© Reuters. 28 years old Esmee from the Netherlands works from home on her rented flat in Costa da Caparica, Portugal, March 6, 2023. REUTERS/Pedro Nunes
By Catarina Demony, Patricia Vicente Rua and Sergio Goncalves
LISBON (Reuters) – When Maria Lopes moved to Lisbon from the northern Portuguese city of Tondela, her goals were straightforward: study, find a job, get a place of her own.
But a decade on, she still lives in a tiny, rented room – one of tens of thousands of young Portuguese hit by a housing crisis exacerbated by the arrival of richer foreigners lured in by incentives pushed by her own government.
Those incentives – including golden visa schemes for moneyed entrepreneurs – got a lot of the credit for attracting the investments that helped pull Portugal out of the 2011-2014 debt crisis.
Since then, critics say those schemes have come back to bite the economy by ramping up competition for scarce housing – fuelling inflation and piling pressure particularly onto young, local, entry-level workers.
“I want to live… I don’t want to just survive,” Lopes said after a shift at a hop-on, hop-off bus tour company.
The 30-year-old, who has two degrees in tourism, shares a flat with five others, pays 450 euros ($475) per month for a 13 square-metre mezzanine room, but makes as little as 800 euros a month during the low tourism season.
“I hope all this noise we’re making shakes things up,” she said, referring to a wave of discontent – protests, marches and petitions – driven by mostly young people struggling to pay their bills.
Living costs have been soaring across the world. But it is the stark contrast between the winners and losers that makes Portugal stand out among its European peers
Portugal ranks as one of western Europe’s poorest nations. But its capital was last year ranked the world’s third least financially viable city, thanks to its punishing combination of low wages and high rents.
Since 2015, Airbnbs and new hotels have mushroomed, foreigners have ploughed money into property and investment funds have bought up entire buildings.
“Lisbon became ‘trendy’,” Gonçalo Antunes, a housing expert at Nova University said. “The property market developed without any control.”
Rents in Lisbon have jumped 65% since 2015 and sale prices have sky-rocketed 137%, figures from Confidencial Imobiliario, which collects data on housing, show. Rents increased 37% last year alone, more than in Barcelona or Paris, according to another real estate data company, Casafari.
Locals struggled to keep up in a country where public housing only represents 2% of the property market, according to government data.
Antunes said the situation was particularly galling for the young.
Portugal’s monthly minimum wage is 760 euros ($801.27), and around 65% of those aged under 30 made less than 1,000 euros a month last year, according to the Labour Ministry.
The average rent for a one-bedroom flat in Lisbon is around 1,350 euros, a study by housing portal Imovirtual showed.
“Some people are not eating to pay rent… there are truly dramatic cases out there,” Luis Mendes, a housing researcher and geographer at the University of Lisbon, said.
The number of evictions has also been increasing, jumping 13% in Lisbon last year compared to pre-pandemic 2019, according to government data.
Young mother Dulce Dengue, originally from Angola, was evicted with her children and nieces from a poor neighbourhood in Lisbon’s outskirts in 2021.
They moved from hostel to hostel before finding a council house in Setubal, around 50 km south of Lisbon. Moving back to the city would be “impossible,” she said.
Some leave the city. Some stay with their parents. The average age people leave the parental home in Portugal is 33.6, the highest in the European Union, according to data from the bloc’s statistics office.
“It comes to a point in our lives that we have no hope,” said Vitor David, a 26-year-old programmer, who rents in Almada, across the River Tagus from Lisbon, where costs are slightly lower.
Mendes said a recent housing package announced by the Socialist government had some “bold measures” but would not lower prices in the short term.
As part of the package, new licenses for short-term rentals, such as Airbnbs, will be prohibited – except in less populated rural areas.
Rights groups have pointed a finger at the “golden visas”, which the government has promised to scrap. The programme has been giving foreigners residents’ rights since 2012 in return for investments, attracting 6.8 billion euros primarily into real estate.
A new “digital nomad” visa, which allows foreign remote workers making four times the minimum wage to live in Portugal for a year with no tax on external income, has also been widely criticised.
But even some of those nomads are feeling the pinch. Esmee, a 28-year-old from the Netherlands, lives in the coastal town of Costa da Caparica, across the Tagus, and pays 775 euros per month for her flat.
