2023-12-14 17:55

FRANKFURT/BRUSSELS, Dec 14 (Reuters) - Austria is seeking to have Raiffeisen Bank International, the biggest Western bank in Russia, struck off a Ukrainian blacklist in return for signing off fresh European Union sanctions on Russia, said two people familiar with the situation. Austria and the bank wants it to be taken off a Ukrainian list dubbed "international sponsors of war" - which sets out to shame companies doing business in Russia and supporting the war effort by, for instance, paying taxes. The latest push underscores Austria's deep economic bond with Russia, the bank's determination to keep its profitable business there, as well as a fading wider Western drive to isolate Moscow. Although Austria publicly supports Ukraine, several officials who spoke to Reuters have said they are reluctant to completely sever decades-old ties with Russia, thinking it will still be possible to restore relations. Earlier in October, Austria's foreign minister, Alexander Schallenberg, openly criticised that blacklist as arbitrary at a meeting of European ministers in Kyiv, said one person briefed on those discussions. Raiffeisen is the only Austrian company on the list. Austrian officials have flagged their concern about the list in Brussels, including at meetings of EU officials and diplomats in recent weeks, said three people with knowledge of the matter. Bank envoys also met representatives of Ukraine's National Agency of Corruption Prevention, which draws up the list, to discuss how to get the group off it, people familiar with the matter said. Some companies have been taken off, including Hungary's OTP Bank after the government pushed for its removal, a move that irked Austrian officials and the bank. "We find it unfair that we are on the list," said a spokesperson for the bank. The Austrian chancellery said legal documents concerning the EU sanctions had been presented on Tuesday, declining to comment further. CLOSE BOND Raiffeisen's presence underlines the depth of relations between Austria and Russia, which maintain close ties through Russian gas pipelines and finance, with Vienna a hub for cash from Russia and its former Soviet neighbours. Austria's lobbying, echoing similar moves by Hungary, risks undermining Europe's alliance on Ukraine. Ukraine's Western allies have poured billions of dollars of financial and military aid into Ukraine and backed sweeping sanctions against Russia, but more than 21 months into the war Kyiv is now finding it harder to keep this staunch backing. Kyiv hopes to secure two major aid packages from the United States and European Union for next year, but both packages have encountered political resistance and become bogged down in debate. While the blacklist has no legal standing, it is symbolically important, reinforcing public pressure on Raiffeisen to quit Russia, something the bank is said it is willing to do but which has yet to happen. Although Italy's UniCredit also has a business in Russia, Raiffeisen is far larger and has become a test of western resolve to end ties with Russia. Raiffeisen (RBI) had intended to spin off its Russian business, which provides a payment lifeline to hundreds of companies there, after coming under pressure from international regulators. Russian authorities had made it clear to RBI, which has around 2,600 corporate customers, 4 million local account holders and 10,000 staff, that they wish it to stay because it enables international payments, one source told Reuters. Key Austrian officials are fighting RBI's corner and redoubling efforts to rebuff pressure on the bank, which is part of an industrial combine that underpins the country's economy. Raiffeisen's presence in Russia has proved divisive within its management as well as among the regional Landesbanks that control the group, with some advocating it leaves. https://www.reuters.com/markets/europe/austria-stalls-russian-sanctions-over-raiffeisen-blacklisting-sources-2023-12-14/

