2024-04-12 10:04

A look at the day ahead in U.S. and global markets from Mike Dolan With markets now re-shuffling central bank rate cut calendars, attention switches abruptly to the first quarter U.S. corporate earnings season on Friday - against a backdrop of an alarming swoon in China trade last month and rising Middle East tension. As usual, the big U.S. banks are first out of the traps and are preparing to report slightly lower quarterly profits - even if investors may focus on this year's interest income outlook given the rethink on the Federal Reserve's policy trajectory. JPMorgan, Citi, Wells Fargo, State Street, BlackRock are all due to report later today. More broadly, technology-related company earnings are expected to again lead S&P 500 profit growth during the first three months - although the forecast annual earnings expansion of 5% for the index is about two points lower than it was at the start of the year. And it was Big Tech (.NDX) New Tab, opens new tab yet again - spurred by a surge in Apple (AAPL.O) New Tab, opens new tab shares on a report it plans to overhaul all its Mac models with AI-focused chips - which led Thursday's Wall St bounceback. It was more bumpy for earnings-focussed banks - with Morgan Stanley (MS.N) New Tab, opens new tab slumping 5% on a Wall Street Journal report that its wealth management arm is being probed by multiple regulators. But clocking a 0.7% rebound in the S&P500 (.SPX) New Tab, opens new tab, the general market mood improved considerably after Wednesday's inflation-related shakeout. Softer U.S. producer price readings for March - including in key components that feed the Fed's favoured PCE inflation gauge - were a big relief to interest rate markets. And even though Fed officials were clearly cautious about the stickiness in the prior day's consumer price data, they didn't seem minded to redraw the whole policy map just yet. "There's no clear need to adjust monetary policy in the very near term," New York Fed boss John Williams told reporters. Fed futures re-calibrated again, pushing back closer to pricing two rate cuts this year - starting in September just six weeks before the U.S election. While a June start is now off the agenda, the chance of a move as soon as July moved back above 50%. The easier producer price numbers and Fed speakers were also enough to drag Treasury yield back off the year's highs - with two-year yields recoiling from 5% to settle just over 4.90% first thing on Friday. Rising tension surrounding an imminent Iranian response Israel's attack on its Syrian embassy may have added a safety bid to bonds ahead of the weekend. Gold , which has now risen 17% in just six weeks, hit another record high of $2,400 early on Friday and U.S. crude oil ticked back above $86 per barrel. The dollar (.DXY) New Tab, opens new tab too was pumped up - with its index hitting another 2024 high. But the buck is gaining as much on the shift in central bank sequencing - with the European Central Bank indicating on Thursday that it may well go ahead and cut rates in June regardless of Fed hesitation. Confirmation that German inflation sank to its lowest in almost three years at just 2.3% last month underlined expectations that the ECB will go solo by midyear. German two-year government debt yields fell back 10 basis points and European stocks (.STOXXE) New Tab, opens new tab jumped 1% on Friday as a result. But the euro plunged to its lowest of the year, clocking its biggest 3-day drop in 14 months. The dollar was also bolstered by ongoing Japanese yen weakness to 34-year lows and the shocking Chinese trade data that hit the yuan . China's March exports contracted sharply, while imports also unexpectedly shrank, both undershooting market forecasts by big margins. Shipments from China slumped 7.5% year-on-year last month, marking the biggest fall since August last year and compared with a 2.3% decline forecast in a Reuters poll of economists. Chinese stocks (.CSI300) New Tab, opens new tab ended the week in the red as a result. Even though sterling also fell back to a one-month low against the dollar, markets are less sure the Bank of England will be as bold as the ECB in cutting rates as soon as June. Money markets price less than a 50% chance of a BOE move that month. What's more, Britain's tepid economy is on course to exit a shallow recession after output grew for a second month in a row in February and January's reading was revised higher. And former Federal Reserve Chair Ben Bernanke will set out on Friday how the Bank of England should reform its economic forecasting. Key diary items that may provide direction to U.S. markets later on Friday: * US corporate earnings: JPMorgan, Citi, Wells Fargo, State Street, BlackRock * US March export and import prices, University of Michigan's early April household survey * Kansas City Federal Reserve President Jeffrey Schmid, Atlanta Fed President Raphael Bostic and San Francisco Fed chief Mary Daly all speak * Bank of England publishes former Fed chair Ben Bernanke's review of its forecasting methods * ECOFIN meeting of European Union finance ministers in Luxembourg Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. https://www.reuters.com/markets/us/global-markets-view-usa-2024-04-12/

