The US indices traded yesterday without a single trend. At yesterday’s stock market close, Dow Jones (US30) decreased by 1.14%, and S&P 500 (US500) lost 0.20%. The NASDAQ Technology Index (US100) gained 0.14% on Tuesday.
The Empire State Manufacturing Index, which measures activity in New York State, fell to 32.9 in January, the worst reading since the pandemic.
Goldman Sachs (GS) financial performance fell short of expectations. The company’s price fell more than 6% on the report. The report showed weakness in consumer banking and a 48% drop in investment banking revenue. On the other hand, Morgan Stanley’s (MS) stock was up more than 6% on the report. Record revenues in the asset management business offset weakness in investment banking.
Investors are waiting for Netflix’s quarterly results to be released Thursday. Analysts at UBS said they expect the streaming giant’s subscriber count to rise in the fourth quarter amid “strong content and seasonality.” Netflix is expected to add about 4.5 million subscribers in the fourth quarter, up from 2.4 million in the previous quarter.
Tesla (TSLA) shares jumped by 6% after Deutsche Bank issued its recommendation to buy the company on expectations that recent price declines are likely to support sales growth.
According to Harvard University professor Kenneth Rogoff, sustained inflation above the 2% target will force Federal Reserve policymakers to keep interest rates higher for longer. Eventually, inflation will fall, but interest rates will not fall to the level they were before.
The Ukrainian government has hired BlackRock Inc. to help set up the country’s reconstruction fund.
According to a survey released at the annual World Economic Forum in Davos, two-thirds of private and public sector economists surveyed expect a global recession this year. Meanwhile, German Chancellor Olaf Scholz said Europe’s largest economy would avoid a recession this year thanks to efforts to limit the impact of the region’s energy crisis on the economy. Bob Prince, chief investment officer at Bridgewater Associates, said the economic cycle has returned and that more people will have to lose their jobs before inflation is brought under control. According to the chief economist of the European Bank for Reconstruction and Development, it will take years for sanctions against Russia to force Vladimir Putin to back down because oil and gas revenues outweigh sanctions losses many times over. Hopes that US and European sanctions will change the balance of power in the near future are an unrealistic scenario.
Equity markets in Europe mostly rose yesterday. German DAX (DE30) gained 0.35%, French CAC 40 (FR40) jumped by 0.48%, Spanish IBEX 35 (ES35) added +0.15%, and British FTSE 100 (UK100) closed yesterday down by 0.12%.
Germany’s inflation rate fell sharply from 10% to 8.6% year-on-year. The inflation rate slowed in December 2022, mainly due to lower energy prices. But despite the decline in inflation rates across Europe, according to Philip Lane, chief economist at the ECB, the central bank should continue to aggressively raise rates to levels that will begin to limit growth.
The British FTSE 100 index is close to an all-time high. Yesterday’s labor market data showed that the UK unemployment rate remained at 3.7%, but average earnings rose to 6.4% from 6.1% the previous month, the highest rate of growth. Wage growth is a major concern for the Bank of England, as there is a risk of a wage-price spiral that will eventually lead to higher inflationary expectations. UK inflation data will be released today, where consumer prices are expected to fall for the first time in 12 months.
Reuters predicts that gold prices will return to their all-time highs above the psychologically critical $2,000 level this year unless, of course, there is a major change in the US inflation picture. The highest gold price ever in US dollars is $2077.88. This peak was reached on August 7, 2020.
Oil prices continue to rise amid hopes for a rebound in Chinese demand, even despite weak economic data. The Organization of the Petroleum Exporting Countries (OPEC) reported in its monthly report that oil demand in China will increase by 510,000 BPD this year. The rise in oil was also supported by a weaker US dollar, which fell against most major currencies on Tuesday. A weaker dollar makes oil less expensive for other currency holders.
Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) added 1.23% on Tuesday, China’s FTSE China A50 (CHA50) decreased by 0.47%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.78%, India’s NIFTY 50 (IND50) added 0.89%, and Australia’s S&P/ASX 200 (AU200) ended the day up by 0.03%.
The Bank of Japan left all policy settings unchanged at its meeting. This includes the discount rate (maintained at -0.1%) and the 10-year bond yield target of about 0%. Policymakers also mentioned that they would continue to buy bonds with a degree of flexibility. This underscores the central bank’s intention to continue to control the yield curve as planned. This disappointed investors who had hoped for the first steps of monetary policy normalization.
S&P 500 (F) (US500) 3,990.97 −8.12 (−0.20%)
Dow Jones (US30) 33,910.85 −391.76 (−1.14%)
DAX (DE40) 15,187.07 +53.03 (+0.35%)
FTSE 100 (UK100) 7,851.03 −9.04 (−0.12%)
USD Index 102.40 +0.20 (+0.19%)
Important events for today:
– Japan BoJ Interest Rate Decision at 05:00 (GMT+2);
– Japan BoJ Monetary Policy Statement at 05:00 (GMT+2);
– Japan BoJ Outlook Report at 05:00 (GMT+2);
– Japan Industrial Production (m/m) at 06:30 (GMT+2);
– Japan BoJ Press Conference (Tentative);
– UK Consumer Price Index (m/m) at 09:00 (GMT+2);
– World Economic Forum Annual Meetings at 10:00 (GMT+2);
– Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
– US Retail Sales (m/m) at 15:30 (GMT+2);
– US Producer Price Index (m/m) at 15:30 (GMT+2);
– US Industrial Production (m/m) at 16:15 (GMT+2);
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
Republicans and Democrats are again preparing to play a game of chicken over the U.S. debt ceiling – with the nation’s financial stability at stake.
The Treasury Department on Jan. 13, 2023, said it expects the U.S. to hit the current debt limit of US$31.38 trillion on Jan. 19. After that, the government will take “extraordinary measures” – which could extend the deadline until May or June – to avoid default.
But it’s not clear whether Republicans in the House will agree to lifting the debt ceiling without strings attached – strings that President Joe Biden and Senate Democrats have vowed to reject. Right-wing Republicans demanded that, in exchange for voting for Kevin McCarthy as speaker of the House, he would seek steep government spending cuts as a condition of raising the borrowing limit.
Economist Steve Pressman explains what the debt ceiling is and why we have it – and why it’s time to abolish it.
1. What is the debt ceiling?
Like the rest of us, governments must borrow when they spend more money than they receive. They do so by issuing bonds, which are IOUs that promise to repay the money in the future and make regular interest payments. Government debt is the total sum of all this borrowed money.
