U.S. consumer spending solid in October; weekly jobless claims fall

WASHINGTON(Reuters) – U.S. consumer spending increased solidly in October, while inflation moderated, giving the economy a powerful boost at the start of the fourth quarter as it navigates a high interest rate environment.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, jumped 0.8% after an unrevised 0.6$ increase in September, the Commerce Department said on Thursday. October’s gain was in line with economists’ expectations.

Spending last month was boosted by wage gains amid labor market resilience, one-time tax refunds in California, which saw some households receiving as much as $1,050 in stimulus checks, and cost of living adjustments for food stamp recipients.

The Federal Reserve is in the midst of what has become the fastest rate-hiking cycle since the 1980s, as it battles high inflation, raising the risks of a recession next year. Fed Chair Jerome Powell said on Wednesday the U.S. central bank could scale back the pace of its rate increases “as soon as December.”

That intention was supported by a moderation in the inflation trend last month. The personal consumption expenditures (PCE) price index rose 0.3 after advancing by the same margin in September. In the 12 months through October, the PCE price index increased 6.0% after advancing 6.3% in September.

Excluding the volatile food and energy components, the PCE price index rose 0.2% after gaining 0.5% in September. The so-called core PCE price index climbed 5.0% on a year-on-year basis in October after increasing 5.2% in September.

The Fed tracks the PCE price indexes for its 2% inflation target. Other inflation measures have shown signs of slowing. The annual consumer price index increased less than 8% in October for the first time in eight months.

The Fed has raised its policy rate by 375 basis points this year from near zero to a 3.75%-4.00% range.

News on the labor market remained upbeat, though demand for workers is slowing.

A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 225,000 for the week ended Nov. 26. That unwound some of the surge in the prior week, which had boosted claims.

While some of the rise reflected a surge in layoffs in the technology sector, claims also tend to be volatile at the start of the holiday season as companies temporarily close or slow hiring. Overall, claims remain in line with pre-pandemic levels. Economists had forecast 235,000 claims for the latest week.

The Fed’s Beige Book on Wednesday reported “scattered”

layoffs in November in the technology, finance, and real estate sectors, but noted that “some contacts expressed a reluctance to shed workers in light of hiring difficulties, even though their labor needs were diminishing.”

Technology layoffs helped to boost job cuts announced by U.S-based companies in November, a third report from global outplacement firm Challenger, Gray & Christmas showed on Thursday. Planned job cuts surged 127% to 76,835 last month.

The technology sector announced 52,771 layoffs, the largest since 2000. There were also notable increases in the automotive, consumer products, construction, healthcare products and transportation industries.

Employers have announced 320,173 job cuts this year, up 6% compared to the same period in 2021. Still, the year-to-date total is the second lowest on record.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

TSX futures almost flat ahead of November manufacturing data

(Reuters) – Canada’s stock index futures were little changed on Thursday as investors awaited data on monthly factory activity to gauge the economy’s health in a high interest-rate environment.

December futures on the commodity-heavy S&P/TSX index were up 0.1% at 07:47 a.m. ET., after closing at their highest level in six months on Wednesday.

The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) data for November is due at 09:30 a.m. ET. October report showed a deepening slowdown in the manufacturing sector as production and new orders fell.

Prices of oil and metals were up as traders expect slowing U.S. interest rate hikes and the easing of China’s COVID-19 controls to improve the outlook for demand. [O/R] [METL/] [GOL/]

In company news, Canadian Imperial Bank of Commerce and Bank of Montreal reported a slump in fourth-quarter profit as the lenders set aside bigger provisions to cover potential loan defaults against the backdrop of an uncertain macroeconomic environment.

However, Canada’s TD Bank posted a surge in fourth-quarter profit as gains from higher interest rates offset weakness in underwriting and capital markets.

The Canadian government approved an expansion to TC Energy’s NOVA Gas Transmission Ltd (NGTL) pipeline system in Alberta that would help improve market access for western Canadian natural gas.

Futures for U.S. stock indexes were lower ahead of weekly jobless claims data. [.N]

COMMODITIES

Gold futures: $1,788.3; +1.0% [GOL/]

US crude: $81.5; +1.2% [O/R]

Brent crude: $87.85; +1% [O/R]

FOR CANADIAN MARKETS NEWS, CLICK ON CODES:

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($1= C$1.3)

(Reporting by Johann M Cherian in Bengaluru; Editing by Anil D’Silva)

Reuters poll: BoC to keep up pace with 50 basis point December rate hike -economists

By Indradip Ghosh

BENGALURU (Reuters) – The Bank of Canada will hike its key interest rate by another 50 basis points to 4.25% on Dec. 7, according to a slim majority of economists in a Reuters poll that suggests the central bank will then hit pause on a nine-month tightening campaign.

An economy that grew at a solid annualized 2.9% rate in the third quarter is increasingly at risk from a falling property market and one of the highest household debt-to-income ratios in the world, with the full effect of rate rises yet to be felt.

Inflation, at 6.9% in October, is still running over three times the central bank’s 2% target.

That has left economists and markets at odds over whether the BoC, which has raised rates by 350 basis points since March, will opt for another half-point move and aim to wind up an aggressive campaign before an expected recession sets in.

Just over half, 16 of 30, of the economists polled over the last few days expected a half-point rise on Dec. 7 to 4.25%, matching a move in October and in line with current expectations for the U.S. Federal Reserve’s December meeting.

