2025-01-31 07:01

LONDON, Jan 31 (Reuters) - There is a persistent murmur in financial markets that the Trump administration may push through a grand bargain to weaken the overvalued U.S. dollar. But there are multiple problems here, not least Europe's likely unwillingness to play ball. For any repeat of the dramatic 1985 "Plaza Accord" between the U.S. and its main allies to weaken a then-stratospheric dollar exchange rate and ease America's widening deficits, the clue is probably in the name: "Accord". Even though Washington could again conceivably offer such a deal in return for shelving threatened import tariffs, there's considerable doubt that coordinated dollar sales would make any sense beyond sowing financial volatility. And there's even more of a doubt that euro zone nations would be either willing or able to take part. The European Central Bank underlined again on Thursday that it's still in firmly credit easing mode, as the euro zone economy struggles amid multiple internal and external uncertainties. And it's this contrast with a far hotter U.S. economy and a tighter Federal Reserve that explains much of the dollar's prevailing strength - along with many years of overwhelming westward-bound transatlantic investment flows to outperforming U.S. equity and debt. Further ECB easing is likely through this year and a weaker euro - itself not far from record highs on a broader trade-weighted basis - would be seen as an integral part of any recovery and rebalancing plan there. Agreeing to sink the dollar against that backdrop may seem perverse in Frankfurt. The same argument could be made of China - even though there's at least a direct line of negotiation with Beijing on the issue. But even if "realpolitik" between U.S. President Donald Trump's new administration and other governments in North America or Asia did see a meeting of minds, it's not at all clear how that would work in Europe. While European Union treaties nod vaguely to euro finance ministers' collective role in the broad "orientation" of exchange rate policy, it's still not obvious how that would work during a bout of global intervention, and the multi-national ECB has typically had the whip hand on such matters over the years. And as the ECB is bound by domestic inflation and financial stability mandates, it's doubtful it could engage in political horse-trading on its own. It's also still unclear how it would take instruction from the euro zone group on such a matter - or even how the latter could formulate and demand that participation. The euro has sometimes been dubbed "a currency beyond the state" , opens new tab when discussing its internal workings - but that could also be said of how it may frustrate its use as a political bargaining chip. A move justified by the priorities of global financial stability could possibly give the ECB some cover - but a quid pro quo borne of political pressure from Washington or even Brussels seems trickier. It would at least prompt questions about the ECB's role as guardian of the single currency. 'PLAZA2' PIPE DREAM? And yet there continues to be discussion of such a global deal in the wings - partly as investors view the 35% appreciation of the dollar's "real" trade-weighted value over the past decade as close to its 40% surge in the five years leading to the Plaza foray under then-U.S. President Ronald Reagan. Currency fund manager Stephen Jen this week was the latest to playfully make a case for a "Mar-a-Lago Accord" on the 40th anniversary of Plaza this September. Jen's main points were that China may not be as averse to a tariff intervention deal as many assume and relative cyclical weakness in China and Europe may be different later this year. Trump's first week and a half in office has been predictably laced with warnings about yawning U.S. trade gaps, unfair practices and currency manipulation that may be met with tariff rises and other measures. So far, he's sidestepped comments from advisers last year about moves to devalue the dollar per se and his own hand-wringing about the dollar's overvaluation during the 2024 presidential campaign. One executive order on "America First Trade Policy" , opens new tab tasks new Treasury Secretary Scott Bessent with proposing "appropriate measures to counter currency manipulation or misalignment that prevents effective balance of payments adjustments." Commerce and trade officials would monitor the extent of this issue and design the response, it said, hardening existing frameworks. The Trump team's main problem with tariff threats, however, is that markets see them as a reason to buy rather than sell dollars. That's due to the economic damage they may wreak on the economies and currencies of those affected as well as the assumption they may be inflationary and keep U.S. interest rates high. And with that comes a bundle of other contradictions in the mooted policy stance - not least Bessent's parallel insistence on sustaining the dollar's dominant global role. Mark Sobel , opens new tab, a former U.S. Treasury official who is now the U.S. chairman of financial think tank OMFIF, this week wrote of the Trump team's repeated "confusion" on currency issues. "First and foremost, American deficits are made in America. Foreigners can't fix that," Sobel wrote, questioning both U.S. tax and tariff plans and misguided attempts to scientifically measure equilibrium exchange rates. "Currencies are impacted by capital flows, swamping current account flows," he added, suggesting dollar overvaluation would only dissipate when the blinding investment bias toward exceptional U.S. economic and corporate performance reverses. In the meantime, don't hold your breath for a grand currency bargain involving the other side of the world's pivotal euro/dollar exchange rate. The opinions expressed here are those of the author, a columnist for Reuters. Sign up here. https://www.reuters.com/markets/an-easing-ecb-would-surely-balk-plaza2-idea-mike-dolan-2025-01-31/