2024-04-12 08:01

LONDON, April 12 (Reuters) - U.S. large cap stocks suffered their largest weekly outflow since December 2022 in the week to Wednesday, Bank of America said, with traders nervous that sticky inflation will push rate cuts further out and geopolitical tensions adding to caution. U.S. large caps saw $15.8 billion of outflows in the week, while stocks in general saw outflows of $19.6 billion, Bank of America said in its weekly round up of flows in and out of world markets using EPFR data. The week to Wednesday covered last Thursday's tumble on Wall Street on hawkish remarks from Federal Reserve officials and oil nudging above $90 a barrel, and this Wednesday's stocks selloff on stronger-than-expected U.S. inflation data. After that data, markets pushed back expectations for a Federal Reserve rate cut to September from June - though pricing is volatile - which has ramifications for other central banks, including those in Europe. Japanese stocks saw their first weekly outflow in over three months, though even after these outflows, major equity markets in the United States, Japan and Europe remain at or close to record highs. On the broader outlook, the BofA report described how the "Anything But Bonds" mood has driven demand for inflation hedges such as gold - currently also around record highs - and 'monopolistic cash flows' supporting flows to large U.S. tech stocks. According to BofA calculations, the 10-year annualized return of U.S. Treasuries is at 65 year lows, as this decade marks the end of a "40-year bond bull". "2020s era of war, protectionism, fiscal excess, scarce energy, housing (and) labour (equals) higher inflation and higher cost of capital until recession sparks "buy bond humiliation," the BoFA note said. U.S. 2-year Treasury yields, sensitive to interest rate expectations, are near five-month highs and have climbed almost 70 basis points this year . Ten-year Treasury yields are up around 79 bps so far this year . Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. https://www.reuters.com/markets/us/global-markets-flows-bofa-urgent-2024-04-12/

2024-04-12 07:36

April 12 (Reuters) - Oilfield services provider Petrofac (PFC.L) New Tab, opens new tab said on Friday it was still facing challenges in securing performance guarantees for new contracts and that it remains in talks with lenders to restructure its debt in exchange for equity. Performance guarantees refer to a commitment to honour the terms of the deal. WHY IT'S IMPORTANT After a boom in orders due to high oil prices in 2022, Petrofac has been struggling with payment delays and cost overruns at its engineering and construction unit. Its shares have suffered -- first due to a UK Serious Fraud Office investigation and then due to a string of profit warnings related to legacy contracts. The stock has dropped 54% over the last 12 months. MARKET REACTION Petrofac's shares sank 22% to 26.6 pence in early trading on Friday, bringing it among the top losers across London equities. CONTEXT In order to strengthen its balance sheet and improve liquidity, Petrofac is mulling the sale of its non-core assets and said on Friday it remains in discussions with major shareholders to further invest in the company. "All options remain under consideration," Petrofac said. The London-listed firm has also blamed delays in advance payments on new contracts for its rising debt levels, which led to a cash flow warning in December. BY THE NUMBERS Petrofac's net debt was $584 million as of June 30 and the company expects that to have increased as of last December, when it's full-year ended. It has a contract backlog of $8 billion. WHAT'S NEXT Full-year results are expected to be announced in April. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. https://www.reuters.com/markets/commodities/uks-petrofac-says-still-grappling-with-challenging-contracts-shares-tumble-2024-04-12/

