2024-03-13 07:06

March 13 (Reuters) - Chinese top copper smelters agreed in a meeting on Wednesday to cut production at some loss-making plants to cope with a shortage of raw material, two sources close to the matter said. The meeting comes as copper concentrate fees on the spot market dropped to their lowest in more than a decade, hurting smelters' profits. There were no specific rates or volumes set for smelters to cut their production, according to the people, adding that each smelter will have their own assessment and cut accordingly. Other measures, including using more copper blister in production to lower consumption of copper ore concentrate, were also discussed during the meeting in Beijing on Wednesday, they added. Top smelters, acknowledging the shortages, proposed production cuts in a meeting in January but no action has taken place, according to people familiar with the matter. The most-traded copper contract on the Shanghai Futures Exchange hit a 22-month high on Wednesday. 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/chinas-top-copper-smelters-agree-production-cut-amid-raw-material-tightness-2024-03-13/

2024-03-13 07:02

LONDON, March 13 (Reuters) - With fears of a U.S. recession wiped away and financial markets bulled up on the growth trajectory again, an immigration fillip is playing a key role - and may even prove disinflationary to boot. Likely one of the hottest of hot button issues in this year's White House election, upward revisions to U.S. immigration estimates have economists and investors rethinking the economic and inflation outlooks yet again. Resulting higher growth forecasts and likely easing of labor supply bottlenecks speak to some of a potential holy grail for the economy. But the new estimates also sharpen the edge of November's election outcome where President Joe Biden and likely challenger Donald Trump are clearly at loggerheads on how to handle the issue. In its long-term economic and fiscal projections released last month, the U.S. Congressional Budget Office (CBO) flagged rising net immigration as mainly responsible for a forecast 5.2 million increase in the workforce over the next 10 years -- adding some $7 trillion to economic output and $1 trillion to tax revenue. The non-partisan budget referee took from its 30-year demographic projections , opens new tab in January, where it revised up its estimate of net immigration compared with a year earlier by some 8.3 million people for the six years through 2026. The changes mean it now reckons the overall labor force will be 2.6% larger in 2053 that it assumed only a year ago. And as declining fertility rates would have seen the national headcount decline otherwise, net immigration is now expected to account for all the expected population growth from 2040 onwards. While the politicians argue over the whys and wherefores of that jump in migrant numbers, the economic impact is already highly significant. In a paper released last week, Brookings economists , opens new tab Wendy Edelberg and Tara Watson reckoned the CBO revisions - which show 3.3 million net immigrants last year compared to the 1 million projected pre-pandemic - can help explain the surprising strength of consumer spending and overall growth since 2022. But they also said the new numbers suggest the labor market could run hotter than previously thought without fueling wage and inflation pressures. "For 2024 we estimate sustainable employment growth will be between 160,000 and 200,000, approximately double the sustainable level that would have occurred in absence of the pickup in immigration according to the pre-pandemic projections," they wrote. Morgan Stanley's Chief U.S. economist Ellen Zentner tallies with that and reckons payroll gains of about 200,000 per month are now consistent with an unchanged unemployment rate. "The new 2023 data suggest we can add immigration as an explanation for faster-than-expected growth and disinflation last year, raising the possibility of faster potential growth in the next several years," she wrote. "This isn't just about the normalization of supply chains." CLAMPDOWN? The re-painted picture has obvious ramifications for both the Federal Reserve's interest rate deliberations as well as for investors gauging both that and 'sustainable' growth and investment returns of the long term. And renewed vigor in Wall St stocks at record highs may not solely be about the artificial intelligence frenzy after all. JPMorgan economists point out that the CBO does show net immigration of foreign nationals returning close to historical norms after 2026. But they admit the recent boost in numbers quickly feeds into faster labor force expansion, even if not all immigrants are immediately granted work authorization. And that's what bumps the CBO's economic growth outlook to an average 2.0% per annum over the decade from 1.9% seen previously - with a beefed up labor supply permitting disinflation to continue without crimping growth. Higher potential growth sees inflation settling about 2.2% after 2026, according to the CBO, around where financial markets' long-run inflation expectations also seem to coagulate. And it raises the return on capital. Ten-year Treasury yields are painted in at around the current 4.1% by 2034 too, to put a 'real' rate of 1.9%. But JPMorgan's team quibble with some of the CBO's long-range forecasts - on productivity and unemployment forecasts for example - and think its debt-to-GDP assumptions are too low, due in part to a likelihood of tax cut extensions from here. And so despite the long-term growth lift, their concern about mounting government debt piles remains. "The question is not whether the U.S. will face a moment of reckoning on government debt but rather when it will happen and how painful the necessary adjustment will be," they wrote. More immediately, the immigration issue now spins into the hustings and how voters will view the stance of both presidential candidates later this year. This week's 2025 budget proposals from Joe Biden included his unfulfilled request last year for $13.6 billion in emergency funds for U.S.-Mexico border enforcement - to pay for more Border Patrol agents, asylum officers and immigration judges. For his part, former President Trump wants to reprise his 2016-2020 hardline position and has promised to crack down on illegal immigration and restrict legal immigration if elected. What seems clear now is that the economic fallout from the differing stances could be large - affecting how long the recent immigration trends continue at this pace. Pointing out that Border Patrol encounters were up 16% in the three months through January compared to a year earlier, Morgan Stanley said this could either be evidence of migrant flows accelerating or a temporary surge due to the election. "Election-year politics might cause a clampdown on immigration - as might a new president," it concluded. The opinions expressed here are those of the author, a columnist for Reuters. 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/us-immigration-fillip-shifts-economys-trajectory-mike-dolan-2024-03-13/

