2024-10-25 06:07

WASHINGTON, Oct 25 (Reuters) - South Africa's rand has further room to strengthen if the government in Pretoria pushes ahead with reforms and prudent policies, the country's central bank chief Lesetja Kganyago told Reuters. The currency of Africa's most industrialized nation has been a top emerging market performer, strengthening some 2.5% against the U.S. dollar , since the start of the year while most of the rand's peers have suffered losses against the greenback. "There should be positive momentum and that positive momentum is not going to be something just driven by the markets," Kganyago, the governor of the South African Reserve Bank, said in an interview on Thursday on the sidelines of the International Monetary Fund and World Bank annual meetings in Washington. "It's going to be whether government continues to act with resolve and stays the path in terms of prudent policies and structural reforms going forward," he said, adding that momentum for reforms would not just bolster the currency but could also support the country's bonds and stocks. South Africa's National Treasury announced over the summer a number of reforms in the energy, freight, water, and telecommunications sectors, and has pledged to reduce spending and raise revenue as well as take further steps to lower borrowing over the medium-term period. The rand has enjoyed broad gains since the African National Congress was forced to forge alliances with other political parties after failing to win a parliamentary majority in an election in May - its first such defeat since the 1994 election that marked the end of white minority rule and apartheid. "If you restore investor or consumer confidence, it's like a free stimulus for you," he said. Asked about efforts by South African policymakers to lower the inflation target from the current 3%-6% range, Kganyago said work was underway between the National Treasury and the central bank on arriving at the target, and he was hopeful the process would be concluded next year. "Where there is absolutely no disagreement on is that the target must be lower. But how far lower?" he said, adding that the out-of-line target meant the country was losing competitiveness. Sign up here. https://www.reuters.com/markets/currencies/south-african-reforms-could-push-rand-higher-central-bank-chief-says-2024-10-25/

2024-10-25 06:05

LITTLETON, Colorado, Oct 25 (Reuters) - Utilities in the United States have relied on fossil fuels to generate a larger share of electricity than their counterparts in China since June, seriously undermining U.S. claims to be a leader in energy transition efforts. U.S. utilities have relied on fossil fuels to generate an average of 62.4% of total electricity production for the past four months, according to data from energy think tank Ember. That fossil fuel share exceeds the 60.5% over the same period in China, the world's largest power producer and polluter. The high U.S. fossil dependence came during the summer when domestic power demand is highest due to air conditioner use, while China's relatively lower fossil reliance has occurred during a protracted economic slowdown. Nonetheless, the higher U.S. fossil reliance highlights how much more aggressive China has been in ramping up clean power output, which has left China closer to hitting a peak in fossil use for power than the United States. Without quick cuts to fossil generation or rapid rises to clean power output, the U.S. runs the risk of falling behind other major economies in energy sector decarbonisation efforts, and losing credibility as a climate champion. PATCHY PROGRESS Global power providers are taking a two-pronged approach to advancing the energy transition: cutting the use of fossil fuels, and boosting supplies of clean power. In the United States, clean power generation has been the priority over the past five years, with electricity output from clean energy sources rising by around 16% since 2019, according to Ember. However, steadily rising total power demand has limited the scope for power firms to cut generation from fossil fuels. Indeed, fossil fuel-fired generation over the first nine months of 2024 was down only 0.8% from the same months in 2019, to 1,967 terawatt hours (TWh). That said, the configuration of U.S. fossil fuel use has altered since 2019, with coal-fired generation dropping by 34% from 750 TWh during January to September 2019 to 497 TWh during the same months this year. Coal's share of the U.S. generation mix dropped accordingly, from around 25% in 2019 to 15% this year. But with total power demand rising each year, power firms have needed to offset the drop in coal output with higher gas-fired production. Gas-fired generation in January to September this year was 1,450 TWh, up 20% from the same months in 2019, while gas' share of generation climbed from 38% in 2019 to 43% this year. Total U.S. electricity generation has grown by around 5.5% from 2019 to 2024, as electric vehicles, data centres and artificial intelligence applications lift overall energy consumption. OUTPACED China's mammoth manufacturing-led economy has faced a far steeper climb in total power demand in recent years, with electricity consumption rising by nearly 37% from 2019 to 2024, Ember data shows. To keep pace with that demand growth, China's utilities have been forced to lift both fossil fuel and clean energy generation by more than any other major economy. Fossil fuel-fired electricity output has jumped by around 23% from 2019 to 2024, to a record 4,618 TWh. Over 95% of that power has come from coal plants, which generated 4,394 TWh. Clean-powered electricity generation - from renewables, nuclear plants, and hydro dams - has grown by much more, however, rising 67% to 2,834 TWh. The fact that clean generation has risen three times faster than fossil generation has helped China's power firms to boost overall power supplies while reducing coal's share of the generation mix. In 2019, coal accounted for a 66% share of total electricity production, according to Ember. So far in 2024, coal's share has dropped below 60% for the first time, and looks set to keep declining as power firms add more renewables and other clean power sources to generation systems. CAPACITY CATCH-UP For U.S. power producers, the most effective means of reducing fossil fuel reliance is to build up more clean generation capacity throughout the country. Between 2018 and 2023, U.S. clean generation capacity jumped by 40% to 438 Gigawatts (GW), Ember data shows. U.S. firms also reduced fossil capacity by around 4% over that time, mainly through the closure of outdated coal plants. However, China boosted clean generation by over 100% since 2018, and has the most aggressive clean energy development roadmap of any major economy. China's clean energy capacity also already exceeds total fossil capacity by roughly 20%, and continues to grow. In contrast, U.S. clean generation capacity remains around 35% less than fossil capacity. If the U.S. is to establish itself as a true leader on climate action and decarbonisation, a much more aggressive clean capacity pipeline must be developed that sharply tilts the country's generation mix away from fossil fuels. Sign up here. https://www.reuters.com/business/energy/us-power-system-becomes-more-fossil-dependent-than-chinas-maguire-2024-10-25/

