2024-05-01 17:02

ORLANDO, Florida, May 2 (Reuters) - Japan's yen-buying currency market intervention may not be sending tremors through the U.S. bond market just yet, but that calm could be disturbed if Tokyo gets drawn into a drawn-out battle to prevent the exchange rate from weakening much further. Central banks wanting to stop their currencies depreciating too much or too quickly essentially intervene by selling dollar-denominated assets in their international reserves and buying back their own currency with the proceeds. Experts reckon yen purchases by the Bank of Japan at the behest of the Ministry of Finance are funded by dollar deposits held by the BOJ, which are later replenished by the sale of very short-dated U.S. Treasuries or even bills. This minimizes the hit to the U.S. bond market - the sale of short-dated notes, especially bills, is more easily absorbed and the long end of the curve, which may be more vulnerable to pockets of illiquidity, remains untouched. Japan has a pretty deep pool of dollar deposits it can dip into to buy yen, but it is not limitless. If it is drained, bond investors may reasonably wonder whether Japan, the world's largest overseas holder of Treasuries, will turn to selling U.S. bonds. Estimates suggest Japan could have up to $155 billion in dollar deposits. Japan spent an estimated $35 billion buying yen on Monday, and just over $60 billion in three days in September and October 2022. Tokyo would likely consider other options to support the yen if need be - steps to encourage repatriation, tighter monetary policy, tapping currency swap lines with the Fed, accessing funds from other sources - before outright U.S. bond sales. But it's a tail risk. "Japanese selling (of dollars) is not going to create big pressure in the Treasury market now," notes Shekhar Hari Kumar, macro strategist at Exante Data. "But in the unlikely event that MoF gets into a protracted fight with FX markets, we might expect some knock on effects on Treasury market yields, especially the 2-5Yr segment with the potential of spillovers to the rest of the curve," he adds. SHRINKING FOOTPRINT Japan is the world's largest foreign holder of Treasuries, but its footprint in the Treasuries market is tiny compared to what it once was. According to Treasury International Capital figures, Japan held $1.17 trillion in U.S. Treasury securities at the end of February. Japan's official international reserves are $1.3 trillion. These are big numbers, but Japan's presence in the U.S. bond market has greatly diminished over the years. In August 2004, Japan owned 18.2% of all Treasury securities outstanding. That's now barely 4%. This reflects a broader trend. China once held 14% of all outstanding Treasuries but now holds less than 3%, and foreign central banks' share of all outstanding Treasuries has shrunk to 14% from a record 40% in June 2008. As Barclays analysts note, foreign central banks used to be the "backbone" of the U.S. bond market, but their appetite for Treasuries has faded as their FX reserves have largely held steady around $12 trillion for the past decade. Foreign official holdings of U.S. Treasury bonds at the end of February were around $3.5 trillion and holdings of bills stood at $266 billion. The total $3.76 trillion is the lower end of a $3.6 to $4.2 trillion range that has broadly held since 2011. As the foreign official sector's presence in the U.S. bond market has shrunk, the foreign private sector's has grown. Its share of Treasuries outstanding is now around 17%, the highest in around 15 years. This is effectively price-insensitive buyers like foreign central banks which "need" to buy government bonds ceding power to price-sensitive investors in the private sector that "chooses" to buy. It could be problematic for Treasuries, eventually. "Foreign central banks are unlikely to revert to expanding their FX reserves. If anything, the 'higher for longer' policy rate regime in the US would result in a structurally strong dollar, and emerging market central banks may need to sell Treasuries to defend their currencies from weakening significantly," the analysts wrote on Tuesday. For it to become a problem, the scale of FX intervention would need to be on another level. That could mean the big Treasuries holders like Japan or China selling in size, or several countries selling at the same time. Japan's intervention on Monday may have come to around $35 billion. Even if all of it was from selling U.S. bonds, it is still a drop in the $25 trillion Treasury market ocean. But the dollar is back up near 158 yen and history shows Japanese FX intervention is rarely confined to a single day, so Tokyo may be wading in again soon. Bond investors will be watching. (The opinions expressed here are those of the author, a columnist for Reuters) Sign up here. https://www.reuters.com/markets/asia/if-japan-exhausts-intervention-slush-fund-treasuries-may-wobble-mcgeever-2024-05-01/

