2025-01-10 12:35
Sterling touches new 14-month low Thirty-year gilts touch highest since July 1998 Ten-year gilt yields set for biggest weekly rise in a year Dollar gains 1.5% against the pound on the week Jan 10 (Reuters) - British assets remained under pressure on Friday from high global borrowing costs, with sterling falling for the fourth day in a row and better-than-expected U.S. jobs data intensifying the move, while gilt yields rose for a fifth consecutive day. After recording a moderate decline earlier in the day, the pound continued its slide and gilt yields jumped after U.S. government data showed employers added far more jobs than expected in December. The pound was down 0.53%, after briefly touching $1.2194 , its lowest since November 2023. Benchmark 10-year gilt yields were up three basis points (bps) on the day to 4.84%, down from the session high of 4.889% after the data. Yields remained below Thursday's high of 4.925%, their highest since 2008. British 30-year gilt yields rose as much as 6.8 bps on the day to 5.447% - their highest since July 1998. They were last up 3 bps at 5.411%. The UK has been among the markets hardest hit by a surge in global borrowing costs, which most analysts say originated in the U.S. due to concerns about rising inflation, reduced chances of a drop in interest rates, and uncertainty over how U.S. President-elect Donald Trump will conduct foreign or economic policy. That has sent benchmark U.S. 10-year Treasury yields soaring to their highest since November 2023, propped up the dollar and sent ripples through other currencies and stocks. Traders on Friday bet the U.S. Federal Reserve will wait until at least June to reduce its policy rate. But British markets have been among the most impacted, with sterling having lost 1.5% on the week, gilts underperforming peers and domestically focused stocks also struggling. (.FTMC) , opens new tab PRESSURE ON FINANCE MINISTER While higher yields can sometimes support a currency, they are not doing so in this case, in part because they are putting pressure on finance minister Rachel Reeves, potentially forcing her to cut future spending. "There remains clear concern over the likelihood that all of the Chancellor's fiscal headroom has now been eaten up by the sell-off in gilts, and the anaemic nature of UK economic growth," said Pepperstone strategist Michael Brown, referring to Reeves. Traders are paying more to hedge against big swings in the pound than at any time since the March 2023 banking crisis. One-month options volatility, a measure of demand for protection, hit a high of 10.9% on Thursday . By Friday, this had retreated to 9.67%. The pound has also lost about 1% against the euro this week. Euro zone bond yields have also risen, but the yield gap between British 10-year gilts and German 10-year bonds – a gauge of the premium investors demand to hold Britain's debt – widened about 10 bps this week. Deutsche Bank said in a note earlier on Friday that investors should sell the pound on a broad trade-weighted basis, and that there might be "further to go" in the recent pound weakness. "We like selling GBP against a basket of other major currencies," they said, mentioning the euro, dollar, Swiss franc and Japanese yen. They also noted that higher volatility can reduce the benefit for the pound of higher yields. One reason why high yields can support a currency is because they make it more attractive for "carry trades" in which currency traders seek to profit from the yield differentials between different markets. These trades are much less attractive when volatility is high, however, as small yield differentials can be wiped out by price swings. Ten-year gilt yields are up 25 bps on the week. If sustained, it would be their biggest weekly rise in a year. Sign up here. https://www.reuters.com/markets/currencies/sterling-slides-fourth-day-amid-bond-market-turmoil-2025-01-10/
2025-01-10 12:34
NEW DELHI, Jan 10 (Reuters) - Indian firms see a major disruption of Russian oil supplies as Washington imposes new sanctions to curb Moscow's revenues, pushing refiners to scout for crude from the Middle East and the U.S., three Indian refining sources said on Friday. The sources said they understand that the new U.S. sanctions would target more than 180 tankers shipping Russian oil and Russia-based maritime insurance service providers Ingosstrakh Insurance Company and Alfastrakhovanie Group. Sign up here. https://www.reuters.com/business/energy/new-us-sanctions-russian-tankers-hit-oil-supplies-india-refining-sources-say-2025-01-10/
2025-01-10 12:32
Deal driven by rising electricity demand from AI and electrification Constellation to become largest US independent power provider Transaction to add $2 billion to Constellation's annual free cash flow Shares of Constellation jump 24% after acquisition announcement NEW YORK, Jan 10 (Reuters) - U.S. nuclear power provider Constellation Energy (CEG.O) , opens new tab on Friday agreed to buy privately held natural gas and geothermal company Calpine Corp for $16.4 billion, one of the biggest acquisitions in U.S. power industry history. The cash-and-stock deal comes at a time of rising electricity demand, driven by the proliferation of energy-guzzling AI data centers and the electrification of transportation and buildings, which are expected to hit a record this year. Including debt, the transaction valued Calpine at $26.6 billion. "Demand for our products is expected to grow by levels we haven't seen in a lifetime," Constellation CEO Joe Dominguez said on a call with investors following the announcement. The