2023-12-14 17:38

Markets race ahead with rate cut bets Fed fuels market fever, BoE cautious Investors complacent on recession risks LONDON, Dec 14 (Reuters) - Markets have raced ahead of the U.S., euro zone and UK central banks to price in sizeable and frenetic interest rate cuts next year, fueling a so-called everything rally that could now be vulnerable to a correction. The U.S. Federal Reserve on Wednesday signaled it would cut rates more than previously outlined, sending global stocks and bond prices surging as markets priced in six quarter-point rate cuts in 2024, double the number projected by Fed officials. The exuberance rushed over the Atlantic even as the Bank of England and the European Central Bank, holding borrowing costs steady, pledged on Thursday to keep monetary conditions restrictive as long as necessary. European stocks hit their highest in almost two years (.STOXX) after Wall Street stocks neared a record high the day before. The benchmark 10-year U.S. Treasury yield dipped below 4% for the first time since August , while German Bund yields hit nine-month lows . The European moves were dominated by "market pricing in the U.S., which is quite eye-popping," said Chris Jeffrey, head of rates and inflation strategy at Legal & General Investment Management. "We struggle to work out what kind of world we're in where you have 150 basis points of cuts in the U.S. next year without a recession," he added, explaining that while LGIM was positive on government debt it was "not chasing the rally." Economists polled by Reuters expect the world's largest economy to grow by 1.2% next year. INFLATION CHEER While rate cut pricing was pared back slightly after the ECB and BoE meetings, the scale of the cuts priced in remains significant, with investors cheered by signs inflation is falling fast. Euro zone inflation tumbled more than expected to 2.4% in November, while in Britain it slowed to 4.6% in October, also lower than expected. ECB president Christine Lagarde said "underlying" price pressures were moderating more than the ECB expected. Traders now expect the central bank to lower its deposit rate from 4% to about 2.5% by next December, having added more than a 50% chance of an additional rate cut since Thursday. They anticipate roughly 110 bps of UK rate cuts next year, more than before the Fed and even as the BoE cautioned rates -- at a 15-year high of 5.5% -- would stay restrictive. The level of rate cuts now priced for the ECB reflected a "very very gloomy" economic and inflation outlook, said Danske Bank chief analyst Piet Christiansen. "It seems quite an economic crisis scenario where you need to cut 150 basis points in one year," he said, adding the risk is for government bonds to sell-off. Rabobank warned that financial conditions had now eased "in such a rapid and significant way" that they could push economic growth and inflation higher, making central banks reluctant to cut rates. Germany's rate-sensitive two-year bond yield , touched 2.458%, on Thursday, its lowest since March. UK two-year gilt yields, at around 4.32%, were set for its biggest weekly drop since March. RALLY ON Meanwhile riskier European assets also rallied, suggesting investors in equities and high yield bonds were not concerned about the economic outlook. European bank stocks , which are sensitive to worries about companies defaulting on debt, rose 0.8% on Thursday. The cost of insuring exposure to debt defaults by junk-rated European borrowers dropped to its lowest since March 2022. High yield debt, in general, was "pricing a high degree of the best case economic outcome," Tom Ross, global head of high yield at fund manager Janus Henderson, said. UK assets meanwhile also reflected a divergence of economic outlooks. Britain's economy unexpectedly shrank in October, data on Wednesday showed, in a boost for gilts. Nonetheless, sterling also strengthened against the dollar on Thursday, gaining 0.9% to $1.2731 . Retailers listed on Britain's FTSE 350 index rose 2.75%. For now, markets were simply rising in a burst of relief that a rapid rise in global inflation since late 2021 was going into reverse, investors said. "The market is looking at the real economic numbers and they see inflation coming down and the potential for lower rates," said Gerard Fitzpatrick, head of fixed income at Russell Investments, speaking ahead of the Fed's Wednesday meeting. "Investors are likely to paint a lot of this in a similar broad brush that inflation was a global story… and it's sort of receding as a global story." Markets believed that "central banks as a whole are in roughly similar places," added Moyeen Islam, fixed income strategist at Barclays. "Their near term paths are probably coalescing and converging." https://www.reuters.com/markets/rates-bonds/global-markets-central-banks-analysis-pix-graphics-2023-12-14/

2023-12-14 17:34

BOGOTA, Dec 14 (Reuters) - There is no consensus among analysts as to whether Colombia's central bank board members will cut the key interest rate or hold it in the next monetary policy decision, as they battle to tame inflation and an economic slowdown, a poll showed on Thursday. Nine of 20 analysts surveyed by Reuters said the bank would keep the benchmark interest rate at 13.25%, its highest point in 24 years. The other six analysts predicted a 25 basis points cut for the rate and the remaining five forecast it will be trimmed 50 basis points to 12.75%. Divisions among analysts mirror those of the seven-member central bank board, which decided to hold the rate in the last two meetings in split decisions. Policy-makers will likely decide to hold the rate at current levels to assess year-end data and minimum wage changes before making cuts, said Andres Pardo, Chief LatAm Macro Strategist at XP Investments. "Nonetheless, we cannot rule out the possibility of a small 25-bps rate cut at this month's meeting as economic activity weakness seems to be gathering increased attention by the bank's board", he added. Bets on a rate cut grew after the country's gross domestic product (GDP) shrank 0.3% in the third quarter and November inflation showed signs of easing. Annual inflation stood at 10.15% in November, below market estimates but still far from the central bank's target of 3%. "It is time to start lowering rates," Finance Minister Ricardo Bonilla said during an event on Thursday, adding inflation has been stabilizing and is set to end the year in single digits. According to the survey, the reference interest rate would close at 8% next year and at 5.5% in 2025. https://www.reuters.com/markets/rates-bonds/time-rate-cut-colombian-analysts-divided-over-cenbanks-next-move-2023-12-14/

