2024-08-12 10:02

A look at the day ahead in U.S. and global markets from Mike Dolan Off-radar for much of the past week's market turbulence, U.S. inflation updates this week will reveal just how much latitude the Federal Reserve has to meet pumped-up expectations around its first interest rate cut next month. Helped in part by Monday's holiday in Tokyo - the epicenter of much of the recent volatility explosion - calmer world markets were barely recognizable from last Monday's wild ride. With the S&P500 (.SPX) , opens new tab ending last week basically unchanged despite days of outsize swings, the VIX (.VIX) , opens new tab volatility gauge has returned close to long-term means around 20. Worries about the U.S. labor market were soothed by falling weekly jobless claims and the aggregate corporate earnings picture remains robust, with annual profit growth for the S&P500 close to 14% through the second quarter with the reporting season now winding down. What the wave of jobs anxiety and market turbulence has embedded however is bigger bets on Fed easing - with futures still priced halfway between a quarter- and a half-point cut next month and seeing 102 basis points of easing to year-end. Whether the Fed has the confidence to go that far will hinge in part on inflation readings like those due this week. Unusually, the producer price inflation report on Tuesday precedes the CPI update. The former should remain soft, with headline annual PPI expected to have run as low as 2.3% in July. Monthly CPI readings of 0.2% should prove relatively benign for the Fed too, with "core" annual consumer price inflation forecast to have ebbed slightly to 3.2%. In other words, there should be nothing to scare the horses if the number comes in on consensus - with even Fed hawks now acknowledging it's time to ease as long as disinflation continues. "Should the incoming data continue to show that inflation is moving sustainably toward our 2% goal, it will become appropriate to gradually lower the federal funds rate to prevent monetary policy from becoming overly restrictive on economic activity and employment," Federal Reserve Governor Michelle Bowman said on Saturday. Bowman, who until recently insisted another rate hike was still on the table, nudged back on bets of big rate cuts based on the July employment report alone, saying it may have "exaggerated the degree of cooling". INFLATION EXPECTATIONS Before we get to the week's CPI report, the New York Fed , opens new tab gives a glimpse on Monday of household inflation expectations as it releases its July survey. Median 3- and 5-year outlooks have recently slipped back below 3%. And markets too appear to have lowered their inflation expectations during the upheavals of recent weeks. Ten-year "breakeven" inflation views embedded in inflation-protected Treasury securities fell to within a whisker of the Fed's 2.0% inflation target last week - their lowest since early 2021. Although they have firmed a bit since, they're still only at 2.1%. A green light for the Fed perhaps. The quieter start to the week has Treasury yields a fraction higher, though still below the 4.0% threshold breached over the past 10 days. The dollar index (.DXY) , opens new tab was a touch higher. Wall St stock futures and European indexes were a touch higher. Chinese mainland stocks (.CSI300) , opens new tab underperformed, with much of the market attention there on big swings in the government bond market over the past week. In deals, shares of BT Group (BT.L) , opens new tab jumped 6.6% after India's Bharti Enterprises agreed to buy around a 24.5% stake from the British telecommunication firm's top shareholder, Altice UK. Key developments that should provide more direction to U.S. markets later on Monday: * New York Fed's inflation expectations survey * US Treasury sells 3 and 6-month bills Sign up here. https://www.reuters.com/markets/us/global-markets-view-usa-2024-08-12/

2024-08-12 09:21

LONDON, Aug 12 (Reuters) - Sterling firmed slightly on Monday after four straight weeks of declines versus the dollar, as traders looked ahead to a run of British economic data this week that could influence how quickly the Bank of England (BoE) cuts interest rates. The BoE cut rates for the first time since 2020 at the start of this month, but was cautious on prospects for more easing. British employment data due on Tuesday, inflation figures on Wednesday and economic output data on Thursday could start to clear up the picture. Catherine Mann, an external member of the BoE's Monetary Policy Committee, said in a podcast released on Monday that goods and services prices were set to rise again and wage pressures in the economy could take years to dissipate. "The BoE's decision to begin cutting rates this month was a very close call and the guidance indicated that they are not in rush to cut again," currency analysts at MUFG said in a note. "[This week's data] will be important in helping the BoE to further assess inflation persistence risks in the UK." Sterling was last up 0.1% versus the dollar at $1.2764 . It had fallen to a more than five-week low of $1.26655 on Thursday. Against the euro, the pound was broadly flat at 85.54 pence per euro. Money markets show traders are pricing in further BoE rate cuts of 44 basis points (bps) by the end of this year, compared to 101 bps from the U.S. Federal Reserve. Sign up here. https://www.reuters.com/markets/currencies/sterling-pauses-traders-await-key-uk-economic-data-2024-08-12/

