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BEIJING, March 5 – China’s 2024 defense spending will rise 7.2% from 2023, according to an official work report reviewed by Reuters on Tuesday.
The National People’s Congress (NPC), China’s rubber-stamp parliament, is due to hear Premier Li Qiang’s first work report at its annual meeting in Beijing on Tuesday.
The target rise for last year’s defense budget was also 7.2%.
BEIJING, March 5 – China has set an economic growth target for 2024 of around 5%, similar to last year’s goal and in line with analysts’ expectations, according to an official work report released on Tuesday.
To meet the goal, China plans to run a budget deficit of 3% of economic output, down from a revised 3.8% last year, the report said. But crucially, it plans to issue 1 trillion yuan (USD 139 billion) in special treasury bonds, which are typically not included in the budget.
The National People’s Congress (NPC), China’s rubber-stamp parliament, is due to hear Premier Li Qiang’s maiden work report at its annual meeting in Beijing this week.
The report sets out the government’s key economic and social development goals each year.
The special bond issuance quota for local governments was set at 3.9 trillion yuan, versus 3.8 trillion yuan in 2023, the report said.
China also set the inflation target at 3% and aims to create over 12 million urban jobs this year, keeping the jobless rate at around 5.5%.
China’s economy expanded 5.2% in 2023, but it remains heavily reliant on credit-driven, state-led investment, raising concerns over whether it can sustain that pace in the longer-term.
This year’s target will be harder to reach than last year’s because the favorable base effect from a COVID-hit 2022 has faded, analysts say.
A property crisis, deepening deflation, a stock market rout, and mounting local government debt woes are putting great pressure on China’s leaders to take momentous policy decisions that will put the economy on a solid footing for the long-term.
Analysts expect China to lower its annual growth ambitions in the future as it needs to make tough calls on how to fix these deep structural imbalances.
Reform advocates, worried about record low consumer confidence and plunging investor and business sentiment, want China to return to a path of pro-market policies and boost household demand.
The NPC is not the traditional venue for sharp policy shifts, which are usually reserved for events known as plenums, held by the Communist Party between its once-every-five-year congresses.
One such plenum was initially expected in the final months of 2023. While it could still take place later this year, the fact that it has not yet been scheduled has fueled investor concerns over policy inaction.
The International Monetary Fund projects China’s economic growth at 4.6% this year, declining further in the medium term to about 3.5% in 2028.
(Reporting by Beijing newsroom; Writing by Marius Zaharia; Editing by Leslie Adler, Neil Fullick and Lincoln Feast.)
Jan 31 – While Asia’s beaten-down stock markets could use a clean slate in February they must first contend with Wall Street’s negative reaction to the Federal Reserve’s unsurprising decision to hold US rates steady on Wednesday.
Asia gets its chance to trade on the Fed Thursday and then pivot to Friday’s US payrolls report, which it will digest on Monday.
US stocks extended losses and Treasury yields fell after the Fed’s statement, which dropped language suggesting further hikes could be in the offing but, disappointingly, all but ruled out that a rate cut would come at the next meeting in March.
Policymakers were not confident enough that inflation was moving sustainably toward its 2% target to commit to an imminent time frame and Chair Jerome Powell later reinforced with reporters that a March cut was not the base case, which pushed stocks even lower.
“He’s preserving some of that flexibility and he’s still providing the direction that the Fed is going to be moving to easing stance,” said Keith Lerner, chief market strategist at Truist Wealth in Atlanta. “So markets were bouncing around a lot, but in general it’s in line with expectations and not a major shift. But him being more direct and forcefully pushing back against a March cut is a net negative.”
The S&P 500 was already retreating from record-high territory after Microsoft MSFT.O and Alphabet GOOGL.O flagged, in their earnings reports, rising costs to develop Artificial Intelligence. The market was also digesting a weaker-than-expected ADP National Employment report, which muddies the picture for Friday’s US payrolls report after surprisingly decent labor market data on Tuesday. The benchmark index closed down 1.6% on Wednesday but rose 1.6% for the month.
Japan continued to buck the selloff elsewhere in Asia. MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.4% and was heading for a monthly loss of roughly 5%, snapping a two-month winning streak.
With Wednesday’s close China’s stock markets have fallen six straight months despite recent efforts by Beijing to shore up the economy and confidence.
Chinese shares lost 0.9% after a survey showed manufacturing activity shrinking in January for a fourth month.
