2024-12-19 11:15

A look at the day ahead in U.S. and global markets from Mike Dolan Although the Federal Reserve's "hawkish cut" on Thursday had been broadly expected, markets now fear 4% policy rates will be the floor for the coming year at least - and no further easing until midyear or later. The picture painted by the Fed removes monetary easing as tailwind from the stock market for months and has seen the dollar rocket (.DXY) , opens new tab to its highest in more than two years - bowling over emerging, developed and crypto currencies alike. Lifting their median inflation forecast for next year by 0.3 percentage point to 2.5% but only nudging the GDP growth up a tenth to 2.1%, Fed policymakers also raised their policy rate forecasts for the next two years by half a point to 3.9% and 3.4% respectively. And they lifted the longer-term horizon too, with projections for the long-term neutral rate nudged up to 3% for the first time since 2018. "It's a new phase and we're going to be cautious about further cuts," Chair Jerome Powell said after the Fed announced the widely expected quarter-point cut into a 4.25-4.50% range. Markets took the cue and futures now don't fully price another quarter-point reduction until June at the earliest - and doubt there'll be any more over the rest of the year. Already aggravated Treasuries got whacked again, with 10-year and 30-year yields vaulting 4.5% and 4.7% respectively to hit their highest since May. The 2-10 year yield curve steepened to its highest in three months. Compounding the angst, debt ceiling worries crept back onto the radar. President-elect Donald Trump on Wednesday disrupted bipartisan efforts to avert a government shutdown as he pressured his Republicans in Congress to reject a stopgap bill to keep the government funded past the end of the week. The cocktail of events left no Christmas cheer for an historically expensive stock market that's already seen momentum slowing and is increasingly fearful of investors' almost-unchallenged bullishness for 2025. Some now suggest most of the positive post-election fiscal and economic scenario as well as the U.S. 'exceptionalism' theme is already in the price. The benchmark S&P500 (.SPX) , opens new tab and blue-chip Dow Jones (.DJI) , opens new tab indexes saw their biggest one-day percentage decline since early August and the Nasdaq clocked its biggest drop since July. The small cap Russell 2000 (.RUT) , opens new tab dropped 4.4%, its biggest drop since June 2022. Even though it's still up 12% for 2024 to date, the Dow suffered its 10th straight session of declines - the longest streak of daily losses since 1974. And adding to the wobble in tech, shares in Idaho-based Micron Technology (MU.O) , opens new tab plunged 15% after the bell after it missed quarterly revenue and profit estimates as weak demand for consumer products such as personal computers and smartphones hit the chipmaker's business. Casting a pall over the yearend, the VIX volatility gauge (.VIX) , opens new tab jumped 11.75 points to close at a four-month high of 27.62 - although it subsided again closer to 20 overnight. Stock futures are also attempting to claw back some of the losses on Thursday. But the Fed was just the headline central bank in a stream of other yearend policy decisions around the world. Japan's yen skidded to its weakest since July against the pumped-up dollar after the Bank of Japan kept its rates unchanged and offered few clues on how soon it could push up borrowing costs. Sterling was an exceptional gainer against both the dollar and euro, with the Bank of England expected to hold the line on its borrowing rates later on Thursday and likely steer as hawkish as the Fed. Above-forecast wage and inflation data this week cemented the hawkish UK picture even amid signs of an alarming manufacturing slump - with 10-year UK government borrowing premiums over Germany ballooning to its widest since 1990. Elsewhere, a hawkish Norwegian central bank also held policy rates steady. Sweden's Riksbanks cut as expected, but also guided on a more cautious approach next year. In Brazil, there was growing concern about the fiscal and monetary mix there as Brazil's real tumbled by the most in over two years to a fresh record low on Wednesday and stocks and bonds were pressured as financial markets put the Brazilian government's spending plans and widening deficit to the test. The alarming sight of the currency falling after such steep central bank interest rate rises this week and with bond yields climbing is seen by many as a red flag. Back stateside, post-election winner Bitcoin was knocked back briefly below $100,000 as the dollar revved up post-Fed - but reclaimed the round figure on Thursday. Key developments that should provide more direction to U.S. markets later on Thursday: * Bank of England policy decision and statement; Brazil Central Bank releases Inflation Report, Central Bank of Mexico releases inflation report * US Q3 GDP revision, Q3 corporate profits, weekly jobless claims, Philadelphia Federal Reserve's December business survey, November existing home sales, Kansas City Fed manufacturing survey, October TIC data on overseas Treasury holdings * US Treasury sells 5-year inflation-protected securities * U.S. corporate earnings: FedEx, Nike, Conagra Brands, Lamb Weston, Darden Restaurants, Accenture, Carmax, Factset, Paychex, Cintas * European Union summit in Brussels Sign up here. https://www.reuters.com/markets/us/global-markets-view-usa-2024-12-19/