2024-08-12 08:36

JOHANNESBURG, Aug 12 (Reuters) - The South African rand was stronger on Monday at the start of a week filled with closely watched global and domestic economic data releases. At 1517 GMT, the rand traded at 18.20 against the dollar , about 0.7% firmer than its previous closing level. The U.S. dollar was down about 0.1% against a basket of global currencies. "Currency markets have continued to drift sideways in anticipation of the data-filled week," said Wichard Cilliers, head of market risk at TreasuryONE. "Emerging market currencies have firmed further after last week's sell-off, with the rand trading back at the R18.20 handle," Cilliers added. The rand is likely to take its direction this week from global data prints including U.S. consumer inflation data on Wednesday, and South African mining (ZAMNG=ECI) , opens new tab, unemployment (ZAUNR=ECI) , opens new tab and retail sales (ZARET=ECI) , opens new tab figures over Tuesday and Wednesday. The U.S. inflation reading will be scrutinised for clues on the Federal Reserve's monetary policy path, while the local data releases will show whether Africa's most industrialised economy gained any momentum in the middle of the year. Oxford Economics Africa said the domestic data releases were not expected to show much improvement, with the unemployment rate seen stuck around 32%, the mining sector dealing with supply-side constraints and subdued consumer demand continuing to pressure retail. On the Johannesburg Stock Exchange, the blue-chip Top-40 index (.JTOPI) , opens new tab closed about 0.1% down. South Africa's benchmark 2030 government bond was stronger, with the yield down 3 basis points at 9.36%. Sign up here. https://www.reuters.com/markets/currencies/south-african-rand-firms-start-data-packed-week-2024-08-12/