The debt ceiling, which Congress established a century ago, is the maximum amount the government can borrow. It’s a limit on the national debt.
Around one-quarter of this money the government actually owes itself. The Social Security Administration has accumulated a surplus and invests the extra money, currently $2.8 trillion, in government bonds. And the Federal Reserve holds $5.5 trillion in U.S. Treasurys.
The rest is public debt. As of October 2022, foreign countries, companies and individuals owned $7.2 trillion of U.S. government debt. Japan and China are the largest holders, with around $1 trillion each. The rest is owed to U.S. citizens and businesses, as well as state and local governments.
3. Why is there a borrowing limit?
Before 1917, Congress would authorize the government to borrow a fixed sum of money for a specified term. When loans were repaid, the government could not borrow again without asking Congress for approval.
The Second Liberty Bond Act of 1917, which created the debt ceiling, changed this. It allowed a continual rollover of debt without congressional approval.
Congress enacted this measure to let then-President Woodrow Wilson spend the money he deemed necessary to fight World War I without waiting for often-absent lawmakers to act. Congress, however, did not want to write the president a blank check, so it limited borrowing to $11.5 billion and required legislation for any increase.
When the U.S. nears its debt limit, the Treasury secretary – currently Janet Yellen – can use “extraordinary measures” to conserve cash, which she indicated would begin on Jan. 19. One such measure is temporarily not funding retirement programs for government employees. The expectation will be that once the ceiling is raised, the government would make up the difference. But this will buy only a small amount of time.
If the debt ceiling isn’t raised before the Treasury Department exhausts its options, decisions will have to be made about who gets paid with daily tax revenues. Further borrowing will not be possible. Government employees or contractors may not be paid in full. Loans to small businesses or college students may stop.
When the government can’t pay all its bills, it is technically in default. Policymakers, economists and Wall Street are concerned about a calamitous financial and economic crisis. Many fear that a government default would have dire economic consequences – soaring interest rates, financial markets in panic and maybe an economic depression.
Under normal circumstances, once markets start panicking, Congress and the president usually act. This is what happened in 2013 when Republicans sought to use the debt ceiling to defund the Affordable Care Act.
But we no longer live in normal political times. The major political parties are more polarized than ever, and the concessions McCarthy gave right-wing Republicans may make it impossible to get a deal on the debt ceiling.
5. Is there a better way?
One possible solution is a legal loophole allowing the U.S. Treasury to mint platinum coins of any denomination. If the U.S. Treasury were to mint a $1 trillion coin and deposit it into its bank account at the Federal Reserve, the money could be used to pay for government programs or repay government bondholders. This could even be justified by appealing to Section 4 of the 14th Amendment to the U.S. Constitution: “The validity of the public debt of the United States … shall not be questioned.”
Few countries even have a debt ceiling. Other governments operate effectively without it. America could too. A debt ceiling is dysfunctional and periodically puts the U.S. economy in jeopardy because of political grandstanding.
The best solution would be to scrap the debt ceiling altogether. Congress already approved the spending and the tax laws that require more debt. Why should it also have to approve the additional borrowing?
It should be remembered that the original debt ceiling was put in place because Congress couldn’t meet quickly and approve needed spending to fight a war. In 1917 cross-country travel was by rail, requiring days to get to Washington. This made some sense then. Today, when Congress can vote online from home, this is no longer the case.
The US stock market did not trade yesterday due to the holiday. But futures on indices traded in the European and partly in the US session. By the close of the futures market on Monday, the indices were down a bit, so the stock market’s opening on Tuesday will be accompanied by a price gap.
Traders should not forget that it is the earnings season in the United States. Such companies as Morgan Stanley (MS), Goldman Sachs (GS), Interactive Brokers (IBKR), and United Airlines Holdings (UAL) are reporting today.
Equity markets in Europe were mostly up yesterday. German DAX (DE30) gained 0.31%, French CAC 40 (FR40) added 0.28%, Spanish IBEX 35 (ES35) fell by 0.12%, and British FTSE 100 (UK100) closed on Monday with a 0.20% gain.
Short-term interest rate differentials are a good indicator of the future trajectory of relative monetary policy cycles. Using central bank policy projections, economists expect the two-year EUR/USD swap differential to reverse this year. Right now, swaps are trading at about 125 basis points in favor of the dollar, and by the end of this year, that differential could change to 40 basis points in favor of the euro. If this materializes, the EUR/USD currency pair will reach the 1.20 level before the end of the year.
In Europe, a surprisingly warm winter led to a drop in natural gas prices. Europe may come out of the heating season with more than 50% of its storage capacity filled. This could limit the jump in natural gas prices in the second half of 2023 to around €140-160/MWh. This is still high but well below the €250-300/MWh level seen last summer.
Goldman Sachs raised its aluminum price forecast due to rising demand in China and Europe. According to analysts, the metal is likely to cost an average of $3125 per tonne this year. However, it is pointed out that the upward price impulse will gradually increase in the spring.
Oil prices fell on Monday, consolidating after a strong rise last week ahead of the publication of demand forecasts from OPEC and IEA. These monthly reports strongly influence oil market trends in global oil demand. They may be essentially this month, given the importance the market attaches to a potential recovery in oil demand in China.
Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) decreased by 1.14% on Monday, China’s FTSE China A50 (CHA50) added 1.50%, Hong Kong’s Hang Seng (HK50) was up by 0.04% on the day, India’s NIFTY 50 (IND50) fell by 0.34%, and Australia’s S&P/ASX 200 (AU200) was positive by 0.82%.
China’s GDP growth slowed in the latest quarter to +2.9% year-over-year, down from +3.9% in the previous quarter. But industrial production rose by 1.3% last month, while the unemployment rate fell to 5.5% from 5.7%. Analysts say rising domestic demand in China could be an important counterbalance to slowing growth in the US and Europe. Investors are once again buying up Chinese blue chips, from large consumer goods to financial companies. China’s stock market rally underscores expectations of an economic recovery at a time when most developed countries are in a recession. Foreign capital inflows into China reached about 44 billion yuan last week, the highest since May 2021.