2024-10-25 06:05

S&P 500 finish down, Nasdaq gains Crude prices settle up 2% Dollar index rises Benchmark 10-year yields edge higher Gold prices advance NEW YORK, Oct 25 (Reuters) - Global stocks slipped on Friday, finishing the week lower amid U.S. election jitters, while oil prices rose due to concerns about fighting in the Middle East. Republican former President Donald Trump and Democratic Vice President Kamala Harris are polling neck-and-neck in crucial swing states ahead of the Nov. 5 election. Investors are anxious about a contested result roiling world markets and unleashing fresh geopolitical uncertainty. The benchmark S&P 500 ended slightly lower and closed the week down nearly 1%, driven by losses in utilities and financials as well as gains in technology and communication-services stocks. Nasdaq finished the week higher. The Dow Jones Industrial Average (.DJI) , opens new tab fell 0.61% to 42,114.40, the S&P 500 (.SPX) , opens new tab eased 0.03% to 5,808.12 and the Nasdaq Composite (.IXIC) , opens new tab rose 0.56% to 18,518.61. The European shares index (.STOXX) , opens new tab ended down 0.03% after giving up gains in choppy trading and finished 1.2% lower for the week. Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) , opens new tab closed lower by 0.02% but dropped nearly 2% for the week. "The market is still somewhat choppy and part of that is we were up six weeks in a row and up 10 out of 11 months and right now the market, after that big run, is facing these interest rates that are staying a little bit higher," said Keith Lerner, co-chief investment officer at Truist Advisory Services in Atlanta. "Historically, the volatility in an election year tends to spike in October. We haven't seen a spike, but it's very normal for markets to get more jittery into the election." Brent crude futures settled up 2.25% at $76.05 a barrel. U.S. West Texas Intermediate crude settled up 2.27% to $71.78. Both crude futures finished the week up about 4%. U.S. Treasury yields edged higher as investors wait on key employment data next week for fresh clues on the likely path of Federal Reserve interest-rate cuts. Traders are pricing in near-95% odds of a 25-basis-point cut at the Fed's November meeting, according to the CME Group's FedWatch Tool. The yield on benchmark U.S. 10-year notes rose 3.8 basis points to 4.24%. The dollar advanced and was set for a fourth weekly gain against Japan's yen, as an uncertain backdrop for markets sent the yen near three-month lows ahead of an election in Japan over the weekend. The dollar strengthened 0.26% against the yen to 152.22. Against the Swiss franc , the dollar strengthened 0.08% to 0.866. The euro , however, was down 0.29% at $1.0796. Sterling weakened 0.08% to $1.2961. The dollar index , which measures the greenback against a basket of currencies including the yen and the euro, rose 0.24% to 104.30. Gold prices rose in choppy trading after retreating from record highs. Spot gold rose 0.28% to $2,743.31 an ounce. U.S. gold futures settled 0.2% higher at $2,754.60. Prices had hit an all-time high of $2,758.37 on Wednesday. "Over time, interest rates, inflation and the economy are the leading factors that affect the stock market," said Tom Plumb, CEO and portfolio manager at Plumb Funds in Madison, Wisconsin. "But in the short run, there's no question that this is a market being bounced around by political developments and expectations, and the general perception that Trump would be better for the markets than Harris." Sign up here. https://www.reuters.com/markets/global-markets-wrapup-1-2024-10-25/