State-backed investors, the so-called “national team” appear to be plunging into blue-chip funds. More than USD 17 billion flowed to four Chinese-domiciled exchange traded funds tracking the CSI 300 index in the month to Jan. 26, S&P Global Market Intelligence found.
Japan’s Nikkei ended the month with a more than 8% gain, its best January performance since 1998 amid increasing confidence that its long-moribund economy has turned the corner.
Minutes from the last Bank of Japan meeting, released Wednesday, bore out the market view that the central bank will soon take a hawkish turn from keeping rates negative and lifted JGB yields and underpinned the yen.
The dollar slipped against the yuan and fell against the yen in US trade.
Here are key developments that could provide more direction to markets on Thursday:
— Japan PMI for December
— US weekly jobless claims
— US PMIs for January
(Reporting by Alden Bentley)
NEW YORK, Jan 31 – US Treasury yields slid near three-week lows and the 10-year Treasury posted its largest daily loss since December on Wednesday after the Federal Reserve said it doesn’t expect to cut interest rates until there is more evidence that inflation is moving lower.
The Fed left benchmark rates unchanged in a rate decision that had been seen as a near-certainty by markets and followed the release of data earlier in the day showing signs of cooling in the labor market.
Investors’ attention will now likely turn toward Friday’s nonfarm payrolls report, which could influence whether the US central bank cuts rates in March as futures markets currently expect.
Yields briefly rose, indicating more selling pressure, after Fed Chair Jerome Powell appeared to take an interest rate cut in March off the table during his press conference, yet remained down for the day. Markets are now pricing in a 36% chance of a March rate cut, down from a 73% chance seen a month ago, according to CME’s FedWatch Tool FEDWATCH. At the same time, futures markets now reflect a nearly 90% chance of a rate cut in May.
Powell was “preserving some of that flexibility and he’s still providing the direction that the Fed is going to be moving to (an) easing stance,” said Keith Lerner, chief market strategist at Truist Wealth. “Markets were bouncing around a lot, but in general it’s in line with expectations and not a major shift.”
The yield on 10-year Treasury notes was down 8 basis points at 3.977%. It fell 19.7 basis points during the month of January, posting its best monthly price performance since October 2023. Yields move in the opposite direction of prices.
The yield on the 30-year Treasury bond was down 5.8 basis points at 4.220%.
US labor costs rose less than expected in the fourth quarter, leading to the smallest annual increase in two years, the Labor Department said. Private payrolls, meanwhile, increased by 107,000 jobs last month, the ADP National Employment Report showed on Wednesday. Economists polled by Reuters had forecast private payrolls rising by 145,000. Job growth for December was revised lower as well.
“We continue to expect a moderation in wage gains in the coming months as labor market conditions soften and labor demand comes into better alignment with labor supply,” said Gregory Daco, chief economist at EY.
The US Treasury Department said on Wednesday it plans to continue gradually raising coupon auction sizes through April, but beyond that, it does not expect further increases for at least the next several quarters.
The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 8.4 basis points at 4.275% and at one point was down 13.8 basis points, its largest daily loss since Jan. 12. During the month of January, it rose 10.9 basis points, its biggest monthly gain since July 2023.
A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -28.5 basis points. The curve steepened 6.2 basis points over the month of January, leaving it the least inverted since October.
(Reporting by David Randall. Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Franklin Paul, Chizu Nomiyama, Leslie Adler, and Jonathan Oatis)
NEW YORK, Jan 31 – The dollar gained on the euro and pared losses against the yen on Wednesday after Federal Reserve Chair Jerome Powell said that a rate cut in March was not the US central bank’s “base case.”
It came after the Fed offered a neutral and less dovish outlook on rates than many investors had expected.
The Fed gave an “extremely neutral, non-committal statement”, said Karl Schamotta, chief market strategist at Corpay in Toronto.
The US central bank left interest rates unchanged and dropped a longstanding reference to possible further hikes in borrowing costs. But it gave no hint that a rate cut was imminent.
“Traders thought that with the shift in the bias towards neutral the Fed would accompany this pivot with dovish language. But the Fed did not. If anything, the Fed added some hawkish language in the text,” said Thierry Albert Wizman, global FX and rates strategist at Macquarie in New York.
Fed Chair Jerome Powell said in a press conference that the Fed would need to see more favorable data to be sure it was time to lower rates. “We do have confidence but we want to get greater confidence” that cooling inflation data was sending “a true signal”, he said.
The dollar index was last up 0.26% on the day at 103.66. It is on track for a 2.3% gain this month, the best month since September.
