(Reuters) - French Finance Minister Bruno Le Maire will take a more stringent approach to public finances, he told the Financial Times ahead of a June 19 conference expected to unveil large cuts in public expenditures.

In an interview published on Wednesday, Le Maire promised a renewed push to cut public spending, saying France needed to stick to its debt reduction program after narrowly avoiding a downgrade by ratings agency S&P this month.

Although S&P retained its AA rating for France's sovereign debt, it stayed cautious about the outlook on account of strained public finances.

"The decision by S&P is an incentive to do more and to do better," Le Maire said. "We need to stick to our debt reduction program and to cut public expenditures."

France, its debt among Europe's highest, at nearly 110% of economic output, said last month it planned to freeze 1% of the budget of each ministry, following an earlier decision to cut 5%, in a bid to make good on deficit reduction commitments.

It will also end subsidies this summer for natural gas. Other areas being targeted are a buy-to-let tax credit known as the Pinel law and programmes that subsidise wages of some young workers, the paper said.

"As France nears full employment, it can also reduce the level of support to the labour market," Le Maire added.

However, the government would not cut public spending severely, he said, and push through business-friendly reforms instead.

"Austerity is not an option ...  This would be an economic and political mistake," Le Maire said.

SHANGHAI/SINGAPORE (Reuters) - China's central bank is widely expected to cut the borrowing cost of medium-term policy loans for the first time in 10 months on Thursday, after it lowered two key short-term policy rates, a Reuters poll showed.

The People's Bank of China (PBOC) cut its seven-day reverse repo rate and standing lending facility (SLF) rate by 10 basis points on Tuesday, signalling possible easing for longer-term rates to revive demand and restore investor confidence in the world's second-largest economy, analysts and traders said.

China remains an outlier among global central banks as it loosens monetary policy to shore up a stalling recovery but further rate cuts will widen the yield gap with U.S. assets and risk greater outflows.

In a poll of 33 market watchers conducted this week, all participants predicted that the central bank would lower the interest rate on one-year medium-term lending facility (MLF) loans when it is due to roll over 200 billion yuan ($27.92 billion) worth of such maturing loans on Thursday.

Among them, 31 or 94% of all respondents expected a 10-basis-point cut, while one predicted a 5-basis-point reduction and the other one forecasted a deeper cut of 15 basis points.

"As the open market operations (OMO) reverse repo rate moves in lockstep with the one-year MLF rate, which has become one of the most important benchmark rates in the PBOC's policy rate system, an OMO rate cut will almost surely be followed by an MLF rate cut, and the sequence of the two cuts matters less than the cuts themselves," said Ting Lu, chief China economist at Nomura.

The MLF rate serves as a guide to the benchmark loan prime rate (LPR), and markets usually use the medium-term rate as a precursor to any changes to the lending benchmark. The monthly fixing of the LPR will be announced on June 20.

"We expect a 10bp cut in the MLF rate on June 15, followed by an asymmetric cut in the LPR rates on June 20: a 10bp for 1-year LPR and 15bp for 5-year LPR," said Larry Hu, chief China economist at Macquarie.

"The cut is larger for the 5-year LPR, as it's linked to the mortgage rate. Looking ahead, we expect another 10bp cut in the MLF rate in 3Q23."

The PBOC last cut the MLF rate in August 2022 to prop up the broad economy disrupted by stringent zero-COVID measures.

($1 = 7.1626 Chinese yuan)

By Kevin Buckland

TOKYO (Reuters) - The dollar fell to near a three-week low to the euro and a one-month low versus sterling on Wednesday, after unexpectedly soft U.S. inflation data cemented the view that the Federal Reserve will skip an interest rate hike later in the day.

China's yuan sagged to a 6-1/2-month trough, continuing its slide after the central bank cut rates on Tuesday, amid speculation even more stimulus is on the way to support the sputtering post-COVID economic recovery.

The dollar index - which measures the currency against six major peers, including the euro and sterling - was little changed at 103.29 in early Asian trading, after dipping to the lowest since May 22 overnight at 103.04.

The U.S. consumer price index (CPI) edged up just 0.1% last month, and notched its smallest year-on-year increase since March 2021 at 4.0%.

That saw bets for a quarter-point hike to U.S. rates later on Wednesday pared to less than 6% currently, from 21% 24 hours earlier, according to the CME Group's (NASDAQ:CME) FedWatch Tool.

"The soft inflation report effectively cements a Fed pause, although I doubt it will be enough to warrant a dovish undertone as it's not in their interest with CPI twice the Fed's target," said Matt Simpson, senior market analyst at City Index, who points to 103 as a key support level for the dollar index.