There is a growing possibility that the Bank of Japan may announce a significant policy change this week as bond yields reach the upper limit again. According to economists, there are two options at the moment. The first (main scenario) is the abolition of the yield curve control policy. This might lead to a sell-off in Japanese equities, which would strengthen the yen. The second scenario is that Japan’s central bank can extend the range to 75 basis points on either side of its 0% target for 10-year government bonds. This would save time until the end of the quarter when Kuroda resigns. Either way, the closer we get to spring, the more likely the Bank of Japan will change course.
S&P 500 (F) (US500) 3,999.09 0 (0%)
Dow Jones (US30)34,302.61 0 (0%)
DAX (DE40) 15,134.04 +47.52 (+0.31%)
FTSE 100 (UK100) 7,860.07 +16.00 (+0.20%)
USD Index 102.39 +0.19 (+0.18%)
Important events for today:
– China GDP (q/q) at 04:00 (GMT+2);
– China Industrial Production (m/m) at 04:00 (GMT+2);
– China Retail Sales (m/m) at 04:00 (GMT+2);
– China Unemployment Rate (m/m) at 04:00 (GMT+2).
– UK Average Earnings Index (m/m) at 09:00 (GMT+2);
– UK Claimant Count Change (m/m) at 09:00 (GMT+2);
– UK Unemployment Rate (m/m) at 09:00 (GMT+2);
– German Consumer Price Index (m/m) at 09:00 (GMT+2);
– World Economic Forum Annual Meetings at 10:00 (GMT+2);
– German ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
– Eurozone ZEW Economic Sentiment (m/m) at 12:00 (GMT+2);
– Canada Consumer Price Index (m/m) at 15:30 (GMT+2);
– US NY Empire State Manufacturing Index (m/m) at 15:30 (GMT+2);
– US FOMC Member Williams Speaks at 22:00 (GMT+2).
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
The Dow Jones Index (US30) increased by 0.40% (+1.90% for the week), and the S&P 500 Index (US500) added 0.40% (+2.26% for the week) at the close of the stock market on Friday. The Technology Index NASDAQ (US100) gained 0.71% on Friday (+3.91% for the week). All three indices closed in positive territory on last week’s results.
The University of Michigan consumer survey on Friday showed that Americans’ inflation expectations for the year ahead fell for the fourth straight month in January, falling to 4.0% from 4.4% in December. According to the survey, this is the lowest price pressure since April 2021.
Atlanta Federal Reserve Bank President Rafael Bostic said he is leaning toward supporting a small interest rate hike at the Fed’s next meeting after Thursday’s report showed a further slowdown in inflation. This coincides with other comments from Fed officials. In fact, most Fed policymakers (except Bullard, who has always been more hawkish) agree to reduce the rate hike to 0.25%. Fed officials expect interest rates to exceed 5% this year and remain at that level until 2024, according to projections.
Investors will keep a close eye on the start of the reporting season this week to see if US companies can beat estimates amid concerns. Goldman Sachs (GS) and Morgan Stanley (MS) are due to report earnings before the opening on Tuesday, followed by Procter & Gamble (PG) and Netflix (NFLX) on Thursday. According to Refinitiv, annual earnings for S&P 500 companies are expected to fall by 2.2% for the quarter. This will be the first quarterly decline in US earnings since the third quarter of 2020,
Stock markets in Europe were mostly up Friday. Germany’s DAX (DE30) increased by 0.19% (+2.97% for the week), France’s CAC 40 (FR40) added 0.69% (+2.36% for the week), Spain’s IBEX 35 (ES35) jumped by 0.61% (+2.19% for the week), the British FTSE 100 (UK100) closed Friday up by 0.64% (+1.88% for the week).
The British GDP grew by 0.1% last month, while it was expected to decline by 0.2%. Despite the positive data, analysts point out that GDP has shrunk by 0.3% in the last three months and economists believe that a recession can only be postponed but not prevented. Moreover, the effects of the Bank of England’s monetary tightening have yet to affect the economy fully. Along with the corporate tax hike to 25% and the expiration of the tax credit for new investments, the economy will only shrink.
Fitch Ratings raised its outlook for the ECB’s policy rates as the Central Bank became much more concerned about core inflation pressures and signaled that rates would reach higher levels. Economists believe the ECB will raise the refinancing rate (MRO) to 4% (previously: 3%) by May 2023, and the deposit rate (DFR) will reach 3.5%. In total, there will be a 150 basis point increase in 1H 2023, starting with 50 basis points at each of the ECB meetings on February 5 and March 16, 2023.
Gold prices rose last week after the December inflation data release. Gold has approached a nine-month high and is trading near the key resistance at $1,950 an ounce. The US dollar continues to fall, which positively affects the precious metals, which are inversely correlated to the dollar and US government bond yields. Gold prices are rising as analysts believe the Fed is at the end of its rate hike cycle.
The US inflation easing play is also helping oil bulls, although rising oil prices alone could eventually lead to higher inflation. WTI crude oil increased by 8.54% over the past week. British Brent crude for March delivery added 8.73% for the week in London trading on Friday.
Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) gained 1.47% over the week, China’s FTSE China A50 (CHA50) gained 3.13%, Hong Kong’s Hang Seng (HK50) increased by 2.08%, India’s NIFTY 50 (IND50) declined by 0.19%, and Australia’s S&P/ASX 200 (AU200) added 3.07%.
The Bank of Japan (BOJ) may adjust its yield control policy to roll back monetary stimulus this year if wage increases continue to spread. The BOJ may also slightly revise its inflation forecasts for the fiscal year beginning in April as companies continue to raise prices on a wide range of goods. Markets are still reeling from rumors that the Bank of Japan will soon abandon its Yield Curve Control (YCC) policy and begin raising interest rates.
In the commodities market, futures on lumber (+18.01%), gasoline (+13.05%), Brent oil (+8.73%), WTI oil (+8.54%), copper (+7.84%), sugar (+4.01%), corn (+3.33%) and gold (+2.85%) showed the biggest gains last week. Futures on natural gas (-6.17%), coffee (-4.86%), cotton (-3.82%), and platinum (-2.65%) showed the biggest drop.
S&P 500 (F) (US500) 3,999.09 +15.92 (+0.40%)
Dow Jones (US30)34,302.61 +112.64 (+0.33%)
DAX (DE40) 15,086.52 +28.22 (+0.19%)
FTSE 100 (UK100) 7,844.07 +50.03 (+0.64%)
USD Index 102.18 -0.07 (-0.06%)
Important events for today:
– World Economic Forum Annual Meetings at 10:00 (GMT+2);
– UK BoE Gov Bailey Speaks at 17:30 (GMT+2);
– Canada Business Outlook Survey at 17:30 (GMT+2).