Traders are now pricing in a 38% probability that the Fed will cut rates in March, down from 59% earlier on Wednesday. It has fallen from 89% a month ago.
Investors are also focused on Friday’s US jobs report for January, which is expected to show that employers added 180,000 jobs during the month.
The ADP National Employment Report showed on Wednesday that private payrolls increased by 107,000 jobs last month, fewer than economists’ expectations of 145,000 jobs.
The dollar has rebounded this year as US economic data shows a still resilient economy and one that has a better outlook than comparable regions including the euro zone.
The euro fell 0.4% to USD 1.08005 and got as low as USD 1.07950, the lowest since Dec. 13. It is on pace for a 2.2% loss this month, the worst month since September.
Data earlier on Wednesday showed that German inflation eased slightly more than expected in January to 3.1%, helped by a drop in energy prices.
The dollar fell 0.25% to 147.26 yen. The Japanese currency has weakened due to the wide gap between US and Japanese interest rates.
The greenback is on track for a 4.5% monthly gain against the yen, the largest since February last year, as weak wage data and cooling inflation leave room for the Bank of Japan to take its time raising rates.
Bank of Japan policymakers discussed in January the likelihood of a near-term exit from negative interest rates and scenarios for phasing out the bank’s massive stimulus program, a summary of opinions at the meeting showed on Wednesday.
The summary highlights a growing view within the board that conditions were falling in place to soon pull short-term interest rates out of negative territory, which would be Japan’s first interest rate hike since 2007.
Sterling fell 0.28% to USD 1.26630 before the Bank of England’s policy announcement on Thursday, where rates are also set to be unchanged.
In cryptocurrencies, bitcoin fell 1.57% to USD 42,864.
(Reporting by Karen Brettell; Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Mark Potter and Alex Richardson)
Jan 31 – Oil prices settled lower on Wednesday, pressured by low economic activity in leading crude importer China and a surprise build in US crude inventories as producers ramped up output following frigid weather this month.
Brent crude futures for March, which expire on Wednesday, settled down USD1.16, or about 1.4%, to USD81.71 a barrel while the more actively traded April contract settled down USD1.89, or about 2.3%, at USD80.55.
US West Texas Intermediate crude futures settled down USD1.97, or roughly 2.5%, to USD75.85. Both benchmarks fell by more than USD2 a barrel earlier in the session.
Manufacturing activity in China, the world’s second-largest economy, contracted for a fourth straight month in January, an official factory survey showed on Wednesday.
The latest sign of the broader Chinese economy struggling to regain momentum came days after a court ordered the liquidation of troubled property developer China Evergrande. The real estate sector accounts for a quarter of China’s GDP.
Major forecasters, including the Organization of the Petroleum Exporting Countries (OPEC), see oil demand growth in 2024 driven primarily by Chinese consumption.
“The factory data confirms our view that China, at least for now, is an impediment to global oil demand growth,” said Tamas Varga of oil broker PVM.
Prices were pressured after US Energy Information Administration data showed weekly crude inventories rose by 1.2 million barrels last week, compared with analysts’ expectations for a 217,000 barrel draw.
US domestic oil production climbed back up to 13 million bpd last week after nearly 1 million bpd of capacity was shut in during cold weather earlier this month.
Meanwhile, crude runs in oil refineries fell to their lowest level since January 2023 due to the weather, as refinery utilization rates to 82.9%, according to the EIA.
“Refiners are going to be in no hurry to rush back to levels above 90%,” said Bob Yawger, director of energy futures at Mizuho.
US policymakers, meanwhile, kept rates unchanged this week. Economist predictions suggested that a cut is unlikely before June, given continuing strength in household spending and uncertainty over the economic outlook.
The Israel-Hamas war has widened to conflict in the Red Sea between the United States and Iran-aligned Houthi militants.
But while that has disrupted oil and natural gas tanker shipping, which is driving up delivery costs and starting to affect oil supplies, a Reuters poll suggested that record production in the West and slow economic growth will keep a lid on prices and limit any geopolitical risk premium.
“The main issue with turning outright bullish on crude oil here is the technical picture remains bearish and is yet to catch up with recent events,” including a deadly drone attack on US troops near the Jordan-Syria border last week, said IG market analyst Tony Sycamore.
Yemen’s Houthi group on Wednesday said it would keep up attacks on US and British warships in the Red Sea in what it called acts of self-defence, stoking fears of long-term disruption to global trade.