2023-12-14 17:09

LONDON, Dec 14 (Reuters) - Markets think it's all over. After a lengthy and historic monetary tightening campaign to battle high inflation, major central banks are keeping high interest rates steady for now as traders price in rapid cuts ahead. U.S. Federal Reserve chair Jerome Powell, said on Wednesday, "we've done enough." The European Central Bank and the Bank of England on Thursday left rates on hold, but the BoE pushed back against rate cut bets, while Norway surprised with a rate hike. Major rate setters have hiked borrowing costs by 4,015 basis points (bps) so far this cycle, with Japan the holdout dove. Here's how they stand, in terms of the scale of rate hikes in this cycle. 1) UNITED STATES The Fed unleashed a fresh wave of optimism in markets on Dec. 13 by holding its key rate at 5.25% to 5.5% and releasing officials' surprisingly dovish projections for 75 bps of cuts in 2024. Powell noted inflation was easing faster than expected and rate cuts were coming "into view", all but confirming a period of aggressive monetary tightening by the world's most influential central bank is over. Markets raced ahead of Fed officials' forecasts to predict the funds rate would be around 150 bps lower by next December . 2) NEW ZEALAND The Reserve Bank of New Zealand held its interest rate at a 15-year high of 5.5% in November but surprised markets by upwardly revising its forecast for the peak in rates to 5.69%. Markets bet the central bank is finished with hikes, with easing priced in as early as May. 3) BRITAIN The BoE pushed back against market rate-cut speculation on Thursday, leaving its key rate at a 15-year high of 5.25% and said rates would need to stay high for an "extended period." Markets trimmed rate cuts bets following that comment but still price in over 100 bps worth of easing next year. 4) CANADA The Bank of Canada on Dec. 6 left its benchmark interest rate on hold at a 22-year high of 5% but left the door open to another hike, saying that financial conditions have eased and it was still concerned about inflation. 5) EURO ZONE The ECB is expected to be one of the first major central bank to start cutting rates next year as the economic outlook sours. It held its deposit rate steady at 4% on Thursday and signalled an early end to its last remaining bond purchase scheme, wrapping up a decade-long experiment in hoovering up debt across the euro zone. Markets price in roughly 140 basis points worth of rate cuts in 2024 . 6) NORWAY The Norges Bank raised its key rate by 25 bps to 4.50% in a decision that surprised markets, adding it would likely stay put for some time from here. While core inflation in November at 5.8% was below the central bank's 6.1% forecast, the Norwegian crown has traded consistently weaker than it expected, potentially stoking inflation. 7) AUSTRALIA The Reserve Bank of Australia held interest rates steady in December at 4.35% and markets expect rate cuts from mid-2024. Australian inflation slowed unexpectedly to 4.9% in October and the economy barely grew in the third quarter as increased mortgage costs hit consumer spending. 8) SWEDEN Economists and traders think Sweden's central bank is likely done raising rates, after holding them at 4% in November. High borrowing costs have pressured commercial real estate firms. The IMF expects Sweden's economy to have contracted this year. Swedish inflation slowed to 3.6% year-on-year in November, down from 10.2% in December 2022. 9) SWITZERLAND The Swiss National Bank on Thursday held interest rates at 1.75% for a second straight meeting after inflation stayed within the central bank's 0% to 2% target for a sixth consecutive month in November. Economists see the SNB holding rates until September, although money market pricing shows investors are eyeing cuts from March. 10) JAPAN The Bank of Japan's concludes a two-day meeting on Tuesday and Governor Kazuo Ueda will aim to recognise inflationary pressures without suggesting an imminent end to negative interest rates. More than 80% of economists expect the BOJ to end this long-held policy next year, with many tipping a move in April. The BOJ in October changed a 1% cap on Japan's 10-year bond yield to a loose "upper bound," enabling long-term borrowing costs to rise gradually. https://www.reuters.com/markets/rates-bonds/major-central-banks-hold-rates-steady-markets-eye-rapid-cuts-2023-12-14/