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
Economists worried about soaring inflation got some good news to start the year: The rate of inflation has eased. The first report card of 2023 on consumer prices, released on Jan. 12, showed that the overall cost of goods and services decelerated to an annual pace of 6.5% in December, the slowest in over a year and down from 7.1% in November.
But there’s bad news too, especially if you are an egg-munchingrenter fond of frequent regular haircuts. In quite a few categories, the cost of living rose at an even faster pace.
That’s because price inflation isn’t uniform. Different products and services are affected by myriad factors. So while some prices may have fallen during December, slowing the annual rate of inflation, other items kept getting more expensive.
The Conversation asked Edouard Wemy – an economist from Clark University who never sets off to work without his morning breakfast of two eggs, sunny side up – to explain how different items in the consumer price basket fared in the latest inflation report.
Energy
When you look at the detail of the latest report on the consumer price index, you’ll see that overall energy costs declined. That’s because there was a steep decline in gasoline prices – down 9.4% in the month of December after dropping 2% in November.
While that’s good news, it’s a bit puzzling. AAA was expecting demand for gasoline to be very high over the month, which usually happens in winter. This typically pushes prices up. My best guess is either demand wasn’t as strong as expected due to fears of a coming recession or there has been an easing on the supply constraints that has contributed to pushing the price of gas up.
An exception to this downward energy price trend was in energy services – that is, electricity and piped gas – where prices actually ticked up. The reason is largely due to the rising cost of doing business. Utility companies and pipeline services are suffering as a result of higher labor costs and are passing on the added cost to consumers through higher prices. The latest jobs report shows average hourly earnings rose 4.6% in December from a year earlier.
Groceries
Overall food inflation slowed in December, with the cost of groceries rising just 0.2% in the month – down from 0.5% in November.
But there is a lot of variation in the cost of grocery items. While the price of fruits and vegetables fell in December, the cost of eggs jumped by 11.1%. That’s due to an outbreak of bird flu that could well last until into the summer.
In addition to that, farms are seeing the same wage pressures as other businesses, which are then passed on to consumers.
Housing
The cost of shelter, whether from renting or owning, rose 0.8% in December – the biggest one-month gain since the 1980s.
This is understandable given the numerous interest rate hikes during 2022. Rising interest rates means that taking out a home loan is more costly, which in turn pushes more people into renting. Added demand on rental properties in turn pushes the prices that landlords demand up.
When interest rates eventually drop, it should bring the overall cost of shelter down, as it would encourage more people to buy homes. But I’m not optimistic that rates will fall until 2024, so don’t expect any downward movement on shelter in the coming months.
Hospital visits
The cost of going to the hospital was another category that saw a big increase. Average prices for hospital and related services jumped 1.5% in December, the biggest gain since 2015.
Again, this is due to the rising cost of doing business – that is, upward pressure on wages – coupled with still-high energy costs.
Used cars and trucks
Another category that helped the overall pace of inflation slow down is used cars and trucks.
After soaring throughout the initial phase of the COVID-19 pandemic, used car prices have been plunging in recent months. They fell 2.5% in December, putting the annual decline at 8.8%. The cost of new cars also dropped in December.
The Japanese Yen could be set for more near-term gains …
as the Bank of Japan holds its policy meeting amidst these other economic data releases and events in the days ahead:
Monday, January 16
AUD: Australia December inflation gauge
World Economic Forum begins in Davos – attended by central bank heads, finance ministers, and global business leaders
US markets closed
Tuesday, January 17
AUD: Australia January consumer confidence
CNH: China 4Q GDP; December industrial production, retail sales, jobless rate
EUR: Germany January ZEW survey
GBP: UK November unemployment rate, December jobless claims
CAD: Canada December inflation
USD: New York Fed President John Williams speech
S&P 500: Q4 earnings by Goldman Sachs, Morgan Stanley, United Airlines
Wednesday, January 18
JPY: Bank of Japan rate decision
EUR: Eurozone December CPI (final)
GBP: UK December CPI
USD: US December retail sales, industrial production, Fed Beige Book
USD: Fed Speak – speeches by Atlanta Fed President Raphael Bostic, Dallas Fed President Lorie Logan, Philadelphia Fed President Patrick Harker
Thursday, January 19
JPY: Japan December external trade
AUD: Australia January consumer inflation expectations; December unemployment
NOK: Central Bank of Norway’s rate decision
EUR: ECB publishes December meeting minutes; ECB President Christine Lagarde speaks at Davos
USD: US weekly initial jobless claims; Fed Speak – speeches by Boston Fed President Susan Collins, New York Fed President John Williams
Friday, January 20
JPY: Japan December CPI
CNH: China loan prime rates
EUR: Germany December PPI
GBP: UK December retail sales
USDJPY has been dropping on expectations for an eventual BoJ rate hike.
To be clear, markets are only forecasting a mere38% chance that we could see a Bank of Japan rate hike on Wednesday, January 18th.
But recall that markets are forward-looking in nature; today’s prices reflect tomorrow’s expectations.
And markets currently fully expect the BoJ to finally see a rate liftoff in April, under the helm of the central bank’s new incoming governor.
If so, Japan can finally exit its negative interest rates regime, having kept its benchmark rate at negative 0.1% since 2016.
Also, here’s a recap of recent events that have spurred the surge for the Japanese Yen:
December 20: BoJ policy shocker The BoJ unexpectedly allowed Japanese 10-year yields to reach a limit of 0.50% – which is double the prior ceiling of 0.25%.
January 12: Yomiuru report The Japanese national newspaper claimed that BoJ officials will, over the coming week, “review the side-effects” of its ultra-loose policy stance.
January 13: Yields cap breached Recall the new 0.5% cap for Japan’s 10-year yields? That level was breached today, forcing the Bank of Japan to make unscheduled bond purchases to try and reinforce the cap (more bond buying, lower yields)
These events have prompted markets to believe that more policy tightening is on the cards for 2023.
And such hopes have translated into JPY gains.
Week Ahead: Potential scenarios for USDJPY
With all that in mind …
if current BoJ Governor Haruhiko Kuroda pushes back against the market’s expectations for a rate hike this year, that may prompt the Japanese Yen to unwind some of its recent gains and potentially pull USDJPY back above the psychologically-important 130 mark.