Fourteen said the BoC would dial down its pace to 25 basis points. Markets are pricing in an over 80% chance of 25, which would be a third straight reduction in rate hike size by policymakers from a peak of 100 in July.

“The rise in inventory ratios and weakness in domestic demand should be a signpost of weaker domestically-driven inflationary pressures in the future,” said Andrew Grantham, senior economist at CIBC.

“As such, we continue to expect a final 50bp rate hike to a peak of 4.25%, before the Bank moves to the sidelines in 2023 to observe how the economy is coping with these higher interest rates.”

Of the large Canadian banks, Scotiabank, CIBC and National Bank expected a 50 basis point move with no further hikes afterward. RBC forecasts a 25 basis point hike and then a pause, while BMO expects 50 and then another 25 in early 2023.

Meanwhile personal spending and investment in housing declined last quarter, while a separate Reuters survey showed house prices would tumble a median 17.5% from their peak, roughly double the fall during the 2008-09 financial crisis.

Although there was no clear consensus on when the overnight rate would peak, around 90% of respondents, or 26 of 29, predicted a terminal rate of 4.25% or higher, suggesting the BoC may be done in December and if not, soon afterward.

The Fed, by contrast, is expected to raise its federal funds rate to a minimum of 4.75%-5.00% early next year, with the risks around forecasts skewed toward a higher rate.

With inflation expected to stay above the BoC’s target for the coming year, 10 of 13 economists who answered an additional question said the bigger risk was also that rates reach a higher peak, and later than they currently expect.

BoC Governor Tiff Macklem made clear at the October meeting the end of the rate hiking campaign was near.

“We are getting closer, but we are not there yet,” he told reporters at a news conference.

BoC Senior Deputy Governor Carolyn Rogers recently said higher interest rates were starting to slow the economy and high household mortgage debt had remained a major area of concern.

Seven of 12 respondents to an additional question said the BoC’s level of concern was about right.

“The latest BoC research on household vulnerability and flexible mortgage rates support the idea that the BoC terminal rate will end at least 50 basis points below the U.S. Federal Reserve,” said Sebastien Lavoie, economist at Laurentian Bank.

(For other stories from the Reuters global economic poll)

(Reporting by Indradip Ghosh; Polling by Mumal Rathore; Editing by Ross Finley and Chizu Nomiyama)

Russia sees drop in cross-border payments using dollars, euros

MOSCOW (Reuters) -Around half of Russian cross-border payments are now being made in currencies other than the dollar and euro, up from 21% at the start of the year, the Russian central bank said on Thursday, as the country tries to wean itself off currencies of so-called unfriendly nations.

Russia is seeking to reduce transactions with what it terms “toxic” currencies – those of countries that have imposed sanctions on Russia, in particular the dollar and euro. Use of China’s yuan by Russian companies increased dramatically since Feb. 24, when Russia sent thousands of troops into Ukraine.

The yuan has been making gradual inroads in Russia for years, but its progress has accelerated sharply in the past nine months, according to a Reuters review of data and interviews with 10 business and finance players.

Russians have bought 139.6 billion roubles ($2.28 billion)worth of Chinese yuan so far this year, the central bank estimated.

“The population’s preferences in terms of currency are gradually shifting towards the yuan,” the regulator said in a financial stability review published on Thursday.

“The challenge for Russian banks is the limited scope of opportunities in interest-bearing yuan investments,” it said.

“It is also important that the transition to the yuan is balanced, addressing both exports and imports, as well as payments for capital transactions.”

The central bank said sanctions, which include several major Russian banks being cut off from the SWIFT international payments system, were primarily limiting banks’ ability to carry out certain transactions.

“While a considerable portion of export and import payments remain in dollars and euros, these payments are significantly hampered by the fact that a large percentage of banks are under sanctions and cannot carry out such operations,” the bank said in the report.

($1 = 61.2000 roubles)

(Reporting by Alexander Marrow and Elena Fabrichnaya; Editing by Mark Potter and Jane Merriman)

Bulls on the charge after Fed signals smaller hikes

By Marc Jones

LONDON (Reuters) – The bulls were enjoying the good life on Thursday after the world’s most influential central banker, Jerome Powell, signalled this year’s frantic pace of U.S. interest rate hikes could be about to slow.

It was a textbook “risk on” pattern, with both Europe’s STOXX 600 and MSCI’s main world stocks index hitting their highest since August and the previously unstoppable dollar huddled at a three-month low.

Rallying bond markets sent borrowing costs lower almost everywhere too and though Wall Street looked set for a flat start later , higher oil and metals prices suggested even commodities markets now see hope for the spluttering world economy.

“It absolutely makes sense,” said Unigestion senior portfolio manager Olivier Marciot, saying it was a case of “it’s not so bad any more, so it’s good.”

“We have the confirmation that we are not having central banks being ever more hawkish and the confirmation that inflation is starting to slow.”

There has now been a more than 17% recovery in European and world stocks and a 7.5% fall in the dollar since the Fed first started to hint at a shift in its view in mid October.

Fed Chair Powell said on Wednesday the U.S. central bank could scale back the pace of interest rates hikes from the recent 75 basis points “as soon as December”, though he still cautioned the fight against inflation was far from over.

