Investing.com – The yields on UK government bonds rose Thursday after Chancellor Rachel Reeves said she was prepared to announce new measures to ensure it meets its fiscal rules in March.

At 06:20 ET (11:20 GMT), the yield on benchmark 10-year UK government bonds, known as gilts, rose 6 basis points to 4.70%. Prices and yields move inversely.

In an interview with The Wall Street Journal on the sidelines of the World Economic Forum’s annual gathering in Davos, Reeves said she may announce new measures at a budget update scheduled for March 26.

Reeves set out new fiscal rules in October, including a pledge to borrow only for investment and not to pay day-to-day bills by the fiscal year ending March 2030.

“We will find ways to ensure we continue to meet those fiscal rules,” Reeves told WSJ Editor-in-Chief Emma Tucker. “I’ll set out the measures that are necessary, if they are necessary.”

However, data released earlier this week showed that Britain ran a bigger-than-expected budget deficit in December, with a sharp sell-off in British government bonds swelling debt interest costs.

Public sector net borrowing was £17.8 billion pounds ($22 billion) in December, more than 10 billion pounds higher than a year earlier, the Office for National Statistics said on Wednesday.

JAKARTA (Reuters) – Indonesia’s President Prabowo Subianto has instructed his government to cut spending by 306.7 trillion rupiah ($18.8 billion) this year, a finance ministry spokesperson told Reuters on Thursday.

Prabowo has frequently highlighted the need for efficient spending under his administration. The cuts are equivalent to about 8% of the total approved spending this year of 3,621.3 trillion rupiah.

Spokesperson Deni Surjantoro said the cuts do not entail a revision to the state budget for 2025, which would require approval from the parliament, adding ministries and agencies would identify areas to cut.

Prabowo issued the formal presidential instruction in a document released this week, local media reported. He instructed his cabinet on Wednesday to halve costs on ceremonies and business trips.

Indonesia has allocated 71 trillion rupiah this year for Prabowo’s flagship programme to provide free meals for up to 17.5 million people, which began earlier this month.

But Prabowo wanted to expand the recipients this year to its full scale at 82.5 million, or more than a quarter of the population, by the end of the year. That would require an additional 100 trillion rupiah in the budget, said the head of the agency overseeing the programme last week.

Some economists have warned the additional debt to fund it could hurt the country’s hard-won reputation for fiscal prudence.

The finance ministry has previously projected 2025’s budget deficit at 2.53% of Indonesia’s gross domestic product.

($1 = 16,275.0000 rupiah)

On Thursday, Capital Economics, provided insights into the future of the United Kingdom (TADAWUL:4280)’s economy, focusing on household saving rates and consumer spending, indicating that the recent increase in the household saving rate is mainly due to cyclical factors rather than structural changes.

As such, they predict a gradual decline in the saving rate as interest rates decrease.

This anticipated fall in the saving rate is expected to underpin consumer spending, which Capital Economics believes will become a crucial component of GDP growth in the years 2025 and 2026.

The firm’s analysis suggests that as households begin to save less, their expenditure is likely to rise, thereby contributing positively to the overall economic activity.

The household saving rate is a critical economic indicator that reflects the proportion of disposable income that households save rather than spend.

A higher saving rate can signify caution among consumers, which may lead to reduced spending and slower economic growth. Conversely, a lower saving rate can indicate increased confidence and willingness to spend, which can stimulate the economy.

The forecast by Capital Economics is grounded in the expectation that interest rates will trend downwards, making saving less attractive for households.

This scenario is likely to encourage more spending, which in turn could bolster economic growth. The firm’s analysis is based on historical patterns and current economic conditions, providing a reasoned projection for the medium-term economic outlook.

