2024-03-07 11:51

LONDON, March 7 (Reuters) - Portugal holds a snap election on Sunday, its second in two years, with polls pointing to a hung parliament and strong showing for the far-right Chega. Markets have taken political uncertainty, sparked by the November resignation of centre-left Socialist Prime Minister Antonio Costa, in their stride. "Given that you have centrist parties who are likely to be in government, you'll have a certain degree of continuity," said Antonio Barroso, managing director at political consultant Teneo. Costa's Socialist Party, now led by Pedro Nuno Santos, looks set to lose its majority and trails the centre-right Democratic Alliance, led by Luis Montenegro, in the polls. The populist Chega is expected to more than double its vote share, potentially becoming kingmaker. Here are five key questions for markets. 1/ HOW SERIOUS IS THE POLITICAL INSTABILITY? It is a concern, this will be Portugal's third election since 2019. Neither the centre-left nor the centre-right is expected to clinch an outright majority, so a post-election stalemate is likely, potentially leading to another election. "More than specific policies, the strength of the mandate will be key," said Banco de Investimento Global (BiG) portfolio manager Ricardo Seabra. "If this renders greater future fiscal stability and a reduction in red tape, Portugal will remain attractive for foreign investors." 2/ WHAT DOES THE ELECTION MEAN FOR THE ECONOMIC OUTLOOK? Not much damage, investors hope. Portugal's recovery from its 2011 bailout has been a euro area success story. Economic growth recovered and the public debt ratio fell to 98.7% of gross domesticu product in 2023, its first time below 100% since 2009. Finance Minister Fernando Medina says balancing the budget and reducing debt must continue, whichever government emerges post-election. "The fall in Portugal's government debt is quite incredible," said Capital Economics assistant economist Bradley Saunders. "Both major parties are quite fiscally conservative and so, I'd expect to see a pretty similar path of debt reduction regardless of which major party wins." 3/ IS THE RALLY IN PORTUGUESE BONDS JUSTIFIED? Yes. Portugal's debt load, while high, is coming down and ECB rate cuts are coming. Ratings agency S&P Global just raised Portugal's rating to "A-" from "BBB+", citing an improved debt outlook and saying a change in government should not alter that trajectory. At around 3%, Portugal's long-term borrowing costs , are lower than in Spain, Italy and Greece. The gap over top-rated Germany, at 65 basis points is near its tightest in two years. "Parliament has already approved the 2024 budget, and we think risks to policy continuity are limited due to a consensus on fiscal prudence," S&P said , opens new tab in its report. 4/ WHAT ABOUT PORTUGAL'S COMMITMENT TO THE EURO? That has not been an issue in this election, leaving the euro undisturbed . The euro-scepticism evident in many European elections in the 2010s and early 2020s has subsided in Portugal, partly thanks to Portugal being one of the main beneficiaries of the EU's 800 billion euro post-COVID recovery fund. "Portugal has already received some disbursements because it's met its targets very quickly," said Capital Economics's Saunders. "I'd be very surprised if any leader would bite the hand that feeds it at this moment in time." 5/ SHOULD EQUITY INVESTORS WORRY ABOUT A WINDFALL TAX? A little perhaps. Post-COVID, Portugal has introduced some of the broadest windfall taxes in Europe, targeting energy and food companies. Markets are on edge for similar policies. A levy on bank profits has been mooted by Chega but analysts reckon the chance of this happening is slim, with Chega unlikely to be a part of the new government. "Simply put, it's just one of the many populist pre-election soundbites they have generated," said BiG's Seabra. Any signs of a tax on banks could however hurt Portugal's stock market (.PSI20) , opens new tab, which has performed relatively poorly in 2024. That is partly due to an 18% decline in the index's largest component, utility company EDP (EDP.LS) , opens new tab. ($1 = 0.9177 euros) https://www.reuters.com/markets/europe/portugals-snap-election-what-markets-are-watching-2024-03-07/