agreement will turn Constellation, the biggest U.S. nuclear plant operator, into the largest U.S. independent power provider, sharply growing its mix of natural gas-fired electricity generation. "Natural gas is going to see a significant resurgence because it is necessary to power the grid," Dominguez separately told Reuters in an interview. "That doesn't mean that just any natural gas is needed," he said, adding that Calpine's low carbon-intensity gas fleet and advancements in carbon capture technology were part of what made it an attractive purchase. Shares of Constellation rose 25% to close above $305, their largest ever daily percentage gain. The transaction, which is expected to close this year, could add $2 billion to Constellation's free cash flow annually, and together the companies would have nearly 60 gigawatts (GW) of capacity from zero- and low-emission sources, including nuclear, natural gas and geothermal, Constellation said. "Overall, the transaction creates the largest coast-to-coast power generator," S&P's Aneesh Prabhu said. BIGGER FOOTPRINT With the acquisition, Constellation's employee base will grow by nearly 20% to 16,500. "The combination makes CEG bigger in Texas (up to 25% of capacity from 15%), and reduces exposure to PJM (down to 45% from 65%). The supply-demand situation in those regions appears very favorable," said Tim Winter, portfolio manager at Gabelli Funds. The arrangement also increases exposure to California to 10% from a negligible amount. California and Texas are the two most populous and energy-consuming U.S. states. Shares of Constellation have jumped by more than 100% over the past year as Big Tech, many with climate-related pledges requiring low-carbon power purchases, boosted demand for nuclear power, which produces virtually no global warming emissions. In September, Constellation announced an unprecedented power purchase agreement to resume operations at its Three Mile Island nuclear plant to supply electricity to Microsoft (MSFT.O) , opens new tab data centers. Last month, the company said it would receive a record $1 billion in nuclear power supply and energy-efficiency contracts with the U.S. government. With a limited amount of nuclear power available, natural gas has become a more attractive option for data center demand. Reuters was the first to report in May last year that the three investment firms that took Calpine private in 2017 - Canada Pension Plan Investment Board, Energy Capital Partners and Access Industries - were considering a sale of Calpine. Sign up here. https://www.reuters.com/markets/deals/constellation-energy-buy-calpine-266-bln-deal-2025-01-10/
2025-01-10 11:56
LONDON, Jan 10 (Reuters) - The pound is once again taking the heat as UK financial markets wobble - often a sign of stress in a country highly dependent on foreign financing, but also potentially a safety valve to help resolve the problem. The new year's alarming spike in British government bond yields owes much to a sharp rise in global sovereign borrowing costs, with a U.S. Treasury yield surge ahead of the incoming Donald Trump administration the prime mover. Indeed, the gaps between British 'gilt' yields and equivalent U.S. 10- and 30-year bonds have barely budged over the past three months. , Yet, nominal 30-year gilt yields this week hit their highest level in more than 25 years, while 10-year yields rose back to 2008 levels. This is creating all sorts of headaches for the new Labour government, which is already struggling to get its pro-growth agenda going and smarting from the poor reception given its tax-and-spend budget released in October. And in a surprising turnaround, the pound suddenly stopped following gilt yields higher this week, as it had for much of the past year, and went in the opposite direction instead. Only a month ago, the pound sailed to its highest level against the euro since 2016, after setting a similar milestone on a broader trade-weighed index in November. Why the sudden volte-face - one that's inevitably recalled 2022's budget debacle under former Conservative Prime Minister Liz Truss? Nothing seismic has changed on the UK domestic economic front in recent weeks to warrant this shift, even if many have been unnerved by reports this week of billionaire Trump adviser Elon Musk aiming to oust the UK Prime Minister. As recently as December, many market players had been building sterling positions, prodded by the Bank of England's relatively tight policy stance compared with the rest of Europe and a view that the UK was better positioned than the euro zone to withstand a Trump-inspired global trade war. And while speculative net sterling positioning had fallen from its mid-year highs, it remained positive into yearend against a super-strong dollar. A SIMPLE ANSWER? But now many of those positions are being rapidly unwound, seemingly based on the view that British borrowing costs cannot keep rising ever higher along with U.S. Treasury yields without the UK taking a big economic and budgetary hit. Unlike the buoyant U.S. economy, the UK arguably has far less ability to absorb this pain. But is this a crisis? There's no sign yet of wider debt market dislocations, like those seen in 2022, and while implied pound volatility has risen, it remains half of what it was back then. Still, a problem emanating from overseas can be potentially worse than a domestic one, simply because the government has little power to solve it. And the combination of falling sterling and rising gilt yields is a red flag. For some this is an old UK problem, perhaps compounded by