While the precise impact of these changes on the UK economy will unfold over time, Capital Economics’ analysis offers a positive outlook for consumer-driven growth in the coming years. The firm’s findings are significant as they provide a basis for understanding potential trends in the UK’s economic trajectory.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

(Reuters) – U.S. stock index futures were subdued on Thursday, as investors paused after Wall Street’s strong performance in the previous session and awaited economic data, more corporate earnings and remarks from President Donald Trump later in the day.

At 5:20 a.m. ET, Dow E-minis were up 12 points, or 0.03%, S&P 500 E-minis were down 10.25 points, or 0.17% and Nasdaq 100 E-minis were down 103.5 points, or 0.47%.

The S&P 500 and the blue-chip Dow logged their sixth session of advances out of seven on Wednesday, with the benchmark index notching an intraday record high for the first time in over a month.

Trump’s multi-billion show of support for artificial intelligence infrastructure, along with Netflix (NASDAQ:NFLX)’s strong results, provided the latest tailwind for markets, which had been recovering since last week after data showed underlying inflation was cooling despite robust economic activity.

In premarket trading, AI darlings Nvidia (NASDAQ:NVDA) dropped 1.8% and Microsoft (NASDAQ:MSFT) dipped 0.7%, while chip stocks such as Advanced Micro Devices (NASDAQ:AMD) and Broadcom (NASDAQ:AVGO) slipped 0.8% each.

Uncertainty about Trump’s trade plans prevailed as he said tariffs on imports from Canada, Mexico, China and the European Union could be announced on Feb. 1, although analysts expect April 1 to be the date when major tariff plans will be unveiled.

All eyes will be on Trump’s appearance at the World Economic Forum in Davos at 11:00 a.m. ET.

“One new area of interest may be the international tax code, where he could potentially tariff (countries) trying to enact the (Organization for Economic Cooperation and Development’s) Global Minimum Tax – clearly something on the mind of his tech industry sponsors,” said analysts at ING Bank.

Trump pulled the U.S. out of the OECD tax deal on Monday. Tariff imposition could threaten a global trade war, upside price pressures and slow down the Federal Reserve’s pace of monetary policy easing.

Traders expect the central bank to leave interest rates unchanged for the first half of 2025, according to data compiled by LSEG.. A moderate rise in longer-dated Treasury yields also limited gains among stocks.

On the economic data front, economists expect a Labor Department report, due at 8:30 a.m. ET, to show jobless claims stood at 220,000 in the previous week, which could also reflect some impact from wildfires in California.

Among top movers, Electronic Arts (NASDAQ:EA) was down 13.7% after the videogame publisher cut its forecast for annual bookings, citing weakness in its established soccer franchise.

Alaska Air (NYSE:ALK) rose 3.8% after topping Street estimates for fourth-quarter profit and forecast a smaller-than-expected loss for the current quarter.

Quarterly reports from GE Aerospace, American Airlines (NASDAQ:AAL) and Union Pacific (NYSE:UNP) among others are due before markets open.

Micron (NASDAQ:MU) dropped 3.5% after South Korean rival SK Hynix warned of steeper demand declines in its commodity memory chips used in smartphones and computers.

By Marcela Ayres

BRASILIA (Reuters) – Investors already concerned about Brazil’s ballooning public debt load under veteran leftist President Luiz Inacio Lula da Silva are being forced to reckon with an additional risk: a government debt profile with growing sensitivity to high interest rates.

That’s because Latin America’s largest economy finances an unusually high portion of its debt through floating-rate bonds crafted to appeal to investors during times of market stress, a tool its Treasury was forced to lean on heavily last year, leaving the debt with its worst composition in 20 years.

The rate sensitivity of Brazil’s debt is poised to accelerate as the country’s central bank aggressively tightens money supply to combat inflation, overshadowing improvements in the primary budget balance.

No major country carries as much debt in floating-rate bonds as Brazil. Issuance of these instruments, known as LFTs, was the highest ever last year and their share of the total debt also rose by a record margin. Interest rate shocks now threaten to drive up the cost of servicing nearly half of the country’s already large debt.