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said in comments that had lifted Wall Street’s S&P 500 3%.

Allied with fresh signs that China is looking to relax COVID restriction where it can, Asian stocks jumped 1.35% overnight.

They posted their biggest monthly gain since 1998 in November as hopes for a Fed pivot towards slower rate hikes gathered steam after four consecutive 75-bp increases. But the index was still down about 17.5% on the year.

European markets, meanwhile, largely brushed off German data showing ongoing weak demand in its powerhouse manufacturing sector, helped instead by signs of fewer material shortages perhaps.

The euro was up 0.35% at $1.0445, having traded as high as $1.0463 earlier.

Britain’s pound, which has raced back to form over the last couple of months, was up over 1% at $1.2187, while a surge from the yen meant the dollar index – which measures the currency against six major peers – dipped a further 0.5%.

“Obviously the speech (by Powell) was less hawkish than feared,” said Rodrigo Catril, senior FX strategist at National Australia Bank. “The yen is leading the charge, and that makes sense when you look at the big, big move in long-term U.S. rates.”

Graphic: Stocks rebound https://fingfx.thomsonreuters.com/gfx/mkt/lgpdkwbxkvo/Pasted%20image%201669900096733.png

BORROWING COSTS

Markets are currently pricing in a 91% probability that the Fed will increase rates by 50 bps on Dec. 14, and only a 9% chance of another 75-bp hike.

Expectations have also grown around the world that China, while still trying to contain infections, could look to re-open at some point next year once it achieves better vaccination rates among its elderly.

China’s factory activity shrank in November as widespread curbs disrupted manufacturers’ output, a private sector survey showed on Thursday, weighing on employment and economic growth in the third quarter.

It didn’t stop U.S. investment bank JPMorgan though forecasting a 9-10% jump in Chinese stocks by the end of next year if confidence begins to return. They have already climbed nearly over 10% over the last 4-6 weeks.

The yield on 10-year Treasury notes was last down over 10 bps to 3.592%, while the two-year U.S. yield, which typically moves in step with interest rate expectations, was down at 4.332%.

Germany’s 10 yield, the benchmark for the euro area, plugged below 1.80%. The two-year yield fell 10.5 bps to 2.039%.

Jefferies interest rate strategist Mohit Kumar said: “The market had built in expectations of a hawkish Powell, and he definitely did not deliver.”

In commodity markets, gold prices climbed to a two-week high of $1,779.39 an ounce, while oil edged up, supported by signs that OPEC+ may cut supply further at a meeting on Sunday.

Brent crude was up 44 cents, or 0.5%, to $87.41 a barrel by 0930 GMT, while U.S. West Texas Intermediate crude futures added 55 cents, or 0.7%, to $81.10.

(Additional reporting by Samuel Indyk and Alun Jogn in London; Editing by Mark Potter and Nick Macfie)

Russian central bank flags foreign IT exodus as risk to financial stability

MOSCOW (Reuters) – Russia’s central bank warned on Thursday of rising risks to financial stability as the departure of foreign companies from the country makes it difficult to import equipment and that could do more long-term damage than export restrictions.

Western sanctions over Moscow’s actions in Ukraine have crippled supplies of some crucial products in Russia.

Its impact has been sorely felt in the airline and car industries this year, but the loss of key technology companies, some of whom are still exiting Russia, is set to diminish access to foreign-made software and hardware solutions in the long run.

The central bank regularly highlights risks to financial stability, but in its latest report, published on Thursday, it singled out the technological risk for financial stability for the first time.

“Against the background of foreign companies leaving the Russian market and the problems with importing IT equipment, banks’ operational risks have noticeably increased,” the bank said.

“Large financial organisations with adequate resources may want to consider the potential of developing their own IT solutions that are independent of external factors,” the bank said, urging commercial banks to actively participate in the domestic technology sector’s development.

Other industries face strengthening headwinds, too. The G7, European Union and Australia, are set to implement a price cap on sea-borne exports of Russian oil on Dec. 5.

The central bank said most companies in export-focused industries had built up sufficient safety nets in the post-pandemic recovery period and with rising prices for exports.

“However, in the medium term, the risk of their financial situation worsening is growing due to tougher sanctions (including the EU’s embargo on deliveries of oil and oil products), as well as lower demand and prices for key goods in the event of a global economic recession,” the bank said.

“Sanctions on technology may have a more long-term impact than export restrictions.”

(Reporting by Alexander Marrow and Elena Fabrichnaya; Editing by Arun Koyyur)

Russian banks’ losses narrow to $6.5 billion as of Nov. 1 -central bank

MOSCOW (Reuters) – Russian banks’ financial performance started improving in the third quarter, the Bank of Russia said on Thursday, but the sector is not out of the woods yet, with stress tests suggesting that further shocks could require additional capitalisation.

Several major Russian banks have been blocked from the international SWIFT payments system in response to Moscow’s actions in Ukraine.

Russian banks have also had to contend with reduced access to foreign currency, sharp interest rate moves and declining profits, although dominant lender Sberbank turning a profit from January-October was evidence of the sector’s resilience.

Russia’s banking sector loss narrowed to 400 billion roubles ($6.54 billion) as of Nov. 1 from 1.5 trillion roubles on July 1, the central bank said on Thursday, thanks in part to lower volatility and margin recovery.

