2024-02-29 11:05

NEW YORK, Feb 29 (Reuters) - Federal Reserve officials are keen to start debating their balance sheet run-down endgame, but benign market conditions, recent central banker comments and bond dealer estimates now suggest the process may run longer than previously thought. One factor driving the rethink is a puzzling bout of better-than-expected liquidity conditions in U.S. short-term financing markets that has for now at least forestalled a run of volatility that some on Wall Street had expected to force the Fed's hand into stopping the balance sheet shrinkage effort known as quantitative tightening. On top of that, minutes of the Fed's most recent meeting in January showed some policymakers interested in an extended slowdown in the pace of shrinkage - a tapering - that could actually allow QT to proceed for a longer period. And bond dealers also now project that QT will not end outright until next year rather than late this year and leave the Fed with an even smaller balance sheet. How this plays out in the months ahead is a secondary - but still important - obsession on Wall Street to the guessing game over when the Fed starts rate cuts. That's because the Fed's only previous QT effort in 2018-19 ended in a market ruckus that no one wants to see repeated. "At the moment, the key concept in both rate and balance sheet policy is discretion," said Jonathan Cohn, head of U.S. rates desk strategy at Nomura Securities International. "Without evident pressure in funding markets, the Fed has discretion regarding when it slows QT." The Fed scooped up about $4.6 trillion of bonds during the COVID-19 pandemic as one of its planks alongside near-zero interest rates to prop up the economy through the health crisis. The effort to add liquidity to the financial system and keep it running smoothly more than doubled the size of its overall balance sheet to roughly $9 trillion. When a surge in inflation forced the central bank to start jacking up interest rates in March 2022, officials soon after started winnowing down the size of its stash of Treasuries and mortgage-backed securities, allowing up to $95 billion a month to mature from the balance sheet without being replaced. Total Fed bond holdings are now down to about $7.1 trillion and the full balance sheet has fallen to just below $7.7 trillion. SOFT FUNDING A combination of larger Treasury debt issuance, higher interest rates and Fed QT had been expected to continue to drain liquidity this year, potentially inducing volatility in short-term funding markets, but so far that's not happened. In fact, the borrowing rate in a key repurchase agreement (repo) market, where banks and other market players swap cash for Treasuries, has declined in recent weeks. "There's been soft funding recently, overnight rates have been a little softer," said Scott Skyrm, executive vice president of money market trading firm Curvature Securities. Just why remains unclear. "We don’t have a good answer for it, we’re asking ourselves the same question," said Joe DiMartino, head of the repo desk at Clear Street. "There just seems to be way more cash than anticipated over the last several weeks." A key upshot is usage of the Fed's overnight reverse repo facility (ONRRP), which had become a favored place for Wall Street firms to park excess cash and a touchstone for Fed officials for market liquidity levels, may hold up more than expected. Its daily usage shrank over the last year from more than $2 trillion to an average of about $540 billion through February. As cash drains from ONRRP, still-abundant bank reserves at the Fed are expected to start falling, leading to a tightening in overall financial system liquidity that the Fed wants to keep under control by tapering QT. "The reality is that the drive to lower balances within the reverse repo facility has a little bit of upward pressure on it, and it won't necessarily get to zero anytime soon," said Jerome Schneider, leader of short-term portfolio management and funding at bond giant PIMCO. 2025 NOW EYED FOR QT END Last week's minutes from their latest meeting showed an eagerness by many Fed officials to get moving on planning the QT endgame. That said, the minutes showed "some participants" eyeing a plan to start a prolonged taper process that would allow QT to continue at a diminishing pace even after rate cuts begin later this year. On the heels of that, the release late last week of the survey of primary dealers conducted ahead of each Fed policy meeting showed firms also expect a lengthy tapering operation starting this summer. They have pushed out estimates for when QT ends entirely to January or February 2025 from the fourth quarter of 2024 as estimated in the survey ahead of December's Fed meeting. Moreover, the latest dealer survey pegs the Fed's bond portfolio balance at $6.5 trillion at the end of QT - $250 billion less than estimated previously. And they also see more room for ONRRP levels to decline before QT ends - to $125 billion versus $375 billion in the December survey. Still, most Fed officials recognize the uncertainty ahead of them and want to proceed carefully so as not to repeat the events of five years ago. Philadelphia Fed President Patrick Harker last week said he favors proceeding "methodically" while watching for market tightness to flare up. Atlanta Fed President Raphael Bostic told CNBC earlier this month that "we just want to make sure our actions don't cause disruptions." That said, some in the Fed are less worried about smooth moves. Jeffrey Schmid, new president of the Kansas City Fed, said Monday: "I don't favor an overly cautious approach to balance sheet runoff for the sake of avoiding any volatility in interest rates. Instead, some interest-rate volatility should be tolerated as we continue to shrink our balance sheet." https://www.reuters.com/markets/us/feds-balance-sheet-endgame-may-play-out-over-longer-than-expected-horizon-2024-02-29/