"Whilst it was enough to send EUR/USD above 1.0800, it wasn't enough to keep it there given a hawkish pause seems quite likely."

The euro was little changed at 1.0791, after reaching a high of $1.08235 on Tuesday. The European Central Bank decides policy on Thursday, with a quarter-point rate hike widely expected.

Sterling edged 0.08% lower to $1.2602, but after soaring 0.8% in the prior session and hitting the highest since May 11 at $1.2625.

The dollar eased 0.16% to 140.02 yen. It rose to the highest since June 5 on Tuesday despite the soft U.S. inflation figures, with the Bank of Japan seen retaining ultra-easy policy settings on Friday.

The Australian dollar was flat at $0.6768, after reaching the highest since May 10 on Tuesday at $0.6807.

The Aussie garnered additional support from the People's Bank of China's decision to cut the seven-day reverse repo rate for the first time in 10 months on Tuesday. China is a key destination for Australia's resource exports.

The next adjustment to rates could come as soon as Thursday, when the central bank is due to roll over 200 billion yuan ($27.93 billion) in medium-term lending facility (MLF) loans.

The yuan weakened slightly and touched 7.1785 per dollar in offshore trading for the first time since Nov. 29.

By Jamie McGeever

(Reuters) - A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

Asian markets are set for an explosive open on Wednesday after a below-consensus reading of headline U.S. inflation lit the touchpaper for a rally across all risky assets on Tuesday, although investors will be mindful of the steep rise in U.S. bond yields.

The fall in U.S. inflation to a two-year low has convinced investors the Federal Reserve will pause raising rates on Wednesday, and they like what they see - the S&P 500, Nasdaq and MSCI World index all hit their highest levels since April last year, the dollar fell and cash flowed out of safe-haven bonds.

The rush into riskier assets was also supported by China's de factor policy easing as the central bank cut reserve repo rates for the first time in 10 months. This could be a precursor to lower benchmark interest rates in the coming weeks - yuan traders certainly seem to think so.

Indian wholesale price inflation, unemployment and import and export prices from South Korea, and New Zealand's first quarter current account top the Asian and Pacific data calendar on Wednesday.

India's annual WPI inflation could be especially important. Economists expect a fall of 2.35% in May, pointing to the strongest deflationary pressures in three years. With the year-on-year global oil price still down around 40%, it could be even lower.

But the driving forces for markets will likely be global.

Traders are putting a 95% probability on the Fed standing pat on Wednesday, a consensus so strong the Fed will almost certainly respect. The focus for investors will be on the statement and Fed Chair Jerome Powell's press conference for signs on whether it will be a 'hawkish' or 'dovish' pause.

All of that will come after Asian markets close, so in the meantime local investors will take their cue from yet another remarkable performance on Wall Street, especially tech stocks and the Nasdaq.

The NYSE FANG+ index of mega tech stocks rose 0.9% for a fourth consecutive daily rise, bringing its year-to-date gains to 72%. The index has posted only four declines in the past 21 trading sessions.

Even beleaguered Chinese tech stocks are finally feeling the glow - the Hang Seng tech index is up 11% so far this month, outperforming the broader Hang Seng (up 7%) and significantly outpacing the main Chinese indices, which are up 1% or 2%.

The MSCI Asia ex-Japan index rose more than 1% on Tuesday, its second best day since March, while Japan's Nikkei hit a fresh 33-year high above 33,000 points.

Momentum across all these markets is coming from strong technical, positioning and 'fear of missing out' tailwinds. One major headwind, particularly for Asian assets, could be the surge in U.S. Treasury yields, although that for now at least is being mitigated by the dollar's slide to a three week low.

Here are key developments that could provide more direction to markets on Wednesday:

- India WPI inflation (June)

- South Korea unemployment (May)

- New Zealand current account (Q1)

(By Jamie McGEever)

COLOMBO (Reuters) - Sri Lanka's government has decided to extend a restriction on outward capital transactions by six months due to pressure on its limited foreign exchange reserves, cabinet spokesperson Bandula Gunawardena said on Tuesday.

The decision will be revisited after debt talks are finalised in September, added Gunawardena, who is also the transport minister of the island country.

By Anthony Boadle

BRASILIA (Reuters) -European Commission President Ursula von der Leyen on Monday said the EU hopes to finalize its long-delayed trade deal with the Mercosur bloc of South American countries by the end of the year at the latest.

Brazilian President Luiz Inacio Lula da Silva, after meeting with von der Leyen, criticized an addendum the EU has added to the agreement, which has been on hold since 2019 largely due to European concerns over Amazon (NASDAQ:AMZN) deforestation.

Lula said he told her that the so-called additional tool or side letter to the accord included obligations that could lead to sanctions if they were not complied with.