Sanctions have clearly had an impact – Russian banks recorded record profits of 2.4 trillion roubles in 2021.

The central bank this week said it would revoke some support measures for Russian banks from Jan. 1. Among other things they will have to resume financial statement disclosure, though in a restricted format.

“In order to prevent the accumulation of systemic risks and maintain banking sector stability in the future, it is important revoke regulatory easing and move towards the restoration of capital buffers,” the bank said.

Stress tests suggest the banking sector is relatively stable, said the central bank, which expects banks to maintain a significant capital buffer in 2023 and have potential for around 40.7 trillion roubles worth of lending.

“However, some banks may need recapitalisation in the event of shocks: the total amount (of capitalisation) is estimated at up to 0.7 trillion roubles,” the bank said.

($1 = 61.2000 roubles)

(Reporting by Elena Fabrichnaya and Alexander Marrow; Editing by Kirsten Donovan)

Oil buoyed by OPEC+ output speculation and easing China COVID curbs

By Alex Lawler

LONDON (Reuters) -Oil rose about $1 a barrel on Thursday, supported by the potential for OPEC+ to cut supply further and as easing COVID curbs in China raised the likelihood of higher demand from the world’s top crude importer.

Crude also gained support from dollar weakness prompted by euro zone factory data and the Federal Reserve Chair saying the pace of U.S. interest rate hikes could be scaled back.

A weaker dollar makes oil cheaper for other currency holders and tends to support risk assets.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, meets on Dec. 4. Though sources said on Wednesday that a policy change is unlikely, some feel that a further cut cannot be ruled out.

“I believe the OPEC+ meeting forces shorts to cover, but the consensus is unchanged quota levels,” said Tamas Varga, of oil broker PVM.

“Perceived easing of Chinese COVID restrictions, favourable factory data from the euro zone and the resultant dollar weakness provide continuous price support.”

Brent crude was up 94 cents, or 1.1%, at $87.91 a barrel by 1250 GMT while U.S. West Texas Intermediate crude futures added $1.18, or 1.5%, to $81.73.

The apparent shift in China’s zero-COVID strategy raises optimism over a Chinese oil demand recovery. The cities of Guangzhou and Chongqing announced an easing of COVID curbs on Wednesday.

“The signals coming from China also look very positive,” said Craig Erlam of brokerage OANDA. “Any modest softening in its COVID-zero policy will and should be welcomed.”

Both oil benchmarks have posted three consecutive weekly declines,lthough the market has rebounded strongly this week after hitting its lowest in nearly a year on Monday. Brent touched $80.61, its lowest since Jan. 4.

The prospect of a lower price cap on Russian oil is also lending support, analysts said. European Union countries are edging towards a deal on the price cap ahead of a Dec. 5 deadline.

A slide in U.S. crude inventories in weekly data also underpinned the price rally. [EIA/S]

(Additional reporting by Jeslyn Lerh in SingaporeEditing by Kirsten Donovan and David Goodman)

Canadian banks gird for loan loss threat as economic outlook sours

(Reuters) -Canadian Imperial Bank of Commerce (CIBC), Toronto-Dominion Bank and Bank of Montreal on Thursday joined their bigger peers in setting aside more money to cover potential loan defaults by inflation-hit customers.

TD Bank alone from the three banks beat market estimates for profit in the fourth quarter as it benefited from a bigger U.S. retail lending business than its peers.

Canada’s historic tightening campaign has raised borrowing costs, pushing the country’s Big Six banks – including Bank of Nova Scotia, Royal Bank of Canada and National Bank of Canada – to start bracing for increased odds of more customers falling behind on their loan repayments.

The Bank of Canada has raised its benchmark rate to the highest level since 2008 and warned that higher rates are starting to slow the economy, putting pressure on mortgage holders and households with elevated debt.

It also forecast growth would stall from the fourth quarter this year through the middle of 2023.

TD Bank’s bigger U.S. presence boosted its loan growth and helped offset the hit from higher provisions for credit losses (PCLs). It recorded PCLs of C$617 million in the fourth quarter, compared with a recovery of C$123 million last year.

Excluding one-time costs, the bank reported profit of C$2.18 per share, above analysts’ estimates of C$2.06 per share, according to IBES data from Refinitiv.

On the other hand, CIBC’s adjusted profit fell 17% to C$1.31 billion, while BMO’s earnings dropped 4% to C$2.14 billion. Both banks missed estimates.

With more than half of its total loans being in residential mortgages, CIBC set aside C$436 million in PCLs, up more than fivefold from last year.

BMO built C$226 million of PCLs. Last year, a loose monetary policy had allowed it to recover C$126 million from provisions.

($1 = 1.3417 Canadian dollars)

(Reporting by Niket Nishant, Mehnaz Yasmin and Anirban Chakroborti in Bengaluru; Editing by Devika Syamnath)

Brazil’s economy grows less than expected in third quarter, but still reaches record level

BRASILIA (Reuters) – Brazil’s economy decelerated in the third quarter, with a lower than expected growth, but still enough to place it at the highest level of the series since starting in 1996.

The country’s gross domestic product rose 0.4% in the three months to September, government statistics agency IBGE said on Thursday, below the 0.7% growth expected by economists polled by Reuters.

This was the fifth consecutive quarter of expansion, again bolstered by the services sector, putting the largest economy in Latin America 4.5% above the level posted before the pandemic, in the fourth quarter of 2019.

