2024-01-05 12:58

BUENOS AIRES, Jan 5 (Reuters) - The rally in Mexico's peso will probably lose some steam this year as an expected shift in central bank policy to a less restrictive approach could erode the currency's attractive rate spread, a Reuters poll showed. In 2023, the peso had its strongest performance against the dollar in more than three decades, as the central bank - known as Banxico - drove inflows by leaving its key rate at a multi-year high of 11.25% for much of the year to lower inflation. But now the peso is seen trading at 18 per dollar at year-end, potentially losing 5.4% from around 17 on Wednesday, according to the median estimate of 25 currency strategists polled Jan. 2-4. The expected drop is bigger than a consensus inflation forecast of 4.0% - meaning the currency will undergo some pressure from narrower rate differentials ahead, apart from the usual adjustment to rising consumer prices. "Central banks will begin to ease in 2024 and we anticipate rate spreads between Mexico and the United States will decrease by 100-150 basis points," said Montserrat Aldave, principal economist in Finamex. At 11.25%, Banxico's rate continues to offer a big margin over the U.S. Federal Reserve's range of 5.25%-5.50% for the cost of credit, which investors capitalize on in profitable so-called "carry trade" bets. Mexico's central bank could weigh a rate cut in the first quarter of 2024, the bank's governor said last month. Annual inflation stood at 4.32% in November, well below a 20-year record of 8.70% in August 2022. Meanwhile, the monetary outlook in the U.S. is less clear, even after the Fed's latest minutes showed a growing sense among policymakers inflation is under control and concerns about downside risks for the economy from restrictive policy. Foreign exchange strategists are also on the lookout for events surrounding Mexico's June 2 presidential election. Ruling party candidate Claudia Sheinbaum has a big lead over her main rival. "We do not expect any significant impact on the peso, since on previous (election) episodes volatility only increased one month before (the vote) and then dissipated afterwards," Finamex's Aldave said. Last year the peso gained 15%, surpassing the Brazilian real's 9% advance. The real is set to end 2024 0.6% weaker at 4.95 per dollar, but still moving close to the 5.0 mark for a third consecutive year. (For other stories from the January Reuters foreign exchange poll:) https://www.reuters.com/markets/currencies/mexico-peso-rally-lose-steam-this-year-lower-rate-spreads-2024-01-05/

2024-01-05 12:45

LONDON, Jan 5 (Reuters) - Sterling rose on Friday to a two-and-a-half week high against a weakening euro after various business data showed some evidence that Britain's economy was more resilient than feared in December. Britain's construction sector showed signs that it might have seen the worst of a slump caused by interest rates surging to a 15-year high of 5.25% in August. The S&P Global/CIPS UK construction Purchasing Managers' Index (PMI) rose in December to 46.8 from November's 45.5 but remained below the 50.0 growth threshold for a fourth month in a row. The all-sector PMI, combining the construction data with services and manufacturing figures released this week, rose to 51.7 in December from 50.2 in November, its highest since June. Separate data from mortgage lender Halifax showed that British house prices rose in annual terms in December for the first time in eight months, adding to signs of a stabilisation in the property market. In the meantime, an industry body said the British new car market witnessed its best year since the COVID-19 pandemic as easing supply chain issues helped fulfil pent-up demand for fleet vehicles. The pound rose 0.14% against the euro to 86.19 pence . Against a strengthening dollar , it fell 0.13% to $1.2665. Jane Foley, head of FX strategy at Rabobank, said it is still difficult to paint an optimistic picture for the sterling outlook, but she expects the euro to remain under pressure against the pound on a 12-month view amid ongoing struggles facing the bloc's largest economy. The euro zone inflation surged last month, while the contraction in euro zone business activity continued due to a persistent downturn in the dominant services industry. "We expect that Germany’s economic issues will weigh on the euro sentiment going forward and allow GBP to take back some ground," said Foley. Supporting sterling, traders are cutting back expectations of Bank of England (BoE) rate cuts this year. They now see around 120 basis points of cuts in 2024, compared to 140 bps expected on Thursday, according to money market pricing. Official data published last month suggested the UK economy could already be in a mild recession, while inflation in the UK fell more than expected in November to 3.9%, from 4.6% in October. But the BoE said it expects to keep rates elevated for some time to ensure that the 2022 surge in inflation is well in the past. https://www.reuters.com/markets/currencies/better-than-feared-data-sends-sterling-2-15-week-high-vs-euro-2024-01-05/