2024-03-13 06:49

Has 5-10 bln euros in additional funding headroom 2024 core profit outlook ahead of consensus 2028 outlook is 're-rating catalyst' - Barclays Shares rise 5.4% ESSEN, Germany, March 13 (Reuters) - E.ON, Europe's top operator of energy networks, raised its five-year investment target by 27% to 42 billion euros ($46 billion) and gave a profit outlook that surpassed even the highest forecasts, driven by the continent's need for modern grids. E.ON (EONGn.DE) , opens new tab said Europe, where it supplies around 47 million customers, required major grid expansion to ensure thousands of wind turbines and millions of solar panels can be integrated in a system that is shifting away from fossil fuels. E.ON's shares rose 5.4% to their highest level in nearly six weeks. Traders and analysts pointed to a better-than-expected outlook for adjusted core profit (EBITDA) in 2024 and 2028, as well as the group's 4.32% dividend yield, the highest among Germany's listed energy companies. "E.ON will be a major beneficiary of the current strong operating environment. In our view today's medium-term outlook will be a major re-rating catalyst," Barclays analysts said. The new spending plan for the 2024-2028 period compares with 33-billion-euros for the 2023-2027 period, the company said, adding this would lead adjusted EBITDA to rise to 11 billion euros by 2028. With an implied annual capital expenditure of 8.4 billion euros, E.ON's plan is the most ambitious among German energy companies but ranks behind European heavyweights Iberdrola (IBE.MC) , opens new tab and Enel (ENEI.MI) , opens new tab, which aim to spend an average of 15.7 billion and 11.9 billion euros a year, respectively. A surge in decentralised renewable energy assets has caused European energy companies to raise spending on grid expansion, eager to cash in on the fixed returns they offer. "Across Europe, there are massive expansion plans for renewable facilities that will need to be connected to networks," E.ON Chief Financial Officer Marc Spieker said. "That's why we're investing even more and even faster in our power grid infrastructure." Investments could even surpass the 42-billion-euro target, Chief Executive Leonhard Birnbaum told Reuters, saying this required a favourable regulatory environment that provides sufficient returns on network spending. In presentation slides, E.ON said it has additional balance sheet capacity of 5-10 billion euros. For 2024, the company is expecting adjusted EBITDA to decline to 8.8 billion to 9.0 billion euros, from 9.4 billion last year, which was marked by a number of one-offs at the group's retail energy division. This is higher than the 8.6 billion euro average estimate in a poll provided by the company. E.ON said it would propose increasing its dividend to 0.53 euros per share for 2023, up from 0.51 euros each for the previous year. This is in line with the 0.53 euro LSEG estimate. ($1 = 0.9140 euros) The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Sign up here. https://www.reuters.com/business/energy/eon-raises-investments-46-billion-grid-expansion-ramps-up-2024-03-13/