Still, the loss of steam underscores the challenges ahead as the central bank’s aggressive monetary tightening to battle inflation begins to weigh more heavily on activity, overshadowing government stimulus ahead of Oct. presidential elections this year that helped boost demand.

The performance in the third quarter was fundamentally driven by a 1.1% growth in the dominant services sector, while industry grew by 0.8% and agriculture fell 0.9%.

On the demand side, investment increased by 2.8%, government expenditure grew by 1.3%, and consumer spending rose by 1.0%.

Brazil’s GDP expanded by 3.6% from the third quarter of 2021, while economists projected a 3.7% increase.

IBGE also revised the second-quarter result to a 1.0% expansion over the previous quarter from the 1.2% reported previously. But the first quarter growth has now climbed to 1.3% from 1.1% previously.

(Reporting by Marcela Ayres; Editing by Steven Grattan)

Yen, pound hit strongest in three months on Powell remarks on Fed slowing

By Alun John

LONDON (Reuters) – The dollar weakened to three month-lows against the yen and the pound on Thursday, after comments by Fed Chair Jerome Powell that U.S. rate hikes could be scaled back “as soon as December”, but the euro failed to climb past a major resistance level.

The aggressive pace of U.S. Federal Reserve rate increases this year has sent the dollar soaring, thanks to higher U.S. benchmark yields and fears the central bank would push the U.S. economy into recession in its attempts to combat inflation.

But Powell said on Wednesday that “slowing down at this point is a good way to balance the risks”.

He added, however, that controlling inflation “will require holding policy at a restrictive level for some time”.

Markets are pricing in a 80% probability that the Fed increases rates by 50 basis points at the next meeting, versus a 20% chance of another 75 basis point hike according to CME’s Fedwatch tool.

The greenback tumbled as much as 1.64% to 135.85 yen, its lowest level since August 23, but then recovered to 136.26.

The dollar-yen pair is extremely sensitive to changes in long-term U.S. Treasury yields, which fell after Powell’s comments and hit a two month low of 3.587% in London trading Thursday.

The pound also gained sharply, rising 0.88% to $1.2164, its highest since 12 August, hovering around its 200 day moving average.

Traders are also looking out for Thursday’s U.S. personal consumption expenditure price index to see if that offers any further insights into the inflation situation and hence the Fed’s hiking plans, and also Friday’s U.S. jobs data.

But both could be overshadowed by Powell’s remarks.

Simon Harvey, head of FX analysis at Monex Europe said he thought markets would largely look through PCE data and even when it came to Friday’s jobs data “if they weaken substantially then the market moves, if they stay the same, we’re onto thinking about CPI”.

The euro also made some gains, up 0.38% to $1.04485, but was holding off from making another effort to cross the $1.05 level.

“Euro-dollar has had two failed runs at $1.05. We’re looking to see if there is something that is going to drive things through those barriers,” Harvey said, referring both to the euro at that level and sterling-dollar’s 200 day moving average of $1.22155

The dollar weakened against most other G10 currencies, falling 0.2% against the Swiss franc while the Australian dollar reached $0.684, the highest since Sept. 13 and the New Zealand dollar touched $0.636, the highest since Aug. 17.

The Aussie and kiwi have also been buoyed by signs the Chinese government will relent on its zero-COVID policy.

Giant cities Guangzhou and Chongqing announced easings of COVID curbs on Wednesday, while officials in Zhengzhou, the site of a Foxconn factory that is the world’s biggest maker of Apple iPhones and has been the scene of worker unrest over COVID, also announced the “orderly” resumption of businesses.

China’s yuan saw some volatility in offshore trading after media reports that the capital Beijing would allow some people to home-quarantine. The dollar was last 0.3% stronger at 7.068 yuan after having weakened as much as 0.3% to a two-week low of 7.0256.

(Reporting by Kevin Buckland; Editing by Stephen Coates, Ana Nicolaci da Costa, William Mallard, Alex Richardson and Alexander Smith)

India economy likely to grow 6.5%-7% next fiscal year -govt adviser

By Shivangi Acharya

NEW DELHI (Reuters) – The Indian economy is likely to grow 6.5% to 7% next fiscal year if the global environment does not worsen, a member of the prime minister’s economic advisory council said on Thursday, giving a higher estimate than some economists.

Global agencies such as the International Monetary Fund and the World bank, for instance, have forecast India’s growth will be 6.1% and 6.0%, respectively, next fiscal.

The country will continue to maintain macroeconomic stability, despite a “very difficult” global environment, helped by the stable banking sector and buoyant tax revenue collections, Sanjeev Sanyal told Reuters.

India posted annual economic growth of 6.3% in the July-September quarter, a tad above the 6.2% forecast by economists polled by Reuters.

“I think we are now on stream to achieve somewhere slightly short of 7% GDP growth rate for this financial year,” Sanyal said, which is in line with the country’s central bank projection.

India’s fiscal year starts on April 1 and runs through March 31.

Earlier this year, economists had cut their projections for India’s growth in fiscal 22-23 to around 7% due to slowing exports and risks of high inflation crimping purchasing power.

Despite that, the Asian nation is expected to remain the second-fastest growing economy –lagging only Saudi Arabia– among G20 countries in the current fiscal year, according to the Organisation of Economic Co-operation and Development.