2024-03-07 11:38

LONDON, March 7 (Reuters) - The pound edged up on Thursday, after UK finance minister Jeremy Hunt's spring budget offered a raft of tax cuts, but little in the way of surprises for the market, leaving more focus on the direction of the U.S. dollar. Sterling rose 0.2% to $1.276, its highest in around a month, and nudged into positive territory against the euro , to 85.40 pence. In his budget on Wednesday, Hunt trimmed national insurance contributions by 2 pence in the pound but stuck to a fiscally cautious mandate that eased anxiety about Britain's $3 trillion debt burden, boosted consumer stocks and helped the pound stay robust against other major currencies. The firmness in sterling by Thursday was less a product of the UK fiscal outlook and more that of a decline in the dollar after U.S. Federal Reserve Chair Jerome Powell told lawmakers rate cuts will "likely be appropriate" later this year "if the economy evolves broadly as expected". His comments suggested the central bank might be more comfortable with lower rates over the course of this year as long as inflation continues to trend lower, analysts said. "The budget certainly wasn't the reason Sterling hit its best level against the dollar for a month yesterday," Caxton FX strategist David Stritch said. "That was more to do with Chair Powell's testimony on Capitol Hill, where the head of the world's most important central bank took an even-handed approach," he said. Next week brings a raft of UK data, including gross domestic product and wage inflation - a key focus for the Bank of England. Futures markets show traders believe UK rates will stay where they are until at least August, compared with June for the European Central Bank - which meets on Thursday - and for the Fed. https://www.reuters.com/markets/currencies/sterling-anchored-one-month-high-powell-dents-dollar-2024-03-07/

2024-03-07 11:33

BRUSSELS, March 7 (Reuters) - European Union countries agreed on Thursday to jointly quit an international energy treaty over concerns that it undermines efforts to fight climate change, officials said. The 1998 Energy Charter Treaty, which allows energy companies to sue governments over policies that damage their investments, has in recent years been used to challenge moves that require shutting down fossil fuel plants. Ministers from EU countries agreed to exit the treaty at a meeting in Brussels, two EU officials told Reuters. The decision will now go to the European Parliament to seek lawmakers' consent. That is seen as highly likely because the EU assembly has previously urged it to leave the treaty. Brussels first proposed a coordinated EU departure from the treaty in July, after member states including Denmark, France, Germany, Luxembourg, Poland, Spain and the Netherlands announced plans to quit, with most citing climate change concerns. EU countries have so far delayed a decision on the exit as some, such as Cyprus and Hungary, were keen to stay in, while others were concerned that efforts to modernize the treaty would go to waste with their departure. To soothe those worries, the EU proposed last week that before leaving, EU countries should allow reforms to pass. That proposal appears to have unlocked a deal. EU countries will approve the proposal to accept the treaty reforms in May, a source in Belgium's presidency of the EU, which will organise the talks, told Reuters. Around 50 signatories to the treaty agreed the reforms last year, but they had little chance of coming into force without the EU's green light. One of the key reforms is the reduction to 10 years from 20 of the period energy firms from non-EU signatories such as Japan and Turkey would enjoy protection of existing investments in the bloc. https://www.reuters.com/sustainability/climate-energy/eu-countries-exit-energy-treaty-over-climate-concerns-officials-say-2024-03-07/

