2024-03-07 20:35

ORLANDO, Florida, March 7 (Reuters) - It's been a long time coming, but the remarkably tight correlation between U.S. and euro zone interest rate expectations is set to unravel. The European Central Bank's downward revisions to its growth and inflation outlook on Thursday speak to an economic reality that means the ECB's rate-cutting cycle will start soon, despite President Christine Lagarde's protestations to the contrary. The U.S. economy, on the other hand is running hot and signs are emerging that some price pressures are re-accelerating. Speculation is growing that the Federal Reserve could raise its long-term 'neutral' interest rate projection later this month. Understandably, officials from both central banks have leaned against these narratives - the ECB doesn't want to lose its inflation-fighting credibility, and the Fed doesn't want to crash the economy's 'soft' or 'no landing'. The rhetoric from Fed and ECB officials, aimed at giving themselves as much flexibility as possible, has struck a common tone. As a result, the expected path for U.S. and euro zone rates this year and into 2025 has been almost identical. The correlation between short-dated U.S. and euro zone government bonds has never been stronger, shackling the euro/dollar exchange rate and depressing FX and bond market volatility. It's a merry dance that financial markets have played along with. But for how much longer? "ECB policymakers have been pushing back hard against the idea of rate cuts, maybe as part of a futile effort to support the exchanges rate. But this can't go on much longer, maybe a couple of months," said Dario Perkins, global macro strategist at TS Lombard. "Reality will set in, for the ECB and markets," he added. The ECB now expects inflation to fall to 1.9% in the summer of next year and stay there until the end of 2026. It had previously expected inflation to fall below its 2% target by early 2026. The ECB also cut its 2024 GDP growth forecast to just 0.6%, less than half the Fed's last U.S. growth projection for this year of 1.4%. This could be raised later this month. NO FED CUTS THIS YEAR? Torsten Slok, chief economist and partner at Apollo Global Management, on Thursday highlighted the yawning chasm opening up between the U.S. and German growth outlooks for this year. Last week, citing a reacceleration in U.S. growth and price pressures, Slok issued one of the first calls from a major financial institution that the Fed will not cut rates at all this year. "The bottom line is that the Fed will spend most of 2024 fighting inflation," he wrote on March 1. "As a result, the Fed will not cut rates this year and rates are going to stay higher for longer." Markets haven't begun pricing in this divergence yet. The euro has depreciated by less than 1% against the dollar this year, and recent research by State Street found that two-year U.S. and German sovereign bond yields is at an all-time high. Current market pricing has both central banks delivering their first rate cut in the middle of this year, easing policy by around 90 to 95 basis points by the end of December, and by around 125 bps a year from now. But this tight relationship is likely to be tested. Analysts at Deutsche Bank see euro zone inflation returning to 2% by the middle of this year, a year earlier than the ECB expects, and is penciling in 150 bps of rate cuts this year. For financial markets, particularly currencies, it is the terminal level of interest rates that matters more than when the starting gun for rate cuts is fired. "We see the risks as skewed to the downside for EURUSD this year, with the European growth/inflation/fiscal mix more conducive to a larger ECB cutting cycle relative to the Fed," Deutsche analysts wrote in a recent note. (The opinions expressed here are those of the author, a columnist for Reuters.) https://www.reuters.com/markets/rates-bonds/us-euro-rate-path-set-diverge-finally-mcgeever-2024-03-07/