2025-01-31 06:56

TOKYO, Jan 31 (Reuters) - Japan's energy security will benefit from U.S. President Donald Trump's push to increase liquefied natural gas (LNG) production, an executive at JERA, Japan's top LNG buyer, said on Friday, while allowing the company to diversify its suppliers. LNG imports by Japan, the world's second biggest buyer after China, continued to fall last year, decreasing by 0.4% to 65.9 million metric tons (mt). Shipments from the U.S., Japan's key ally, rose, while supplies from Russia reduced further. After retaking office on Jan 20, Trump ordered the U.S. Energy Department to resume the consideration of LNG export applications after the Biden administration froze them. "For Japan, which cannot supply its own energy resources, from the prospects of security, the fact that a large amount of U.S.-produced gas would be exported is a positive factor," Naohiro Maekawa, an executive officer with JERA, told reporters. While its own domestic gas consumption is declining due to a weaker economy, increasing use of renewable energy, and nuclear power plant restarts, Japan is increasing LNG trade globally: it grew 21% to 38.25 mt in the fiscal year ended last March. Reuters reported on Friday that Japan is considering offering support for a $44 billion gas pipeline in Alaska as it seeks to court Trump and forestall potential trade friction, according to three officials familiar with the matter. For JERA itself, more U.S. LNG provides a good option to diversify its supply portfolio, Maekawa said. JERA, Japan's top utility, handles around 30-35 mt of LNG annually, with nearly a half coming from the Asia Pacific region, including Australia, Malaysia and Indonesia, as well as from Russia. Profits of JERA, a joint venture of Tokyo Electric Power Co (9501.T) , opens new tab and Chubu Electric Power Co (9502.T) , opens new tab, halved to 155 billion yen ($1 billion) in the April-December period of the fiscal year ending in March from 339 billion yen a year ago. Results were weaker due to a profitability fall from JERA's overseas power generation, fuel and renewable energy business, including from the Formosa 2 offshore wind project in Taiwan, Maekawa said. JERA kept its profit forecast for the full fiscal year unchanged at 200 billion yen. ($1 = 154.8300 yen) (This story has been corrected to change the period of reporting to April-December, not third quarter, in paragraph 8) Sign up here. https://www.reuters.com/business/energy/japans-energy-security-benefit-more-us-lng-jera-says-2025-01-31/

2025-01-31 06:33

KUALA LUMPUR, Jan 31 (Reuters) - Malaysian state-owned energy firm Petroliam Nasional Berhad (IPO-PETO.KL) , opens new tab will look to boost the country's oil and gas output through key projects over the next three years, it said in its activity outlook report , opens new tab. Petroliam Nasional, or Petronas, said it aims to grow and sustain the country's oil and gas production at 2 million barrels of oil equivalent (mmboe) per day between 2025 and 2027, up from 1.7 mmboe in 2024. Its target will be realised through projects such as the Kasawari gas development off Sarawak state on Borneo, and the redevelopment of the Gumusut-Kakap, Bekok, Tabu and Seligi oil and gas fields, among others, Petronas said in the report published on Tuesday. For the next two years, about 15 exploration wells are forecast to be drilled each year, focusing on shallow-water wells and deepwater wells, according to the report. Petronas said its outlook for upstream development projects remains steady for the next three years, with 69 development wells in 2025 compared to 56 in 2024. Petronas forecasts more than 400 wells to be drilled, and expects 39 upstream projects to be executed over the next three years, including the construction of three offshore central processing platforms, three onshore facilities, and fabrication and installation of about 900 kms (559 miles) of pipelines. Sign up here. https://www.reuters.com/markets/commodities/malaysias-petronas-aims-boost-oil-gas-output-over-next-3-yrs-2025-01-31/