2024-03-13 06:36

Japan policy shift priced by June Yen bounces on speculation of March move Short-end JGBs under pressure; stocks hit air pocket SINGAPORE, March 13 (Reuters) - Barely weeks after Japanese stocks broke three-decade highs, the country's financial markets are hurtling toward another phenomenon not seen for the best part of a generation: rising interest rates. Bankers are attending remedial classes on what to do when rates move and trading rooms are setting up for moribund derivative markets to spring to life -- as they have begun to do. Their pricing implies a matter of months at the most before the last bastion of a decades-long monetary policy experiment with negative short-term rates falls. An exit by the Bank of Japan is expected by June, with an even chance that rates will rise to zero next week. Such a move, up 10 basis points, would be small, leaving traders to focus on broader signals: whether any change is implemented immediately, or later, and whether the BOJ winds down its enormous buying programme for assets ranging from Japanese government bonds to listed equity funds. The symbolism is also heavy as Japan seeks to leave behind "lost" years marked by deflation and reawaken the fourth-biggest economy in the world as a destination for investment -- a change already rippling through corporate Japan and global markets. "I personally think this is going to be the beginning of a new era," said Keita Matsumoto, head of financial institutions sales and solutions at Citigroup Global Markets Japan. "It's a fundamental shift in peoples' mindset," he said, one that may take five or 10 years' adjustment as the economy changes. Some of the biggest implications may be in Japan's 1.3 quadrillion yen ($8.7 trillion) government debt market. Matsumoto said investors have positioned to benefit from selling of short-dated paper since a rise in central bank deposit rates would quickly draw banks' capital out of bonds and into cash. Should a bigger policy shift drive longer-term rates up sharply, Japanese investors -- who own some $2.2 trillion in foreign debt -- might also lose their appetite in favour of paper closer to home, which would drag on global bond markets In foreign exchange, a market that is heavily short the yen has reversed a little in recent days and must adjust to paying interest, albeit small, on the Japanese currency. Equity investors have been snapping up bank shares on bets loans and margins will grow, though in the last few days trade has turned nervous as the potential policy shift draws near. The Nikkei (.N225) , opens new tab, which made a record high above 40,000 last week, posted its sharpest fall in five months on Monday. "There has been a fair degree of excitement about the Japanese economy and monetary policy ... becoming 'more normal' and like the other countries," said Niraj Athavle, J.P. Morgan's head of sales and marketing in Singapore. "The equity market, because of the fact that the Japanese are moving out of a deflation forever situation ... is beginning to attract a lot of attention - bond markets and swap markets will follow as Japan tends to become a more normal economy." SWEET SPOT Previous hiking cycles in Japan took place under such different circumstances that comparisons are tricky. In 1989-90 it raised rates by more than 300 basis points, bursting a property bubble and crushing the economy and stock market for a decade. In 2006, an attempt to end a zero-rate policy fell flat as inflation couldn't be sustained. This time investors and policymakers both point to higher wages and changes in companies' attitudes as new elements. Pay negotiation data due on Friday, before the BOJ meets, can move markets especially if it surprises to the upside. "Markets still underprice any long-term changes in Japan," said Ales Koutny, head of international rates at Vanguard, who is increasing short exposure to Japanese government bonds. "A wage number high enough that supports consumption could focus minds on a potential longer hiking cycle." He sees the five- to 10-year tenors as most vulnerable if the BOJ winds back its support and says 10-year yields could surpass 1% and in the longer term trade like German bunds - which yield 2.3% - if wages, consumption and inflation start to reinforce one another. Two-year Japanese yields , which track short-term rate expectations, have hit 13-year highs at 0.2%, five-year yields and 10-year yields are around multi-month highs of 0.4% and 0.77%, respectively. The yen , after hitting levels near its cheapest on record in real terms, last week climbed 2% for its sharpest weekly jump on the dollar in eight months as short-sellers retreated slightly. To be sure the journey out of such a long period of unorthodox policy is fraught and the distortions wrought on the economy will take a long time to unwind. Smaller businesses in particular face challenges from higher borrowing costs. Crowded bets on bank stocks are vulnerable to "sell the fact" losses on a policy shift, says Nomura's Japan macro strategist Naka Matsuzawa. Already, the BOJ's refusal to buy equity funds when markets fell this week has unnerved some investors. A yen rally to 135 or 130 to the dollar could also trigger worldwide reverberations, investors say, as that would likely trigger "carry" trades funded in yen to be unwound. Yet, at 147 to the dollar on Wednesday that is a long way away and most see a tentative return of animal spirits to Japan as a positive. "In 2024, Japan has neither an overheating property market nor is it mired in deflation," said Byron Gill, managing partner at Indus Capital Partners in San Francisco, with real rates - the nominal rate less inflation - likely to stay sub zero. "If, at the same time, wage growth can overtake the rate of inflation," he said. "Japan may find itself in a real sweet spot for both the economy and for risk assets." The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. https://www.reuters.com/markets/rates-bonds/japan-rate-rises-herald-new-era-financial-markets-2024-03-13/