2024-03-07 11:17

A look at the day ahead in U.S. and global markets from Mike Dolan Wall Street's early-week wobble seems to have stabilised as Federal Reserve Chair Jerome Powell plays it straight on Capitol Hill, with the European Central Bank deciding on policy on Thursday and after a fresh yen surge knocked Japan's Nikkei. See-sawing speculation over when the Bank of Japan may end its negative interest rate stance tipped back overnight in favor of a move as soon as this month, sending the yen surging to its best level in a month in its biggest one-day gain this year. That side swiped the Nikkei stock index (.N225) , opens new tab by more than 1%. The move followed press reports on an imminent move and comments from BOJ governor Kazuo Ueda and a colleague, who said inflation was sustainably moving up toward the 2% target. Reinforcing that view, Japan's largest trade union group Rengo said average wage rise demands hit 5.85% for this year - topping 5% for the first time in 30 years. In China, surprisingly upbeat trade numbers for the first two months of the year did little to lift stocks there, with markets still puzzling over just what level of government stimulus may be in the works after this week's annual government plans were unveiled. China's CSI300 (.CSI300) , opens new tab lost 0.6%. And in Europe, much like Powell and his Fed colleagues, the ECB is set to leave rates on hold at its March meeting on Thursday - likely re-emphasizing patience in getting inflation back down to its 2% target even as the regional economy flatlines. Remarkably, given the recent gulf in economic performance between the United States and euro zone, market expectations for ECB easing are identical to those of the Fed - with both central banks odds on to deliver their first cuts in June this year and roughly 90 basis points of cuts each seen this year. The euro , euro zone stocks (.STOXXE) , opens new tab and euro government bond prices were all a touch firmer ahead of the decision. Back stateside, Powell reprises his congressional testimony to the Senate Banking Committee later on Thursday - possibly offering more clues to Fed thinking in the question-and-answer session that follows. He revealed little new on Fed thinking in Wednesday's appearance, merely restating hopes that rates would be lowered later this year but saying the still-strong economy allowed the Fed more time to assess data on whether inflation was durably licked. Some labor market softening in the latest soundings from private sector surveys and job openings data helped give his words a dovish tilt. Ten-year Treasury yields fell to their lowest in a month, just above 4%, and held that move on Thursday. Wall St stocks (.SPX) , opens new tab regained much of the prior day's shakeout in megacaps and were steady ahead of today's bell. Some of Powell's focus in his House exchange was on how the Fed and other regulators were considering significant changes to a contentious plan to raise large bank capital requirements - the so-called "Basel III endgame" proposal unveiled in July. And in the background, ailing New York Community Bancorp (NYCB.N) , opens new tab jumped 7% after it said it had raised $1 billion from investors including former U.S. Treasury Secretary Steven Mnuchin's Liberty Strategic Capital. In politics, 'Super Tuesday' U.S. primaries and the withdrawal of Republican challenger Nikki Haley from that race now sets up a likely re-run of 2020's White House race between President Joe Biden and former president Donald Trump. Biden spent last weekend at the Camp David presidential retreat fine-tuning Thursday's State of the Union speech, which will focus on economic growth, tackling inflation and staying the course on his policies, White House officials said. Biden is expected to preview proposals to hike the corporate minimum tax and curb deductions for executive pay - part of a proposed fiscal 2025 budget released next week that aims to cut the federal deficit by $3 trillion while reducing taxes for low-income Americans. In company news, Novo Nordisk (NOVOb.CO) , opens new tab said early trial data for its highly anticipated experimental drug amycretin showed participants had a weight loss of 13.1% after 12 weeks, prompting the company's shares to jump 5%. The pharma giant, its fortunes soaring on sales of its obesity drug Wegovy, said it was expanding its focus on diabetes and weight-loss therapies to include cardiovascular treatments. And lender Virgin Money UK (VMUK.L) , opens new tab jumped 37% after Nationwide Building Society (NBS.L) , opens new tab agreed to buy it in a potential 2.9 billion-pound ($3.69 billion) all-cash deal that would create Britain's second-largest savings and mortgage provider. Key diary items that may provide direction to U.S. markets later on Thursday: * US Jan international trade, Jan consumer credit, weekly jobless claims * European Central Bank policy decision, followed by press conference from ECB President Christine Lagarde * Federal Reserve Chair Jerome Powell reprises semi-annual testimony before the Senate Banking Committee. Cleveland Fed President Loretta Mester. Fed issues quarterly financial accounts of the United States * US President Joe Biden's State of the Union speech * US Treasury auctions 4-week bills * U.S. corp earnings: Broadcom, Costco, Kroger https://www.reuters.com/markets/us/global-markets-view-usa-2024-03-07/