2024-03-07 20:28

SAN FRANCISCO, March 7 (Reuters) - FBI agents delivered grand jury subpoenas to current and former employees of grain trader Archer-Daniels-Midland (ADM.N) , opens new tab this week, three sources with knowledge of the matter told Reuters. The subpoenas were signed by officials at the U.S. attorney's Manhattan office and delivered to recipients' homes in the Decatur, Illinois, area where ADM has major operations. They show that a criminal probe into ADM's accounting issues first reported by Reuters last month is escalating fast and directly relates to accounting issues that the company said in January were the subject of an internal probe. Grand jury subpoenas order the recipient to produce documents or testify before a grand jury. The subpoenas seek information, communications, as well as devices containing those communications, relating to certain ADM accounting information, including details on goods and cash transferred between company segments, according to the three sources. Authorities were also seeking information on below-cost sales from the Carbohydrate Solutions and Agricultural Services & Oilseeds units to the nutrition division, one said. They also require the recipients to report to a New York courthouse in coming weeks, the three people said. Reuters could not immediately determine the number of subpoenas issued. Government investigations are not evidence of wrongdoing and do not necessarily result in charges. A spokesperson for ADM, a $28 billion commodities giant which makes animal feed, sweeteners and other products, declined to comment. Shares of ADM briefly turned lower after the Reuters story was published but ended the regular session 0.2% higher at $54.25. The shares were down 0.5% after-hours. Spokespeople for the U.S. attorney's office and the Federal Bureau of Investigation, which is part of the Justice Department, declined to comment. A probe by the Justice Department, which has the power to bring criminal charges and impose steep fines, increases pressure on ADM and will likely weigh on its share price. The company's shares are down 20% since it disclosed in late January that it had suspended its chief financial officer and was delaying financial results amid an internal probe into accounting practices related to its Nutrition division. ADM said at the time that a Securities and Exchange Commission (SEC) inquiry prompted the company's probe. ADM said on Thursday it would report financial results on March 12. Last week, ADM said in an SEC filing that it would correct certain sales between units within ADM because they were not recorded at approximate market value. The corrections are not expected to impact consolidated balance sheets, statements of earnings, income or cash flows, ADM said. For years, ADM has said in regulatory filings that sales between business segments were recorded at amounts "approximating market" value, according to a Reuters review of SEC filings. At an event in San Francisco on Wednesday, an official with the U.S. attorney's office for the Southern District of New York said his office intends to bring more accounting cases against publicly traded companies. "These are important cases for us," said Scott Hartman, co-chief of the office's securities and commodities fraud unit. https://www.reuters.com/legal/government/fbi-agents-deliver-grand-jury-subpoenas-adm-criminal-probe-escalates-sources-say-2024-03-07/

2024-03-07 20:24

WASHINGTON/STOCKHOLM, March 7 (Reuters) - Sweden joined NATO in Washington on Thursday, two years after Russia's invasion of Ukraine forced it to rethink its national security policy and conclude that support for the alliance was the Scandinavian nation's best guarantee of safety. Swedish Prime Minister Ulf Kristersson handed over the final documentation to the U.S. government on Thursday, the last step in a drawn-out process to secure the backing of all members to join the military alliance. "Good things come to those who wait," U.S. Secretary of State Antony Blinken said as he received Sweden's accession documents from Kristersson. Blinken said “everything changed” after Russia’s full-scale invasion of Ukraine, citing polls showing a massive shift in Swedish public opinion on joining NATO. "Swedes realized something very profound: that if Putin was willing to try to erase one neighbor from the map, then he might well not stop there." For NATO, the accessions of Sweden and Finland - which shares a 1,340-km (830-mile) border with Russia - are the most significant additions in decades. It is also a blow for Russian President Vladimir Putin, who has sought prevent any further strengthening of the alliance. Sweden will benefit from the alliance's common defence guarantee under which an attack on one member is regarded as an attack on all. "Sweden is a safer country today than we were yesterday. We have allies. We have backing," Kristersson said in an address to the Swedish nation from Washington. "We have taken out an insurance in the Western defence alliance." Hakan Yucel, 54, an IT worker in the Swedish capital, said of the accession: "Before, we were outside and felt a little bit alone. ... I think that the threat from Russia, it's going to be much less now." U.S. President Joe Biden, in a statement, said the addition of Sweden made NATO "more united, determined, and dynamic than ever," adding that the accession of Sweden and Finland to the alliance meant the addition of "two highly capable militaries." Sweden adds cutting-edge submarines and a sizable fleet of domestically produced Gripen fighter jets to NATO forces, and is a crucial link between the Atlantic and Baltic. "Sweden’s accession makes NATO stronger, Sweden safer and the whole Alliance more secure," NATO Secretary General Jens Stoltenberg said in a statement. Russia has threatened to take unspecified "political and military-technical counter-measures" in response to Sweden's move. "Joining NATO is really like buying insurance, at least as long as the United States is actually willing to be the insurance provider," said Barbara Kunz, a researcher at defence think tank SIPRI. While Stockholm has been drawing ever closer to NATO over the last two decades, membership marks a clear break with the past, when for more than 200 years, Sweden avoided military alliances and adopted a neutral stance in times of war. After World War Two, it built an international reputation as a champion of human rights, and since the Soviet Union collapsed in 1991, successive governments have pared back military spending. As recently as 2021, its defence minister had rejected NATO membership, only for the then-Social Democrat government to apply, alongside neighbour Finland, just a few months later. "I guess (Sweden) had to take a stance really and I'm happy that we actually did and that we are safeguarded by NATO, because the tension with Russia has been growing for a couple of years," said Carl Fredrik Aspegren, 28, a student in Stockholm. While Finland joined the alliance last year, Sweden was kept waiting as Turkey and Hungary, which both have cordial relations with Russia, delayed ratifying Sweden's accession. Turkey approved Sweden's application in January. Hungary delayed its decision on Sweden's accession until Kristersson made a goodwill visit to Budapest on Feb. 23, where the two countries agreed a fighter jet deal. https://www.reuters.com/world/sweden-set-become-natos-32nd-member-pm-visits-washington-2024-03-07/