2024-03-13 06:11

LITTLETON, Colorado, March 13 (Reuters) - China's power sector emissions during the hottest months of the year have jumped by more than half since 2015 due to soaring use of air conditioners to keep homes, offices and factories cool during summer. Emissions from fossil fuel use for electricity production have grown by more during the June through August period than at any other time of year since 2015, revealing the strain being put on utilities by the growing use of cooling systems. Cumulative power sector emissions in June, July and August hit 1.575 billion metric tons of carbon dioxide and equivalent gases in 2023, data from energy think tank Ember shows. That's up 50%, or by around 525 million tons, from the same months in 2015, and outpaced the emissions growth during winter months when national demand for heating peaks. With global temperatures set to keep creeping higher due to climate change, further growth in air conditioning use is expected in China and elsewhere going forward, which may push emissions totals higher still over the coming years. POWER HOGS Air conditioners and refrigerators "consume massive amounts of energy and often use refrigerants that warm the planet," according to the United Nations. But sharply rising temperatures above the long-term average have forced Chinese households and businesses to deploy a growing number of air conditioners to keep cool in recent years, especially during the summer. Average temperatures in China have climbed by over 1.5 degrees Celsius (2.7 degrees Fahrenheit) from the 1971-2000 average in each of the past five years, according to data compiled by the U.K's University of Reading. A majority of those temperature gains emerged during the summer months, spurring rapid growth in air conditioner use at that time. To keep cool, China's population snapped up record volumes of air con units, and China has been the world's largest market for cooling systems for more than a decade. Between 2015 and 2023, China's total stock of air conditioners grew from 531 million to 862 million, according to the International Energy Agency (IEA). That 62% growth rate exceeded the 41% rise in the global air conditioner stock over that period as China accounted for more than a third of worldwide air conditioner installations during that time frame. China's total air conditioner stock is set to hit 905 million in 2024, 1.13 billion by 2030, and top 1.4 billion by 2050, IEA data shows. FOSSIL-FUELLED To keep pace with the resulting surge in energy demand to run those cooling units, China's power producers have been forced to crank output during summer, mainly via the burning of coal which accounts for over 60% of China's total electricity production. Electricity generation from fossil fuels averaged 557 terawatt hours (TWh) per month during June, July and August of 2023, according to Ember. That compares to an average of 488 TWh per month during the rest of 2023, and 362 TWh during the June through August window of 2015. If temperatures follow seasonal trends to peak again in mid-2024, and the number of installed air conditioners climbs as expected, power firms will likely need to lift generation levels to new records this year. Some of the increased electricity needed will come from renewables such as solar and wind farms, which will likely produce a record-high share of China's electricity supplies this year. But with solar generation stopping at night, power firms will continue to deploy record volumes of coal in the overall generation mix, lifting climate-impacting emissions in the process that may sustain the cycle of ever-increasing air conditioning demand. 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/chinas-booming-air-con-use-lifts-mid-year-power-emissions-maguire-2024-03-13/

