LONDON - The Bank of England's chief economist, Huw Pill, has recently stressed the importance of maintaining a strong approach to combat persistent high inflation, even as signs of an economic slowdown emerge. Despite October's inflation rate sitting at a significant 4.6%, well above the Bank's 2% target, Pill pointed to supply-driven factors as the main drivers of continued price pressures.

Pill refrained from making specific interest rate predictions in his interview but advocated for the continuation of tight monetary policy. This stance is in light of stubborn inflation within the service sector and strong wage growth. Furthermore, the Bank of England's downgraded assessment of the UK's supply capacity suggests limited potential for growth without risking further inflation, underlining the need for ongoing vigilance by the Monetary Policy Committee (MPC).

While Pill has avoided forecasting interest rates, he acknowledged that financial market expectations for rate cuts starting next summer are plausible, with current rates at 5.25%. Nonetheless, Governor Andrew Bailey has indicated that investors might be placing too much emphasis on recent drops in headline inflation figures.

The MPC has been warned against relaxing its stringent monetary policies prematurely, as doing so could undermine efforts to stabilize prices. The Bank's steadfast approach reflects its commitment to reining in inflation while navigating the delicate balance between supporting economic activity and preventing a surge in inflationary pressures.

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

By Joe Cash

BEIJING (Reuters) -Uruguayan President Luis Lacalle Pou and Chinese Premier Li Qiang are keen to keep working on a bilateral free trade agreement as well as pursue one between China and the wider Mercosur trade bloc, according to a joint statement.

The statement follows a Thursday meeting in Beijing between the two and comes after China and Uruguay this week upgraded their bilateral relationship to a "comprehensive strategic partnership," elevating Montevideo's ties with Beijing to those of Argentina and Brazil.

Beijing is seen as particularly interested in an FTA with Mercosur as that could put pressure on Paraguay, the last remaining South American country with ties to Taipei, to rethink its links with Taiwan which China considers part of its territory.

The statement said that Uruaguay and China were committed to pursuing a bilateral FTA and noted that a joint feasibility study had been completed.

"At the same time, the two sides are willing to promote China-Mercosur FTA talks," it added.

Lacalle Pou first proposed a bilateral FTA with China in 2021 to secure similar opportunities for its exporters as those enjoyed by Chile, Costa Rica, Ecuador and Peru - countries which have secured tariff-free access to the world's second-largest economy.

"Uruguay is firmly committed to close relations with China and active participation in the Belt and Road Initiative (BRI)," Lacalle Pou said, according to a readout of the meeting in Chinese state media.

Uruguay was also "willing to... accelerate establishing an FTA between Uruguay, Mercosur and China," Chinese media quoted him as saying.

But Uruguay faces stiff opposition from fellow Mercosur members Argentina, Brazil and Paraguay who want their bloc to settle an FTA with Europe instead.

Last November, they warned they could take "measures" against Uruguay if it forged ahead with its plans to unilaterally negotiate an FTA with China.

Uruguay has also applied to join a major trans-Pacific free trade pact that China also aspires to join, but both Montevideo and Beijing must overcome significant political hurdles before that is possible.

Li was quoted as saying that China and Uruguay should take the signing of Belt and Road Initiative cooperation documents as an opportunity to promote a continuing increase in bilateral trade.

China accounted for 27% of Uruguay's exports in 2022, United Nations Comtrade data shows.

At present, Uruguayan beef, which constituted two-thirds of those exports to China, is subject to a 12% tariff.

By comparison, other major beef exporters Australia and New Zealand, which have FTAs with China, pay tariffs at 3.3% and 0%.

Uruguay came close to signing an FTA with the United States in 2006, but its government at the time eventually rejected the deal over fears of expulsion from Mercosur if it did so.

According to a study conducted by the National Meat Institute of Uruguay in 2021, if China signs an FTA with Uruguay, the meat industry can implement a 0% preferential tariff, which will reduce tariffs by $150 million.

BEIJING (Reuters) - China hopes Russia will give policy support for Chinese automobile enterprises to produce, sell and operate in Russia, Chinese state media cited China's ambassador to Russia as saying on Friday.

China will promote Chinese and Russian integration in the automotive industry supply chain, Ambassador Zhang Hanhui was cited as saying.