2024-05-01 13:09

KYIV, May 1 (Reuters) - Ukraine hopes to store around 4 billion cubic metres (bcm) of gas for foreign companies and traders this winter, up 60% from last year, despite Russian airstrikes on the country's energy infrastructure, the head of Ukraine's state energy firm said. Storing gas helps Ukraine to collect revenues while providing Europe with additional supply flexibility after the continent cut Russian gas imports because of Moscow's invasion of Ukraine. Oleksiy Chernyshov, chief executive of Naftogaz, told Reuters Russia had attacked the firm's infrastructure five times since March, in the first such attacks since the war began in February 2022. He said the underground storage was not damaged but Naftogaz was working on strengthening defences as gas pumping facilities above ground are more vulnerable. Underground facilities, mostly in western Ukraine, have a capacity of 31 bcm. That is enough to cover Ukraine's annual needs and allow storage of surplus volumes from Europe to be released during peak demand in the northern hemisphere winter. Chernyshov said foreign traders had resumed pumping gas into the storage in recent days. He said volumes were small so far, but he expected them to rise later this year when the heating season approaches. He did not provide volumes of gas stored so far or the name of those that have stored gas. Traditionally, Ukraine's storage was used by neighbours such as Poland, but Naftogaz has said it has spoken to firms as far away as France to boost the number of customers. "We are in a period of European shippers' meetings where we agree on the volumes of (gas) injection. They (the Russians) aim to discredit us as an energy hub with storage capacities," Chernyshov said. Russian officials have said Moscow was attacking Ukraine's energy facilities in retaliation for Ukrainian drone attacks on Russian refineries. Chernyshov said the company had about 100 contracts with foreign traders to store gas. Russia continues to supply gas to Europe via Ukraine under a transit deal that is set to expire in December. Ukraine has said it does not plan to renew it. Sign up here. https://www.reuters.com/world/europe/ukraine-hopes-boost-winter-gas-storage-europe-by-60-2024-05-01/

2024-05-01 12:53

May 1 (Reuters) - Ten people died and 21 are missing due to heavy rains this week in Brazil's southern state of Rio Grande do Sul, with the local government warning that the situation is critical and could deteriorate further. During a press conference on Wednesday, state governor Eduardo Leite said he had spoken with President Luiz Inacio Lula da Silva seeking all possible federal assistance. "We are experiencing in Rio Grande do Sul the worst moment, the worst disaster in our history. It is absolutely, absurdly, extraordinarily serious what is happening in Rio Grande do Sul right now," Leite said. "And unfortunately, it will get worse." Lula is due to travel to the state on Thursday. According to the governor, storms have caused the most extensive devastation in the state in recent years, leaving several towns isolated after bridges collapsed and roads were destroyed amid floods and mudslides. Leite declared the suspension of classes statewide for the remainder of the week and emphasized that he had requested full support from the armed forces "to effectively participate in coordinating this moment, which is akin to facing a war." Authorities tallied over 3,400 displaced individuals in the wake of storms that led to rising river levels and flooding in various parts of the state, affecting 114 municipalities. In a Tuesday report, the state's government predicted a flood risk "across practically the entire state" given the prospect of continued "heavy precipitation" in the coming days. The bulletin also said flooding would be severe in the basins of many rivers, with the possibility of flash floods and mass movements of earth in regions with steep slopes. Sign up here. https://www.reuters.com/world/americas/heavy-rains-kill-8-brazils-rio-grande-do-sul-affect-over-100-cities-2024-05-01/

2024-05-01 12:52

NAIROBI, May 1 (Reuters) - Floods and landslides across Kenya have killed 179 people since March, with hundreds of thousands forced to leave their homes, the government said on Wednesday, as dozens more were killed in neighbouring Tanzania and Burundi. Torrential rain and floods have destroyed homes, roads, bridges and other infrastructure across the region. The death toll in Kenya exceeds that from flooding triggered by the El Nino weather phenomenon late last year. Last year's rains followed the worst drought in large parts of East Africa in decades. In Kitengela, 33 km (20 miles) from Nairobi, Kenya Red Cross workers were helping to rescue residents whose homes were marooned by flood waters. They were also trying to rescue tourists trapped at camps in Narok, 215 km from Nairobi, the Kenya Red Cross said on X. Nairobi's highways authority said it had closed a section of a highway leading to the city and at least three other roads across the country due to flooding and debris. The disaster prompted Pope Francis to speak out in sympathy with Kenyans during a general audience on Wednesday at the Vatican. "I ... wish to express to the people of Kenya my spiritual closeness at this time as severe flooding has tragically taken the lives of many of our brothers and sisters, injured others and caused widespread destruction," he said. Sign up here. https://www.reuters.com/world/africa/kenya-flood-toll-rises-179-homes-roads-are-destroyed-2024-05-01/