2024-02-29 11:02

A look at the day ahead in U.S. and global markets from Mike Dolan February's extra 'leap year' day saw the yen jump to two-week highs on hawkish Bank of Japan noises and bitcoin surge again to within 10% of new records - but the big hurdle for U.S. markets is the critical PCE inflation readout later today. The yen rose to its best levels since mid-February and the Nikkei (.N225) , opens new tab ended in the red again after BOJ board member Hajime Takata said the central bank must consider overhauling its ultra-loose policy, including an exit from negative interest rates and bond yield caps. Vice finance minister Masato Kanda also told G20 counterparts meeting in Brazil that Japan would act to prevent excessive weakness of the yen. Bitcoin , meantime, headed for its biggest monthly gain in more than three years - briefly topping $63,000 overnight - as money fills newly-listed bitcoin funds and traders speculated ahead of April's 'halving' event. But the cat-and-mouse game over the timing of BOJ 'normalisation' comes in tandem with second-guessing over the timing of the first rate cuts from the Federal Reserve and European Central Bank. Thursday's release of Fed's favoured PCE measure of inflation for January remains pivotal to its decision making. Although the Fed will see February consumer price updates before it meets again next month, today's release is the last PCE readout before the March 20 gathering. Headline PCE inflation is expected to have fallen again to just 2.4% versus 2.6% - with 'core' rates down to 2.8% and both measures clocking their lowest in almost 3 years. But an expected uptick in monthly price rises may keep Fedsters wary. While a relentless message of 'patience' from Fed officials over recent weeks has pushed futures markets into only fully pricing a first cut by July, the latest stream of speeches seem keen not to take eventual easing completely off the table. New York Fed boss John Williams said on Wednesday that even though there's some distance to cover in achieving the 2% inflation target, the door is opening to rate cuts this year. Subdued Wall St stocks (.SPX) , opens new tab, (.IXIC) , opens new tab ended in the red on Wednesday and futures were down again ahead of Thursday's bell. And there was no 'leap day' for cloud data firm Snowflake (SNOW.N) , opens new tab, whose shares plunged 22% overnight after an earnings miss, warning on consumer demand ahead and the appointment of a new chief executive. U.S. Treasury yields ticked higher into the PCE release and as Democratic and Republican leaders in Congress announced a deal for advancing the 12 annual bills that fund an array of federal programs and which could avert government shutdowns as soon as Saturday. With dollar/yen leading the way, the dollar index (.DXY) , opens new tab fell back. November's election is never far from investors' minds at this stage of the year. The U.S. Supreme Court on Wednesday agreed to decide Donald Trump's claim of immunity from prosecution for trying to overturn his 2020 election loss, giving him a boost as he tries to delay criminal prosecutions while running to regain the presidency. The Supreme Court set the case for oral argument during the week of April 22. Elsewhere, mainland Chinese shares (.SSEC) , opens new tab jumped more than 1% as regulators said they would strengthen supervision of derivatives and announced punishment for a hedge fund for excessive, high-frequency trading in share index futures. With northbound inflows to stocks catching the eye, there's also some tempering on the negativity as investors await the outcome of next week National People's Congress for a series of economic targets and policy priorities for this year. In Europe, data showed inflation fell in six economically important German states in February - encouraging hopes that German inflation is continuing on its downward trajectory. Spanish and French inflation slowed too, albeit by less than forecast in the latter. Traders were also parsing signals from ECB officials about changes to how it manages short-term interest rate management as it runs down its bloated balance sheet. Shares in London-listed hedge fund firm Man Group (EMG.L) , opens new tab rallied 3.6% to their highest since mid-March 2023 after it reported assets under management rose to a record $167.5 billion last year. Key diary items that may provide direction to U.S. markets later on Thursday: * U.S. Jan personal income & consumption, PCE inflation reading, Dallas Fed core PCE cuts, weekly jobless claims, Feb Chicago PMI business survey, Jan pending home sales; Canada Q4 GDP update * New York Federal Reserve President John Williams, Atlanta Fed President Raphael Bostic, Cleveland Fed chief Loretta Mester, Chicago Fed chief Austan Goolsbee Bank of England * U.S. Treasury auctions 4-week bills * G20 finance ministers and central bankers meeting in Sao Paulo, G7 meets on sidelines * U.S. corp earnings: Best Buy, Hewlett Packard, Hormel Foods, Autodesk, Evergy, NetApp, Zscaler, NetEase, Cooper, Celcius, Bath & Body Works, etc https://www.reuters.com/markets/us/global-markets-view-usa-2024-02-29/