China is also willing to continue to give full play to the supply advantages of China's automobile industry and continue to develop models adapted to the needs of the Russian market, he said.

The GBP/USD currency pair reached a ten-week peak, approaching the 1.2550 mark, buoyed by unexpectedly strong UK Purchasing Managers' Index (PMI) data. The latest figures released showed both the Services and Composite indices indicating economic expansion with readings of 50.5 and 50.1 respectively, surpassing forecasts that predicted no change from previous numbers.

Market analysts are now turning their attention to the upcoming US Manufacturing and Services PMIs as trading resumes after the Thanksgiving holiday. There is a consensus that the Manufacturing index might show contraction with a prediction of 49.8, while Services are expected to experience a slight dip to 50.3. These projections come as market participants return in reduced numbers due to shortened trading hours.

In technical analysis, the GBP/USD pair shows that resistance is forming just below the recent highs, around the level of 1.2575. Meanwhile, support is taking shape near the recent lows in the vicinity of 1.2400. Investors and traders are closely monitoring these levels as they could indicate future movements in the currency pair's value.

As global markets await the release of US PMI data, the strength of the pound against the dollar serves as an indicator of investor sentiment towards the economic outlook of both nations. The positive UK data has provided some optimism about the resilience of the British economy amid global economic challenges.

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

By Gabriela Baczynska

BRUSSELS (Reuters) -The European Union executive on Thursday approved 900 million euros ($1 billion) in advance payments to Hungary under its hitherto frozen share of recovery funds, as the bloc seeks to overcome Budapest's veto of aid to Ukraine.

The EU's Brussels-based executive, the European Commission, locked Hungary out of the bloc's post-pandemic economic stimulus due to concerns over corruption and backpedalling on democratic checks and balances under veteran Prime Minister Viktor Orban.

In turn, Hungary has blocked EU decisions otherwise expected next month to grant Ukraine 50 billion euros in economic aid through 2027 and start accession talks with Kyiv. Budapest also stalled a plan to extend 20 billion euros in EU military aid to Kyiv, and is against sanctions over Russia for waging the war.

EU support is crucial to Ukraine, which has been struggling to push back a full-scale Russian invasion since February 2022.

Orban, who touts his ties with Moscow, says Hungary is no more corrupt than other EU countries.

Budapest has rolled out a billboard campaign vilifying the European Commission, and Orban's Fidesz party is pushing a bill on "protecting national sovereignty" from foreign meddling - both moves raising the stakes in Hungary's clashes with the EU.

A Budapest currency trader put the muted reaction on the forint to the news partly on the U.S. market holiday for Thanksgiving on Thursday.

"Also, markets understand that this is only the beginning, and may need a bigger impulse to put the forint on a firming path," said the trader, who declined to be named.

BARGAINING WITH HUNGARY

Hungary's chief EU negotiator, Tibor Navracsics, was quoted by the state news agency MTI as saying Budapest will continue negotiating with Brussels to unlock "all the EU funds we are entitled to as soon as possible."

The advance payments - which do not require meeting rule-of-law conditions otherwise attached to EU financial aid - come under RePowerEU, part of the post-pandemic EU stimulus meant to support energy transition away from fossil fuels.

EU officials said Hungary's amended recovery plan is worth a total of 10.4 billion euros over several years - or about 5% of Hungary's 2023 GDP - including 4.6 billion euros under RePowerEU: 0.7 billion euros in grants and 3.9 billion in loans.

EU officials said Hungary would use the RePowerEU money to modernise its electricity sector through smart metres and digitalisation of energy companies.

The Commission's decision on Thursday to give the nod to Hungary's amended recovery plan must now be approved by other EU countries, possibly as soon as during Dec. 8 talks among the 27 member states' finance ministers.

EU officials expected two payments of around 460 million euros each to follow next year.

The officials insisted Hungary must meet EU conditions on fighting corruption and ensuring judicial independence, among others, to access any more of the funds.

EU officials told Reuters last month that the bloc was considering unlocking aid for Hungary to win Budapest's support for Ukraine. More recently, however, sources involved in preparing a Dec. 14-15 EU leaders' summit to discuss Ukraine channelled increasing scepticism that Orban could be swayed.