2024-03-07 11:06

WASHINGTON, March 7 (Reuters) - A U.S. banking regulator could have stopped New York Community Bank (NYCB.N) , opens new tab from pursuing a deal that has contributed to its financial woes. Instead, they signed off on it. The Office of the Comptroller of the Currency (OCC) approved NYCB's $2.6 billion merger with Michigan mortgage lender Flagstar Bank even though other regulators feared the deal could create problems at the New York bank, according to people with knowledge of the matter and public records. When approving the deal, the OCC had concerns about NYCB's big exposure to the ailing commercial real estate (CRE) sector, but believed that the tie-up would help diversify its loan book, according to one person with knowledge of the matter. The merger pushed the combined bank near a $100 billion regulatory threshold which imposes stiff capital rules. The looming new requirements, along with the bank's CRE exposure, forced NYCB to slash its dividend in January, sending its shares diving and sparking credit downgrades. Flagstar also had CRE exposure. Reuters reported in May both banks were among the top five most exposed, when ranked by a regulatory concentration measure. Regulators' deliberations reported here for the first time are surfacing a year after Silicon Valley Bank's implosion exposed areas of weak oversight and as policymakers debate the risks of bank mergers. They help shed light on the missteps that contributed to NYCB's problems and are likely to increase pressure on regulators to be tougher on bank tie-ups. Interviews with a dozen industry officials, merger experts and regulatory sources, as well as public documents, show how NYCB for years wanted to grow by pulling off a major deal, but when the Federal Deposit Insurance Corporation (FDIC) stood in its way the bank turned to the OCC. The OCC greenlit the deal even though the FDIC had already privately vetoed the transaction over concerns about the banks' lending practices, according to two of the sources. Additionally, the OCC disclosed , opens new tab when approving the deal that it was in the middle of an examination into potential discriminatory lending at Flagstar. Reuters could not ascertain the outcome of that exam. As a safeguard, the OCC imposed a special condition that required the bank to seek its written approval for future dividend payouts. With NYCB, now fighting to shore up its balance sheet, approving the Flagstar deal looks to have been a miscalculation, say some regulatory and merger experts. NYCB last week disclosed a far greater , opens new tab loss than previously stated as well as faults in its lending controls , opens new tab. But on Wednesday, it said it had raised , opens new tab $1 billion from investors. "If you've got a banking problem, the solution is not to make it bigger," said Dennis Kelleher, CEO of Washington advocacy group Better Markets that has analyzed the deal. "The Flagstar-NYCB merger should never have been allowed...on the merits at the time." A spokesperson for NYCB did not provide comment. However, both banks filed a detailed merger application , opens new tab which the OCC spent several months reviewing, records show. RAPID GROWTH, RAPID PAIN Founded in 1859, NYCB for decades chugged along as a small lender focused on New York real estate. But the bank wanted to accumulate deposits to generate more interest income, according to one person with direct knowledge of the matter who asked to remain anonymous discussing confidential information. To grow deposits, former CEO Joseph Ficalora was set on deals, the person said, but his attempt at a transformative tie-up with Astoria Financial was scuttled by regulatory issues , opens new tab in 2016. After Congress in 2018 relaxed rules for banks with between $50 billion and $250 billion in assets, it became easier to get bank deals done. Then in April 2021, under CEO Thomas Cangemi, NYCB announced , opens new tab its big move: merging Flagstar into NYCB's New York subsidiary, creating a lender with $87 billion in assets. Cangemi stepped down as CEO last month , opens new tab. Ficalora and Cangemi did not respond to requests for comment. The deal had issues from the start. NYCB was supervised by the New York Department of Financial Services (NYDFS) and the FDIC. Both regulators, as well as the Federal Reserve, had to review the deal. NYDFS approved the deal in April 2022. But officials at the FDIC had concerns about