2024-02-29 10:54

Feb 29 (Reuters) - Shares of WW International (WW.O) , opens new tab, also known as WeightWatchers, took a pounding after the company disclosed that media icon Oprah Winfrey will exit its board later this year. The shares fell 23.5% to $2.92 in premarket hours on Thursday and have more than halved in value so far this year. Short interest for the stock stood at 17.5% of the outstanding shares. as of Feb. 28. Late on Wednesday, WW International said the talk show host, who has been a board member since 2015, will not be standing for re-election at the 2024 annual shareholder meeting. Winfrey has been in the spotlight in recent months, following her public announcement about using prescription medication to manage her weight. Currently, there are two approved treatments in the United States for chronic weight management - Novo Nordisk's (NOVOb.CO) , opens new tab Wegovy and Eli Lilly's (LLY.N) , opens new tab Zepbound. Winfrey will donate the shares of the company owned by her to the National Museum of African American History and Culture (NMAAHC), WeightWatchers said, adding the decision would "eliminate any perceived conflict of interest around her taking weight loss medications." She owned 1.13 million shares worth $6.34 million as of Jan. 1, LSEG data showed. Winfrey also intends to donate any future proceeds from her WW stock options to NMAAHC. WW International has a lower forward price-to-earnings multiple - a common benchmark to value stocks - of 13.55 compared to 17.21 for its peer USANA Health Services (USNA.N) , opens new tab. https://www.reuters.com/business/healthcare-pharmaceuticals/weightwatchers-shares-drop-oprah-winfrey-decides-exit-board-2024-02-29/

2024-02-29 07:47

SPDR Gold Trust holdings lowest since July 2019 US PCE inflation data due at 1330 GMT Several Fed officials due to speak this week Feb 29 (Reuters) - Gold remained trapped within a narrow range on Thursday, as investors exercised patience in the run up to a key U.S. inflation number and remarks from Federal Reserve officials to glean clarity on the trajectory of interest rates. Spot gold was little changed at $2,030.62 per ounce, as of 1058 GMT, trading in a narrow $7 range in the session so far. U.S. gold futures eased 0.2% at $2,038.80. The Fed's most favoured inflation gauge, U.S. PCE inflation data, is due at 1330 GMT. "It's fair to say that the market has reduced expectations so much by now that the data probably has to disappoint quite a bit for the markets to reduce the rate cut expectation even further," said Ole Hansen, Saxo Bank's head of commodity strategy. Fed officials this week indicated there is still some distance to cross in meeting the 2% inflation target, but the door is opening for interest rate cuts, which might likely happen later this year. Investors have trimmed bets to three quarter-point rate cuts in the U.S. for 2024, from bets of five cuts a month ago. Higher-for-longer rates tend to discourage investment in non-yielding gold. Spot gold was little changed on a month-on-month basis so far, after logging a 1.2% decline in January. "We also saw this month the physical demand from India, China and the central banks has not gone away and that's still providing a floor under the market and probably also one of the reasons why gold has managed so well even though we have seen continued selling in gold ETFs," Hansen said. Holdings of SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, are at their weakest levels since July 2019. In other metals, spot silver fell 0.6% to $22.33 per ounce, platinum climbed 0.3% to $880.85, and palladium rose 0.2% to $930.33. https://www.reuters.com/markets/commodities/gold-prices-steady-traders-await-key-us-inflation-report-2024-02-29/