2024-12-19 11:08

Patsalides prefers small, gradual rate cuts Says euro weakness not creating inflationary issues Says bigger rate cut would require persistently low inflation FRANKFURT, Dec 19 (Reuters) - The European Central Bank should keep cutting interest rates by small increments and there is no need to ease policy to a level that starts stimulating economic growth, Cypriot policymaker Christodoulos Patsalides said on Thursday. The ECB has been easing policy for much of this year and the debate is now about how fast and how far it should cut rates as inflation worries have largely evaporated and growth remains anaemic. "I personally prefer small adjustments in a gradual process as opposed to bigger interest rate cuts," Patsalides told Reuters. "Given the elevated level of uncertainty in both directions, we need to be vigilant and careful," Patsalides, one of the newest members of the ECB's Governing Council, said. "We also don't want to surprise the markets and give the wrong signals." Some policymakers, mostly from the 20-nation currency bloc’s south, argued last week for a 50 basis point rate cut but Patsalides said such a move would require inflation to fall below the ECB's 2% target durably, which is not expected now. "The inflation projection would have to show that inflation will remain well below the target for a very long time," he said. "Other than that, I wouldn't go for bigger cuts." "I don't see inflation undershooting persisting for a very long time," Patsalides, a PhD economist with both commercial and central banking experience, said. NEUTRAL RATE Patsalides said that interest rates would follow a downward path but he decline to endorse market pricing for four straight cuts in the first half of 2025 because markets sometimes get it wrong and reserved the right to change his mind in case the outlook shifted. The ECB also had no reason to lower interest rates to a level that starts to stimulate the economy, Patsalides said, weighing in on another key debate on whether the ailing economy would once again need a boost from its central bank. "Going below the neutral rate would imply that we are undergoing a recession or that a severe recession is projected," he said. "But this is not what the ECB projections show. Right now I don't see a situation in which rates would go below the neutral rate." The neutral rate, which neither stimulates nor slows growth, is a loosely defined concept and estimates lie in a wide range. Patsalides, using one of the wider estimates, said it was between 1.5% and 3%, so the ECB was approaching it after it cuts its deposit rate to 3% last week and it was not necessarily the case it had some distance to get there. "I think we will know where the neutral rate is when we are there," Patsalides said. "It's difficult to pursue policies on the basis of a preconceived neutral rate." Markets now see the ECB's 3% deposit rate falling to 2% by mid-2025 and also see a 50% chance it would fall further, to 1.75% by year-end. One worry for some has been the dollar's recent strength, which could continue if the new U.S. administration imposes trade barriers but this is not an issue for euro zone inflation, Patsalides said. "I don't have a view on the appropriate exchange rate but the current level does not appear to be creating any inflationary issues," he said. Tariffs imposed by incoming U.S. President Donald Trump could be inflationary in the near term but they weigh on growth, so the longer term impact could be mixed and will depend on the specific composition of measures. Sign up here. https://www.reuters.com/markets/europe/no-need-ecb-start-stimulating-growth-patsalides-says-2024-12-19/