2024-04-12 07:05

LONDON, April 12 (Reuters) - U.S. inflation numbers lit a fuse under world markets and forced a sharp re-think on U.S rate cut bets, so data and earnings should keep traders nervy as they stay alert to possible Japanese intervention on the yen and geopolitical tensions. British data and China's latest numbers are also in focus, as India gets ready to vote and finance ministers and central bankers descend on Washington for the IMF/World Bank Spring meetings. Here's your heads-up on what's coming in markets next week from Lewis Krauskopf in New York, Rae Wee in Singapore, Bharath Rajeswaran in Bengaluru, and Karin Strohecker and Naomi Rovnick in London. 1/ TEFLON ECONOMY Markets hastily ditched bets for a mid-year Fed rate cut, with September now seen as the likely start date for easing as sticky inflation underlies a strong economy. That puts the U.S. consumer into sharper focus with retail sales data due on April 15 and a slew of corporate earnings. March retail sales likely climbed 0.3%, a Reuters poll of economists showed. That follows a lower-than-expected 0.6% rise in February that suggested a slowdown in consumer spending amid rising inflation and high borrowing costs. Earnings results that could also shed light on consumer spending include Bank of America (BAC.N) New Tab, opens new tab, credit card companies American Express (AXP.N) New Tab, opens new tab and Discover Financial Services (DFS.N) New Tab, opens new tab and consumer products giant Procter & Gamble (PG.N) New Tab, opens new tab. Netflix (NFLX.O) New Tab, opens new tab and UnitedHealth Group (UNH.N) New Tab, opens new tab are also reporting, as are luxury house LVMH and telecoms firm Nokia in Europe. 2/ ON TRACK? It's another week filled with Chinese data and this time, investors get a first look at how growth in the world's second-largest economy is shaping up. First quarter gross domestic product numbers are due on Tuesday, alongside data on house prices and retail sales. Expectations are for the economy to have grown 4.6% on an annual basis, a rocky start for Beijing in meeting its 2024 growth target of around 5%. The devil is in the detail. Granted, there are some green shoots from upbeat manufacturing and services surveys to rising consumer prices, but persistent producer price deflation points to a shaky recovery. China's central bank on Monday left a key rate unchanged. An ailing property market remains a drag - it's hard to write off a sector that once accounted for over a quarter of GDP. 3/ INDIA VOTES India, the world's largest democracy by population, starts voting from April 19 in national elections to be held in seven phases until June 1. It's India's second-longest election, with results expected from June 4. Incumbent Prime Minister Narendra Modi seeks a rare third consecutive term, with the BJP-led National Democratic Alliance (NDA) expected to lead the Indian National Congress-led INDIA (Indian National Developmental Inclusive Alliance). Since the NDA won key state elections in December, markets have rallied on hopes of policy continuity at the national level. India's benchmark stock indexes Nifty 50 (.NSEI) New Tab, opens new tab and Sensex (.BSESN) New Tab, opens new tab as well the broader, domestically focused mid-caps (.NIFMDCP100) New Tab, opens new tab are at record highs, helped by sustained domestic inflows and a strong economic outlook. A NDA loss, viewed as a low-probability, could trigger a (temporary) pull back. 4/ SUMMER RATE CUT BOE British inflation has slowed, putting the Bank of England on track to start cutting rates from 16-year highs. Attention turns to Wednesday's March consumer prices data to confirm the trend. Companies' expectations for selling prices and pay increases in the year ahead are cooling, according to a BoE survey that its rate-setting Monetary Policy Committee monitors closely. Consumers expect lower inflation too. But ratesetters are divided New Tab, opens new tab over when to call time on their battle against inflation, with no urgency to rescue an economy that entered a shallow recession late last year before manufacturing and mortgage approvals data signaled a recovery. Traders, who had played with the idea of a June rate cut, now expect easing to start in August. Some of that repricing is related to the pull-back in U.S. rate-cuts bets. 5/ SPRING HAS SPRUNG Finance ministers and central bank governors across the world descend on Washington, DC, for the annual Spring Meeting New Tab, opens new tab of the IMF/World Bank, starting Monday. A raft of reports on the economic outlook and financial stability will be released, while G20 and G7 policymakers also get together. There is no shortage of topics to chew over - the dual track trajectory of a U.S. economy marching ahead while the rest of the world more or less sputters - and all the monetary policy and financial market consequences that might entail. Whether central banks have really won the inflation battle yet (IMF Chief Kristalina Georgieva does not think so), especially as Middle East tensions fire up oil prices. Or how economies, especially emerging markets, will navigate still elevated debt burdens. Make sense of the latest trends in financial markets with the Global Investor newsletter. Sign up here. https://www.reuters.com/business/take-five/global-markets-themes-takealook-2024-04-12/