2023-12-14 17:07

Dec 14 (Reuters) - The average interest rate on the most popular U.S. home loan fell this week to below 7% for the first time since August as Treasury market yields dropped sharply after the Federal Reserve firmly signaled it is nearing cuts to its policy rate. The average contract rate on a 30-year fixed-rate mortgage fell to 6.95% this week from 7.03% in the prior week, according to a Freddie Mac survey released on Thursday. The yield on the 10-year Treasury note acts as a benchmark to set home loan costs. Borrowing costs for home purchases had reached two-decade highs near 8% in October. Yields were already falling but tumbled further after the U.S. central bank left interest rates unchanged on Wednesday and Fed Chair Jerome Powell said its tightening cycle is likely over with discussions on cutting rates coming "into view" given inflation has been falling faster than expected. The anticipation that the Fed will cut rates faster and sooner than previously thought caused the bond market to extend its monster rally on Thursday, with U.S. benchmark 10-year yields on Thursday sinking to their lowest level since July. Two-year yields fell to their lowest level since May. Daily average mortgage rates have fallen to 6.82%, their lowest level since May, Redfin also reported on Thursday, citing Mortgage News Daily data. It is the first time daily rates have fallen below 7% since July. Mortgage payments are also at their lowest level since April, according to Redfin data. The median U.S. mortgage payment was $2,503 as of the four weeks ending Dec. 10, down $233 from October's record high. https://www.reuters.com/markets/us/us-mortgage-rates-fall-below-7-first-time-since-august-2023-12-14/

2023-12-14 16:42

ECB holds rates at record highs Cuts 2024 inflation, GDP forecasts No lowering of the guard, vows Lagarde FRANKFURT, Dec 14 (Reuters) - The European Central Bank pushed back against bets on imminent cuts to interest rates on Thursday by reaffirming that borrowing costs would remain at record highs despite lower inflation expectations. Laser-focused on fighting the most severe bout of inflation in a generation, the euro zone's central bank left borrowing costs unchanged and did not even hint at a possible reduction. ECB President Christine Lagarde highlighted instead that inflation would soon rebound and price pressures remain strong. That was in stark contrast to the more dovish tone taken by her U.S. Federal Reserve counterpart Jerome Powell on Wednesday. "We don't think that it's time to lower our guard," Lagarde told a news conference. "There is still work to be done ... that can very much take the form of holding (rates)." Lagarde, who described herself as "in COVID recovery mode" and spoke more quietly than usual, said policymakers "did not discuss rate cuts at all". In a smaller policy change, the ECB unveiled plans to phase out its last surviving bond-buying scheme - a legacy of the COVID-19 pandemic. "It's definitely not a shift to the dovish side like the Fed," Mohit Kumar, chief European economist at Jefferies, said. "Rates will need to be kept at these levels for some time." Inflation in the euro zone stood at 2.4% in November although it was expected to rebound somewhat in the coming months due to some tax changes and a lower basis of comparison a year earlier. While acknowledging that underlying price pressures were also easing, Lagarde said domestic inflation, largely driven by wage costs across the 20 countries that use the euro, was "not budging". "We need to better understand what is happening there," Lagarde said of those wage dynamics, and to what extent higher salaries would be absorbed by companies. In her only hint at the timing of a possible rate cut, Lagarde said the first half of next year would be particularly "rich" in data, implying that a move was unlikely before June or July. Traders only slightly trimmed their bets on ECB rate cuts, which are now seen starting in April rather than March and totalling nearly 150 basis points next year, compared to as much as 160 basis points before Thursday's decision. That would be a sharp reversal from the sequence of 10 consecutive increases that ended in September. "We think that it would require a sharper economic downturn and/or inflation sustainably falling below 2% to see the central bank cutting rates by as much as ... currently priced in," Carsten Brzeski, global head of macro at ING, said. After Thursday's decision, the ECB's deposit rate stays at a record-high 4%. It was at minus 0.5% in July 2022. WEAKER GROWTH AND INFLATION The ECB's updated economic projections pointed to lower inflation and growth, particularly for next year. ECB staff expect headline inflation to average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026, closing in on the bank's 2% target. Lagarde repeatedly pointed out however that those forecasts were based on market prices before traders ramped up bets on ECB rate cuts earlier this month. This came on the back of a lower-than-expected inflation reading for November and comments from ECB board member Isabel Schnabel that were perceived as dovish. A sharp fall in bond yields since then has eased borrowing costs, therefore undoing the ECB's tightening and potentially helping fuel inflation. Bonds were given a further boost on Wednesday when the Fed, the world's most influential central bank, signalled that lower borrowing costs would come next year, with policymakers indicating up to three cuts. The rally in bond markets has had a silver lining for the ECB, too, however, as it allowed it to wind down its Pandemic Emergency Purchase Programme, unveiled at the onset of COVID to stabilise markets and fight off the threat of deflation. This was due to run in full until the end of next year but, with no stress in markets, the ECB said it would replace maturing bonds only through June and then phase out reinvestments in the second half of the year. https://www.reuters.com/markets/rates-bonds/ecb-leaves-rates-unchanged-starts-pulling-plug-bond-buys-2023-12-14/