2024-10-25 06:02

LONDON, Oct 25 (Reuters) - If markets are correct, inflation-adjusted European Central Bank interest rates could be back negative by the middle of next year - and a return to zero policy rates cannot now be dismissed. The sands under ECB easing expectations appear to have shifted again after last week's third rate cut of the year and with headline inflation at least now back well below the targeted 2%. The International Monetary Fund once again this week cut next year's euro zone growth forecast to 1.2%, now a half-point less than it saw in January and below the ECB's own 1.3% outlook as Germany's struggles drag on the wider bloc's fortunes. And now ECB officials are debating what to do if inflation persistently undershoots its 2% target. Even though ECB chief Christine Lagarde and others publicly urge caution ahead, the discussion about whether the central bank might need to start stimulating the economy going forward appears to be under way internally. "I wouldn't take for granted, given the pace of the disinflation and the weakness of the real economy, that we have to stop at the neutral rate, and we cannot exclude that we will go below neutral," Italian central banker Fabio Panetta told an IMF event this week. Money markets have already reacted by dropping their estimate of ECB policy rates for the end of next year by half a percentage point to 1.7% over recent weeks - remarkably as U.S. Federal Reserve equivalents jumped about half a point over the same period. The 4% recoil in the euro/dollar exchange rate this month comes as no surprise in that environment. But if implied market rates of 1.75% or less from July 2025 onwards prove accurate - 150 basis points below current settings - then the ECB would have to cut a quarter-point at every meeting between now and then. Either that or it steps up the size of the cuts - and hence renewed talk of a 50bp move at one of its coming gatherings. And strikingly, if ECB forecasts of a return of inflation to 2% next year play out, the "real" policy rate in that whole scenario would end up being negative again - back where it languished for most of the past decade and after just 20 months in positive territory. BACK TO ZIRP? Here the picture gets murkier - though no less profound given post-pandemic hand-wringing about "higher for longer" interest rates. If headline inflation were to remain stuck around current levels of 1.7% through next year, which is what one-year inflation swaps seem to imply, then the market rate horizon then only plots "real" rates at zero by July. But given that zero is where most ECB estimates place a "natural rate" of interest - the theoretical rate that neither bears down nor spurs economic activity - the discussion about stimulating the economy suggests actual policy rates may need to go lower than even markets now price. Despite all the ifs and buts related to that, sub-neutral real rates may then require ECB policy rate settings as low as 1-1.5%. Yet, as so often with theoretical head-scratching around neutral rates, there are no concrete estimates - only second-guessing of what the ECB itself might think. 'R-STAR' GAZING ECB researchers , opens new tab have pointed out this year that some neutral rate models have not been fully updated since the pandemic shock upended many assumptions about labour markets, supply disruptions, economic slack and activist fiscal policy. However, Morgan Stanley economists have taken a series of frameworks used in a speech by ECB board member Isabel Schnabel , opens new tab this year to show how many of the updated measures of fabled "R-star" were still negative to the tune of 0.5-1.0%. If these were taken seriously, then the ECB may have to get actual policy rates well below 1% to stimulate the euro economy in the event that inflation expectations stay stuck where they are now. Of course there are dozens of moving parts unfolding in the weeks and months ahead - not least uncertain energy prices, Germany's factory and auto sector squeeze, euro budget wrangling, a brewing trade war with China and the uncertainties surrounding U.S. elections. Lagarde's call for caution is well understood against that backdrop. Some economists have puzzled over why ECB members may suddenly have got cold feet after months of warning of sticky "core" inflation and wage growth. ING's Carsten Brzeski rationalized the shift by sketching a central bank bruised at being slow to tighten into the inflation spike two years and now keen not to be late to reverse it. "The ECB now appears determined to get ahead of the curve and return interest rates to neutral as quickly as possible," he said. "For the doves this is a no-brainer and, for the hawks, the argument might be that getting rates back to neutral quickly could be enough to avoid another episode of unconventional monetary policy with quantitative easing and negative interest rates further down the line." However it plays out, the prospect of a return to zero rates may no longer be fanciful. The opinions expressed here are those of the author, a columnist for Reuters Sign up here. https://www.reuters.com/markets/rates-bonds/europes-return-zero-rates-mike-dolan-2024-10-25/