On the other hand, should markets detect the slightest of hawkish hints (BoJ is getting closer to a rate hike) out of Governor Kuroda next week, that should move USDJPY closer towards 126.0 and potentially test the lower downtrend line that began in November.
And if the Yomiuru report proves true, AND the BoJ’s review does show that side-effects of its ultra-loose policy settings are proving harder to contain, suggesting a faster-than-expected exit from negative interest rates, that may translate into further JPY gains as well.
At the time of writing, market forecasts are currently giving a slight edge that we’ll see USDJPY back at 130 over the next one-week period, with such odds being placed at 70%, compared to the 65% chance that we’ll see USDJPY touch 127.0.
Also look out for these other two potential catalysts that could move USDJPY over the coming week:
December 20: Japan inflation data
Japan’s national consumer price index (CPI) – which measures headline inflation – is forecasted to come in at 4%.
If so, that would be the fastest inflation since January 1991!
Rising inflationary pressures might prompt the BoJ to follow in the footsteps of its major central banking peers who have been aggressively hiking their own interest rates last year in a bid to quell red-hot inflation.
Hence, a higher-than-expected CPI out of Japan next week may reinforce bets for a BoJ rate hike in 2023, likely translating into further gains for the Japanese Yen.
Fed Speak in the coming week
The USD side of USDJPY could be moved by any policy clues contained within scheduled speeches by officials of the US central bank – the Federal Reserve a.k.a. the Fed.
Markets expect the Fed to hike by just 25 basis points at its next policy decision due on February 1st, which is a far cry from the supersized 75-bps hikes that we saw four times last year.
It’ll be interesting to get these Fed officials’ takes on the slowdown in the US headline CPI that we just received yesterday (6.5% CPI for December; much lower than June’s 9.1%).
If these Fed officials fuel expectations that the slowdown in US inflation in turn allows the Fed to ease up on its rate hikes, that could translate into more Dollar weakness and further declines for USDJPY.
After all, the US dollar has been weakening since late September on the notion that the worst of the Fed rate hikes are now behind us.
The US indices continued to rise amid declining inflationary pressures. By the trading day’s close, the Dow Jones index (US30) gained 0.64%, and S&P500 (US500) added 0.34%. The NASDAQ Technology Index (US100) increased by 0.64% on Thursday.
The US consumer price index fell from 7.1% to 6.5% (forecast 6.5%) on an annualized basis. Core inflation (which excludes food and energy prices) also slowed year over year from 6% to 5.7% (5.7% forecast). Lower inflationary pressures have increased bets that the Federal Reserve will move to smaller hikes. According to CME Group’s Fedwatch tool, investors now estimate a nearly 95% chance that the Central Bank will raise rates by 25 basis points on February 1. Philadelphia Fed President Patrick Harker supported a 0.25% hike next month, while St. Louis Fed President James Bullard prefers that the Fed maintain the pace of rate hikes.
Weekly initial US jobless claims came in at 205,000, below the expected 215,000. Many market participants are looking for signs of weakness in the labor market as another signal of slowing inflation.
Today is the start of the reporting season in the United States. As usual, the banking sector will report first. Analysts are predicting weak data, with the expectation that Q4 2022 earnings will be worse than Q3. But this does not apply to retailers, which may show good results at the end of the quarter due to Christmas sales.
Equity markets in Europe rose yesterday. Germany’s DAX (DE30) gained 0.74%, France’s CAC 40 (FR40) added 0.74%, Spain’s IBEX 35 index (ES35) jumped by 1.30%, Britain’s FTSE 100 (UK100) closed 0.89% on Thursday.
Gold prices hit an eight-week-high. A decline in US inflation increases the likelihood that the US Federal Reserve will move to a slower interest rate hike, which is positive for precious metals. Gold and silver are inversely correlated to the dollar Index and US government bond yields.
Lower inflationary pressures have returned investors’ appetite for risky assets, including oil. Crude oil futures rose for the fifth time in seven days, with WTI crude for February increased by 1.3% yesterday. London Brent crude oil for March delivery jumped by 1.7%. The fundamental picture is now pointing toward further growth in oil prices.
Asian markets were mostly on the rise yesterday. Japan’s Nikkei 225 (JP225) gained 0.01%, China A50 (CHA50) added 0.32%, Hong Kong’s Hang Seng (HK50) increased by 0.36%, India’s NIFTY 50 (IND50) fell by 0.21%, while Australia’s S&P/ASX 200 (AU200) was up 1.18% on the day.
The Japanese government’s Higher Economic Policy Commission invited eight economists, including inflation and monetary policy experts, to upcoming special meetings to discuss the country’s long-term policy. Analysts believe that these meetings are intended to discuss the strategy of the Bank of Japan’s exit from the soft monetary policy program and the development of a new agreement between the Bank of Japan and the government.
S&P 500 (F) (US500) 3,983.17 +13.56 (+0.34%)
Dow Jones (US30) 34,189.97 +216.96 (+0.64%)
DAX (DE40) 15,058.30 +110.39 (+0.74%)
FTSE 100 (UK100) 7,794.04 +69.06 (+0.89%)
USD Index 102.22 -0.97 (-0.94%)
Important events for today:
– China Trade Balance (m/m) at 05:00 (GMT+2);
– UK GDP (m/m) at 09:00 (GMT+2);
– UK Industrial Production (m/m) at 09:00 (GMT+2);
– UK Manufacturing Production (m/m) at 09:00 (GMT+2);
– French Consumer Price Index (m/m) at 09:45 (GMT+2);
– Spanish Consumer Price Index (m/m) at 10:00 (GMT+2);
– Eurozone Industrial Production (m/m) at 12:00 (GMT+2);
– US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+2).
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
The bilateral meeting in the U.S. is the final stop for Kishida in a five-day tour of allies that has also seen him visit France, Italy, the U.K. and Canada. It comes as Japan takes over the presidency of the G-7, with leaders of the seven largest economies due to meet in Hiroshima in May.
It also marks the first visit to the White House by a Japanese prime minister since the country revamped its defense priorities with the release of its National Security Strategy in December 2022. The new strategy supports a more robust and assertive security stance by Japan in the face of shifting geopolitical and domestic realities. The new defense plan forms the backdrop to the meeting with Biden.
As an expert on U.S.-Japan relations, I believe the National Security Strategy is the lens through which the meeting should be viewed, with a focus on four key items.