2024-03-13 06:10

CANNES, France, March 13 (Reuters) - The global real estate industry is scrabbling around for reasons to be optimistic in the grip of its biggest crash in more than a decade, with developers and investors talking up the prospect of a recovery - just not quite yet. Held this week in Cannes on the French Riviera, the MIPIM property conference unfolds against a backdrop of falling commercial real estate (CRE) prices and developers wondering what to do with offices emptied out by the pandemic. As an expected 20,000 investors, developers and agents began arriving, delegates gathered around miniature models of planned developments and met clients on company-commandeered yachts. Many were busy discussing the market fallout, others trying to strike deals. Several of the largest real estate investors - including U.S. giants LaSalle, Greystar, Hines and Federated Hermes (FHI.N) , opens new tab, France's AEW and Germany's Patrizia (PATGn.DE) , opens new tab - told Reuters they saw tentative signs of deal activity rebounding. But some also struck a note of caution. "There's a lot of hot air being pushed through the Croisette," Philip La Pierre, head of Europe at LaSalle Investment Management, said at the conference, referring to Cannes' beachside thoroughfare thronged with estate agents. "So you've got to navigate that quite carefully." A punishing rise in borrowing costs and empty offices have combined to sour many property investments, although sectors such as data centres and logistics have held up much better. European commercial capital values fell 13.9% year-on-year in the fourth quarter of 2023, the biggest drop since the global financial crisis in 2009, according to MSCI Real Assets data shows. LaSalle's La Pierre reckons 30% of European office space is "probably obsolete." Prices in American cities are down sharply too as vacancy rates in the likes of San Francisco and Los Angeles near 30%. Rather than realise losses, investors are sitting on the sidelines. Commercial property deal volumes in Europe collapsed by half in 2023 to 166 billion euros ($181 billion), and it was the worst year for office sales on record, said MSCI, which has been collating the data since 2007. Despite this, some investors believe a turnaround is near if central banks begin cutting interest rates, easing companies' debt burdens. "In general, there's a renewed sense of confidence and enthusiasm for the year ahead," James Seppala, head of real estate in Europe for the world's largest commercial property owner, Blackstone (BX.N) , opens new tab, said ahead of the event. "We have been active over the last few months, and we will continue to look to be active," he added. UNSELLABLE A big test of improving sentiment will be MIPIM itself. Investors and property agents have been toasting deals at the annual jamboree since 1990, but there were few to speak of last year. "The worst of the market is now unsellable," said Jose Pellicer, head of investment strategy at investor M&G Real Estate. Europe has been less afflicted by visible signs of property distress than the U.S. and China, but sharp sell-offs have occurred for exposed lenders in Germany , opens new tab and Sweden. Austrian property tycoon Rene Benko's Signa Group - the co-owner of New York's Chrysler Building - collapsed in November, rocking confidence further. "There is a big real estate crisis ongoing which is global," said Antoine Flamarion, co-founder of investors Tikehau Capital (TKOO.PA) , opens new tab. "It might take some time to play out." Major banks have been relatively unscathed so far. Large European banks have been cutting CRE lending, according to Morgan Stanley. This could put alternative lenders that tend to be more leveraged such as asset managers and insurers on the hook for more losses. They already make up around 20-30% of Europe's CRE loans, according to Bayes Business School. FURTHER TO FALL? Whether the slump in office prices widens out into a broader crisis will depend partly on whether banks and developers can avoid crystallizing losses until borrowing costs fall, or demand returns. Some lenders are re-adopting an "extend and pretend" approach to bad loans, a popular tactic after the 2007-09 financial crisis to avoid foreclosing on properties. "You extend and pretend simply because even if you enforce you probably couldn't sell the asset in the current market," Mathew Crowther, a managing director at investor PGIM Real Estate, said in the run-up to MIPIM. Property prices could be closer to bottoming out in markets such as Britain, where prices have corrected faster, but are seen falling further in the likes of Germany. Rob Wilkinson, CEO of France-based investor AEW, expects German office prices to decline 10% more in the first half of this year. "Last year was one of the hardest capital-raising years ever," Selena Ohlsson, director of real estate client solutions at Federated Hermes, said in Cannes. But she said investor interest was returning, particularly from the Middle East and Asia Pacific: "I've got a bit more hope than I did last year." ($1 = 0.9150 euro) The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. https://www.reuters.com/business/property-titans-seek-clues-cannes-market-turnaround-2024-03-13/