2024-12-19 11:07

Retailers expect $10 and under gifts to drive store traffic Cheaper gifts are aimed at cash-strapped consumers Lower prices could drive impulse purchases NEW YORK, Dec 19 (Reuters) - Retailers including Target (TGT.N) , opens new tab and Walmart (WMT.N) , opens new tab are stocking shelves with more toys and gifts such as Barbies that cost less than $10 this holiday season, a strategy aimed at attracting cash-strapped shoppers. For retailers and toymakers, selling a bounty of cheaper gifts aimed at consumers earning $50,000 or less helps boost volumes and sales in the key holiday period that is five days shorter than last year and forecast to be lackluster. The merchandising plan also helps cushion profits because discretionary goods, like toys or clothes, have richer margins than consumable items such as food, which shoppers, especially low-income ones, are spending more of their money on due to inflation. U.S. inflation has been persistently high, with grocery prices, and eggs in particular, soaring. Privately-held Bratz doll maker MGA Entertainment is seeing 60-70% of its sales come from toys priced $10 and under, said CEO Isaac Larian. Its Miniverse figurines - listed as top toys by retailers including Target and Walmart - are mostly under $10. "The consumer is very, very stretched, and they’re going to be frugal," Larian said. "A kid who is going to get four to five toys (in the past), maybe will get two to three this year." MGA has 625 toys out of 2,500 that retail at $10 or below, Larian said. Discounter Five Below (FIVE.O) , opens new tab - named for its primarily $5 and under merchandise - is "leaning into value even more this holiday season with $1, $2 and $3 items," chief operating officer Kenneth Bull told investors this month. The retailer is selling squishy Hello Kitty collectible figurines for $3.25 and $1 candles and gift wrap. The ultra-cheap items are working to attract customers, Bull said, even though the retailer is expecting a sales decline in its fourth quarter, which covers November and December. Walmart and Target are also promoting $10 buys. Walmart has positioned Procter & Gamble's (PG.N) , opens new tab Old Spice HoliDude soap and deodorant gift sets in Lumbersnack and SnickerDudel scents in attention-grabbing locations, according to a research note from brokerage D.A. Davidson. Merchandise costing $10 and under could lead to customers buying cheaper items than they initially planned, lowering sales and pinching margins, said Barry Thomas, a senior global thought leader at marketing data provider Kantar. The low-cost items may also encourage shoplifting, because thieves can easily grab the products and walk out, he said. The stores are also highlighting $5 and $10 deals on Mattel’s (MAT.O) , opens new tab Barbie dolls, according to D.A. Davidson. A Barbie priced $10 or less usually has fewer accessories or wears simpler clothing than a higher-priced doll. "$10 is a price point that has psychological power," said Thomas, adding that $10 is low enough for consumers to try something new. "It's low risk. From the retailer's point of view, it's seen as driving basket size. It's an impulse price point." To be sure, retailers have long promoted low-cost and heavily-discounted gifts during the holidays in an effort to increase sales during the biggest selling season of the year. But the deals this year aim to encourage greater spending by penny-pinching low-income consumers, whose buying so far lags their wealthier counterparts. Consumers earning less than $50,000 are planning to spend an extra $87 this holiday season, or 12% more than last year. Those earning between $100,000 and $199,000 are planning to spend $379 more than last year, or 17%, according to accounting firm Deloitte. In the two weeks around Thanksgiving, low-income consumers fell behind on buying compared to middle- and higher-income shoppers, according to Bank of America credit card data. In a sign of how retailers are rearranging their merchandise to cater to cash-strapped shoppers, the average price of Walmart's 70 top toys was 10% lower than last year's, at $40.16, according to D.A. Davidson. The average price on Amazon's (AMZN.O) , opens new tab top 389 toys was 3% lower, according to the brokerage. A Target spokesperson said the retailer intentionally increased its allotment of toys under $20. Latrina Begley of Nashville, who is on a tight budget, said she plans to do her holiday shopping in-store, where prominently-displayed $10 deals may catch her eye. Only 40% of consumers earning less than $50,000 per year plan bought online in the five days after Thanksgiving, compared to 60% of those making more than $100,000, according to the National Retail Federation, a U.S. trade group. "I prefer to go into a store, I have a better view of what I'm buying," said Begley, who was planning to visit stores such as Target, Walmart, TJX's (TJX.N) , opens new tab Marshalls and Ross (ROST.O) , opens new tab. "(Buying online), you have to worry about shipping." Shoppers at the largest U.S. dollar store Dollar General (DG.N) , opens new tab, who largely earn less than $35,000 per year are shifting their spending to necessities like food, pinching the retailer's profits. But, Dollar General is discounting toys, gadgets and holiday decor to entice more buying, executives said. Sign up here. https://www.reuters.com/business/retail-consumer/seeing-low-income-consumers-squeezed-retailers-target-10-under-gifts-2024-12-19/