1. Underscoring the US-Japan alliance
The preeminent goal of the leaders’ meeting will be to emphasize the strength and importance of the U.S.-Japan alliance, both rhetorically and in substance.
The two governments will likely seek to display to both foreign and domestic audiences that Japan and the U.S. are in lockstep on foreign policy priorities. Both countries have framed “democracy” and “the rule of law” as common values underpinning the U.S.-Japan alliance, and there is no reason to believe that Biden or Kishida will deviate from that line, especially regarding their shared vision of a “free and open Indo-Pacific.”
Given the context of the meeting, such rhetoric can have substantive consequences and shed some light on how the alliance is being positioned within, and may evolve after, Japan’s latest shift in its defense strategy. Japan’s National Security Strategy is ambitious in its development of new strategic capabilities, including counterstrike measures, and represents unprecedented financial commitments from the Japanese government. Yet Japan can only achieve its new defense goals in close cooperation with the U.S. As a result, Japan will be looking for Biden’s fulsome show of support for both the bilateral alliance and Japan’s new defense strategy.
But the meeting isn’t all about satisfying Japanese concerns – framing the U.S.-Japan alliance as solid and stable supports Biden’s objective of reinvigorating relationships with U.S. allies and acts as a deterrence to any country seeking to disrupt the status quo in the Indo-Pacific region.
The U.S. views the steps being laid out in Japan’s new defense strategy to be important for regional security as a form of deterrence against aggression from China and North Korea and as a means for the U.S. and Japanese militaries to work together more seamlessly in the event of conflict in the region. The White House meeting provides an opportunity for Biden and Kishida to reiterate their common regional concerns and display a united resolve against any saber-rattling in the region.
3. Confronting Russian aggression
As both the current G-7 president and as a non-permanent member of the United Nations Security Council for 2023-24, Japan will have to confront the main geopolitical drama playing out on the global stage: the Russian war in Ukraine. The new National Security Strategy illustrates how the Japanese government’s view of Russia has shifted, from a potential strategic partner to a strategic threat. Japan has also voiced concerns that Russia could join forces with China in ways that undermine regional security.
These changes in the Japanese government’s perception of Russia bring it more in line with the U.S. position and will likely be reflected in the way in which the Russian invasion of Ukraine is addressed between the two leaders at the White House meeting.
4. Economic security
In 2021, Japan created a cabinet-level post of economic security minister, and the importance of insulating the economy from outside threats was reiterated in the National Security Strategy.
A priority is working toward securing supply chain resilience in the face of existing – or potential – disruptions from pandemics, climate change, military conflict or politically motivated actions, such as withholding needed goods or services by other governments.
Both the U.S. and Japan have emphasized that a crucial part of supply chain resilience is partnering with like-minded nations. As such, a plan for enhanced economic and technological cooperation is among the topics likely to be discussed by the two leaders.
… so how much of this is about China?
The U.S.-Japan bilateral summit is not all about China – conspicuously, China was not mentioned by name in either the White House announcement of the planned content of Friday’s meeting between Biden and Kishida or in the White House overview of the two leader’s last meeting in Cambodia in November 2022.
Yet, China looms large for the U.S. and Japan in each of these four areas, as both seek to enhance the two nations’ defense, diplomatic and economic ties – and will likely never be far from the surface of what is being discussed.
The US indices rose yesterday as investors bet that today’s US consumer price data will show a further slowdown in inflation. At the close of the stock market yesterday, the Dow Jones index (US30) increased by 0.80%, and the S&P500 index (US500) added 1.28%. The technology index NASDAQ (US100) gained 1.76% on Wednesday.
Important inflation data will be released in the US today. Economists expect the Consumer Price Index to decline from 7.1% to 6.5% year-over-year in December. The December consumer price index reading will determine the pace at which the US Federal Reserve will continue to raise rates. Expectations of further signs of easing inflationary pressures will support a less hawkish Fed stance (0.25% hike at the next meeting). Conversely, if the data disappoints, especially in core inflation, then the US Fed may leave a high rate of growth in interest rates (increase by 0.50% at the next meeting).
Federal Reserve Bank of Boston President Susan Collins said yesterday that she is leaning toward supporting a 0.25% interest rate hike at the central bank’s next meeting on February 1st. According to Collins, moving to a smaller step away from a more aggressive rate hike would give officials more time to see how their actions affect the economy.
Stock markets in Europe rose yesterday. Germany’s DAX (DE30) gained 1.17%, France’s CAC 40 (FR 40) jumped by 0.80%, Spain’s IBEX 35 (ES35) added 0.15%, and the British FTSE 100 (UK100) closed by 0.40% on Wednesday.
ECB spokesman De Kos said yesterday that the ECB would continue to raise interest rates at future meetings at a steady pace. This coincides with comments from other ECB officials. Analysts are currently forecasting 2 consecutive 0.5% hikes at the next ECB meetings. This is a green flag for the European currency, as the euro will benefit from a higher risk appetite on the back of the Chinese opening outlook and the Federal Reserve’s aggressive policy slowdown.
Oil jumped by 3% yesterday despite a large increase in US crude oil inventories. That’s because oil traders are betting on easing rate hikes due to lower inflation. Meanwhile, analysts at Goldman Sachs are predicting an oil price in 2023 above $100 a barrel. According to experts, a barrel of Brent oil could reach $110 by the third quarter if China and other Asian economies are fully open from the constraints associated with the coronavirus.
Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 1.03%, China’s FTSE China A50 (CHA50) added 0.07%, Hong Kong’s Hang Seng (HK50) ended the day up 0.49%, India’s NIFTY 50 (IND50) decreased by 0.10%, and Australia’s S&P/ASX 200 (AU200) ended the day up 0.90%.
China has begun lifting its ban on Australian coal imports. This move is the first concrete step taken to improve relations between the countries. The fact that the decision is coming from China suggests that the country is looking for ways to mend relations with Western countries, relations with which have soured amid increased competition between the US and China. The resumption of coal imports from China boosts Australia’s main commodity sector. Before the unofficial ban, China was one of the largest markets for Australian coal.
China’s Consumer Price Index increased from 1.6% to 1.8% year-over-year. Consumer inflation, which reflects prices between factories and plants, decreased by 0.7% in December. The improved inflation data indicates that the removal of COVID-19 restrictions is indeed having a positive effect on China’s economy and may signal a larger economic recovery later this year. Business activity indicators also indicate a slight improvement in conditions, although the overall activity is still below average. But markets are concerned that rising infections could hinder a more significant near-term economic recovery.