Meanwhile, Israel’s offensive in Gaza persisted, though Palestinian militant group Hamas said it was studying a new proposal for a ceasefire and release of hostages in Gaza.
On the supply side, OPEC oil output in January registered the biggest monthly drop since July, a Reuters survey found, as several members implemented new voluntary production cuts agreed with the wider OPEC+ alliance and unrest curbed Libyan output.
OPEC pumped 26.33 million barrels per day (bpd) this month, down 410,000 bpd from December, the survey found. December’s total strips out Angola, which has left the group.
(Additional reporting by Natalie Grover, Colleen Howe, and Muyu Xu; Editing by David Goodman, David Evans, Alexander Smith, and David Gregorio)
Jan 30 – Wednesday will bring prompt tests of the just-released International Monetary Fund upgrades of US and Chinese growth outlooks that could set the tone for markets, starting with Asia on Wednesday.
The IMF on Tuesday adjusted its forecast for 2024 global growth upward amid a stabilized inflation outlook, and said a “soft landing” was in sight. While IMF’s World Economic Outlook may not be the biggest market mover, it threw down a marker for the two most important economies, raising the GDP growth rate outlook for China to 4.6% from 4.1% and the US to 2.1% from 1.5%.
Chinese official manufacturing PMIs for January on Wednesday will give insight as to how on-target the IMF might be, and can help set the tone for local stock markets and beyond. In December the purchasing manager’s index fell to 49.0 from 49.4, below the 50.0 expansion/contraction threshold.
Industrial output reports are also due from Japan and South Korea.
Earlier in Asia, regional shares slumped amid deepening worries about the Chinese real-estate sector after developer group China Evergrande was ordered to be liquidated on Monday.
China and Hong Kong stocks dragged MSCI’s broadest index of Asia-Pacific shares outside Japan down about 0.9%. Japan’s Nikkei was up 0.11%, set for a nearly 8% gain for the month.
Speaking of soft landings, in the run up to the two-day Federal Open Market Committee meeting that kicked off Tuesday Fed policy makers have made clear they will not jeopardize one by easing too soon or too aggressively, even if inflation is showing signs of coming down. This leaves global traders on tenterhooks ahead of Wednesday’s FOMC statement, and, perhaps more importantly, the question-and-answer session with chair Jerome Powell afterward.
The S&P 500 struggled to stay above water Tuesday but did manage to eke out another in a series of record highs, while Treasury yields slipped and the dollar was near flat.
Fed funds futures markets indicate a near zero probability of a cut this month and in recent days have priced the easing cycle starting at the May meeting, instead of March as previously favored. At their December meeting policy makers penciled in 75 basis point of cuts this year. That median projection would be a less aggressive loosening than the market expects from the current policy rate of 5.25%-5.50%, where it has been since July.
Meanwhile the US labor market looks tight, based on Labor Department job openings data released Tuesday. While the ADP employment report comes out Wednesday the main event is the January nonfarm payrolls release on Friday, which will inform the Fed’s deliberations in March as to whether markets are in for a US soft landing, no landing, or, least likely from current indications, a hard one.
“For a March cut to happen you’d have to have some pretty clear communication from the Fed laying the groundwork tomorrow, but when you look at the economic data and where the labor market is, it’s hard to have a high degree of confidence that they will see the need to cut,” said Frank Rybinski, head of macro strategy at Aegon Asset Management.
Here are key developments that could provide more direction to markets on Wednesday:
— South Korea Industrial Output – December
— Japan Industrial Output – December
— China Manufacturing PMI – January
— Australia CPI – December
— US ADP employment – January
— US FOMC policy statement
(Reporting by Alden Bentley; additional reporting by David Randall)
NEW YORK, Jan 30 – Benchmark US 10-year Treasury yields hovered near two-week lows on Tuesday as investors weighed unexpected strength in the job market with Monday’s announcement by the Treasury Department that it will not need to borrow as much as it forecasted in October.
Markets are highly focused on the labor market because it will likely signal when the Federal Reserve will begin cutting benchmark interest rates this year. The Fed concludes its two-day policy meeting on Wednesday.
While markets have priced in a near-certainty that the Fed will keep benchmark rates at their current level, Fed Chair Jerome Powell’s press conference will likely give clues as to the number of interest rate cuts the central bank expects to see this year.
Markets are now expecting the first 25 basis point cut in May, compared with expectations of a cut at the March meeting at the start of the year. Overall, investors expect 130 basis points in cuts by the end of the year, down from expectations of more than 160 basis points in cuts at the end of 2023.