2024-08-12 07:12

US and EU banned banknote exports to Russia in 2022 Russia continues to import them, albeit in smaller volumes Cash is still easier for some trade transactions Some imports are payments to Russian state arms companies LONDON, Aug 12 (Reuters) - Around $2.3 billion in dollar and euro bills have been shipped to Russia since the United States and EU banned the export of their banknotes there in March 2022 following the invasion of Ukraine, according to customs data seen by Reuters. The previously unreported figures show Russia has managed to circumvent sanctions blocking cash imports, and suggest that dollars and euros remain useful tools for trade and travel even as Moscow strives to reduce its exposure to hard currencies. The customs data, obtained from a commercial supplier that records and compiles the information, shows cash was transported to Russia from countries including the UAE and Turkey, which have not imposed restrictions on trade with Russia. The country of origin for more than half the total was not stated in the records. The U.S. government in December threatened penalties for financial institutions that help Russia circumvent sanctions and has imposed sanctions on companies from third countries throughout 2023 and 2024. China's yuan has overtaken the greenback to become the most traded foreign currency in Moscow, although significant payment problems persist. Dmitry Polevoy, head of investment at Astra Asset Management in Russia, said many Russians still wanted foreign currency in cash for trips abroad, as well as small imports and domestic savings. "For individuals, the dollar is still a reliable currency," he told Reuters. Russia's central bank and the United States' sanctions authority, the Office of Foreign Assets Control (OFAC), did not respond to requests for comment. Russia started labelling the dollar and euro as "toxic" in 2022 as sweeping sanctions cut its access to the global financial system, hampering payments and trade. Around $300 billion of the Bank of Russia's foreign reserves in Europe have been frozen. A European Commission spokesperson said it could not comment on individual cases of sanctions application. The spokesperson said the European Union engages with third countries when it suspects that sanctions are being circumvented. The customs records cover March 2022 to December 2023 and Reuters could not access more recent data. The documents showed a surge in cash imports just prior to the invasion. Between November 2021 and February 2022, $18.9 billion in dollar and euro banknotes entered Russia, compared with just $17 million in the previous four months. Daniel Pickard, International Trade & National Security Practice Group Leader at U.S. law firm Buchanan Ingersoll & Rooney, said the pre-invasion spike in shipments suggested some Russians wanted to insulate themselves against possible sanctions. "While the U.S. and its allies have learned the importance of collective action in maximizing economic consequences, Russia has been learning how to avoid and mitigate those same consequences," Pickard said. He added that the data almost certainly understated actual currency flows. LIMITED OUTFLOWS Russia's central bank quickly curtailed individuals' foreign currency cash withdrawals following the invasion of Ukraine, in a bid to support the weakening rouble. According to the data, just $98 million in dollar and euro banknotes left Russia between February 2022 and end-2023. Foreign currency inflows, by contrast, were far higher. The largest single declarant of foreign currency was a little-known company, Aero-Trade, that offers duty-free shopping services in airports and aboard flights. It declared around $1.5 billion in bills during that period. Aero-Trade registered 73 shipments of 20 million dollars or euros each, all of which were cleared at Moscow's Domodedovo airport, an international hub near the company's headquarters. The shipments were described in customs declarations as exchange or revenue from onboard trade. In most cases, Aero-Trade was only listed as declarant, the entity that prepares and submits customs documentation. Reuters could not identify Aero-Trade's clients and was unable to determine the source or destination of the cash. Aero-Trade owner Artem Martynyuk told Reuters he doubted the authenticity of the customs records. He declined to comment further. The company said in a statement that "Aero-Trade is not engaged in the supply of hard currency to Russia". According to the customs records, one shipment of 20 million euros handled by Aero-Trade was imported in February last year by Yves Rocher Vostok, a subsidiary of French cosmetics group Yves Rocher, which still operates dozens of stores in Russia. No country of origin or supplier name was listed in the data. Groupe Rocher, the parent company in France, said neither the group nor Yves Rocher Vostok had ever had any link with Aero-Trade or requested the transfer in question. "Yves Rocher Vostok, like all Groupe Rocher entities, complies by the law," a spokesperson for the group said. "It has never tried and will never try to bypass the sanctions on dollar and euro banknotes imports into Russia." GOLD, ARMS, BANKING More than a quarter of the $2.27 billion in banknotes was imported by banks, much of it in payment for precious metals, according to the customs records and a person familiar with the transactions. Several Russian banks received cash worth $580 million from abroad between March 2022 and December 2023 and exported roughly equivalent amounts of precious metals. In many cases, the gold or silver shipments went to the companies that supplied banknotes, the records showed. For instance, Russian lender Vitabank imported $64.8 million in banknotes from Turkish gold trading firm Demas Kuyumculuk in 2022 and 2023. During the same period, Vitabank exported $59.5 million in gold and silver to the Turkish company. A person familiar with Demas' operations confirmed the company took part in a series of cash-for-gold transactions involving Vitabank and two other Russian lenders between March 2022 and September 2023. The person said having banknotes delivered from the UAE to Russia was the only solution Demas found to complete long-term contracts signed before Western sanctions took effect with Russian gold suppliers, while still complying with Turkish and international regulations related to cross-border payments. With sanctions effectively cutting Russia off from the Western financial system, settling bills with traditional wire transfer was no longer possible, the person said. Reneging on existing agreements would have exposed Demas to financial penalties and reputational risks, the person said. The Turkish gold trader never did business with entities under Western sanctions, and strictly follows all national and international compliance procedures, the person added. In the third quarter of last year, once all pre-war contracts with Russian companies were completed, Demas ended the two-way trades, the person said. Vitabank, the UAE and the Turkish presidency's communications directorate did not respond to Reuters' requests for comment. Among other major cash importers were entities controlled by Rostec, the state-owned military-industrial conglomerate, the documents showed. Rostec, which has been under U.S. sanctions since 2014, did not respond to Reuters' questions about the cash payments it received. Sign up here. https://www.reuters.com/markets/currencies/billions-dollar-euro-notes-reach-russia-despite-sanctions-2024-08-12/