“Even for me – having an income from another country – it’s a lot of money,” Esmee said. “If housing stays this expensive or gets worse, (foreign) people … will start moving back to their own countries.”
($1 = 0.9485 euros)
Marketmind: Counting down the $70 billion to a debt deal
© Reuters. FILE PHOTO: U.S. President Joe Biden hosts debt limit talks with House Speaker Kevin McCarthy (R-CA), Vice President Kamala Harris and other congressional leaders in the Oval Office at the White House in Washington, U.S., May 16, 2023. REUTERS/Evelyn Hock
A look at the day ahead in European and global markets from Vidya Ranganathan
The week draws to a close with pretty much the same buzz around artificial intelligence and U.S. debt diplomacy that it kicked off with.
Stock markets were getting a breather after the excitement over the blowout forecast from chipmaker Nvidia (NASDAQ:) Corp and the follow-through rally in AI-related companies, which powered the Nasdaq’s best day in three weeks.
maintained its momentum, however, after data showed inflation again well above policy targets and as foreign money poured into the market.
But all eyes are on the U.S. debt ceiling debate, where it looks like President Joe Biden and top Republican lawmaker Kevin McCarthy are just $70 billion apart on discretionary spending, according to a person familiar with the talks.
The deal’s going down to the wire, which itself is a moving target. Treasury’s announcement of a slate of bill auctions for early next week had some market participants suggesting the debt ceiling’s so-called “X-date”, when the government runs out of cash, may not in fact be June 1. Figures on Thursday showed that Treasury’s cash balance is down to just $49.47 billion.
The deal is not final, and work requirements for anti-poverty programs are a sticking point as is funding for the Internal Revenue Service to hire more auditors and target wealthy Americans. But funding for discretionary spending on military and veterans is on, as per sources.
Meanwhile, markets are growing less confident that the Federal Reserve will keep rates on hold in June. The CME FedWatch Tool now puts the chances of a quarter-point rate rise to 5.25-5.50% on June 14 at more than 50%.
Main economic indicators on Friday include the U.S. Commerce Department’s personal consumption expenditures (PCE) price index figures for April, which could show a small rise similar to March.
Key developments that could influence markets on Friday:
U.S. PCE price index
ECB’s Philip Lane and Croatian central bank Governor Boris Vujcic speak at events
Inflation in Tokyo slows in May, but key gauge hits four-decade high
© Reuters. FILE PHOTO: A man buys fish at a market in Tokyo, Japan March 3, 2023. REUTERS/Androniki Christodoulou/File Photo
By Takahiko Wada and Leika Kihara
TOKYO (Reuters) -Core consumer inflation in Japan’s capital slowed in May, but a key index stripping away the effect of fuel hit a four-decade high, underscoring broadening price pressure that may keep alive expectations of a withdrawal of ultra-loose monetary policy.
The data for Tokyo, which is seen as a leading indicator of nationwide trends, showed companies continued to pass on rising costs to households in a sign inflationary pressure could last longer than the Bank of Japan (BOJ) projects.
The Tokyo core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 3.2% in May from a year earlier, government data showed on Friday, roughly matching a median market forecast for a 3.3% gain.
While inflation slowed from the previous month’s 3.5%, it stayed above the BOJ’s 2% target for a full year as steady food price gains offset falling fuel costs, the data showed.
An index that strips away both fresh food and fuel costs rose 3.9% in May from a year earlier, marking the fastest pace of increase since April 1982 when Japan was experiencing an asset-inflated bubble.
“Inflation already appears to be overshooting the BOJ’s forecasts. Prospects of higher wages are prodding more firms to pass on rising labour costs through price hikes,” said Takuya Hoshino, chief economist at Dai-ichi Life Research Institute.
“Depending on how upcoming data plays out, there’s a chance the BOJ could respond to elevated inflation with a tweak to its ultra-loose policy,” he said.
Separate data released on Friday showed the price service companies charge each other rose 1.6% in April from a year earlier, marking the 26th straight month of gains, as the economy’s re-opening from pandemic curbs boosted tourism demand.
Japan’s economy is finally recovering from the scars of the COVID-19 pandemic, though risks of a global slowdown and rising food prices hang over the outlook for exports and consumption.
With inflation already exceeding its target, markets are rife with speculation the BOJ could soon phase out ultra-loose monetary policy under new governor Kazuo Ueda.
