2023-12-13 16:13

LONDON, Dec 13 (Reuters) - Goldman Sachs (GS.N) expects a "significant uptick" in trading volumes of blockchain-based assets within the next one or two years, the bank's global head of digital assets told Reuters. The Wall Street heavyweight has also seen increasing client interest in crypto derivatives trading, Mathew McDermott said, as markets expect the U.S. securities regulator to soon approve an application for a spot bitcoin ETF (exchange-traded fund). Bitcoin has risen by more than 50% this quarter with institutional clients including hedge funds and asset managers weighing the opportunities. But McDermott said he remains focused on developing digital assets beyond cryptocurrency, including issuing blockchain-based tokens which represent traditional assets such as bonds. He said there was a “huge appetite” for digital assets, which has "grown significantly" in the last 12 months. Banks have long expressed interest in using blockchain technology to trade assets other than cryptocurrencies, but to do so on a large scale would require a major overhaul of the technology infrastructure underpinning financial markets. McDermott said using blockchain could bring operational and settlement efficiencies and the "de-risking" of financial markets. If securities were traded via blockchain, collateral and liquidity could be sent between parties more quickly and precisely, he added. Having spent seven years attempting to re-build its software platform around blockchain, Australia's stock exchange "paused" the project last year and announced in May that the upgrade would no longer involve the technology. And while there have been various pilot projects to issue blockchain-based versions of, for example, bonds, there is no routine issuance or liquid secondary market. "Probably within the next one to two years you’ll see a big significant uptick in the quantum trading on-chain, probably three to five years to really see these marketplaces at scale," McDermott said. Still, he thinks replicating the majority of financial markets exclusively on blockchain is a long way off. A survey of Goldman Sachs' clients, published in September, found that 16% of respondents expect more than 10% of the financial market to be "tokenised" in the next three to five years. As part of its FX desk, Goldman runs a team trading cryptocurrency derivatives- but not the underlying asset- for institutional clients, McDermott said. "It's all relative, because it's still a very, very, very small market but definitely as the market's getting more excited about the potential of a bitcoin ETF, there's definitely been more interest," McDermott said. McDermott said he did not expect the approval of the ETF to trigger a "sudden immediate spike in liquidity and price" but it could attract new institutional investors to the asset class. "This ability to actually transact a product that people are familiar with and can provide scale, I think is very positive." https://www.reuters.com/business/finance/goldman-sachs-digital-assets-chief-sees-huge-appetite-blockchain-assets-2023-12-13/

2023-12-13 13:56

COPENHAGEN, Dec 13 (Reuters) - Sweden's Transport Workers' Union said on Wednesday it would stop collecting waste at Tesla's workshops in Sweden, joining a wave of action by labour groups aimed at pressuring the automaker into accepting collective bargaining rights for staff. The electric carmaker faces a backlash in the Nordic region from unions and some pension funds over its refusal to accept a demand from Swedish mechanics for collective bargaining covering wages and other conditions. Dockworkers, drivers, electricians, postal employees and cleaners are refusing to service Tesla in sympathy with striking mechanics. "This type of sympathy action is very rare. We are using it now to protect the Swedish collective agreements and the safety of the Swedish labour market model," President of the Swedish Transport Workers' Union, Tommy Wreeth, said in a statement. "Tesla can't ignore the norm on the Swedish labour market," he added. The strike will begin on Dec. 24 unless Tesla signs a collective bargaining agreement with Swedish union IF Metall, the Transport Workers' Union said. In a legal setback for Tesla, a Swedish court of appeal said it had overturned a ruling that allowed the company to collect licence plates directly from the manufacturer, sending the case back to a lower court for renewed examination. The U.S. car maker has sought the court's permission to collect the licence plates from the producer in order to circumvent Swedish postal workers blocking the delivery. Tesla, which has revolutionised the electric car market, says its Swedish employees have as good or better terms than those the union is demanding. The carmaker did not immediately respond to a request for comment. Norway's $1.5 trillion sovereign wealth fund, the world's largest stock market investor and Tesla's 7th biggest owner, last week said it would continue to push the U.S. automaker to respect labour rights including collective bargaining. https://www.reuters.com/business/autos-transportation/swedish-labour-union-stop-collecting-tesla-waste-sweden-2023-12-13/