“In the past year, interest rates rose. And with LFTs, you pay that cost right off the bat,” said former Treasury Secretary Paulo Valle, adding this implies a riskier and, therefore, deteriorated debt composition in the eyes of rating agencies.

With a heated economy and external and local uncertainties keeping Brazil’s currency weak, the central bank has already signaled two more 100 basis-point increases to the Selic benchmark rate to battle inflation, which would lift it to 14.25% by March.

Last year, demand for LFTs was boosted by market volatility amid shifting expectations for U.S. interest rates and growing fiscal concerns over Brazil’s debt trajectory.

The negative sentiment deteriorated further after Lula presented a spending control package that disappointed markets in November, following a kick-off of his third non-consecutive term in 2023, with surging expenses related to social benefits, increases to the minimum wage and public sector salaries.

By November, the LFT’s share of total debt had posted a year-to-date jump of a record 6.5 percentage points, accounting for 46.1% of Brazil’s total debt. December data is expected to show an extension of that rise, the Treasury acknowledged to Reuters, putting the instrument’s year-end share of total debt on course to be the highest since 2004.

While the debt composition mirrors that of two decades ago, gross debt is nearly 20 percentage points higher at 77.8% of GDP in November, meaning debt servicing applies to a larger stockpile.

As a result, despite a narrowing primary deficit in 2024, Brazil’s nominal deficit is projected to approach 8% of GDP, the highest among major emerging economies and the most burdened by interest costs.

This debt expansion pattern is expected to persist even if the government meets its zero primary deficit target this year, with Itau projecting the nominal deficit to deepen to 9.9% of GDP by 2026.

The Treasury said that debt management in 2024 considered the prevailing economic scenario, demand conditions, and market dynamics. It hopes to gradually replace floating-rate bonds with fixed-rate and inflation-indexed securities.

The government’s 2025 debt strategy, due to be unveiled later this month, is expected to continue relying on floating-rate bonds amid local fiscal woes and global concerns over U.S. President Donald Trump’s policies, even as borrowing costs are seen tightening further.

As inflation expectations keep drifting from the 3% official target, economists are increasingly forecasting the Selic rate to surpass 15% this year, with market bets reflected in the yield curve suggesting it could exceed 16% by November.

For Carlos Kawall, a partner at Oriz Asset Management and former Treasury Secretary, the government’s fiscal framework has clearly proven inadequate to stabilize debt growth, with political unwillingness to pursue fiscal adjustment spilling over into LFT growth and accelerated debt expansion.

“Debt management is a passenger in the government’s misguided fiscal policy strategy,” said Kawall. “You can’t fix the consequences without addressing the cause.”

Investing.com — UBS strategists, led by Andrew Garthwaite, have indicated that a 5% yield on the US 10-year Treasury would mark a negative turning point for equities.

They also suggest a 35% chance of a stocks bubble, which could happen when bubble areas in the global market reach at least 30% of the global market cap. This would be accompanied by a price-to-earnings (P/E) ratio of at least 45x and a bond yield of no less than 5.5%.

The team noted that the ‘Mag 6’ tech stocks, which include Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL), Nvidia (NASDAQ:NVDA), Meta (NASDAQ:META) and Microsoft (NASDAQ:MSFT), currently have a P/E ratio of 34x. UBS also highlighted that the best-performing region when Treasury Inflation-Protected Securities (TIPS) yields are rising has historically been Japan, in terms of local currency.

Conversely, the worst-performing region in dollar terms has been the Global Emerging Markets (GEM), with the US typically underperforming in such scenarios.

UBS strategists expect bond yields in the US to decrease to 4.25% by the end of the year. As a result, they recommend staying underweight on non-financial cyclicals, which correlate 62% of the time and are priced in with very high Purchasing Managers’ Index (PMI) values. These stocks also trade on near-record P/E and price-to-sales (P/S) relative to defensives, against a backdrop of deteriorating relative earnings revisions.