the country's exit from the European Union and the relatively small open economy's increasing isolation. Its large current account and capital flow deficits leave it more vulnerable than other big economies to shifts in global financial conditions and market-based financing costs in particular. Deutsche Bank's top currency strategist George Saravelos identified Britain's long-standing balance of payments shortfall with the rest of the world as the villain of this story. "The more a country relies on foreign financing for its domestic debt issuance, the more exposed it is to the global environment," he told clients on Thursday. "From the perspective of external flows, the UK is one of the most vulnerable in the G10." So what's the solution? "The answer is simple: a weaker currency," according to Saravelos, adding that this helps the country's investment position because if UK assets become cheaper for foreign investors, this should attract capital and help narrow the current account gap. The pound may have further to fall, he reckons, but its reversal will likely be "a natural equilibrating process" rather than a spiral or crisis. That seems like quite a benign view of the week's ructions. Others think these rumblings reflect the UK's persistent inflation and weak growth compounded by recent employment tax rises. Some worry that a sharp bout of sterling weakness may irk inflation again and tie the BoE's hands even further. Either way, it does appear sterling's period in the sun is over for now. But this fall from grace may well be what's needed to resolve the problem and draw back overseas investors to higher-yielding gilts. The opinions expressed here are those of the author, a columnist for Reuters. Sign up here. https://www.reuters.com/markets/currencies/sterlings-fall-problem-solution-uk-gilt-jolt-mike-dolan-2025-01-10/
2025-01-10 11:55
LONDON, Jan 10 (Reuters) - Britain's gas storage levels are "concerningly low", with less than a week of gas demand in store following a cold snap, Centrica (CNA.L) , opens new tab, operator of the country’s largest gas storage site, said on Friday. Britain is heavily reliant on gas for its home heating and also uses a significant amount for electricity generation. “As of the 9th of January 2025, UK storage sites are 26% lower than last year’s inventory at the same time, leaving them around half full. This means the UK has less than a week of gas demand in store,” Centrica said in a statement. Centrica’s Rough gas storage site, a depleted field off England's east coast, makes up around half of the country’s gas storage capacity. Rough stopped storing gas in 2017 but was reopened in 2022 at lower capacity amid the global energy crisis following Russia’s invasion of Ukraine. Centrica said it could invest 2 billion pounds ($2.46 billion) to upgrade the site to maximum capacity but is seeking support from the government through a price cap and floor mechanism to make this viable. “If Rough had been operating at full capacity in recent years, it would have saved UK households 100 pounds from both their gas and their electricity bills each winter,” Centrica Chief Executive Chris O'Shea said in the statement. Unlike Europe, Britain does not have a mandatory gas storage target which Europe set following price spikes and supply fears during the energy crisis. “We are an outlier from the rest of Europe when it comes to the role of storage in our energy system and we are now seeing the implications of that,” O'Shea said. ($1 = 0.8137 pounds) Sign up here. https://www.reuters.com/business/energy/britains-gas-storage-levels-concerningly-low-centrica-says-2025-01-10/
2025-01-10 11:51
Jan 10 (Reuters) - Citigroup said on Friday it was expecting a rally in global equities to extend into 2025, as falling interest rates and easing inflation could help prop up corporate earnings. The Wall Street brokerage forecast the MSCI All Country World Index Local (.dMIWD00000P) , opens new tab, a benchmark performance gauge of world stocks, to hit 1,140 points by the end of this year, implying a 10% upside to its last close of 1,035.46. Citi estimated a 10% earnings-per-share(EPS) growth for global equities, slightly below analyst consensus of 13%, adding that U.S. and emerging market regions could see the strongest EPS growth of about 15%. Maintaining its "overweight" stance on U.S. equities, Citi said President-elect Donald Trump's policies are "a key source of uncertainty, as tariffs, tax cuts and deregulation will bring a complicated mix of favorable and adverse economic effects." The U.S. benchmark S&P 500 index (.SPX) , opens new tab rallied 24% in 2024, fueled by growth expectations surrounding artificial intelligence, expected rate cuts from the U.S. Federal Reserve, and more recently the likelihood of deregulation policies from the incoming Trump administration. "While AI is no longer expected to provide as much EPS growth advantage vs. the rest of the index, any continuation of USD strength and policy uncertainty on tariffs could extend its outperformance," Citi analysts added. Among other regional equity markets, Citi maintained its "neutral" view on emerging markets, "underweight" on Australia and Japan, and "overweight" on Continental Europe. On the global sector front, the brokerage raised its rating on health care to "overweight," consumer staples and materials to "neutral," and downgraded consumer discretionary, utilities and industrials to "underweight." Sign up here. https://www.reuters.com/business/finance/citi-expects-rally-global-stocks-extend-into-2025-sees-10-eps-growth-2025-01-10/