2023-12-13 12:04

NEW YORK, Dec 13 (Reuters) - U.S. Treasury market participants hope the securities regulator will heed pleas for a careful phase-in of a rule it is due to finalize on Wednesday that would force more central clearing of transactions in a seismic overhaul of the $26 trillion market. The top five Securities and Exchange Commission (SEC) officials are scheduled to vote at 10:00 a.m. ET on the rule. It was proposed over a year ago in a broad effort to boost Treasury market resilience during liquidity crunches, when buyers and sellers find it hard to complete transactions. If adopted, the reformswould mark the most significant changes to the world's largest bond market, a global benchmark for assets, in decades. "This is going to significantly change the Treasury market landscape," said Angelo Manolatos, macro strategist at Wells Fargo Securities, citing "a lot of costs." The rule could also potentially increase systemic risks by concentrating risk in the clearing house, he added. A central clearer acts as the buyer to every seller, and seller to every buyer. Overall, just 13% of Treasury cash transactions are centrally cleared, according to estimates in a 2021 Treasury Department report, referring to the outright purchase and sale of those securities. The draft rule, which applied to cash Treasury and repurchase agreements, was partly aimed at reining in debt-fueled bets by hedge funds and proprietary trading firms. These firms have accounted for a growing chunk of the market over the past decade but are lightly regulated, allowing few insights into their activities. Many details about the final rule remain unknown, including the effective date, whether it would be adopted in phases, the scope of instruments, and parties included. Advocates for central clearing, including the SEC, say the rule makes markets safer, while critics say it adds costs and are concerned about the possibility of a hurried phase-in. "It is critical that policymakers do not blindly tinker with (the Treasury market's) underpinnings," wrote Jennifer Han, head of Global Regulatory Affairs at the Managed Funds Association in a Dec. 4 letter. The MFA stressed the market infrastructure needs to be more fully developed and recommended improving the way clients access clearing. Hedge fund and market maker Citadel said in a comment letter that the clearing requirement for cash transactions should be expanded beyond hedge funds to include a broader range of investors, leveling the playing field. Another key issue is whether the SEC will require minimum "haircuts" on collateral pledged against trades, which would raise trading costs and potentially reduce market liquidity. A haircut is a percentage deduction from the collateral value. Industry practice suggests that a large share of hedge funds trading in repo markets put up no haircut, suggesting that they are fueling activity using enormous amounts of cheap debt. The Depository Trust and Clearing Corporation's (DTCC) FICC subsidiary clears Treasuries and could be tasked to come up with rules. "The implementation timeline is quite important," said Gennadiy Goldberg, head of US rates strategy at TD Securities USA. "And what are the haircuts? Those are the two big questions that the market is going to be asking." STEADYING THE MARKET The rule is part of a series of reforms designed to boost Treasury market resilience following liquidity crunches. In March 2020, for example, liquidity all but evaporated as COVID-19 pandemic fears gripped investors. "While central clearing does not eliminate all risk, it certainly does lower it," said SEC Chair Gary Gensler in the 2022 press release announcing the proposed rule. The DTCC said in a comment letter that during times of market stress, market participants submit a greater volume of transactions for clearing to limit their credit risk. Jason Williams, director of U.S. rates research at Citi, said there were pros in having additional margin in the system but balancing that are higher costs. "It's going to be an interesting juggling act," he added. https://www.reuters.com/markets/us/us-treasury-market-braces-overhaul-vote-clearing-looms-2023-12-13/

2023-12-13 11:49

Dec 13 (Reuters) - Southwest Airlines (LUV.N) on Wednesday raised its forecast for fourth-quarter fuel costs, sending its shares down 1.4% in premarket trading. The carrier, however, expects unit revenue for the quarter to improve to the higher end of its previous guidance range on the back of strong leisure demand. Southwest forecast economic fuel costs of $3.00 to $3.10 per gallon, compared with its previous estimate of $2.90 to $3.00 per gallon. It expects operating revenue per available seat mile (RASM) to be down in the range of 9% to 10% year-over-year. The airline had earlier expected its RASM to fall in the range of 9% to 11%. https://www.reuters.com/business/aerospace-defense/southwest-airlines-raises-fuel-cost-forecast-fourth-quarter-2023-12-13/