fair lending practices at Flagstar, and were also worried about the exposure of some of NYCB's multifamily loans, according to sources familiar with the matter. FDIC officials decided they could not approve the deal, they said. The sources declined to be identified discussing confidential regulatory information. The FDIC's fair lending concerns were previously reported by media outlet The Capitol Forum , opens new tab. Before the FDIC could formally block the deal, the banks announced in April 2022 they were restructuring the transaction so that NYCB would merge into Flagstar, which was regulated by the OCC. A national OCC charter was appropriate, the banks said at the time , opens new tab. As a result, the OCC and Federal Reserve had to review the deal, while the FDIC's approval was no longer necessary and the NYDFS would have no oversight of the new entity. Flipping charters so late in the merger process is unusual, according to lawyers who also said the OCC had ample discretion to block the deal. One of the sources said FDIC officials were angered by NYCB's move to shop the deal to the OCC. But some OCC officials were concerned about NYCB's CRE exposure, and believed the deal could help diversify the bank, the source added. For supervisors, diversification is a positive, said a different regulatory source. The OCC approved the deal in October 2022. The Federal Reserve approved it , opens new tab days later. Months later, NYCB expanded further, buying assets from failed Signature Bank in a deal , opens new tab approved by the OCC , opens new tab and FDIC , opens new tab. Combined, the Flagstar and Signature deals doubled NYCB's balance sheet to $116 billion. Spokespeople from the NYDFS, the Fed and FDIC, declined to comment. MERGER REVIEWS One sign that the OCC had concerns about NYCB's CRE concentration was its condition in the approval notice that the new bank seek the agency's approval before paying dividends. The OCC imposed those restrictions to ensure the bank had sufficient resources to address any supervisory issues that arose post-merger, said a regulatory source, echoing the OCC's explanation at the time. While banks often have to seek some approvals around dividends, such explicit language struck some experts as noteworthy. "The OCC is signaling in the order that it's got some potential concerns about integration," said Jeremy Kress, a University of Michigan professor who advised the Justice Department on its ongoing bank merger policy review. Bank mergers have become a contentious issue in Washington as left-leaning Democrats push regulators, including the OCC, to take a tougher stance. They say allowing banks to get bigger creates systemic risks and increases costs for borrowers. That debate intensified after lenders including NYCB and JPMorgan (JPM.N) , opens new tab were allowed to buy failed bank assets and as analysts expect more struggling banks to consolidate. The OCC in January proposed overhauling its merger rules. It is unclear if the NYCB-Flagstar deal would be approved under its planned changes which would subject deals whereby the combined entity has more than $50 billion in assets to additional scrutiny. "The question is not should we or shouldn't we" allow mergers, Acting Comptroller Michael Hsu told Reuters in an interview about the OCC review on January 26. "The question is, 'How do we get the best ones?" https://www.reuters.com/markets/us/us-regulators-greenlit-nycbs-rapid-growth-even-with-red-flags-2024-03-07/

2024-03-07 10:38

DUBAI, March 7 (Reuters) - At least two people were injured in an incident during a maintenance operation at the Aftab oil refinery in Iran's Bandar Abbas, Iranian state media outlets reported on Thursday, citing the operating company. Earlier, Iranian state news agency IRNA said several people had been killed and injured due to an accident there, but cautioned there had been no official statement. Several state media outlets later described it as a "partial incident that happened during a maintenance operation", without giving details of what that entailed, and said there were at least two injured, with no mention of any dead. The facility did not sustain any major damage and the injured have been deemed as being in a stable condition after being taken to hospital, semi-official Fars News Agency said. https://www.reuters.com/world/middle-east/several-people-dead-explosion-irans-bandar-abbas-refinery-irna-reports-2024-03-07/