($1 = 0.9168 euro)

By Naomi Rovnick, Samuel Indyk, Lucy Raitano and Harry Robertson

LONDON (Reuters) -Britain's finance minister on Wednesday announced a raft of measures aimed at reviving the sluggish economy without upsetting markets, but a degree of caution over the outlook for borrowing and inflation rattled bonds and sterling.

Nerves about cuts to social security payments were minor. Traders had feared a broader set of hard-to-fund giveaways.

Sharply lower growth forecasts for 2024 kept sentiment on sterling tepid, while some pockets of the stock market got a fillip from business investment and tax relief measures.

This was Hunt's second Autumn Statement since he replaced Kwasi Kwarteng, who was fired last year in the wake of a mini-budget packed with under-funded tax cuts that unleashed UK market turmoil.

Investors cautioned that tax breaks would not be sufficient to raise business investment while UK interest rates stayed high.

"The country needs massive investment and the only way you are going to get that is if financing costs become much cheaper," said Leigh Himsworth, UK portfolio manager at Fidelity International.

BUSINESS BOOST

UK investors went into this budget concerned about a government doing badly in the polls seeking to raise its popularity with heavy spending that could increase inflation and ultimately interest rates - already at a 15-year high of 5.25%.

There was "a risk of reduced tax rates that would stimulate the consumer again at a time where the Bank of England has only just broken the back of services inflation," Monex Europe head of FX analysis Simon Harvey said.

But Wednesday, equity markets focused on Hunt's business boosts, such as a move to make full expensing on investment permanent. Shares in BT which is investing in a huge new fibre network, were 4.1% higher on the day.

The UK's domestically-focused FTSE 250 index on Wednesday was last up 0.7% and comfortably outperforming the large-cap FTSE 100. "Full expensing should be a major lift to UK industry and to the longer term-macro outlook where improving the UK’s woeful pace of productivity growth is critical," said Philip Shaw, chief economist, UK at Investec. UK stock markets have underperformed their European and U.S. peers in 2023. The FTSE 100 index 12-month forward price-to-earnings ratio is around 10.7, about half that of U.S. stocks, with Hunt's budget unlikely to move the dial too far.

"Ultimately, the budget does not change our view that the UK economy faces a high risk of stagflation, which keeps us cautious and highly selective on UK domestic stocks," said Thomas McGarrity, head of equities at RBC Wealth Management.

BREWERS FIZZ, BUILDERS FLAT

Hunt also froze alcohol duties until August 1 2024. Shares in brewer Fuller, Smith & Turner rose 2.2% after the announcement, with pub operator Marston's, up 2.1%.

But the budget failed to provide a bazooka that would give Britain's homebuilders a boost, instead introducing smaller measures to unlock bottlenecks in the planning system.

"This doesn't feel like it's the sort of thing that's going to move the needle," said Oli Creasey, property equity analyst at Quilter Cheviot.

"It's not planning that's stopping them from selling homes right now, it's affordability."

Britain's homebuilding stocks, which have underperformed since the BoE began raising rates in 2021, closed down 0.5%, having been up around 1.6% before the budget.

GILTS PRESSURED

British bond yields rose after Hunt's statement, as investors reacted to a much smaller cut than expected to gilt issuance plans.

The Debt Management Office said on Wednesday it planned to sell 237.3 billion pounds ($295.7 billion) of gilts in 2023-24. In a Reuters poll, bond market participants had predicted the remit would be 222.8 billion pounds.

Britain's 10-year gilt yield finished up 6.8 basis points on the day at 4.175%, above a session low of 4.052%.

It hit a 15-year high of 4.755% in August, but has since dropped along with yields around the world as global growth and inflation data has cooled. Yields move inversely to prices.

STERLING SOGGY

The pound struggled to gain any traction on the back of Hunt's budget. It fell by as much as 0.7% against the dollar after data suggested greater strength in the U.S. economy and was lower against the euro.

"Markets are still pricing in a 50% chance of a (UK) rate cut by June (which) suggests investors are not concerned about any inflationary implications on the back of today's announcements," OANDA strategist Craig Erlam said.

Goldman Sachs strategists had warned ahead of Hunt's statement that "a more substantial fiscal loosening at this stage would risk raising inflation."