2024-02-29 07:41

Air France-KLM posts record 2023 revenues but Q4 loss IAG positive on capacity for 2024 Both see strong demand Jet fuel prices, geopolitical uncertainty, wage talks weigh LONDON, Feb 29 (Reuters) - British Airways owner IAG (ICAG.L) , opens new tab and Air France-KLM remain upbeat as the post-pandemic travel boom continues, but the Franco-Dutch group's plunge to an unexpected loss at the end of 2023 highlights the challenges from high costs and conflicts. European airlines are reporting strong summer bookings as consumers continue to prioritise travel, but high jet fuel prices, geopolitical uncertainty and wage talks are clouding prospects. Case in point: Air France-KLM (AIRF.PA) , opens new tab swung to a loss in the last quarter of 2023, hit by higher costs and disruptions caused by conflict in the Middle East, sending its shares down 10% in early trade. IAG, however, saw its shares rise following strong 2023 results and reassuring comments over capacity for 2024, amid fierce competition for new planes and problems at manufacturers. IAG CEO Luis Gallego said the Middle East conflict had impacted mostly corporate demand in the last quarter of 2023 and the first quarter of 2024, but that was expected to recover. Unlike other airlines, IAG, which also owns Iberia, said it was not concerned over capacity for the year to come and was not expecting delays in Boeing (BA.N) , opens new tab deliveries this year. Gallego said that if the certification of Boeing's 737 MAX 10 was slowed down, IAG could convert to other variants. Boeing is grappling with quality issues and a regulatory crackdown following the blowout of a panel from a brand new Alaska Airlines MAX 9 during a flight on Jan. 5. "For the time being we aren't worried. We are sure they'll fix the situation," Gallego told a press call. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, welcomed IAG's drive to improve efficiency by reducing disruptions. "These are all great targets, but the pace of delivery is far from guaranteed. It's crucial that BA gets this right," she added. UNEXPECTED Q4 LOSS Both IAG and Air France-KLM said bad weather had impacted costs. In another example of possible clouds on the horizon, despite strong demand, analysts and investors have told Reuters that Lufthansa (LHAG.DE) , opens new tab would likely miss its 2024 profit margin goal as the German airline seeks to agree new, higher pay deals to end prolonged strikes. Air France-KLM reported record revenues for 2023 and an operating profit of 1.7 billion euros ($1.8 billion), in line with expectations. However, its fourth-quarter operating loss of 56 million euros was far short of analysts' consensus forecast for a profit of 88 million euros, according to a company poll. Still, Air France-KLM was able to pay down 1.3 billion euros in debt, much of which was amassed during the pandemic travel shutdown, leaving outstanding net debt at 5 billion euros. "We can be satisfied of our efforts to further strengthen our balance sheet and restore the Group's equity," Chief Executive Ben Smith said. The group said it expected that costs will not go up as quickly as they did in 2023, and added that for the summer of 2024 its capacity would be close to 2019 levels. Finance chief Steven Zaat said there was strong demand. "The problem is not selling the tickets. We can sell every seat we want," he said, adding the issue was having enough capacity. Bernstein analysts stressed that Air France-KLM's fourth quarter loss was impacted by one-off effects of disruption costs and the implementation of an employee shareholding plan. "Importantly, real-terms cost reduction looks set to continue, supporting margin expansion ahead," they added. Meanwhile, El Al Israel Airlines (ELAL.TA) , opens new tab said its fourth-quarter profit was boosted in part by bringing military reservists home and rivals cancelling flights to Tel Aviv due to the war in Gaza. The war against Palestinian militant group Hamas, which began on Oct. 7, "continues to have a dramatic impact on the Israeli economy, on the activities of the aviation sector and ... on El Al," the airline said. ($1 = 0.9230 euros) https://www.reuters.com/business/aerospace-defense/ba-owner-iag-gives-positive-2024-outlook-sustained-travel-demand-2024-02-29/

2024-02-29 07:04

CANBERRA, Feb 29 (Reuters) - Australia could be heading for its third-warmest summer on record, with many places likely to experience a warmer and drier period than normal from March to May, weather authorities said on Thursday. The weather has a huge impact on crop yields and livestock markets in Australia, a major exporter of agricultural commodities. It is now growing summer crops, such as sorghum and cotton, with planting of much larger crops of wheat, barley and canola set to begin around April and May. The Bureau of Meteorology (BOM) said most of Australia has at least an 80% chance of experiencing above average temperatures during the southern hemisphere autumn. "Australia is on track to have the third-warmest summer on record nationally, after 2018–19 and 2019–20," the bureau said in a statement. There was a 60% to 75% chance of below median rainfall across large parts of the country, including most of the states of New South Wales, Victoria, Queensland and the Northern Territory. But the chances of above or below median rainfall were roughly even elsewhere, such as most of South Australia and southern and central Western Australia, it added. The vast majority of Australia's grain is grown in Western Australia, New South Wales, Victoria and South Australia. Last year was Australia's eighth-warmest year on record, which the weather bureau attributed to climate change. Conditions swung from widespread flooding through the hottest winter and driest three months on record to heavy rainfall as the year ended. https://www.reuters.com/world/asia-pacific/much-australia-set-warm-dry-autumn-weather-bureau-says-2024-02-29/