2025-01-31 06:33

MOSCOW, Jan 31 (Reuters) - An oil refinery in Russia's southern Volgograd region caught fire after an overnight Ukrainian drone attack, but the blaze has now been put out, the regional governor said on Friday. Andrei Bocharov, the governor, said in a statement on the Telegram messaging app that Russian air defences had repelled an attack on his region by eight drones. "As a result of falling debris from one of the drones, a fire broke out on the territory of an oil refinery, which was promptly extinguished. One injured refinery worker was hospitalised," he said. Andriy Kovalenko, the head of Ukraine's Centre for Countering Disinformation, said on Telegram that the Volgograd oil refinery, which he described as one of Russia's largest, had been struck. SHOT, a Russian news outlet with contacts in the security services, said four Ukrainian drones had been destroyed over a second refinery in Yaroslavl, northeast of Moscow. Ukraine has carried out frequent air attacks on Russian refineries, oil depots and industrial sites in an attempt to cripple key infrastructure underpinning Russia's war effort. This week it claimed to have struck and set on fire a Lukoil (LKOH.MM) , opens new tab refinery, Russia's fourth largest, in the Nizhny Novgorod region, east of Moscow. Sources at Lukoil denied that the NORSI refinery was hit, and said production was not affected. Petrochemical company Sibur said there had been a drone strike and fire at its nearby plant. Russia is currently feeding more crude oil through its refineries in the hope of boosting fuel exports after new U.S. sanctions on Russian tankers and traders made exports of unprocessed crude more difficult, sources told Reuters this week. A Ukrainian drone attack last week forced a refinery in Ryazan, southeast of Moscow, to suspend operations. Russia's Defence Ministry said in a statement on Friday that 49 Ukrainian drones had been downed over the country overnight, including 25 in the southern Rostov region and eight in the Volgograd region. Drones had also been detected and destroyed in the Kursk, Yaroslavl, Belgorod, Voronezh, and Krasnodar regions, it said. Sign up here. https://www.reuters.com/world/europe/fire-put-out-oil-refinery-russias-volgograd-region-after-ukrainian-drone-attack-2025-01-31/

2025-01-31 06:33

Yen notch monthly gain on bets of more BOJ hikes Canadian dollar weakens and Mexican peso edge higher ahead of Feb. 1 tariff threat Further rate cuts seen from other major central banks NEW YORK, Jan 31 (Reuters) - The U.S. dollar advanced against major currencies on Friday, while the Canadian dollar weakened and the Mexican peso edged higher after the White House reiterated that President Donald Trump will impose tariffs on Saturday. Reuters had earlier reported, citing sources familiar with the tariff deliberations, that Trump would announce tariffs on Canadian and Mexican imports on Saturday but delay collection of the duties until March 1 and offer a limited process for certain imports to be exempted. White House spokesperson Karoline Leavitt denied the report, calling it "false", adding that tariff duties would be published on Saturday and would take effect immediately. Earlier on Friday, U.S. Commerce Department data showed that the Personal Consumption Expenditures (PCE) Price Index rose 0.3% last month, the largest increase since last April, amid a surge in consumer spending, suggesting the Federal Reserve would probably be in no hurry to resume cutting interest rates. "It's very much tariffs and the administration that's driving this over-dollar-strength move; one of the biggest challenges is that the stronger dollar has been one trade that has sustained itself if you wanted to put out a theory that there's a Trump trade out there," said Marvin Loh, senior global market strategist at State Street in Boston. "The dollar trade is one of the most overpositioned at this point. It does need a catalyst to continue to move up. But the threats and/or actions where we get to see tariffs over the weekend is what's driving the story now," Loh said. The U.S. dollar advanced 0.12% against the Canadian dollar , rebounding from a slight decline following the Reuters report. The currency is still trading near five-year highs at C$1.451 and notched a weekly gain of nearly 1.1%. The Mexican peso was up 0.17% at 20.728 per dollar. The currency recorded its worst weekly performance since October. The dollar strengthened 0.54% to 155.13 against the Japanese yen , notching three straight weeks of gains. Against the Swiss franc , the dollar added 0.1% to 0.9016, gaining 0.5% for the week and snapping two consecutive weeks of losses. The euro dipped 0.3% to $1.0367. It recorded a 1% weekly decline, the biggest loss since December 30. For the month, it was up 0.23% - the biggest gain since September last year. Bank of Japan Governor Kazuo Ueda said the central bank must maintain loose monetary policy to ensure underlying inflation gradually accelerates toward its 2% target. Data on Friday showed core inflation in Tokyo hit 2.5%, the fastest annual pace in nearly a year. The European Central Bank cut interest rates on Thursday and policymakers left the door open for another cut in March, as concerns over lacklustre economic growth supersede worries about persistent inflation. The Federal Reserve, meanwhile, kept rates steady this week and Chair Jerome Powell said there would be no rush to cut them again, though he also implied there was still scope for easing with rates being "meaningfully" above neutral. The dollar index , which measures the greenback against a basket of currencies including the yen and the euro, rose 0.31% to 108.42. It gained 0.93% for the week, snapping two straight weeks of losses. "We were expecting maybe some volatility around the data releases this morning, the U.S. PCE and other things; but they were really in line and not much to write home about," said John Velis, FX and macro strategist at BNY in New York. "It just seems like, based on what happened yesterday afternoon in the White House, that traders are looking not to take big risks going into the weekend because obviously tomorrow's February 1st," Velis added. Sign up here. https://www.reuters.com/markets/currencies/yen-set-best-january-seven-years-rates-path-diverge-2025-01-31/