"The premise between partners should be mutual trust, not distrust," he said in a joint news conference.

The European Union is waiting for a Mercosur response to its proposal to attach sustainability and climate change commitments to the deal struck in 2019 with the Mercosur bloc of Argentina, Brazil, Paraguay and Uruguay.

"We have been discussing the trade deal for two decades now ... Now finally, we are close to the finishing line. It is time that we cross that line," von der Leyen said later in a speech to industrial executives and diplomats.

She said she and Lula both committed themselves to concluding the accord "as soon as possible, the latest by the end of this year."

Lula said earlier this month his country would not sign the trade pact without adjustments, specifically pointing to the procurement clause and his government's opposition to allowing European companies to sell to Brazil's public sector.

Von der Leyen praised Lula's leadership on climate politics and his plan to end deforestation in the Amazon by 2030, and she offered 2 billion euros ($2.2 billion) in European funding to develop green hydrogen production in Brazil.

She announced that the EU was almost doubling to 10 billion euros the funds available to Latin America and the Caribbean in the 300 billion-euro Global Gateway plan for funding sustainable development.

Von der Leyen met Lula at the start of a four-nation trip to Latin America to bolster political and trade ties.

Since Russia's invasion of Ukraine, the European Union has cast around for "like-minded" partners to provide other sources of trade and critical minerals required for its green transition and help reduce its reliance on China.

Her talks with the presidents of Brazil, Argentina, Chile and Mexico will prepare the ground for the EU meeting with 30 leaders from Latin America and the Caribbean at a summit in Brussels on July 17-18.

EU and Mercosur negotiators are scheduled to meet again in Buenos Aires on June 29-30 and the South American countries will present a counterproposal. Brazil hopes to remove any possibility of sanctions, arguing that the Paris Agreement on climate set voluntary goals.

A spokesman for Brazil's foreign ministry said a counterproposal will be presented. He gave no date, but added that Mercosur negotiators will meet to agree on a joint stance before the next round of talks with the EU in Buenos Aires.

"Before the meeting with the Europeans, there will be an intra-Mercosur meeting to coordinate positions," he said.

($1 = 0.9295 euros)

By Julie Zhu

HONG KONG (Reuters) - Asian shares edged up in early trade on Tuesday, following an upbeat session on Wall Street while investors turned their attention to key U.S. inflation data and the Federal Reserve's interest rate decision this week.

Investors will be closely monitoring U.S. Consumer Price Index (CPI) data, due to be released on Tuesday, and Producer Price Index (PPI) data, due out Wednesday, for a reading of how well the Fed's tightening cycle has managed to curb inflation.

The equity index's gains partly reflected expectations for a Fed tightening pause for the first time since January 2022 and for CPI and PPI to come in lower than the prior month, investors and strategists said.

"Overall equity markets reacted positively to expectations the monetary policy cycle may be nearing its peak," ANZ analysts said in a note. "U.S. markets are now pricing a 72% probability that the Federal Reserve Monetary Policy Committee (FOMC) will hold rates at this week's meeting."

In China, to prop up the economy, the central bank cut its seven-day reverse repo rate by 10 basis points to 1.90% from 2.00% on Tuesday, when it injected 2 billion yuan ($279.97 million) through the short-term bond instrument.

Early in the Asian trading day, MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.3% while U.S. stock futures - the S&P 500 e-minis - rose 0.1%

Japan's Nikkei advanced 1.59% and Australian shares were down 0.03%.

China's blue-chip CSI300 index was 0.05% higher in early trade. Hong Kong's Hang Seng index opened down 0.2%.

On Monday, the S&P 500 and the Nasdaq rallied to their highest closing levels since April 2022.

Lifted by gains in market heavyweights Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA), the S&P 500 has recovered 21% from its October 2022 lows, heralding the start of a new bull market, as defined by some market participants.

The S&P 500 climbed 0.93% to end the session at 4,338.93 points. The Nasdaq gained 1.53% while Dow Jones Industrial Average rose 0.56%.

While the Fed is expected to keep rates steady, surprise rate hikes by the Reserve Bank of Australia and the Bank of Canada last week have still kept investors alert to the idea of prolonged tightening cycles.

The European Central Bank will deliver its rate decision on Thursday with analysts expecting it to raise rates by 25 basis points (bps) and to signal that there is more ground to cover. But the Bank of Japan, which will announce its plan on Friday, is expected to maintain its ultra-loose policy.

In U.S. Treasuries, the yield on benchmark 10-year Treasury notes reached 3.7375% compared with the U.S. close of 3.765% on Monday. The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 4.5749% compared with a U.S. close of 4.592%.