2024-04-12 06:54

ADDIS ABABA, April 11 (Reuters) - Ethiopia may have to decide on a big currency devaluation sooner rather than later to secure a rescue loan from the International Monetary Fund (IMF), which left the country last week without reaching a much-needed deal with authorities. East Africa's most populous country, already struggling with high inflation, became the third African state in as many years to default on its debt in December. Ethiopia hasn't received any IMF funds since 2020 and its last lending arrangement with the fund went off track in 2021. The federal government and a rebellious regional authority signed a deal in late 2022 to end a two-year civil war. The IMF, which said progress was made during its latest visit, has not said that currency reform is necessary for its support. But the Fund usually favours flexible, market-determined exchange rates. Ethiopia has requested $3.5 billion of support from the IMF, sources told Reuters last year. Chronic foreign currency shortages and a tightly controlled exchange rate has allowed a black market to flourish, on which the birr currently trades at between 117 and 120 per dollar, more than double the official rate of around 56.7 . "It seems that the Ethiopian authorities have found accepting the demands of the IMF hard," said Abdulmenan Mohammed, an Ethiopian economic analyst based in Britain. "The Ethiopian authorities are worried about devaluation of the birr, (which) would have serious negative economic repercussions, including soaring inflation... and surging foreign currency denominated debts in terms of birr." 'PLAYING HARDBALL' In early 2021, Ethiopia requested a debt restructuring under the G20's Common Framework, a process established in response to the COVID-19 pandemic to bring in newer creditor countries like China and India. But progress was initially delayed by the civil war. The country's external debt was $28.2 billion at the end of March, based on government data. In August 2023, it secured a debt payments suspension from its largest bilateral creditor China, which from 2006 to 2022 committed to lending the country $14 billion, according to Boston University's Chinese Loans to Africa Database. The rest of Ethiopia's bilateral creditors followed suit in December, but said they could cancel the relief if Ethiopia did not get an IMF deal by March 31. When the deadline lapsed, it was extended to June 30. There are widely varying estimates of the size of currency devaluation the IMF would accept, that could pave the way for a deal. Irmgard Erasmus of research firm Oxford Economics said that she expects a weakening of 15% to coincide with an IMF staff-level deal on a bailout loan, a prerequisite for its external debt restructuring moving forwards. "We retain the view that the IMF will require a good faith measure that solidifies Ethiopia's intent to implement a more flexible FX (foreign exchange) regime," she said in a note to clients. "(This) will set the scene for a series of stepwise devaluations on the path to FX liberalisation and monetary policy reform." More than one currency adjustment is likely, the first between 30-50%, said Connor Vasey, a consultant at J.S. Held, pointing to Egypt, which devalued its pound 38% and secured a larger IMF loan in March. The Ethiopians probably prefer a more gradual devaluation but have a weak negotiating position, Vasey said, after a previous IMF loan programme expired in 2021, amid the conflict and concerns about the country's ability to pay its debts. "Ethiopia is coming into the meeting room with the IMF that is playing hardball and saying, 'You don't really have a foot to stand on, in terms of negotiating down our position,'" he said. Nonetheless, Vasey said he expected Ethiopia to secure an IMF deal soon. "There's an international push to get this all lined up. It's just a question of sequencing of the reforms," he said. An IMF spokesperson pointed to comments made earlier this month by spokesperson Julie Kozack, who responded to direct questions on why Ethiopia did not secure a loan during the visit and whether it is likely to get one at the Fund's Spring Meetings next week in Washington DC. "The team made substantial progress," she said. "These discussions are continuing and will continue at the upcoming Spring Meetings." Ethiopian government officials did not respond to requests for comment. Authorities are committed to FX reform, state finance minister Eyob Tekalign told Reuters in October 2022. "The exchange rate unification remains one important policy goal," he said at that time. "But we are just doing it gradually." The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. https://www.reuters.com/world/africa/ethiopia-faces-tough-devaluation-decision-secure-imf-bailout-2024-04-11/