“It’s the quiet before the storm,” said Frank Rybinski, head of macro strategy at Aegon Asset Management. “For a March cut to happen you’d have to have some pretty clear communication from the Fed laying the groundwork tomorrow, but when you look at the economic data and where the labor market is, it’s hard to have a high degree of confidence that they will see the need to cut.”
US job openings unexpectedly rose in December and data for the prior month was revised higher, the Labor Department said, suggesting that demand in the labor market remains strong. Treasury yields sold off following the data release.
In late afternoon trading, the yield on 10-year Treasury notes was down 3.2 basis points to 4.059%. The yield on the 30-year Treasury bond was down 5.8 basis points to 4.277%.
The dip in yields comes on the heels of Monday’s announcement by the Treasury Department that it will not need to borrow as much as it had forecasted in October, alleviating some concern among investors about oversupply.
Yields closed below their 200-day moving average on Monday, which historically has signaled another 10 to 12 basis point drop over the next few trading sessions, noted Ian Lyngen, head of US rates strategy at BMO Capital Markets.
“It’s easy to envision a breakout that brings 10-year yields comfortably below 4.0%,” he said.
Overall, the Case-Shiller Home Price Index rose 5.40% on the year that ended in November and gained 0.15% on a seasonally adjusted monthly basis, slightly below expectations of a 5.80% annual gain and a 0.5% monthly advance.
“The Fed wants to limit increases of house prices to keep core inflation trending lower,” said Bill Adams, chief economist for Comerica Bank.
A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -25.7 basis points.
The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 1.4 basis points at 4.308%.
(Reporting by David Randall; Editing by Emelia Sithole-Matarise and Marguerita Choy)
NEW YORK, Jan 30 – The dollar edged lower against the euro and higher against the yen on Tuesday, but failed to find strong direction ahead of the conclusion of the Federal Reserve’s two-day meeting.
The US central bank is expected to leave interest rates unchanged on Wednesday and investors will focus on any clues from Fed Chairman Jerome Powell on the likelihood of a rate cut in March.
Solid US economic data has led traders to pare bets of a March cut to a 42% probability, from around 89% a month ago, according to the CME Group’s FedWatch Tool.
The Fed may “feel more confident than they were in December that rates are restrictive enough to bring inflation down,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
But the Fed also could indicate that it is “not in as much of a hurry as the market expects to cut rates,” Chandler added. The central bank could also suggest that it does not want rates to be too restrictive as it aims to generate a soft economic landing, Chandler noted.
Many analysts expect the Fed’s first rate cut will be aimed at preventing too wide a gap between inflation and the fed funds rate, as this would tighten financial conditions more than the Fed intends.
Treasury yields fell and the dollar weakened after Powell in December indicated that the Fed was pivoting to an easing cycle.
The dollar index was last down 0.07% at 103.39. The currency is largely seen as consolidating before Wednesday’s Fed decision and highly anticipated US jobs data for January due on Friday.
Data on Tuesday showed that US job openings unexpectedly rose in December while US consumer confidence increased to a two-year high in January.
Friday’s data is expected to show that employers added 180,000 jobs in January.
The euro gained after data showed the euro zone avoided a technical recession in the fourth quarter. It was last up 0.13% at USD 1.08460.
Gross domestic product (GDP) in the 20 countries sharing the euro was flat in the fourth quarter against the previous three months, mainly because of strong growth in Portugal and Spain and a modest increase in Italy, while the German economy shrank in the final three months of 2023.
The dollar has rebounded against the single currency this year on expectations that the US economy will fare better than the euro zone.
Investors are fully pricing in a rate cut by the European Central Bank in April.
“For the ECB, (Tuesday’s) figure eases the pressure somewhat, but it is clear that the so-called soft landing being pursued by (ECB President Christine) Lagarde has been somewhat softer than many would have liked,” said Joshua Mahony, chief market analyst at Scope Markets.
Sterling slid 0.11% to USD 1.26925 ahead of the Bank of England’s monetary policy meeting this week.
The US currency rose 0.09% to 147.62 against the yen.
Japan’s jobless rate fell to 2.4% in December from the previous month, government data showed on Tuesday, just under economists’ median forecast of 2.5% in a Reuters poll.
In cryptocurrencies, bitcoin rose 0.91% to USD 43,555.
(Reporting By Karen Brettell; Additional reporting by Joice Alves in London; editing by Barbara Lewis and Will Dunham)