2024-03-07 20:17

Canadian dollar gains 0.4% against the greenback Touches its strongest since Feb. 22 at 1.3455 Canada posts a trade surplus in January 10-year yield hits a near 5-week low TORONTO, March 7 (Reuters) - The Canadian dollar strengthened to a two-week high against its U.S. counterpart on Thursday as dovish comments by Federal Reserve Chair Jerome Powell pressured the greenback and domestic data showed the trade balance swinging into surplus in January. The loonie was trading 0.4% higher at 1.3455 per U.S. dollar, or 74.32 U.S. cents, its strongest level since Feb. 22. "Today's a bit more of a (U.S.) dollar story," said Alex Cohen, an FX Strategist at BofA Securities. "That's in large part due to Powell's testimony." The U.S. dollar (.DXY) , opens new tab fell against a basket of major currencies as Powell said in a hearing before the U.S. Senate Banking Committee that the Fed was "not far" from gaining the confidence it needs in falling inflation to begin cutting interest rates. Canada recorded a bigger-than-expected trade surplus of C$496 million ($367.73 million) in January after a revised C$863 million deficit in December, but the details didn't impress some economists, showing a decline in both export and import volumes. Canadian employment data, due on Friday, could offer further clues on the strength of the economy. Economists forecast Canada's economy adding 20,000 jobs in January. The loonie was adding to its gains on Wednesday when the Bank of Canada said it was too early to consider easing rates as it kept its benchmark rate on hold at a 22-year high of 5%. Some investors had thought the BoC would lean "more on the dovish side" due to recent softening in the Canadian economy, Cohen said. The price of oil , one of Canada's major exports, settled 0.25% lower at $78.93 a barrel, while Canadian bond yields edged higher across the curve. The 10-year was up 1.8 basis points at 3.368% after earlier touching its lowest level since Feb. 2 at 3.303%. https://www.reuters.com/markets/currencies/cad-notches-2-week-high-powell-rate-cut-guidance-2024-03-07/

2024-03-07 19:45

March 7 (Reuters) - U.S. household wealth rose to a record of roughly $156.2 trillion at the end of 2023 thanks to a surging stock market that offset a drop in property market values, the Federal Reserve said on Thursday. Household net worth rose about 3.2% in the period from October through December from $151.4 trillion at the end of the third quarter, the Fed said in its quarterly snapshot of the balance sheets of households and businesses. The value of equities held directly or indirectly through mutual funds, life insurance policies or retirement accounts rose by $4.7 trillion to $47.6 trillion from $42.9 trillion, the Fed said. In the fourth quarter of 2023, the benchmark Standard & Poor's 500 Index delivered a total return, including reinvested dividends, of 11.7% and market gains have continued into the start of 2024 with stocks closing out February at record highs. The stock market gains offset real estate values that declined by $0.6 trillion to about $49 trillion after rising in the two previous quarters. Meanwhile, households cottoned onto the higher interest rates offered on savings and certificates of deposit accounts and money market mutual funds. Total "deposit" account balances rose by nearly $270 billion to $18 trillion and snapped a record long six-quarter streak of declines. Still, deposits as a share of overall household net worth fell to 11.5% - the lowest in four years - as stocks' share rose above 30%. https://www.reuters.com/markets/us/us-household-wealth-soars-record-booming-stocks-2024-03-07/