India’s supply side is capable of growing further and the manufacturing sector will need support from external demand, which is presently weak, Sanyal said.

He added that medium-term demand prospects are good, with private-sector investments beginning to show in the domestic economy.

Slowing global growth, however, has started to hurt exports, which fell nearly 17% year-on-year in October, as per the government’s official data.

An “invest-and-export” approach will further drive the economy, Sanyal said.

India aims to position itself in global supply chains, in part by negotiating free-trade pacts with developed nations, incentivising local production, and strengthening physical infrastructure, he said.

India recently sealed a trade pact with Australia, which will come into force on Dec. 29, and is in advanced negotiations with the United Kingdom, among others. India has also agreed to resume discussions with the Gulf Cooperation Council.

(Reporting by Shivangi Acharya; Editing by Savio D’Souza)

TD Bank quarterly profit jumps on higher rates boost

(Reuters) -Canada’s TD Bank posted a surge in fourth-quarter profit on Thursday as gains from higher interest rates boosted its personal and commercial business and helped offset weakness in underwriting and capital markets.

The lender set aside C$617 million in loan loss provisions, compared to a release of C$123 million a year earlier.

TD Bank joined peers Royal Bank of Canada, Bank of Nova Scotia and National Bank of Canada to mark higher funds this year to prepare for potential loan losses as worries of an economic downturn grow.

The bank’s personal and commercial business posted an 11% increase in net income, reflecting higher margins and strong volume growth. U.S. retail jumped 12%.

TD Bank’s results came as a sharp contrast to peers that reported lower quarterly profits for the three months ended Oct as a dearth of deals hurt their capital markets businesses.

Canada’s second-largest lender said net income, excluding one-off items, rose to C$4.07 billion, or C$2.18 per share, from C$3.87 billion, or C$2.09 per share, a year earlier.

Analysts had expected C$2.09 a share, according to Refinitiv data.

Overall net profit was C$6.67 billion, or C$3.62 per share, compared with C$3.78 billion, or C$2.04 per share.

(Reporting by Mehnaz Yasmin in Bengaluru; Editing by Sriraj Kalluvila)

Botswana central bank holds main policy rate, sees inflation decline

GABORONE (Reuters) -Botswana’s central bank kept its monetary policy rate unchanged at 2.65% on Thursday, saying it saw inflation gradually falling back within its target range by 2024.

Botswana’s consumer inflation dipped to 13.1% year on year in October from 13.8% in September, but is still far above the central bank’s 3%-6% preferred band.

“The drop in inflation in the past months is due to the dissipating effects of previous increases in administered prices,” Bank of Botswana Governor Moses Pelaelo told a news conference. “The domestic economy will continue to perform below capacity in the medium term and therefore not pose any inflationary pressures.”

The bank currently forecasts inflation will fall back within the 3%-6% range in third quarter of 2024.

(Reporting by Brian BenzaWriting by Alexander WinningEditing by Bernadette Baum)

Euro zone yields drop as Fed chair signals smaller hikes ahead

By Samuel Indyk

LONDON (Reuters) – Euro zone yields dropped on Thursday, taking cues from moves in U.S. Treasuries after Federal Reserve chair Jerome Powell signalled the central bank could slow its pace of policy tightening as soon as its December meeting.

Powell said the Fed was “slowing down” from the previous pace of three-quarter percentage point rate hikes that has prevailed since June, and would feel the way towards the peak interest rate needed to slow inflation to the Fed’s 2% target.

Markets are now pricing in a terminal Fed funds rates of 4.92% at the May meeting next year. Prior to Powell’s speech, markets had been pricing in a peak in interest rates at 5.05%, according to data from Refinitiv.

Jefferies interest rate strategist Mohit Kumar said Powell’s appearance on Wednesday was dovish compared to his last post-decision press conference.

“The market had built in expectations of a hawkish Powell, and he definitely did not deliver on the hawkish side,” Kumar said.

“The dovish element was his view that the terminal rates would be ‘somewhat’ higher than the September projections, while the market has been viewing terminal rates as substantially higher than the September dot plot of 4.4%,” Kumar added.

Germany’s 10-year yield, the benchmark for the euro area, dropped 11 basis points (bps) to 1.839%.

The two-year yield, which is more sensitive to changes in interest rate expectations, fell 9 bps to 2.05%.

“The market is desperate to price a pivot and move on to the next story,” said Rabobank rates strategist Lyn Graham-Taylor, adding that there was little new information in Powell’s speech.

“Overall it was an oversized reaction,” Graham-Taylor added.

In Europe, data on Wednesday showed inflation eased by more than expected in November, supporting the case for a slower pace tightening from the European Central Bank (ECB) next month.

ECB chief economist Philip Lane is scheduled to speak on Thursday, which could provide further clues on the central bank’s thinking ahead of its meeting on Dec. 15.

“While it is widely accepted that the ECB will have to move into restrictive territory … the latest inflation data has taken the edge off calls for more larger pre-emptive hiking,” ING analysts said in a research note.

Traders have slightly trimmed their bets on a 75 bp hike from the ECB in December, with a 50 bp hike fully priced in and around a 25% chance of a third consecutive 75 bp rate rise, according to Refinitiv data.