2025-01-31 06:17

Nvidia plunge reflects stretched market - analysts High bond yields may dent stocks' appeal Investors still betting heavily on rising dollar LONDON, Jan 31 (Reuters) - In a week when AI chipmaker Nvidia suffered the biggest one-day loss of value on record and the Federal Reserve said it was in no hurry to cut rates again, a few gauges underscore markets' vulnerability to big swings. Investors and analysts said the sell-off in tech stocks this week, driven by the popularity of China's DeepSeek AI model, highlights the market ructions that can occur when heavy speculation meets unexpected bad news. Here are five signals that highlight some of the tensions simmering. 1/HEAVY BETTING Despite Monday's ructions investors remain bullish about U.S. tech and President Donald Trump's plans for tax cuts and deregulation, heightening risks of market gyrations if this widespread consensus proves wrong. Short-term speculators have in recent months taken on more debt to magnify their gains, with levels of so-called gross leverage among hedge funds that trade U.S. stocks hitting their highest since 2010 in January, Morgan Stanley data showed. Citi's equity positioning model, derived from futures contracts, shows traders are heavily betting on further gains for Wall Street's tech-focused Nasdaq 100 (.NDX) , opens new tab. "Everyone is sort of piled in. They're super optimistic," GAM chief multi-asset strategist Julian Howard said. These trends are making some long-term money managers nervous, with JPMorgan attributing part of Nvidia's violent Jan. 27 drop to traditional asset managers selling out. Kevin Thozet, investment committee member at Carmignac, said he had reduced exposure to U.S. tech stocks several days ago and added to positions that would profit if the Nasdaq fell, saying DeepSeek called U.S. tech-stock "exceptionalism" into question. High-for-longer U.S. interest rates, he added, might prompt U.S. households, now heavily invested in stocks, to pull money out. Analysis by the U.S. Office of Financial Research has also found strong correlations , opens new tab between retail investment in speculative assets, such as crypto-currencies and use of consumer credit, signaling last year's rate cuts fueled market gains. 2/ PRICES ARE NOT RIGHT? The highest bond yields in years could also dent stocks' appeal as investors can now get returns of 4% or more on government debt. One measure of the equity risk premium - the extra return investors can expect for stocks - dropped below zero in December for the first time since the aftermath of the dot-com bubble in 2002. "When people talk about managing volatility amidst all this, one of the areas which does it really well is short-dated fixed income," said GAM's Howard. 3/ DOLLAR WOBBLE Since the Nov. 5 U.S. election, traders have doubled the size of their bets that the dollar will rise. They now hold net short positions - a bet on the value of something falling - in all other major currencies. This has only happened on rare occasions in the last 10 years, LSEG data shows. Much of this positioning is predicated on the Fed cutting rates more slowly than elsewhere, and an assumption that tariffs and tax cuts spark higher inflation and government borrowing, meaning any change to that scenario could be problematic for the U.S. currency. 4/ HAVEN-HUNTING High concentration in tech stocks has made portfolios vulnerable, analysts say, and a rush to alternatives, such as Japan's yen and European credit, is another sign of fast-changing market dynamics. As European shares (.STOXX) , opens new tab have hit record highs, Bank of America data showed money has flowed into European credit funds for 23 consecutive weeks. 5/ EYE OF THE STORM? The VIX, which measures how volatile traders expect the S&P 500 to become, is below its long-run average of about 20. But it has spiked out of nowhere twice in the last six months, once in August when a surge in the yen wreaked global havoc and again in December when the Fed hinted it would slow the pace of rate cuts. Rob Almeida, global investment strategist and portfolio Manager at MFS International, described markets as "fragile" and said Monday's heavy stock selling may have been driven by "leverage that might be being unwound and isn't being accounted for". Sign up here. https://www.reuters.com/markets/global-markets-positioning-graphic-2025-01-31/