2024-03-07 19:10

Incoming CEO to present new business plan NYCB says non-banking companies have shown interest in loan book Stock rises on $1 billion capital infusion Wall Street analysts caution uncertainties remain Bank reiterates pledge to reduce commercial real estate exposure March 7 (Reuters) - New York Community Bank (NYCB.N) , opens new tab is seeing interest from non-bank bidders for some of its loans and will outline a new business plan next month, its new CEO said on Thursday after the bank slashed its dividend again and disclosed deposits fell 7%. The bank's shares rose 7% on Thursday after swinging between gains and losses over the last two days, with periodic trading halts that underscored lingering uncertainty about its finances. Joseph Otting, former Comptroller of the Currency in the Trump administration, was named NYCB's CEO on Wednesday as part of a $1 billion capital injection from a group of investors that included former Treasury Secretary Steven Mnuchin. In a bid to shore up confidence, Otting and Non-Executive Chair Alessandro DiNello told analysts on Thursday that they would soon unveil a new business plan and had closely scrutinized the bank's books, and provided insight on deposit flows. "I've spent a fair amount of time getting to know the organization from afar and then a significant amount of time conducting due diligence on the portfolio and the balance sheet," Otting said, noting that NYCB had a "strong liquidity position." NYCB has been trying to arrest a persistent stock rout that has wiped billions off its market value, almost a year after the collapse of Silicon Valley Bank and Signature Bank ignited widespread concerns over the health of the sector. While most analysts had cheered the capital injection and management overhaul, some remain concerned about NYCB's future, saying the bank still has a long way to go to repair the damage. At least three brokerages cut their price targets on the stock after the deal was announced. "While this deal provides a much-needed lifeline to NYCB, it is tremendously dilutive to common shareholders," analysts at Wedbush said. In exchange for their capital, NYCB's investors bought common shares at $2 each, along with preferred stock. NYCB has also pledged to reduce its exposure to the commercial real estate (CRE) industry, after taking huge provisions in the fourth quarter for potential bad loans tied to the sector. Empty office buildings in the post-pandemic era and steep borrowing costs have worsened worries of debt defaults. In an interview with CNBC, Mnuchin said on Thursday that he had explored a merger between NYCB when he was chair of OneWest Bank a decade ago and had also studied NYCB's purchase of failed Signature Bank assets last year. "So I have been following it, and more recently when they did the Signature Bank deal I followed it as well, which I think was a very attractive deal for them," he said. Top executives on Thursday did not answer questions on the portfolios that NYCB could divest to reduce its big exposure to the ailing commercial real estate (CRE) sector and raise capital. A surprise quarterly loss and a 70% reduction of its dividend in January hammered NYCB's stock, which came under pressure again last week after it said it had found "material weakness" in internal controls and revised its loss to 10 times higher than earlier due to a goodwill impairment charge. DEPOSIT DECLINE NYCB reported total deposits of $77.2 billion as of March 5, lower than $83 billion a month ago. About 19.8% of the deposits were uninsured. Compared with peers, it has the lowest concentration of uninsured deposits and has disclosed it has enough liquidity to offer its customers expanded deposit insurance. DiNello said some people lined up to withdraw their deposits on Wednesday after media reports said NYCB was seeking capital, but that stabilized later in the afternoon once the company's press release was out. The bank also reduced its quarterly dividend to 1 cent per share, lower than the 5 cents it announced in January. Otting, the third to take the top job in weeks, is a banking industry veteran who served as the 31st Comptroller of the Currency. He is credited with reviving IndyMac, a mortgage lender Mnuchin bought out of the Federal Deposit Insurance Corporation's receivership in 2009 with an investor group. "Even the link with the OCC (Office of the Comptroller of the Currency) may not be the glowing endorsement that it seems, given that it was the OCC waived through NYCB's acquisition spree that has done so much to get it in trouble in the first place," said Russ Mould, investment director at AJ Bell. NYCB's acquisition of Flagstar Bank in 2022 and Signature Bank's assets last year pushed its assets above $100 billion, subjecting it to tougher regulations imposed on lenders of that scale. The OCC approved NYCB's deal with Flagstar even though other regulators feared it could create problems at the New York bank, Reuters reported on Thursday. https://www.reuters.com/markets/us/nycb-seeks-stem-stock-rout-with-mnuchin-backed-1-bln-capital-injection-2024-03-07/