Germany’s yield curve briefly hit its deepest inversion since 1992. The spread between 2- and 10-year government bond yields fell to -31 bps and was last at -22 bps, Refinitiv data showed.

Italy’s 10-year yield was down 15 bps to 3.74%, pushing the closely watched spread between Italian and German 10-year yields tighter by around 8 bps to 189 bps.

(Reporting by Samuel Indyk; Editing by Mark Potter, Kirsten Donovan)

Sterling at fresh 16-week high as dollar takes a beating

LONDON (Reuters) – Sterling rose to a near 16-week high against a broadly-soft dollar on Thursday, with currency traders looking past gloomy British manufacturing data for now.

The pound was last up 0.8% against the dollar at $1.2157, its highest level since Aug. 12, breaching the previous high of $1.2153 touched on Nov. 24.

Sterling was also 0.6% higher versus the euro at 85.865 pence per euro.

“There is not a great deal happening domestically, it’s a very dollar-focused week, particularly after Powell’s comments yesterday,” said Adam Cole, head of FX strategy at RBC Capital Markets.

The dollar fell more than 1.5% to a three-month low against the yen on Thursday after U.S. Federal Reserve Chair Jerome Powell said U.S. rate hikes could be scaled back “as soon as December”.

The pound has recovered ground from lows hit in September in the aftermath of then-Prime Minister Liz Truss’ mini-budget.

Despite the uptick in recent months, the pound remains 10.3% lower on the year and traders are still focused on Britain’s gloomy economic outlook.

Data on Thursday meanwhile showed British manufacturing activity falling for a fourth month in a row in November as businesses faced the weakest overseas demand in 2-1/2 years, leading to job cuts and reduced confidence about the year ahead.

“Our longer term outlook for sterling is still negative and that is driven by the imbalances and the need for capital inflows, and all the reasons that have been there for some time,” said Cole.

Inflation in the UK is still running at a four-decade high as households grapple with a cost-of-living crisis. Meanwhile the Bank of England (BoE) has been hiking interest rates since late 2021, tasked with bringing inflation back to its 2% target.

Money markets are fully pricing in a 50-basis-point rate hike at the BoE’s Dec. 15 meeting.

(Reporting by Lucy Raitano; editing by Dhara Ranasinghe and Mark Heinrich)

Pakistan’s consumer price inflation slows to 23.8%

By Asif Shahzad

ISLAMABAD (Reuters) -Pakistan’s annual consumer price inflation slowed to 23.8% in November from 26.6% a month earlier, the statistics bureau said on Thursday, days after the central bank unexpectedly hiked policy rates.

Prices were up 0.8% in November from the previous month, the bureau said in a statement.

Core inflation for urban and rural areas measured by non-food, non-energy increased to 14.6% and 18.5% respectively in November, year-on-year, the bureau added.

Pakistan’s finance ministry said in its monthly outlook released earlier this week that inflation would decline marginally in November, while staying in a range of 23%-25%.

On Nov. 25, the central bank hiked its policy rate by 100 basis points to 16%, the highest in several years, as it sought to prevent inflation from becoming entrenched.

The South Asian nation, which is reeling from devastating floods that are estimated to have caused over $30 billion of damage, has been facing a balance of payments crisis with fast depleting foreign reserves and a widening current account deficit.

With the reserves down to hardly one month of imports, Pakistan desperately needs bilateral and multilateral external financing as it awaits the 9th review of a $7 billion bailout package from the International Monetary Fund (IMF), pending since September.

Both Pakistan and the IMF said last week that pre-review talks had begun online.

The IMF approved the seventh and eighth reviews together in August for the bailout programme agreed in 2019, to allow the release of over $1.1 billion.

The lender wants Pakistan to cut expenditure and says the finalisation of a recovery plan from the floods is essential to support discussions and continued financial support from multilateral and bilateral partners.

Pakistan this week also sought help from the Bank of China for macroeconomic stability.

(Additional Reporting by Gibran Peshimam in Islamabad and Shivam Patel in New Delhi; Editing by Simon Camero-Moore and Elaine Hardcastle)

Greek October unemployment eases to 11.6%, lowest since 2010

ATHENS (Reuters) – Greece’s jobless rate eased to 11.6% in October from an upwardly revised 12% in September, data from statistics service ELSTAT showed on Thursday.

The reading was the lowest recorded since March 2010 – at the start of Greece’s decade-long economic crisis – following the revision of last month’s figure. Unemployment had reached its peak in the summer of 2013, and has been falling steadily since.

Seasonally adjusted data showed 542,941 people were officially unemployed, with those under the age of 24 the hardest hit.

Unemployment was worse among women than men, with the rates at 15.6% and 8.4% respectively.

Greece’s economy is expected to grow by 1.8% next year, at a slower pace than initially expected, as soaring energy costs and higher inflation are seen hurting tourism and curbing domestic demand, the government’s 2023 final budget projected last month.

(Reporting by Karolina Tagaris; Editing by Alex Richardson)

Global factory activity shrank in November but price pressures ease

By Jonathan Cable and Leika Kihara

LONDON/TOKYO (Reuters) -Factory output fell widely last month as slowing global demand and the impact of China’s COVID-19 lockdowns weighed, although the downturn eased in Europe and activity in India actually picked up, surveys showed on Thursday.

While the surveys indicated that factories in the euro zone still face a harsh winter it may not be as bad as initially feared and there were signs rampant inflationary pressures were abating.