2024-10-25 05:57

U.S. business spending plans exceed expectations German business sentiment improves, ECB inflation target on track Japanese yen strengthens ahead of BOJ meeting, election NEW YORK, Oct 25 (Reuters) - The dollar index rose on Friday, with the greenback set to lock in a fourth straight week of gains after data this week kept interest rate expectations for the Federal Reserve in check while investors looked towards next week's key payrolls report. The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 0.5% last month after an unrevised 0.3% gain in August and above the 0.1% rise estimated by economists polled by Reuters. A separate report by the University of Michigan showed October consumer sentiment rose to 70.5 from 70.1, topping the 69.0 estimate, while the one-year inflation outlook fell to 2.7% from the preliminary reading of 2.9% but in line with September's final result. The dollar was poised for its fourth straight week of gains, as a run of positive economic data has quieted expectations about the size and speed of the Fed's rate cuts, which has also lifted U.S. Treasury yields. Investors are now focusing on the October government payrolls report next week, which is likely to be impacted by a strike at Boeing and two hurricanes that hit the U.S. Southeast. "We had a massive recalibration in economic expectations for the U.S. and that process seems to have largely run its course, the Fed's policy trajectory looks much more reasonable and interest rate differentials between the U.S. and other major economies are stabilizing here," said Karl Schamotta, chief market strategist at Corpay in Toronto. "Clearly payrolls data is the key variable, and it is still an open question as to whether September's number was an outsized move or an aberration, a statistical aberration and so, next week's report will help to clarify that, but the reality is that we also are going to be taking it with a huge grain of salt." The dollar index , which measures the greenback against a basket of currencies, rose 0.18% to 104.24, and was up 0.74% on the week, with the euro down 0.22% at $1.0803. In Europe, a survey on Friday of German business sentiment showed confidence improved more than expected this month, snapping four straight months of declines, offering hope for some respite towards the end of the year in the economy's battle with industrial woes and soft global demand. European Central Bank (ECB) President Christine Lagarde said the euro zone's inflation is "well on track" to hit the European Central Bank's 2% target next year, reiterating the bank's most recent guidance. French central bank chief Francois Villeroy de Galhau said the ECB will keep on cutting interest rates and its 3.25% deposit rate remains "quite far" away from a neutral setting. The dollar has also benefited from a rise in market expectations for a victory next month by Republican candidate and former U.S. President Donald Trump, which would likely bring about inflationary policies such as tariffs. Markets are pricing in a 95.6% chance for a cut of 25 basis points at the Fed's November meeting, with a 4.4% chance of the U.S. central bank holding rates steady, according to CME's FedWatch Tool. The market was completely pricing in a cut of at least 25 bps a month ago, with a 57.4% chance of a 50 bps cut. Against the Japanese yen , the dollar strengthened 0.26% to 152.21. Sterling edged down 0.02% to $1.2969. Japanese voters were set to head to the polls on Sunday for a general election with opinion surveys showing the ruling Liberal Democratic Party (LDP) could lose its dominance that has lasted for more than a decade, possibly complicating monetary policy plans for the Bank of Japan (BOJ). The BOJ is scheduled to meet next week and is expected to maintain ultra-low interest rates next week, and probably signal a less dovish policy outlook due to receding fears of U.S. recession - and the need to keep speculators from pushing down the yen too much. Another potential complication for the BOJ was data that showed core inflation in Japan's capital in October dipped below the central bank's 2% target for the first time in five months. Sign up here. https://www.reuters.com/markets/currencies/yen-wobbles-vulnerable-political-reverberations-2024-10-25/

2024-10-25 05:18

MUMBAI, Oct 25 (Reuters) - The Indian rupee hovered close to its lifetime low on Friday as sustained foreign outflows from domestic stocks kept the currency under pressure, with benchmark Indian equity indexes headed for the fourth weekly decline on the trot. The rupee was at 84.07 against the U.S. dollar as of 10:45 a.m. IST, nearly unchanged from its close at 84.0775 in the previous session. The local currency had declined to its all-time low of 84.0825 earlier this week but managed to avoid deeper losses, supported by the Reserve Bank of India's (RBI) intervention. The rupee has been pressured by a surge in outflows from local stocks alongside in a rise in U.S. bond yields and the dollar index this month. While foreign investors have net sold over $9.5 billion of Indian stocks in October so far, the dollar index has risen more than 3% and the 10-year U.S. bond yield touched a near three-month peak before retreating on Thursday. "The resilient U.S. economy and Trump’s trade are supporting the respective upward marches," DBS Bank said in a note, referring to market positioning ahead of the outcome of the closely contested U.S. presidential election. Benchmark Indian equity indexes, the BSE Sensex (.BSESN) , opens new tab and the Nifty 50 (.NSEI) , opens new tab were down 0.6% and 0.9%, respectively, on the day, set for their fourth consecutive weekly decline. State-run banks were "mildly on offer (on USD/INR)," which should keep the pair in a narrow range through the day, a trader at a foreign bank said. With the RBI "making its intent clear" through routine interventions, the rupee is unlikely to stray out of the 84-84.15 band ahead of the U.S. elections, the trader added. Asian currencies declined by 0.1% to 0.7% on Friday, while the dollar index was steady at 104.6. Investors now await key U.S. inflation and employment data, due next week, for cues on the future path of U.S. policy rates. Sign up here. https://www.reuters.com/markets/currencies/rupee-lingers-near-all-time-low-equities-remain-under-pressure-2024-10-25/