In currencies, the U.S. dollar index, which measures the greenback against a basket of major currencies, rose 0.019% to 103.600, while the European single currency was up 0.1% on the day at $1.0762.

The dollar dropped 0.05% against the yen to 139.52.

U.S. crude ticked up 0.15% to $67.22 a barrel. Brent crude rose to $72.01 per barrel.

Gold was slightly higher. Spot gold was traded at $1959.29 per ounce. [GOL/]

SYDNEY (Reuters) - Australia's business conditions eased sharply in May, dented by slower gains in sales and employment, suggesting demand growth is moderating in the wake of the central bank's most aggressive tightening campaign in its modern history.

The survey from National Australia Bank (OTC:NABZY) Ltd (NAB) released on Tuesday showed its index of business conditions fell by a sizeable seven points to +8 in May, but they remained just above the long-run average.

The volatile measure of confidence dipped back to negative territory, falling to -4 from April's 0, showing that the number of firms that are pessimistic outnumbered those that are optimistic.

The survey's measure of sales declined 8 points to +14 in May, the employment index fell 7 points to +4, and forward orders, a leading indictor of demand, fell to -5 in May.

"With the easing in business conditions accelerating and forward orders falling sharply, there is a growing risk that the RBA’s attempts to maintain an even keel 'run aground'," said NAB chief economist Alan Oster.

"The trend over coming months will be important as the RBA tries to assess whether it has done enough and if underlying inflation pressures are easing in a timely way."

In a worrying sign for the Reserve Bank of Australia, the survey pointed to persisting price pressures, with the measure of labour costs picking up to a quarterly rate of 2.2%, from 1.9% the previous month, and purchase costs accelerating to 2.5% from 2.2%.

The RBA surprised markets last week by raising the cash rate another quarter-point, bringing the total hikes to a whopping 400 basis points since May last year, and warned more rate hikes may be required to bring inflation to heel.

Markets have moved to price in the risk of two more hikes to 4.6%, while seeing rates staying there for the remainder of the year.

(Bloomberg) -- US consumers’ near-term inflation expectations fell last month to the lowest level in two years as their outlook for personal finances and credit conditions worsened, according to a Federal Reserve Bank of New York survey.

Median one-year-ahead inflation expectations declined by 0.3 percentage point to 4.1%, the lowest reading since May 2021. Expectations for inflation three years ahead and five years ahead each increased slightly, by 0.1 percentage point, to 3.0% and 2.7%, respectively, according to the New York Fed’s monthly Survey of Consumer Expectations.

Consumers also expressed more nervousness about their finances. Expectations for what earnings growth will be one year from now fell for the first time in five months, sliding to 2.8% from 3.0%. The drop was larger among respondents who had only a high school education.

A larger share of households said their finances were worse now than a year ago. The outlook for the future also deteriorated, with fewer respondents saying they expect to be better off a year from now.

More consumers said it was harder to access credit now compared to a year ago. At the same time, more households said they expect to see tighter credit conditions in one year. 

But it wasn’t all bad news. The perceived probability of job loss in the next year fell to 10.9%, the lowest since April 2022 and close the lowest level on record in data stretching back to 2013. Households also said they expected it would be easier to find a new job if they lost their current position.

The findings come just ahead of a two-day Fed policy meeting, where officials are expected to pause their aggressive tightening campaign to allow more time to learn about how prior interest-rate increases are affecting the economy. Uncertainty over how much credit conditions will tighten has bolstered the case for a pause.

Read More: Fed Backs Away From Wages Focus, Bolstering Case for Rate Pause

An update on the consumer price index due Tuesday is expected to show that core inflation, excluding food and energy, moderated to 5.2% in the 12 months through May. Reports on the labor market have been mixed, with employers adding more jobs than expected last month and the unemployment rate rising to 3.7%. 

Policymakers will release fresh forecasts this week for where they see interest rates, inflation and the unemployment rate heading over the next few years when their meeting concludes on June 14.

©2023 Bloomberg L.P.

LONDON (Reuters) - JPMorgan (NYSE:JPM) said on Monday it expects Turkey's central bank to hike interest rates to 25% from the current 8.5% at its June meeting, adding this could come with forward guidance suggesting smaller hikes ahead if needed.

June 22 is the first scheduled policy meeting after Hafize Gaye Erkan was appointed as central bank governor on Friday.

"We maintain our year-end policy rate forecast at 30%, with risks on the upside," Nicolaie Alexandru-Chidesciuc wrote in a note to clients.

"We forecast a recession in 2H23 on the back of a tightening in credit conditions."

The Wall Street bank confirmed it expected the country to tip into recession in the second half of the year due to tightening credit conditions.