The strategists prefer defensives with low financial leverage, such as SAP, Microsoft, BAE Systems (LON:BAES), Tesco (OTC:TSCDY), Leonardo, Abbott and DSM. They also recommend buying UK bond/rate-sensitive risk, such as utilities and real estate, which they see as very cheap, oversold and the most sensitive sector. This is due to their belief that UK yields across the curve are too high and should recede.

UBS cited stocks including SSE (LON:SSE), National Grid (LON:NG), Persimmon (LON:PSN), Land Securities (LON:LAND) and UK homebuilders in general, which are discounting a 5% fall in house prices. As of Thursday, the 10-year Treasury yield was at 4.62%, showing little change on the day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

PARIS (Reuters) – French sports officials walked out of a speech by new minister Marie Barsacq over a planned 33% budget cut for their sector just a few months after a memorable Paris Olympics.

Earlier this month, Finance Minister Eric Lombard said the government aimed at squeezing around 50 billion euros ($52 billion) in savings out of the 2025 budget.

Lombard said a belt-tightening effort was necessary in order to preserve economic growth, adding the budget bill currently being drafted would target a deficit in a range of 5.0% to 5.5% of gross domestic product.

“How can we let this slide after the summer we’ve had?” Marie-Amelie Le Fur, president of the French national sports agency, asked Barsacq at the headquarters of the National Olympic Committee (CNOSF).

“We need the State, madam minister, and we need you to convey this message to the government.”

As Barsacq prepared to address the floor, which featured dozens of officials and the federation president, about 30 of them left the room.

In a letter to Prime Minister Francois Bayrou, CNOSF president David Lappartient, who is among the candidates for the International Olympic Committee presidential election in March, lashed out at the “incomprehensible budgetorial trajectory proposed by the government”.

The government has started the tortuous process of negotiating the budget, with a parliamentary vote expected some time next month.

Lombard began consultations with opposition parties earlier this month in an effort to preemptively win support before proposing the new budget bill.

That was in hope of avoiding a no-confidence vote like the one that brought down the previous government in early December amid a backlash against its belt-tightening proposals.

ank of America (BofA) analysts projected that the disinflationary trend in Australia is likely to continue, based on the upcoming Consumer Price Index (CPI) data release for the fourth quarter of 2024 by the Australian Bureau of Statistics (ABS).

The forecast suggests a moderate rise in headline CPI by 0.2% quarter-over-quarter and 2.3% year-over-year, down from 2.8% in the previous quarter, largely attributed to electricity rebates. Moreover, underlying inflation is also expected to show a decline, with trimmed mean inflation anticipated at 0.5% quarter-over-quarter and 3.2% year-over-year.

The analysis by BofA indicates that the spread and breadth of inflation have improved, with fewer CPI components increasing over 3% compared to the past year. Services are seen as a continuing factor in supporting inflation levels, whereas prices for goods are on a downward trend. This divergence is expected to continue. Notably, dairy products, fruits, and vegetables are among the primary contributors to the disinflation of goods, a trend that is consistent with other economies.

In terms of market strategy, BofA suggests that the optimal time for engaging with Reserve Bank of Australia (RBA) Overnight Indexed Swaps (OIS) could be after the release of the CPI data. The bank’s analysts believe that even if trimmed-mean inflation is slightly higher than expected at 0.6% quarter-over-quarter, the market is likely to price in at least 12 basis points of cuts, equating to a 50-50 probability. If the trimmed-mean CPI aligns with BofA’s forecast at 0.5% quarter-over-quarter, market pricing could indicate 20-22 basis points of cuts.

The analysts note that, assuming the CPI data does not reveal any tail-risk scenarios, there could be an attractive risk/reward opportunity for positioning in February or May 2025 RBA OIS, anticipating fewer rate cuts. This perspective is particularly relevant as there are no further job reports scheduled before the next RBA meeting.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

TOKYO (Reuters) – Japan’s government on Thursday maintained a cautious outlook for the economy in part as policymakers kept a wary eye on U.S. President Donald Trump’s policies and their potential impact on global growth.