($1 = 0.8025 pounds)

BANGKOK (Reuters) - Thai Prime Minister Srettha Thavisin said on Thursday the country's economy was in "crisis", stressing the need to forge ahead with his controversial 500 billion baht ($14.23 billion) digital handouts policy.

Speaking at a forum, Srettha said the economy was not in good shape with fewer foreign arrivals than targeted, and he would be prioritising attracting foreign investment and addressing household debt.

"There needs to be big economic stimulus," said Srettha, who is also finance minister, adding a plan to tackle debt would be announced on Dec. 12.

His comments comes days after data from the state-planning agency showed lower-than expected growth of 1.5% in the July-September quarter from a year earlier, the slowest pace this year, on weak exports and government spending.

Thailand recorded 23.85 million foreign tourists arriving from Jan 1 to Nov. 19, spending 1 trillion baht.

It is targeting 28 million arrivals versus a pre-pandemic record of nearly 40 million foreign tourist arrivals in 2019 who spent 1.91 trillion baht.

Srettha's "digital wallet" policy, which entails handouts of 10,000 baht to 50 million Thais next year to spend in their localities, has come under criticism in recent months by economists and former central bankers over risks of it breaching financial discipline.

In recent weeks, government officials have described the economy to be in a crisis, necessitating its signature plan.

Srettha, a real estate tycoon and newcomer to politics, is targeting average growth of 5% annually over the next four years in Southeast Asia's second-largest economy, which grew an average 1.9% over the past decade, lagging regional peers.

Speaking at the same forum, Bank of Thailand Governor Sethaput Suthiwartnarueput said the country's fiscal and monetary policies required space to ensure the economy remains resilient as it grows.

"Elements of resiliency include stability, strong balance sheets, fiscal and monetary policy with various options," he said.

In September, the Bank of Thailand (BOT) unexpectedly raised the key interest rate by a quarter point to 2.50%, the highest in a decade, saying growth and inflation should pick up next year. It will next review policy on Nov. 29.

($1 = 35.1300 baht)

In early Asian trading today, gold prices experienced a downturn, moving from $2,006 to $1,990, amid a stronger US dollar and rising Treasury yields. The US Dollar Index, a measure of the currency's strength against a basket of other major currencies, reached 103.88. Concurrently, Treasury yields saw an increase of 4.40%. This movement in the markets comes as the University of Michigan Consumer Sentiment Index reported a rise to 61.3, setting the tone for market sentiment before the Thanksgiving Day holiday.

The precious metal's decline also follows recent insights from the Federal Open Market Committee (FOMC) Meeting Minutes released on Tuesday. The minutes revealed a collective preference among policymakers for a careful approach to monetary policy that takes into account current economic conditions and associated risks.

Investors in gold are now looking ahead to the release of S&P Global Purchasing Managers' Index (PMI) data, which is expected to influence market trends. The Manufacturing PMI is projected at 49.8, while Services PMI is anticipated at 50.3.

Additional economic indicators that may be swaying investor sentiment include a sharp drop in jobless claims to 209,000 and a decrease in continuing claims to 1.84 million. Meanwhile, Durable Goods Orders showed a contraction of 5.4% month-over-month in October, and inflation expectations for the next year edged up slightly to 4.5%, according to the University of Michigan data. These mixed signals reflect an economy grappling with inflationary pressures while showing signs of resilience in the labor market.

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

(Reuters) -The average interest rate on the most popular U.S. home loan fell last week to its lowest level in two months as Treasury market yields, which act as a benchmark for mortgage rates, continued to move lower on the back of cooling inflation and a softening economy.

The average contract rate on a 30-year fixed-rate mortgage declined by 20 basis points to 7.41% for the week ended Nov. 17, data from the Mortgage Bankers Association (MBA) showed on Wednesday. It has declined 45 basis points over the past two weeks and is now at its lowest level since late September.

The yield on the 10-year Treasury note acts as a benchmark to set home loan costs. Home-purchasing borrowing costs had reached two-decade highs near 8% in October.

A more timely mortgage tracker also saw the average rate on a 30-year fixed-rate mortgage fall to a two-month low. It fell to 7.29% this week from 7.44% the week before, according to a Freddie Mac survey released later on Wednesday.