2024-05-01 12:34

LONDON/BEIJING, May 1 - China's copper producers are planning to export up to 100,000 metric tons of metal, the largest volume in 12 years, aiming to cool a rally that has propelled prices towards record highs and hit their order books, three industry sources said. Chinese producers are selling into the rally, driven by a speculative frenzy that took copper prices on the London Metal Exchange (LME) to two-year peaks of $10,208 a metric ton this week, close to the record high of $10,845 hit in March 2022, the sources said. The sources said about the 100,000 tons of copper was likely to leave China over the next few weeks. The last time China exported this amount in one month was in May 2012, data from Trade Data Monitor (TDM) shows. However, some say shipping 100,000 tons of copper out of China in a few weeks to LME registered warehouses would be logistically difficult, though not impossible. Two of the industry sources said much of the copper shipped out of China was likely to come through bonded warehouses in Shanghai, where inventories at 77,800 tons compare with 6,600 tons at the start of 2024. "China wants to push down the price, end-users are putting their orders on hold," a copper trader said. "But I would be surprised if it was that much." It would also be a fraction of China's total consumption of about 13 million tons a year or around half of global mined supplies. China has copper resources, but not enough for its needs, it is typically an importer. "LME prices don't translate into what we are seeing in the physical market in China. You can see there is excess metal in stock data and premiums," one of the industry sources said. Earlier this week, the International Copper Study Group (ICSG) said the global copper market faces a surplus of 162,000 tons this year and a surplus of 94,000 tons in 2025. Copper inventories in warehouses monitored by the Shanghai Futures Exchange (ShFE) above 287,000 tons from around 33,000 tons at the start of this year are close to four-year highs, a sign of sluggish demand. The Yangshan premium dropping to a record low near zero signals waning appetite for Chinese copper imports. "China fundamentals suggest lower prices, but prices are on a tear and smelters keep producing," the copper trader said. Sources say the arbitrage between LME and ShFE prices is making it lucrative to export copper. The arbitrage is the money that can be made on trading between the two exchanges, taking into account costs which can include freight and taxes and exchange rates. A source in logistics said producers had been asking about costs of moving copper from China to LME warehouses. A source at a Chinese copper smelter is expecting to potentially export 20,000 tons a month if LME prices stay near current levels. Sign up here. https://www.reuters.com/markets/commodities/near-record-high-lme-prices-magnet-chinese-copper-exports-2024-05-01/

2024-05-01 12:29

May 1 (Reuters) - WEC Energy Group (WEC.N) New Tab, opens new tab said on Wednesday its first-quarter profit rose 18% as the utility benefited from lower operating costs and higher electricity rates. Wisconsin regulators approved WEC's filings for a rate increase in December, with new rates in effect for all of the company's utilities in the U.S. state. Rate base growth contributed 35 cents to the company's quarterly profit. Quarterly revenue fell 7% to $2.68 billion due to the warmest winter in Wisconsin history, the company said, missing estimates of $2.92 billion, according to LSEG data. Residential consumption and natural gas deliveries in Wisconsin were impacted by a milder winter in the months of February and March, cutting demand for heating. Residential power use fell 1.1% during the quarter while natural gas deliveries in Wisconsin declined 5.8%. Operating expenses for the quarter came in at $1.9 billion, 15.9% lower than last year, primarily due a 29% decrease in the cost of sales. The firm's reported net income rose to $622.3 million, or $1.97 per share, compared with $507.5 million, or $1.61 per share, last year. WEC, which serves more than 4.7 million customers across Wisconsin, Illinois, Michigan and Minnesota, also reaffirmed its full-year profit forecast of between $4.80 and $4.90 per share. Sign up here. https://www.reuters.com/business/energy/wec-energy-posts-higher-first-quarter-profit-lower-costs-2024-05-01/