2024-04-12 06:44

European court ruling cannot be appealed Orders Switzerland to act to curb climate change Academics say reform likely to be slow GENEVA/ZURICH, April 12 (Reuters) - Switzerland for all its snow-capped mountains and crisp Alpine air has failed to protect its people from the ravages of climate change, as a top European court ruled this week. Behind the picture postcard exterior, critics say, is a country that has done too little for the planet and acted as a business hub for some of the most powerful international corporations in fossil fuels and mining. Political analysts and academics also say entrenched conservatism and a political system governed by popular referendums will complicate reform even after Tuesday's ruling by the European Court of Human Rights in Strasbourg. It found in favour of over 2,000 Swiss women - a third of them over 75 - who said their country's inaction in the face of rising temperatures puts them at risk of dying during heatwaves. The ruling cannot be appealed and the Swiss Federal Office of Justice, which represented the government before the court, said it must be implemented. It said it would analyse the ruling to determine the measures the country needed to take. Immediately after the court decision, the Swiss Green Party called for climate targets for specific industries, including the finanical sector. "People may have slightly beautiful dreams about Switzerland," Lisa Mazzone, the party leader, said. "Switzerland is the country of commodity trading, Switzerland is the country with a strong financial sector with a lot of investment in fossil fuels," she added. Swiss-based commodity trading companies handle 40% of all oil trades and 60% of the metal trading business, according to data published by industry association Suissenégoce. The group of Swiss women known as KlimaSeniorinnen did not make Swiss trading central to their case, although their Greenpeace-backed campaign that lasted many years called for tougher regulation to curb transactions fueling global warming. REFERENDUMS A 2022 international study New Tab, opens new tab into environmental sustainability ranked Switzerland in the top 10, but government efforts to implement stricter climate goals have so far been limited by the country's regular referendums New Tab, opens new tab. Leading Swiss newspapers took a sceptical view of the ruling in editorials that said it could undermine democracy. The largest party, the right-wing Swiss People's Party, said Switzerland should withdraw from the Council of Europe, which seeks to promote human rights in Europe and beyond, calling the court's judges "puppets for activists". Unlike most western democracies where central governments drive political change, Switzerland is governed by a cross-party consensus balancing the interests of its 26 cantons. Dilara Bayrak, a Green politician in Geneva, said the ruling should still energise climate debate in cantonal parliaments. FINANCIAL MUSCLE AND TONS OF CARBON The ruling is also likely to sharpen environmental campaigners' focus on how Switzerland's serves global industry through its network of traders and banks. The financial sector, including the central bank, is already under pressure from environmental groups to curb the number of climate-damaging transactions it processes. Data published last month by the Swiss National Bank (SNB) showed that its investments were linked to 12 million metric tons of carbon emissions in 2023. Stakes in oil majors Chevron Corp (CVX.N) New Tab, opens new tab and Exxon Mobil (XOM.N) New Tab, opens new tab are part of its foreign reserves, which stood at 655 billion Swiss francs ($738.28 billion) at the end of 2023. The SNB said it is reducing its own CO2 emissions, but would not change its investment policy. It declined to comment when asked whether the Strasbourg court ruling would lead to changes. The actions the ruling say Switzerland must carry out include revising its 2030 emissions reductions targets to align them with the Paris Agreement's aim to limit warming to 1.5 Celsius (2.7 Fahrenheit) above pre-industrial levels. It also determined that Switzerland had not complied with its own targets for cutting greenhouse gas emissions and had failed to set a national carbon budget. But the country's deep-rooted tradition of referendums is likely to make reform a slow process. "It's not going to happen overnight," said Pascal Mahon, a professor of constitutional law at the University of Neuchâtel. "Switzerland is a country that respects international law rather well," he added. "Authorities will make sure to (respect) it, but by doing it through the Swiss political system, that's still relatively slow and conservative." The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. https://www.reuters.com/sustainability/european-court-ruling-puts-cautious-swiss-climate-bind-2024-04-12/