The third consecutive weekly decline in both gauges comes amid signals that the Federal Reserve is unlikely to raise interest rates further. At the beginning of the month it kept its key overnight policy rate unchanged for a second straight meeting and policymakers have since indicated they would raise interest rates again only if progress in controlling inflation faltered.

The dip in mortgage rates meant more would-be purchasers. The MBA's Market Composite Index, a gauge of mortgage applications for both home purchases and refinancings of existing loans, rose 3.0% from a week earlier to a six-week high.

The MBA's Purchase Composite Index, a measure of all mortgage loan applications for purchase of a single family home, increased 3.9% from the prior week.

Purchase applications, however, remain well below typical levels, indicating would-be buyers are still waiting on the sidelines despite the decline in rates.

Sellers locked into lower mortgage rates also continue to hold their homes, keeping housing inventory tight.

By Hari Kishan and Indradip Ghosh

BENGALURU (Reuters) - Most key global stock indexes are forecast to rise modestly over the coming year, closing 2024 below record highs, while a slim majority of stock market experts polled by Reuters expected their markets to touch new peaks within the next six months.

Much will depend on interest rate expectations now central banks are mostly done with a season of aggressive rate rises since the COVID pandemic to dampen a burst of inflation still not completely under control.

Traders and analysts mostly assume the U.S. Federal Reserve will be cutting interest rates by the middle of next year, an outcome that is far from certain and does not clearly align with policy statements from top central bankers.

Those rate cut expectations are partly behind the views of a slim majority of survey respondents, 46 of 82, who said most key indexes would reclaim record highs by then.

However, only a handful of the 15 top stock indexes were predicted to trade at record peaks by end-2024, based on a wider Nov. 9-22 poll of more than 120 stock market experts.

"After two straight quarters recommending cash over stocks and bonds, we now expect equities to eke out high single-digit returns in 2024 and outperform core fixed income," noted Ajay Rajadhyaksha, global chairman of research at Barclays.

"Yes, we expect the economy to grow more slowly next year, in both real and nominal terms...But the downside risks to the world economy have diminished greatly. We think stocks will benefit from a fairly benign bottom to this business cycle."

A strong majority of respondents, 72 of 85, expected corporate earnings in their local market to increase over the coming six months. The remaining 13 said they would decrease.

Despite high interest rates, cooling global inflation, and with it, economic activity, only a slim majority of respondents, 44 of 80, said value stocks would outperform growth stocks over the next six months.

LOWER BOND YIELDS

For now, markets are pricing in a series of 2024 rate cuts, which is sending bond yields lower and stock prices higher.

U.S. 10-year Treasury note yields breached 5.00% last month for the first time since July 2007 but are not expected to revisit that level according to a separate Reuters poll of bond strategists who were proven wrong on the same call for three straight months.

Lower bond yields will likely be required to further any expected gains in stocks, as they had reached a point where investors had got used to years of paltry yields but now represent good value along with security.

But it is not at all guaranteed that trend will continue, having fallen around 60 basis points on U.S. 10-year yields in the last few weeks alone.

"Falling bond yields are being interpreted by equity markets as a positive in the near-term," said Marko Kolanovic, chief global markets strategist at J.P. Morgan.

"However, we believe that equities will soon revert back to an unattractive risk-reward as the Fed is set to remain higher for longer, valuations are rich, earnings expectations remain too optimistic, pricing power is waning, profit margins are at risk and the slowdown in topline growth is set to continue."

The benchmark S&P 500 index was forecast to finish next year at 4,700, only about 3% higher from its Monday close, with a possible U.S. economic slowdown or recession among the biggest risks for the market in 2024.

European equity markets were also expected to eke out modest gains in 2024 as optimism global interest rates have peaked is offset by worries the economy could fall into a recession.

The pan-European benchmark STOXX 600 index was forecast to rise 4.1% to 475 points by the end of next year, from Monday's close at 456.26.

Canada's main stock index was expected to rise less than previously thought over the coming year as a slowdown in the global economy weighs on the outlook for corporate earnings.

Among the indices surveyed Japan's Nikkei 225 and India's BSE index were expected to continue their strong performance into the next year with the Nikkei expected to reach a three-decade high of 35,000 by end-June of next year and the BSE forecast to hit new highs in 2024.

(Other stories from the Reuters Q4 global stock markets poll package:)