2023-12-13 11:23

NEW YORK, Dec 13 (Reuters) - For a Federal Reserve that is actively weighing an end to aggressive rate hikes aimed at lowering inflation, easing financial conditions over recent weeks, on the face of it, appear more a foe than friend of monetary policy. Since summer’s end, Goldman Sachs’ closely watched financial conditions index, a measure of financial market tightness, surged to its highest point of the year amid a huge rout in the Treasury bond market, only to ease aggressively at the end of October, returning the index to where it was on the last day of August. That shift complicates the Fed’s narrative. Since the spring, policymakers have argued a broad tightening in financial conditions tied to their policy as well as banking sector stress was ginning up economic restraint and greasing the path back toward their 2% inflation target. That suggests looser financial conditions should make it harder to foster lower inflation. But current and former Fed officials and a number of private sector economists say it isn’t that straightforward, arguing the evolution of financial conditions must be viewed over a longer horizon. Moreover, some caution against focusing on broad indexes in favor of a more focused look at the real-world borrowing costs that can promote or hinder growth. On that front, things like home loan costs, access to credit and other borrowing are still stringent and likely to moderate activity. How this might be affecting Fed thinking at its Dec. 12-13 policy meeting depends on how policymakers view both the rapid tightening of conditions and subsequent pullback. William English, a former top Fed staffer who is now at Yale University, said that if the tighter financial conditions seen over part of the fall had persisted it might have affected forecasts for the economy. "But at this point," with all that’s happened over recent months, "I assume this won't have a consequence for the meeting coming up,” he said. PERSISTENCE PUZZLE The Fed, in its policy meeting concluding Wednesday, is almost certain to keep the federal funds rate where it's been since July at between 5.25% and 5.5%. Markets, broadly convinced the Fed is done with rate hikes, have turned to betting on rate cuts. Chair Jerome Powell is sure to face questions on how the recent shift in financial conditions will factor in this outlook. New York Fed President John Williams on Nov. 30 acknowledged both the tightening of financial conditions in part due to the increase in Treasury yields since summer and the more recent easing, noting that given volatility in financial markets he was taking a longer view. “I would go back to the question that was always foremost in my mind, which was how persistent is this going to be,” he told reporters, adding recent market moves appear yoked to how much compensation investors are demanding to deal with uncertainty over the future. Some economists reckon a focus on the year as a whole is the right formula for the Fed right now: Both Goldman's index and the Fed’s own financial conditions index remain tighter than where they started the year, though one from the Chicago Fed suggests conditions are the loosest since the Fed kicked off its rate hikes in March 2022. Matthew Luzzetti, economist with Deutsche Bank, noted the real - or inflation adjusted - 10-year Treasury yield often cited by Powell is below 2% now after surpassing 2.5% at the end of October. “During the summer it was 1.5% or 1.6%, so it is still, I think, meaningfully higher than it was over the summer months,” he said. Analysts at Piper Sandler, however, said in a note the easing would be relevant to near-term monetary policy. "Much of the rationale for the Fed’s November skip has dissipated" with the recent drop in yields. From their perspective, "A December hike, one for the road, is far from off-the-table" to correct the shift in market pricing. REAL WORLD RESTRAINT One way bond market shifts have affected the real economy is by significantly boosting the cost of buying a home. From the start of 2021, when 30-year fixed-rate mortgages sported rates below 3%, they rocketed to just shy of 8% at the start of November, before retreating toward the current 7% mark. That still-high level is “the punch line” to the financial conditions story, said Charles Evans, who retired from leading the Chicago Fed earlier this year. “When mortgage rates are 6, 7, 8 percent, that's very meaningful for the path of the economy,” Evans said. Add to that the slower-moving rises in different corporate borrowing costs that are only catching up to much higher short-term rates, “you can see where eventually it hits,” and it’s not toward easier borrowing conditions. Meanwhile, former St. Louis Fed leader James Bullard, now dean of Purdue University’s business school, said the Fed could have spared itself this headache by not referring to financial conditions in general terms. For one thing, he said broad indexes take in stock price shifts, which are something Fed officials typically don’t care much about. What’s more, Bullard said for all the market moves, underlying interest rates tied to monetary policy remain quite restrictive, which should help keep market levels in line with what the Fed wants. His current assessment of what constitutes tight policy would have the federal funds rate between 3.5% and 5.75%. With the current rate near the higher end of that range, he said, “I think that's probably a good place to be if you're trying to get inflation to come down pretty rapidly.” https://www.reuters.com/markets/us/meeting-fed-must-weigh-if-financial-conditions-now-hindering-goals-2023-12-13/

2023-12-13 11:21

BUENOS AIRES, Dec 13 (Reuters) - The relentless pace of creeping prices in Argentina provides the new president's plan for immediate shock therapy little margin for error, with many citizens already wondering how they will survive annual inflation nearing 150%. President Javier Milei's economy chief laid out the new government's initial policy push on Tuesday, targeting deep cuts to public spending and a sharp currency devaluation that will stoke short-term inflation as it hopes to staunch the bleeding in the country's worst economic crisis in decades. Economy Minister Luis Caputo, like Milei in his first few days on the job, announced the value of the peso currency will be halved, public work tenders halted and energy and transport subsidies reduced. The government will also, however, double social spending for the poorest. "What I see is everything getting more expensive almost every day, and I don't know for how long we'll be able to make it, because if salaries stay low and prices keep rising there won't be enough to eat," said 63-year-old retiree Maria Cristina Coronel. Just to survive, many people are scouring markets in a race against time to find the best prices, which are updated daily in many stores. The country's annual inflation rate is approaching 150% and the poverty rate at 40% and growing, as many pin their hopes on Milei's turnaround pitch, though he has said things will get worse before they get better. In his inaugural address on Sunday, the radical libertarian outsider said monthly inflation will likely range between 20% to 40% through February. He warned that hyperinflation of some 15,000% could materialize if government spending is not dramatically rolled back. "There's no money," Milei repeated during his somber speech, a slogan that is now emblazoned on T-shifts sold on the streets of the capital. "Last time I went to the butcher, I saw people buying just a quarter (kg) (0.55 pounds) of ground beef or chicken breast. I've never seen that," said Beatriz Nunez, a 62-year-old shopkeeper, underscoring the grim day-to-day reality. "But we have to have faith," she added. "We hope everything will change." Many share her hope for change, which buoyed Milei to a resounding victory over a center-left Peronist government viewed by most as a failure. "I see an opportunity for them to change this once and for all because people are in favor of it changing," said Ricardo Soccola, a merchant from the outskirts of Buenos Aires. But even as many cash-strapped Argentines want Milei to succeed, his task is made even harder due to his lack of majority support in Congress, which will also need to approve many of his proposals. https://www.reuters.com/markets/argentinas-surging-prices-add-urgency-new-presidents-plan-2023-12-13/