S&P 500 (F) (US500) 3,969.61 +50.36 (+1.28%)
Dow Jones (US30) 33,973.01 +268.91 (+0.80%)
DAX (DE40) 14,947.91 +173.31 (+1.17%)
FTSE 100 (UK100) 7,724.98 +30.49 (+0.40%)
USD Index 103.25 +0.01 (+0.01%)
Important events for today:
– China Consumer Price Index (m/m) at 03:30 (GMT+2);
– China Producer Price Index (m/m) at 03:30 (GMT+2);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
This is the fifth instalment in our series on where the global economy is heading in 2023. It follows recent articles on inflation, energy, food and the cost of living.
Canada: assertive unions getting results
Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute
Canada’s trade union movement is among the more resilient in the OECD, the club of developed countries. This is related to laws that prevent “free riding”, which is where workers can benefit from collective agreements without being union members.
Union density in Canada has been around 30% of workers since the turn of the century, although membership in the private sector is barely half that and slowly falling. In contrast, unionisation is high in public services (over 75%) and growing.
This relatively stability has left Canadian workers better prepared to confront the impact of inflation on their wages. Unions made higher wage demands than in recent decades, and more frequently went on strike (continuing a trend from 2021).
From January to October 2022, there were 145 strikes, and the final year tally will likely exceed the 161 in 2021 – itself a marked increase. A total of 1.9 million person-days of work were lost in strikes up to October (the highest in 15 years). Unlike in recent years, the majority were in the private sector.
A spring wave of strikes in construction in Ontario (Canada’s most populous province) symbolised the increased militancy. At peak, over 40,000 workers downed tools for higher wages, including carpenters, dry-wallers and engineers. Tentative agreements reached by officials were sometimes rejected by members, prolonging the strikes.
A second historic flash point came later in the year when Ontario’s right-wing government invoked a rarely used constitutional clause to override the right to strike for 55,000 education support workers. After unions in the public and private sector threatened a province-wide general strike, the government backed down.
Meanwhile, employer lockouts have virtually disappeared. This tactic, in which employers suspend operations until workers agree to terms being offered, had only been used eight times by October, compared to 60 per year a decade ago.
Annual wage growth increased modestly to an average of 5% by late in the year. That still lagged the 6.8% inflation, but closed the gap from 2021.
It remains to be seen whether this union pressure can be sustained in the face of rapid interest rate increases, a likely recession in 2023, and continued government suppression of union rights in some provinces.
United Kingdom: an olive branch for the health service?
Phil Tomlinson, Professor of Industrial Strategy, University of Bath
The sense of grievance is high following the austerity and real-terms pay cuts of the 2010s. Strikes – estimated to have cost the UK economy £1.7 billion in 2022 – are being co-ordinated across different unions, adding to the public inconvenience.
The UK government has steadfastly refused to yield, however. It has hidden behind independent recommendations by public-sector pay review bodies, despite not always following them. They have also claimed that inflation matching public sector pay rises would cost each UK household an extra £1,000 a year, though this figure has been debunked.
The Treasury also echoes Bank of England concerns about setting off a wage-price spiral. Yet this is unlikely, given the current inflation is largely down to supply shocks (from COVID and the war in Ukraine), while average wage growth is well below inflation.
There is an economic case for a generous deal, especially in the National Health Service (NHS): with over 133,000 unfilled vacancies, better wages might help improve staff retention and recruitment. Of course, funding this in a recession involves tough choices.
Higher taxes would be politically difficult with the tax burden at a 70-year high. Higher government borrowing could aggravate inflation if accommodated by the Bank of England increasing the money supply through more quantitative easing.
Public opinion appears largely sympathetic to the strikes, especially in the NHS. But if the government relents in one sector, it sets a precedent for others, with potentially wider economic consequences.
For the NHS, it may instead bring forward public sector pay review body negotiations for 2023 to allow for an improved deal – possibly alongside a one-off hardship payment. Elsewhere it will probably hold firm and hope the trade unions lose their resolve.
Australia and New Zealand: strikes remain rare despite inflation
Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute
Strikes in Australia have become very rare in recent decades, thanks to restrictive labour laws passed since the 1990s. Despite historically low unemployment and wages lagging far behind inflation, these laws continue to short-circuit most industrial action.
In 2022, union density fell to 12.5% of employees, an all-time low. As recently as 1990, union density was over 50% of workers. Union members can legally strike only after negotiations, ballots and specific plans for action have been publicly divulged (thus fully revealing union strategy to the employer). Even when there are strikes, they tend to be short.
A total of 182 industrial disputes occurred in the year to September. (The statistics don’t distinguish between strikes and employer lockouts, which have become common in Australia.) This is similar to the pre-COVID years, following a drop in 2020, and only a fraction of 1970s and 1980s industrial action.
The only visible increase in strike action in 2022 was a series of one-day protest strikes organised by teachers and health care workers in New South Wales, the country’s most populous state. Having put up with a decade of austere wage caps by the conservative state government, they decided they had had enough as inflation picked up.
Most other workers have been passive despite Australia experiencing among the slowest wage growth of any major industrial country. Nominal wages grew just 2% per year over the decade to 2021. That rose to 3.1% by late 2022, but it’s still less than half the 7.3% inflation rate.
Australia’s newly elected Labor government did pass a series of important labour law reforms at the end of 2022, aimed at strengthening collective bargaining and wage growth. That might herald incremental improvement in workers’ bargaining power in the years ahead.
The industrial relations outlook in New Zealand is somewhat more hospitable for workers and their unions. Union density increased in 2021, to 17% of employees (from 14% in 2020). Average ordinary hourly earnings grew an impressive 7.4% in the latest 12-month period – helped by a 6% boost in the minimum wage by New Zealand’s Labour government.
Industrial action remains rare – perhaps in part because workers are successfully lifting wages via other means. No official strike data is available for 2022, but in 2021, just 20 work stoppages occurred, down sharply from an average of 140 per year in the previous three years.
Indonesia: anger against labour law reforms
Nabiyla Risfa Izzati, Lecturer of Labour Law, Universitas Gadjah Mada
A few weeks ago, the government replaced its controversial “omnibus law” with new emergency regulation. This was in response to the Indonesian constitutional court finding it unconstitutional in 2021.
Passed in late 2020, the omnibus law embodies President Joko Widodo’s ambition to attract foreign investors by slashing red tape at the cost of employees’ rights. It made it easier for businesses to lay off employees without prior notice.