Ueda has repeatedly said inflation will slow in coming months as cost-push factors dissipate, and that the BOJ will maintain ultra-loose policy until stronger wage growth ensures Japan can sustainably see inflation hit its 2% target.
But he told a group interview on Thursday that the BOJ will “act swiftly” if its inflation projection proves wrong, and could tweak policy if the cost of stimulus outweighs the merits.
In a Reuters poll released on Friday more than half of the analysts surveyed expect the BOJ to start unwinding its yield curve control (YCC) policy by end-July, such as by raising the current 0.5% cap set for the 10-year government bond yield.
The BOJ will review its quarterly growth and inflation forecasts at a two-day policy meeting concluding on July 28.
Under projections made in April, the central bank expects core consumer inflation to hit 1.8% in the current fiscal year ending in March 2024. That is much lower than a 2.3% forecast in a poll released on May 15 by think tank Japan Center for Economic Research.
Analysis-Wall Street prepares for Treasuries mess as default looms
© Reuters. FILE PHOTO: The Wall Street entrance to the New York Stock Exchange (NYSE) is seen in New York City, U.S., November 15, 2022. REUTERS/Brendan McDermid
By Gertrude Chavez-Dreyfuss, Saeed Azhar and Davide Barbuscia
NEW YORK (Reuters) – Anxiety is increasing in parts of Wall Street that rely on Treasury securities to function, with some traders starting to avoid U.S. government debt that comes due in June and others preparing to deal with securities at risk of default.
U.S. President Joe Biden and top congressional Republican Kevin McCarthy are closing in on a deal that would raise the government’s $31.4 trillion debt ceiling for two years while capping spending on most items, as a June 1 “X date” approaches for when the Treasury Department has said it could run out of money to pay its bills.
Treasury securities are used widely as collateral across markets. A key question for market participants is how would bonds that are maturing next month be treated if a deal is not reached in time and the Treasury is unable to pay principal and interest on debt.
One such area is the $4 trillion repurchase, or repo, market, for short-term funding used by banks, money market funds and others to borrow and lend. Some counterparties, including banks, were shying away from Treasury bills maturing in June in bilateral repos, where the trade is between two parties, said an executive at a U.S. fund manager who decline to be named. There are 14 T-bills maturing in June.
Scott Skyrm, executive vice president for fixed income and repo at broker-dealer Curvature Securities, said some repo buyers or cash lenders did not want to accept any bills maturing within a year. Skyrm said stress began to appear in the market at the start of May, with some lenders refusing to accept Treasury bills that they perceived as at risk of delayed payments in some types of trades. He declined to name buyers who were not accepting T-bills.
“I don’t think counterparties want to deal with collateral around the X-date,” said Jason England, global bonds portfolio manager at Janus Henderson.
An executive at an independent broker-dealer in the repo market who declined to be named said they were still financing Treasury securities for now. Their focus, instead, was on rewiring their systems in anticipation of steps that the Federal Reserve and Treasury might take to prevent a default. The executive said they expected to work through the weekend to get their systems in place.
At least three big banks that deal directly with the New York Fed in its implementation of monetary policy were also accepting all Treasury securities, three sources familiar with the situation said.
The dislocations in the repo market, a crucial source of funding for day-to-day operations of many financial institutions, come amid growing stress in financial markets as talks drag on in Washington. A default could have devastating consequences, as the $24.3 trillion treasuries market underpins not just the U.S. but the global economic order.
To be sure, a default remains a distant possibility. Many market participants expect the Treasury will be able to continue to pay its bills after the June 1 date as it could conserve cash in other ways to prioritize debt payments.
In the case that it needs to delay payments on some securities that are maturing, expert groups have suggested in the past that Treasury could help markets to keep functioning by extending the so-called “operational maturity date.” The proposal, detailed in a December 2021 contingency planning document prepared by an expert group, calls for extending the maturities of securities at risk of default by one day at a time.
That could allow the security to be technically traded and available for settlement on the Fedwire Securities Service system used for government debt. However, the group warned that it would need many broker-dealers to adjust their trading systems to also be able to do so and the consequences of a delay in payments on securities would still be severe.
The broker-dealer executive said the process was cumbersome because maturity dates subsumed several other calculations about the value of the security. Extending the maturities required the firm to “basically break their own system,” the executive said.
Even so, allowing the security to default would be worse. “If you don’t extend the date, I really don’t know what happens,” the executive added.
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