2024-12-19 11:05

Dec 19 (Reuters) - Indonesia is weighing deep cuts to nickel mining quotas and is looking at lowering the amount of ore mined next year to as low as 150 million tons from 227 million this year, Bloomberg News reported on Thursday, as the country seeks to support prices. Indonesia has emerged as one of the world's biggest producers of nickel products following a 2020 ban on the export of raw nickel that triggered a massive expansion of its domestic processing industry. Discussions about the size of the potential cut are ongoing within the government, the report said, citing people familiar with the matter. In recent months nickel smelters have complained about a shortage of ore, forcing some of them to import from the Philippines. A director general overseeing mining at Energy and Mineral Resources Ministry didn't immediately respond to a Reuters request for comment. Indonesia revealed plans in October to manage nickel ore supply and demand to support prices. "The state must be present to maintain supply and demand. If the supply is ample while demand is low, the price will drop," mining minister Bahlil Lahadalia told reporters then. Sign up here. https://www.reuters.com/markets/commodities/indonesia-weighs-deep-cuts-nickel-mining-boost-prices-bloomberg-reports-2024-12-19/

2024-12-19 11:02

SANTIAGO, Dec 19 (Reuters) - Chile's state-run copper miner, Codelco, will start using explosives with a significantly lower carbon footprint at its Radomiro Tomic mine, the company announced on Thursday. Explosives are used in mines to break up rocks to more easily process them and extract valuable metals. WHY IT'S IMPORTANT Codelco is the world's largest copper producer and its decision to use alternative explosives underscores the increasing pressure on mining companies to enhance their environmental standards and reduce greenhouse gas emissions. The pressure is especially high for copper mining which has traditionally been more carbon-intensive. BY THE NUMBERS The new explosives are expected to cause a significant reduction in the "Scope 3," or indirect, emissions, at the Radomiro Tomic mine, which accounts for about 40% of Codelco's explosive consumption. The company has said it aims to achieve carbon neutrality by 2050. KEY QUOTES "Using an innovative product in the explosives market will contribute to fulfilling our commitments to sustainable development," Chairman Maximo Pacheco said in a statement. "Its production involves 40% fewer greenhouse gas emissions compared to grey ammonium," the statement added. CONTEXT The move to implement lower carbon explosives with the help from manufacturer Enaex is part of the miner's broader strategy to enhance production and achieve its annual targets, amid falling output of the key industrial metal to a 25-year low. Radomiro Tomic would be the first mining operation to use Prillex ECO2, an explosive whose main component is blue ammonium nitrate that is produced using advanced carbon capture and storage technologies, which significantly reduces CO2 emissions during the manufacturing process. Sign up here. https://www.reuters.com/markets/commodities/chiles-codelco-deploy-lower-carbon-explosives-in-copper-mine-2024-12-19/

2024-12-19 11:00

EL CUBILLO DE UCEDA, Spain, Dec 19 (Reuters) - European aerospace group Airbus (AIR.PA) , opens new tab is testing in Spain removable kit that can transform an A400M military transport aircraft into a plane to combat wildfires, as the world faces more virulent fires due to climate change. The tests in El Cubillo de Uceda, 69 km (43 miles) from Madrid, aim to confirm the kit's efficiency when indirectly attacking wildfires, Airbus said. The kit, consisting of a tank and two discharge pipes installed in the cargo hold and ramp, can be added to any of the over 100 A400M transport aircraft already flying, so they can complement the job of fire brigades. "You can convert the A400M into an aerial firefighting aircraft quickly, installing this kit in around 2-3 hours, and then you have the capability ready," Sara Vargas, project manager at Airbus Defence and Space, told Reuters. The equipped airlifter can drop 20 tons of water or retardant onto the blaze, helping cut off large wildfires that aren't easily extinguishable. "The advantage is that this aircraft can fly slow and low and is able, with its manoeuvrability, to do this operation with a very high standard of safety," Vargas added. Airbus is tapping its clients for potential buyers of the kit, hoping to see it in use within a couple of years. Scientists say that while most fires are started by humans, hot and dry conditions driven by climate change help them spread more quickly, burn longer and more intensely. Environment Ministry official Alvaro Jimenez told a panel on wildfire management in Madrid on Wednesday that heatwaves, lack of rain and an increase in fuel brought about by dwindling rural activity were changing fire conditions. Sign up here. https://www.reuters.com/business/aerospace-defense/airbus-tests-new-kit-allowing-a400m-airlifter-fight-fires-2024-12-19/