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FirstFT: Bank of Japan stuns markets with policy change

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good morning. The Bank of Japan surprised the markets yesterday with A sudden change in its controversial policy of yield curve control (YCC), which led to huge volatility in the currency, bond and stock markets.

The Bank of Japan is the last of the world’s major central banks to stick to ultra-loose monetary policy and government bond purchases to stimulate growth.

But like elsewhere in the world, inflation in Japan has risen sharply this year. Core inflation – which excludes volatile food prices – has exceeded the Bank of Japan’s 2 percent target for seven consecutive months, hitting a 40-year high of 3.6 percent in October.

Japan’s increasingly extreme position contributed to a A significant drop in the yen This year the markets priced in the difference with the US Federal Reserve tightening interest rates.

The central bank said yesterday that it will allow 10-year bond yields to fluctuate by plus or minus 0.5 percent, instead of the previous 0.25 percent. It kept the overnight interest rate at minus 0.1 percent.

I started the move Sell ​​on the global government bond markets. The yield on 10-year Japanese government bonds rose to 0.47 percent, the highest level since 2015. The 10-year US Treasury yield rose 0.11 percentage point to 3.69 percent while the yield on British equivalent bonds increased by a similar margin to 3.6 per dollar. cent.

The yen jumped more than 4 percent to about 131.2 yen against the US dollar, while the Topix stock index fell 1.5 percent.

The line graph of the 10-year yield (%) shows an increase in Japanese bond yields

Outgoing Bank of Japan Governor Haruhiko Kuroda denied that the policy change amounted to monetary tightening. He said the change aims to address the increasing volatility in global financial markets and improve the performance of Japanese bond markets.

The BoJ’s efforts to defend yield curve targets have contributed to the continued decline in market liquidity in the Japanese government bond market, leading to what some analysts have described as “dysfunction.”

The central bank now owns more than half of government bonds outstanding, compared to 11.5 percent when Kuroda became governor in March 2013.

Mansoor Mohiuddin, chief economist at the Bank of Singapore, said the announcement suggests the Bank of Japan is considering a broader exit from its YCC policy, likening it to a 1989 decision to raise interest rates that triggered decades of deflation.

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1. Putin: The war in Ukraine has become ‘very complicated’ With his invasion ten months away, Putin described the situation in Ukraine as “extremely complex”. This is the second time this month that he has admitted that the war in Ukraine – which he originally thought would take less than a week – is It is set to last for a long time.

2- The Chinese media promised that “life will return to normal by spring.” China’s loosening of its coronavirus policies is accompanied by an abrupt shift in official rhetoric about the virus. Now, the country’s state media is seeking to portray an “exit wave” of coronavirus cases sweeping the country as Part of a pre-planned strategy.

3. FTX hopes to recover SBF political donations Crypto exchange FTX is trying to recover millions of dollars in political donations made by Sam Bankman-Fried in order to pay off creditors. Some recipients are already seeking a refund, the company’s new management says You will take legal action To recover cash that was not returned voluntarily.

4. The President of the Union resigns in the bribery scandal between the European Union and Qatar Luca Visentini, general secretary of the ITUC, has resigned less than a month after taking office. Admitted late on Monday to Take thousands of Euros in cash From the former Member of the European Parliament, Pier Antonio Panzieri. Panziri is at the center of a corruption scandal in which Qatar and Morocco allegedly sought to influence EU MPs through bribes.

5. India beats China in merger and acquisition fees for Western banks The world’s largest investment banks will earn more Transaction fees in India This year than in China for the first time. This achievement signifies a broader shift by Western funding to diversify away from a decoupled Chinese economy.

A bar chart of net revenue ($million) showing that Indian M&A fees outperform Chinese fees for foreign banks

next day

Ambulance workers strike in the UK More than 1,600 union members will stop ambulance service trusts in the West Midlands, North West and North East, over wages. Also, ambulance staff across most of England and Wales will be on strike for pay as part of an eviction coordinated by the three main ambulance unions Unison, GMB and Unite.

economic indicators Canada will publish its consumer price index inflation figures for November. Germany releases the GfK Consumer Confidence Survey. Today the UK will release its public sector financial data for November and the US will release its consumer confidence data for December from the Conference Board in the US

corporate results Carnival publishes fourth quarter results and Rite Aid today reports third quarter results. Bunzl will also get a trading update — the provider of hard hats, beard guards and disposable cutlery is expected to confirm a healthy finish to the fiscal year with healthy revenue growth, supported by several acquisitions announced over the past 12 months.

What else do we read

The Great Green Office Crisis Buildings account for 39 percent of global energy-related carbon emissions, and new environmental regulations to tackle the problem are starting at the worst possible time. Acres of office space around the world, worth hundreds of billions of dollars Now at risk of recurrence.

Private property transfers to the hospital ERs For a private equity industry that has made billions of dollars by bundling car washes, dentists’ offices, and local businesses into efficiently run national chains, “bundling” hospital emergency rooms seemed like a sound plan. But the finance giants didn’t take into account the backlash from doctors.

A montage of a health worker in front of the names of finance titans including Blackstone, KKR and Brown Brothers Harriman
A total of 18% of US GDP is spent on health care © FT montage / Getty Images

The hotel complex of billionaire Oleg Deripaska in Sochi has been seized A Russian court has ordered the seizure of the billion-dollar Imeretinskiy hotel and marina complex owned by billionaire Oleg Deripaska after… The Kremlin asked the oligarch to stop criticizing the warThe Financial Times was told by people familiar with the matter.

Silicon Valley startups are racing to get debt deals in a financing crisis A sharp decline in venture capital deal-making and a closed market for initial public offerings has led to a funding crisis for many private technology companies, driving start-ups that have traditionally relied on wealthy Silicon Valley investors to head into the waters. Alternative financing deals.

3M to end the production of ‘chemicals forever’ with pressure mounting The manufacturing conglomerate has said it will phase out Pfas — chemicals used in products such as cell phones and nonstick pans — by the end of 2025, citing pressure from the regulators and investors on the accumulation of long-lived substances in the environment. The transition is estimated to cost the company up to $2.3 billion.

The best pop albums of 2022

Pop critic Ludovic Hunter chose Tilney for it 10 favorite albums of the year.

Kendrick Lamar
Kendrick Lamar © AP

Thank you for reading and remember that you can Add FirstFT to myFT. You can also choose to receive a FirstFT push notification every morning on the app. Send your recommendations and feedback to firstft@ft.com

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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