2024-01-05 12:25

LONDON, Jan 5 (Reuters) - Investors ploughed $123.1 billion into cash in the seven days to Wednesday, marking the largest such inflow since March 2023 and a record for the first week of a year, Bank of America said in a report published on Friday. The shift, which BofA said was typical for the first week of the year, follows 2023's record yearly inflow to cash of $1.3 trillion, as risk-averse investors fled to safe-haven assets and higher interest rates reduced investor demand for stocks. Citing data from fund flows and asset allocation data provider EPFR, BofA said investors bought $10.6 billion of bonds and $7.6 billion of stocks, but they shed $0.8 billion of gold. It was the second week in a row for inflows to equities, and eight out of the past ten weeks have seen inflows, totalling $82 billion, BofA added. Global equities are set to snap a nine-week winning streak as bets on aggressive central bank rate cuts were rolled back. The benchmark S&P 500 (.SPX) is up about 14% since the end of October, but declined 1.1% over Wednesday and Thursday, as investors grew nervous about expectations of near imminent interest rate cuts from the Federal Reserve. "Fed and yields dictating credit and stocks," BofA said. Energy stocks saw their seventh straight week of outflows, and the largest since July 2023 of $1.0 billion. U.S. small-cap stocks recorded a weekly inflow of $2.3 billion, their fifth weekly inflow in a row. BofA's bull & bear indicator, a measure of market sentiment, rose to 5.3 from 5.0 to the highest level since November 2021 though remained at a neutral signal, with BofA citing equity breadth, credit technicals and strong high yield inflows. https://www.reuters.com/markets/us/global-markets-flows-bofa-update-1-2024-01-05/

2024-01-05 11:52

Jan 5 (Reuters) - U.S. investors reduced holdings in equity funds, shifting to money market funds amid caution before key payroll reports, as a stock market rally eased and they awaited further evidence to support expectations of substantial Federal Reserve rate cuts. They purchased about $56.92 billion worth of U.S. money market funds in their biggest weekly net buying since November 29, while exiting about $5.54 billion worth of equity funds, data from LSEG showed. U.S. unemployment data on Thursday indicated a still resilient U.S. labour market, tempering hopes of deep rate cuts by the Federal Reserve this year. The release of monthly U.S. payrolls figures later in the day would further influence expectations about the timing and pace of rate cuts. After gaining for nine successive weeks, the S&P 500 (.SPX) has dipped about 1.7% in the first week of 2024 amid concerns that expectations for steep rate cuts might be premature. Investors pulled out $687 million, $1.37 billion and $652 million, respectively from U.S. large-, mid-, and multi-cap funds. Small-cap funds remained in demand, attracting $1.32 billion in a fifth straight week of net buying. Among sector funds, the tech sector led outflows, losing $879 million in net selling, followed by $361 million and $214 million worth of outflows respectively from industrials and real estate sectors. Conversely, U.S. bond funds experienced $4.44 billion worth of purchases, the first weekly inflow in six weeks. US short/intermediate government & treasury funds received a significant sum of $3.25 billion as investors snapped an eight-weeks-long selling streak. Short/intermediate investment-grade, and general domestic taxable fixed income funds also received about $1.75 billion and $614 million, respectively. https://www.reuters.com/markets/us/investors-flee-us-money-market-funds-caution-rate-cut-optimism-cools-2024-01-05/

2024-01-05 11:46

LONDON, Jan 5 (Reuters) - Major rivers across Britain were flooded on Friday after heavy rain, with the government issuing more than 300 flood warnings, travel operators announcing serious disruption and around 1,000 homes suffering damage so far. A succession of storms in recent weeks meant prolonged rainfall that started on Thursday fell on saturated ground and quickly caused already-swollen rivers and waterways to burst their banks across England and Wales. The storms have also caused flooding in other parts of Europe in recent days. The River Trent in central England flooded, prompting the local authority to declare a major incident. London's fire service said it had to escort around 50 people to safety late on Thursday after a canal in the east of the capital overflowed. "We have woken up to, as many people will see, to a very wet situation across the country," Caroline Douglass, the director in charge of flood management at the Environment Agency, told the BBC. Douglass said around 1,000 homes had so far been flooded. Great Western Railways said its lines in three parts of the south of the country were closed. Roads in the worst affected areas were also closed. More rain was forecast for Friday, albeit not at the same intensity as seen overnight, with drier weather expected to follow. https://www.reuters.com/world/uk/britain-hit-by-flooding-after-heavy-rain-swells-major-rivers-2024-01-05/

2024-01-05 11:06

LONDON, Jan 5 (Reuters) - The United Nations food agency's world price index ended last year about 10% below its 2022, with values in December also down from the previous month, helping further ease concerns over global food price inflation. The Food and Agriculture Organization's (FAO) price index, which tracks the most globally traded food commodities, averaged 118.5 points in December, down 1.5% from November and 10.1% below December 2022 levels. For 2023 as a whole, the index averaged 13.7% below year earlier levels, with only sugar prices higher over the period. The FAO's sugar price index did, however, decline 16.6% in December from November. This was "mainly driven by the strong pace of production in Brazil, along with reduced use of sugarcane for ethanol production in India," the UN agency said in a statement. The FAO's cereal price index rose 1.5% in December from November, as wheat, maize, rice and barley prices all rose amid hindered shipments from major exporting countries. For the year as a whole however, cereal prices were 15.4% below their 2022 average as markets are well supplied with the exception of rice. The largest price falls were in vegetable oils, with the price index slumping 1.4% in December, from November, and a substantial 32.7% drop for the year as a whole. The FAO's meat price index dipped 1.0% in December from November and was down 1.8% year-on-year, while the December diary price index rose 1.6% month-on-month, but was down 16.1% from a year earlier. https://www.reuters.com/markets/commodities/world-food-price-index-ends-2023-some-10-below-2022-levels-2024-01-05/