2024-08-12 07:05

Heightened geopolitical risk supportive for gold - analyst Russia evacuates another border region next to Ukraine Palladium up over 3% Aug 12 (Reuters) - Gold prices inched higher on Monday on U.S. interest rate cut optimism and brewing geopolitical tensions, while traders looked to key U.S. inflation data due later this week for more monetary policy cues. Spot gold rose 0.6% to $2,444.79 per ounce as of 1234 GMT. U.S. gold futures gained 0.4% at $2,483.70. Investors are pricing in a 49% chance of a 50 basis point (bps) rate cut by the Federal Reserve in September, the CME Group's FedWatch , opens new tab tool shows. The U.S. producer and consumer prices numbers due on Tuesday and Wednesday will be scanned for further cues. "The inflation point, will, in my view, define if it is a 25 bps or 50 bps cut. So the outcome of the inflation data will result in some higher volatility in gold prices," UBS analyst Giovanni Staunovo said. "For gold to reach a new record high, inflation needs to be below market expectations." Zero-yield bullion is more appealing to investors in a low-interest rate environment. Fed Governor Michelle Bowman on Saturday softened her usually hawkish tone slightly, noting some further "welcome" progress on inflation in the last couple months even as she said inflation remains "uncomfortably above" the Fed's 2% goal. Heightened geopolitical risk and volatility in other markets remains supportive for gold, Mike Ingram, market analyst at Kinesis Money, said. "Gold’s technical position appears to be more constructive than that of silver with the next major resistance level near all-time highs at $2,468," he added. Russia evacuated civilians from parts of a second region near Ukraine after Kyiv increased military activity near the border. Palestinian militant group Hamas on Sunday asked mediators to present a plan based upon previous talks instead of engaging in new negotiations for a Gaza ceasefire deal. Spot silver rose 1.6% to $27.88 per ounce, platinum added 1.8% to $938.70 and palladium was 2.8% higher at $930.85. Sign up here. https://www.reuters.com/markets/commodities/gold-subdued-investors-focus-us-inflation-data-2024-08-12/

2024-08-12 07:03

BEIJING, Aug 12 (Reuters) - State-owned power company China General Nuclear has signed an agreement with Laos expanding a planned renewable energy base in the country's northern region, the state-run People's Daily reported on Monday. The latest deal adds a second phase of the project that will include a 580 megawatt (MW) wind and solar plant in Luang Namtha province and a 420 MW solar plant in Oudomxay province. It follows on an initial agreement signed by the two sides last September to build a renewable energy base in the north of the country. Preparations have started for construction on the first phase, a 1000MW solar plant in Oudomxay province, according to the report. The first phase of the project was set to feed into an existing power line that transfers power generated in Laos to China's southern Yunnan province. The report did not specify whether the power from the second phase would be exported to China. Laos Vice Minister of Energy and Mines Thongpath Inthavon was quoted in the report saying that the project would increase power sector connectivity between northern Laos and China. Southern Power Grid, one of China's two main grid companies, has been jointly running Laos' power grid since February, when its joint venture with state-run Electricite du Laos, known as Electricite du Laos Transmission Company, started operations. Mountainous Laos has produced about 80% of its electricity from hydropower over the last decade but has struggled to scale up solar and wind. Electricity exports, which also go to neighbouring Thailand and Vietnam, have formed a key part of the development strategy of landlocked Laos, which has been dubbed the battery of Southeast Asia. Since 2021 a policy push to scale up data centres have also made it a hub for operators of cryptocurrency mines, which seek cheap non-fossil power. But the higher demand, coupled with lower rainfall, have strained Laos' hydro resources, forcing it to become a net power importer since 2021. Sign up here. https://www.reuters.com/markets/deals/china-general-nuclear-advances-deal-with-laos-build-renewable-power-base-2024-08-12/