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Macro Snapshot — US housing hit by soaring mortgages rates; China may lower benchmark lending rates
RIYADH: US single-family homebuilding tumbled in March as soaring mortgage rates increased costs, but residential construction remains underpinned by a severe shortage of houses.
The report from the Commerce Department on Tuesday also showed permits for future building of single-family houses plunged last month. It came on the heels of a survey on Monday showing sentiment among homebuilders dropped to a seven-month low in April.
The 30-year fixed mortgage rate has risen to 5 percent for the first time in over a decade as the Federal Reserve raises interest rates to stamp out sky-high inflation. The housing market is the sector of the economy most sensitive to interest rates.
Sweden boosts spending
Sweden’s minority center-left government pledged 35 billion crowns ($3.64 billion) in extra spending this year as it juggles the impact of the war in Ukraine, soaring post-pandemic inflation and an election looming in September.
The economy has bounced back quickly from the coronavirus pandemic and despite Russia’s invasion of Ukraine, it is expected to remain relatively strong.
But the war has forced the government to subsidize energy and fuel prices and increase military spending, adding to the roughly 600-billion-crown bill so far for the effects of the COVID-19 crisis.
Indonesia trims growth outlook
Indonesia’s central bank cut its 2022 economic growth outlook on Tuesday amid risks from inflation and geopolitical tensions, while leaving interest rates at a record low to bolster the recovery from the COVID-19 pandemic.
Bank Indonesia kept the benchmark 7-day reverse repurchase rate at 3.50 percent, as expected by all economists in a Reuters poll. It also left steady other policy rates for the overnight interbank money market.
BI has been adamant about maintaining low interest rates for as long as possible, even as other Asian central banks began to tighten monetary policy to temper a spike in commodity prices as the Ukraine-Russia war exacerbates supply chain disruptions.
Inflation in Southeast Asia’s largest economy was still within BI’s 2 percent to 4 percent target range, although consumer prices rose to a two-year high in March at 2.64 percent.
China may lower lending rates
Benchmark lending rates for China’s commercial banks are likely to be lowered at a monthly fixing on Wednesday, a Reuters survey showed, as Beijing cautiously eases monetary conditions to aid an economy hit by coronavirus lockdowns in several cities.
The loan prime rate, which banks normally charges their best clients, is set on the 20th of each month, when 18 designated commercial banks submit their proposed rates to the People’s Bank of China.
A vast majority of the 28 traders and analysts surveyed in a snap Reuters poll on Tuesday expect a reduction this month.
Among them, 11, or 39 percent of all respondents, predicted a marginal cut of 5 basis points (bps) to both the one-year loan prime rate and the five-year rate on Wednesday. Another six participants also expect a reduction to either rates within a range of 5 to 10 bps.
The remaining 11 respondents expected both rates to remain unchanged this month.
New Zealand fiscal policy
New Zealand’s finance minister said on Tuesday the government should continue to be careful about spending and flagged the introduction of new fiscal rules in the budget next month.
“It’s really important that we use fiscal policy sensibly to be able to make sure New Zealand not only keeps a lid on debt but that we invest in the right things,”Finance Minister Grant Robertson told a news conference.
He said new fiscal rules would be introduced at this year’s budget in May after some fiscal targets were previously suspended as the government responded to the COVID-19 pandemic.
But Robertson stressed that even as New Zealand must be careful with spending, infrastructure projects such as the overhaul of the country’s health system remains important.
“It is important that we don’t cut our nose off to spite our face and take away funding,” he said.
New Zealand’s central bank has raised interest rates at four consecutive meetings and signaled more hikes in coming quarters as it expects annual inflation to peak around 7 percent in the first half of this year.
Rising costs have also prompted calls from opposition parliamentary members for the government to use fiscal policy to help temper inflation.
Argentina takes steps against inflation
Argentina’s government said on Monday the country’s neediest would get help to cope with soaring prices as part of a special aid program that will be financed with taxes on business experiencing unexpected gains from the Ukraine war.
Workers included in the measure will receive 18,000 pesos ($158) in two installments and retirees will receive 12,000 pesos ($106) in one installment.
The government said it will fund the bonuses with a tax on companies that saw “unexpected income” generated by the war in Ukraine. This includes grain exports and would affect companies with profits over 1 billion pesos ($9 million) a year.
The government did not report the total cost of the program or give any details on the tax rate. The proposal still needs approval from congress.
UK inflation to squeeze profits
More than seven out of 10 chief financial officers at Britain’s biggest companies expect high inflation to reduce their profit margins, and few see the Bank of England getting inflation under control in the next couple of years.
A quarterly survey from accountants Deloitte showed a record 98 percent of CFOs expect their operating costs to rise over the coming year, and 71 percent expect their operating margins to fall, up from 44 percent in the previous quarter.
“Over the next year, CFOs believe a mix of rising costs and slower growth are set to squeeze margins,” Ian Stewart, chief economist at Deloitte, said.
Fed’s Bullard wants to get rates up
US inflation is “far too high,” St. Louis Federal Reserve Bank President James Bullard said on Monday as he repeated his case for increasing interest rates to 3.5 percent by the end of the year to slow what are now 40-year-high inflation readings.
“What we need to do right now is get expeditiously to neutral and then go from there,” Bullard said at a virtual event held by the Council on Foreign Relations. But with economic growth expected to remain above its potential, he added, the economy won’t fall into recession and the unemployment rate, now at 3.6 percent, will likely drop below 3 percent this year.
(With input from Reuters)
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