It also lowered statutory severance pay and extended the maximum length of temporary contracts, while ignoring worker safety. In 2022, its new formula to determine the minimum wage also resulted in the lowest annual increase ever. The law attracted much criticism from workers, activists and civil society organisations.
The new emergency regulation is arguably even more problematic. The majority of its provision simply copies the omnibus law. Several changes and additional provisions are confusing and overlap with previous regulations, as well as leaving many loopholes that could be exploited in future.
Yet despite complaints from workers and trade unions that the new rules were passed suddenly and without consultation, strike action is out of the question. Strikes are not popular because they can only be organised with permission from the company in question. If labourers hold informal strikes, employers also entitled to get rid of them.
Public protests are the obvious alternative, though pandemic rules restricting mobility and mass gatherings have made these difficult. Nevetheless, thousands or perhaps even millions of workers staged protests in their respective cities in the second half of 2022.
The workers wanted the omnibus law revoked, and for the government to not use the minimum wage formulations stipulated in the law. The demonstrations got more intense as the government raised subsidised fuel prices in September, which boosted already high inflation due to rising food prices.
The government has since issued a separate regulation to determine the 2023 minimum wage, so the demands were successful, although both workers and employers are furious that the minimum wage rules have changed again under the emergency regulation.
Clearly the protesters did not see the rest of the rules in the omnibus law removed. Some workers have been protesting on social media. This might not induce the government to change the law, but a few viral tweets have pushed several businesses to change abusive practices.
The controversy is likely to continue in 2023 and into the election year of 2024, especially amid possible massive layoffs in the midst of a global recession.
United States: worker protest showing signs of life
Marick Masters, Professor of Business and Adjunct Professor of Political Science, Wayne State University
US workers organised and took to the picket line in increased numbers in 2022 to demand better pay and working conditions, leading to optimism among labour leaders and advocates that they’re witnessing a turnaround in labour’s sagging fortunes.
Teachers, journalists and baristas were among tens of thousands of workers who went on strike. And it took an act of Congress to prevent 115,000 railroad employees from walking out as well.
Workers at Starbucks, Amazon, Apple and dozens of other companies also filed over 2,000 petitions to form unions during the year – the most since 2015. Workers won 76% of the 1,363 elections that were held.
Historically, however, these figures are tepid. The number of major work stoppages has been plunging for decades, from nearly 200 as recently as 1980.
As of 2021, union membership was at about the lowest level on record, at 10.3%. In the 1950s, over one in three workers belonged to a union.
The deck is still heavily stacked against unions, with unsupportive labour laws and very few employers showing real receptivity to having a unionised workforce. Unions are limited in how much they can change public policy. Reforming labour law through legislation has remained elusive, and the results of the 2022 midterms are not likely to make it easier.
Nonetheless, public support for labour is at its highest since 1965, with 71% saying they approve of unions, according to a Gallup poll in August. And workers themselves are increasingly showing an interest in joining them.
In 2017, 48% of workers polled said they would vote for union representation, up from 32% in 1995, the last time the question was asked.
Future success may depend on unions’ ability to tap into their growing popularity and emulate the recent wins in establishing union representation at Starbucks and Amazon, as well as the successful “Fight for $15” campaign, which since 2012 has helped pass US$15 minimum wage laws in a dozen states and Washington DC.
The odds may be steep, but the seeds of opportunity are there if labour can exploit them.
TotalEnergies announced “super profits” in the second quarter of 2022 and increased CEO Patrick Pouyanné’s salary by 52% to €5,944,129. In September the militant CGT union demanded a 10% salary increase for workers and called for a strike at the group’s refineries.
Five of Total’s refineries went on strike, joined by two owned by ExxonMobil subsidiary Esso. Esso was already talking to its unions about a pay deal, but Total had only planned to open negotiations in November.
The strikes in the refineries threatened to bring France to a standstill, and the CGT used its power over this key resource to demand that discussions begin more quickly with Total (in the end, the company negotiated earlier and pay deals were done, ending the strikes by early November).
The strike at EDF’s nuclear power stations similarly gave the company’s workers the balance of power because it made it impossible for France to build up energy reserves (since fossil fuels had to be burned to make up for the lack of nuclear power). In the end, the company signed deals with the unions in October.
Unions may have succeeded in both cases, but they are arguably endangered by these kinds of practices. Too many trades union leaders remain stuck in their old militant ways.
There’s a fragile balance between negotiation and protest, and such ransom tactics might damage unions’ public image, making dialogue more difficult in future. In 50 years, the rate of unionisation in France has already halved from over 20% to around 10%.
It’s telling that two of the major strikes at the end of 2022, first by train workers and then by general practitioners, were initiated by groups independent from the unions. They both started spontaneously through social media and the unions found out very late.
In 2023 the unions have an opportunity to improve their influence if they manage to prevent the government from passing its unpopular bill on pensions, which seeks to raise the full pensionable retirement age from 62 to 64 or 65.
The unions have already announced their strong opposition to the bill. With major demonstrations due to take place after the full bill is presented today, January 10, it will be interesting to see their tactics.
This is based on an excerpt from an article published in October 2022.
Spain: unequal support measures could cause trouble
Rubén Garrido-Yserte, Director del Instituto Universitario de Análisis Económico y Social, Universidad de Alcalá
Global inflation is triggering a global economic slowdown and interest rates raised to levels not seen since before 2008. Interest rates will continue to rise in 2023, especially affecting economies as indebted as Spain.
It will undermine both families’ disposable income and the profitability of companies (especially small ones), while making public debt repayments more expensive. Meanwhile, inflation is expected to cause a sustained increase in the cost of the shopping basket in the medium term.
Government measures have partially mitigated this loss of purchasing power so far. Spain capped power prices, subsidised fuel and made public transport free for urbanites and commuters.
However, many of these measures must necessarily be temporary. The danger is that they come to be seen as rights that should not be renounced. They also distort the economy and create problems with fairness by excluding or insufficiently supporting some groups. Private salaries will not rise enough to cover inflation, for instance.
The government’s measures have been such that there has been very little industrial action in response to the cost of living crisis. The danger is that they create a scenario where today’s calm may be the harbinger of a social storm tomorrow.
This article is part of Global Economy 2023, our series about the challenges facing the world in the year ahead. You might also like our Global Economy Newsletter, which you can subscribe to here.
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