Inflation may have peaked, or be close to doing so, in many economies but steep price rises and increased borrowing costs as central banks tighten policy aggressively have left indebted consumers feeling the pinch and forcing them to cut spending.

“Global consumers are reining back on spending on discretionary goods in a world of stagflation,” said Duncan Wrigley at Pantheon Macroeconomics.

S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) for the euro zone rose to 47.1 from October’s 46.4, but was below a preliminary reading of 47.3 and under the 50 level that marks growth in activity.

An index measuring output, which feeds into a composite PMI due on Monday and seen as a good guide to economic health, rose to 46.0 from 43.8, marking its sixth month of sub-50 readings.

“Today’s PMI data corroborate our view that manufacturing is headed for a winter recession but suggest the outlook for the sector is starting to improve slightly,” said Riccardo Marcelli Fabian at Oxford Economics.

“While indicators suggest that fundamentals are in better shape than in previous crises, the euro zone is bound to endure a mild, widespread recession this winter.”

Economists in a recent Reuters poll gave a 78% chance of a recession within a year.

In Britain, outside the European Union, manufacturing activity fell for a fourth month in a row, as businesses faced the weakest overseas demand in two-and-a-half years, leading to job cuts and reduced confidence about the year ahead, its PMI showed.

The figures added to signs Britain’s economy has fallen into recession, although there was a glimmer of light for the Bank of England as factory output price inflation slowed to its lowest since March 2021.

It was a similar story in the euro zone where although remaining high, both the input and output prices indexes dropped substantially, likely welcome news to policymakers at the European Central Bank.

ASIAN WOES

The results highlighted Asia’s darkening economic outlook for 2023, as China’s lockdowns disrupt international supply and heighten fears of a further slump in its economy, the world’s second-largest.

Those lockdowns have hit production and stoked rare street protests across many cities in China.

Amid the pandemic curbs, Chinese factory activity shrank in November, a private survey showed. The result implied weaker employment and economic growth in the fourth quarter.

China’s Caixin/S&P Global manufacturing PMI stood at 49.4 in November, up from 49.2 in the previous month. It has been below 50 for four consecutive months.

The figure followed downbeat data in an official survey on Wednesday that showed manufacturing activity had hit a seven-month low in November.

Analysts see mounting downside risks to China’s economic growth in the fourth quarter, despite a flurry of policies to shore up activity, including cuts to banks’ required reserve ratios and support for the sluggish property sector.

The impact of China’s woes was felt widely across Asia. Taiwan’s PMI stood at 41.6 in November and Vietnam’s PMI fell to 47.4. Indonesia’s slid to 50.3 from 51.8.

Manufacturing activity also contracted in export-reliant economies, including Japan and South Korea, and in emerging nations, such as Vietnam, underscoring widening damage from weak global demand and stubbornly high input costs, surveys showed.

Japan’s au Jibun Bank PMI also fell, to 49.0 in November from 50.7, its first contraction since November 2020.

South Korea’s factory activity shrank for a fifth straight month but the downturn moderated slightly, possibly suggesting the worst was over for businesses there.

However, South Korea’s exports in November suffered their steepest annual drop in 2-1/2 years, separate data showed, hit by cooling global demand in major markets led by China and a downturn in the semiconductor industry.

In a rare bright sign, India saw factory activity expand in November at its fastest pace in three months, thanks to robust demand for consumer goods and a slowdown in input-cost inflation.

(Reporting by Jonathan Cable and Leika Kihara; Editing by Bradley Perrett and Susan Fenton)

UK’s FTSE 100 nears 6-month highs on signs of slower interest rate hikes

By Shashwat Chauhan

(Reuters) – London’s blue-chip shares edged toward six-month highs on Thursday after a strong performance in November, on signs the U.S. Federal Reserve will temper its pace of interest rate hikes.

The FTSE 100 index edged up 0.1%, hovering near its strongest level since June 8, even as oil stocks fell 1.5%, as crude prices dipped with uncertainty lingering ahead of Sunday’s OPEC+ meeting. [O/R]

The domestically focussed FTSE 250 jumped 0.7%, mirroring an upbeat mood in global equities after Fed Chair Jerome Powell on Wednesday signalled a slowdown in the pace of monetary tightening.

“The macro environment is going to continue to drive market sentiment up,” said Richard Flax, chief investment officer at Moneyfarm.

“If we continue to see macro data that is favourable, indicating that inflationary pressures will continue to weaken, central banks will be able to reach peak policy rates at perhaps a slightly lower level than was expected a few months ago.”

Real estate stocks led gains, up 1.9% even as data showed house prices tumbled 1.4% in November compared with a 0.9% fall in October, the biggest monthly drop since June 2020.

“Housebuilder shares, already heavily beaten down this year, were higher on the Nationwide data. This shows how the market has already priced in a lot of bad news regarding the property market,” said Russ Mould, investment director at AJ Bell.

Food delivery stocks like Ocado gained 5.1% after Jefferies said in a note there is an attractive EBITDA stream in the sector currently mispriced by the market.

Shares of education group Pearson fell 3.4% after Exane BNP Paribas downgraded the stock rating to “neutral” from “outperform”.

(Reporting by Shashwat Chauhan in Bengaluru; Editing by Sherry Jacob-Phillips and Shinjini Ganguli)