The government also said fluctuations in financial markets are among other factors to watch, and retained its view on the economy recovering moderately in January underpinned by steady wage gains and a solid corporate sector.

“Executive orders of various policies such as an immigration policy and energy policy, which would have an impact on the economies of both within and outside of the U.S., are being made in the U.S.,” said an official at the Cabinet Office.

Trump’s threats of tariffs against key trading partners have stoked uncertainty for investors and policymakers, and have buffeted global markets since before and after his sweeping Nov. 5 U.S. election.

Most Japanese firms operating in the United States are bracing for the fallout of Trump’s polices, a survey released last week showed.

The Cabinet Office report said Japan’s investment in the U.S. has been increasing, ranking as the top for five straight years since 2019. Japanese companies are also contributing to job creation in the U.S., taking the top spot in the manufacturing sector, it added.

In the January report, the government maintained its view on most of the key economic areas. Private consumption, which accounts for more than half of the Japanese economy, was “picking up” and corporate profits were “recovering overall.”

The government expects the economy will continue to recover gradually helped by an improvement in the employment and wage environment, the report said.

Japan’s November base salary, or regular pay, rose at the fastest pace since 1992, after major companies agreed to higher pay at the spring wage negotiations.

The nation’s biggest business lobby Keidanren and trade unions kicked off this year’s wage talks on Wednesday and policymakers will be focused on how far the momentum spreads to smaller firms.

The monthly report comes ahead of the Bank of Japan’s monetary decision at the end of its Jan. 23-24 meeting. The central bank is likely to raise interest rates barring any Trump-induced market shocks and maintain a pledge to keep pushing up borrowing costs if the economy continues to recover.

By Gwladys Fouche

OSLO (Reuters) -Norway’s central bank held its policy interest rate unchanged at a 17-year high of 4.50% on Thursday, as unanimously expected by analysts in a Reuters poll, and maintained plans to start cutting borrowing costs in March.

Economists expect Norway’s monetary policy to start catching up this year with that of other Western central banks, most of which began cutting rates in 2024 as growth slowed and inflation waned.

“The policy rate will likely be reduced in March,” Norges Bank Governor Ida Wolden Bache said in a statement.

It would be Norges Bank’s first interest rate cut since May 2020.

The central bank last month said it planned to cut rates three times in 2025 to 3.75% by year-end. It is due to release a revised forecast in March.

The Norwegian crown had weakened slightly to 11.75 against the euro by 0914 GMT, from 11.74 just before the announcement.

In their discussions, Norwegian central bankers expressed concern about the risk of an increase in international trade barriers.

“Higher tariffs will likely dampen global growth, but the implications for price prospects in Norway are uncertain,” the bank said in the statement.

All but one of the 25 analysts in the Reuters Jan. 13-20 poll predicted that a quarter-percentage point rate cut to 4.25% will be announced in March, while a single participant anticipated a 50 basis point cut to 4.00%.

The decision and outlook for a March rate cut were as expected, said Oeystein Doerum, chief economist at the Confederation of Norwegian Businesses (NHO).

“Therefore the attention at the March rate meeting will first and foremost be about the rate path and the further developments in rates,” he said in an emailed statement.

The central bank said a restrictive monetary policy was still needed to stabilise inflation around its target, but reiterated that the time to begin easing monetary policy was soon approaching.

Core inflation in the Nordic country eased more than economists had expected in December to 2.7% year on year from 3.0% in November, but remains above the central bank’s 2% target.

“Overall consumer price inflation has been lower than expected. On the other hand, fewer policy rate cuts abroad are now expected than earlier,” the central bank said.

“Inflation has moved closer to target, but the rapid rise in business costs is likely to contribute to stoking inflation ahead,” it added.