percent, with sentiment also dampened by news that the UK economy unexpectedly shrank in August.

Frankfurt’s DAX dipped 0.4 percent after the German government said it now expects the economy will contract 0.4 percent next year and inflation will run at seven percent.

Investors are struggling to find some solace as they navigate a range of crises that threaten the global economy, from soaring prices and bumper interest rate hikes to the Ukraine war and China’s Covid-induced growth slowdown.

The gloom was summed up by the International Monetary Fund, which on Tuesday highlighted the risks of inflation and the conflict in Europe as it slashed its global growth forecast and warned: “For many people 2023 will feel like a recession”.

Later, US President Joe Biden admitted there was a chance the country could suffer a “slight” recession.

Investors are now nervously looking ahead to Thursday’s US inflation report, with observers warning that a strong reading could spark another rout on markets.

Even if it shows inflation cooling from a four-decade high, analysts said the Fed would not likely take the single reading as reason to slow down its pace of rate hikes.

Wall Street’s main stock indices rose despite the latest reading of the producer price index, which nudged down only a tenth of a percentage point to 8.5 percent in September on an annual basis.

The reading “will stoke concerns that there hasn’t been enough improvement on the inflation front to convince the Fed to take a more guarded approach with its rate hikes,” said market analyst Patrick O’Hare at Briefing.com.

Oil prices fell after OPEC trimmed its forecast for growth in oil demand this year and next by half a million barrels per day, citing “recent macroeconomic trends and oil demand developments in various regions.”

OPEC and its allies including Russia last week decided to cut output by two million barrels per day despite concerns about tight supplies.

“Continued concerns about future global demand and the bleak outlook from the IMF is raising the possibility that supply issues will be less of an issue than demand destruction,” said Michael Hewson at CMC Markets.

– Key figures around 1530 GMT –

New York – Dow: UP 0.4 percent at 29,356.58 points

EURO STOXX 50: DOWN 0.3 percent at 3,331.53

London – FTSE 100: DOWN 0.9 percent at 6,826.15 (close) 

Frankfurt – DAX: DOWN 0.4 percent at 12,172.26 (close)

Paris – CAC 40: DOWN 0.3 percent at 5,818.47 (close)

Tokyo – Nikkei 225: FLAT at 26,396.83 (close)

Hong Kong – Hang Seng Index: DOWN 0.8 percent at 16,701.03 (close)

Shanghai – Composite: UP 1.5 percent at 3,025.51 (close)

Pound/dollar: UP at $1.1075 from $1.0972 Tuesday

Dollar/yen: UP at 146.89 yen from 145.83 yen

Euro/dollar: DOWN at $0.9705 from $0.9709

Euro/pound: DOWN at 87.64 pence from 88.46 pence

Brent North Sea crude: DOWN 2.0 percent at $92.40 per barrel

West Texas Intermediate: DOWN 2.3 percent at $87.26 per barrel

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