2024-07-16 14:48

July 16 (Reuters) - Bank of America's (BAC.N) , opens new tab second-quarter profit dropped as higher deposit costs pushed its interest income lower, but the results beat analysts' estimates, boosted by investment banking and trading. Shares climbed more than 4% after BofA also forecast better-than-expected net interest income (NII) - the difference between what banks earn on loans and pay out on deposits - for the fourth quarter. CEO Brian Moynihan cited growth in new consumer checking accounts for the 22nd consecutive quarter in a conference call with analysts. He began the call by wishing former U.S. president Donald Trump speedy recovery after an assassination attempt on Saturday. The bank's new interest income target factors in three potential interest rate cuts by the Federal Reserve of 25 basis points in September, November and December, according to a bank presentation. David Wagner, a portfolio manager at Aptus Capital Advisors, said Bank of America was able to grow in some areas despite a difficult environment for interest income. "One thing that stood out to me was that BAC's guidance assumes three cuts, while the market is only pricing in two cuts," he said. INVESTMENT BANKING Investment banks have brought in more underwriting fees as capital markets resurged. A resilient U.S. economy has encouraged companies to raise capital by selling stocks and issuing bonds in recent months. Mergers and acquisitions are also gaining momentum, boosting advisory fees for investment banks. BofA's investment banking fees jumped 29% to $1.6 billion in the second quarter, echoing results at peers. Underwriting income in the second quarter this year jumped 32%, while fees from syndication surged 77%. Sales and trading revenue jumped 7% to $4.7 billion, growing for the ninth consecutive quarter year-on-year, as equities jumped. "The interest rate environment has settled down a little bit, and obviously there's a significant amount of geopolitical and election uncertainty around the world, but that tends to be an environment where clients reposition," CFO Alastair Borthwick told journalists on a conference call. "That tends to be a reasonably good environment for our sales and trading business." The second biggest U.S. lender earned $6.9 billion, or 83 cents per share, in the quarter ended June 30, 7% lower than a year earlier, but above expectations of 80 cents per share, according to LSEG. Its wealth and investment management unit also fetched 6% higher revenue and saw 10% growth in client balances to a record of more than $4 trillion. STRONG FORECAST The cost of preventing a deposit outflow has eroded banks' gains from the rising interest they are charging borrowers. Banks are shelling out more on deposits as interest rates are at their highest since 2007, which have boosted returns on bonds, making alternatives such as money market funds more attractive. BofA's NII fell 3% to $13.7 billion in the second quarter. Provisions for credit losses rose to $1.5 billion from $1.1 billion a year earlier. But executives predicted a recovery in the second half. They forecast net interest income would rise to $14.5 billion in the fourth quarter, above LSEG estimates of $14.4 billion, as the bank reprices mortgage and auto loans. The forecast for increased NII solidifies earlier comments signaling that interest income would reach a trough in the fourth quarter, said Stephen Biggar, banking analyst at Argus Research. BofA shares have climbed almost 30% this year, outperforming rivals JPMorgan and Wells Fargo (WFC.N) , opens new tab. Sign up here. https://www.reuters.com/business/finance/bofas-profit-falls-shrinking-interest-income-2024-07-16/

2024-07-16 14:22

Loonie touches a 2-week low at 1.3707 Canada's annual inflation rate cools to 2.7% Price of U.S. oil falls 1.6% 10-year yield eases 4.6 basis points to 3.372% TORONTO, July 16 (Reuters) - The Canadian dollar steadied near an earlier two-week low against its U.S. counterpart on Tuesday as cooler-than-expected domestic inflation data fueled bets for another Bank of Canada interest rate cut this month. The loonie was trading nearly unchanged at 1.3685 to the U.S. dollar, or 73.07 U.S. cents, after touching its weakest intraday level since July 2 at 1.3707. Canada's annual inflation rate cooled to 2.7% in June, largely due to softer growth in gas prices, while core inflation measures were marginally down. Analysts had forecast the inflation rate would ease to 2.8% from 2.9% in May. "June's CPI print was a small relief after an upside surprise in May," Claire Fan, an economist at Royal Bank of Canada, said in a note. "All told, we expect the BoC will carry on with easing the monetary brakes on a weak economy, and follow up with another rate cut at its July meeting next week." Investors see a roughly 90% chance the BoC will cut rates on July 24, up from 82% before the data. Last month, the BoC became the first G7 central bank to begin easing policy, lowering its benchmark rate by 25 basis points to 4.75%. Separate data showed Canadian housing starts falling 9% in June as groundbreaking decreased on multiple unit urban homes. The U.S. dollar (.DXY) , opens new tab rose against a basket of major currencies as U.S. data showed strength in the underlying trend for retail sales, while the price of oil, one of Canada's major exports, fell on worries of a slowing Chinese economy. U.S. crude oil futures were down 1.6% at $80.59 a barrel. The Canadian 10-year yield was down 4.6 basis points at 3.372%, while it moved 2.3 basis points further below its U.S. equivalent to a gap of 83.4 basis points. Sign up here. https://www.reuters.com/markets/currencies/c-hits-2-week-low-cpi-data-bolsters-rate-cut-bets-2024-07-16/

2024-07-16 14:19

PMI's US launch of flagship IQOS device needs FDA green light Six health campaign groups wrote letter to FDA criticising PMI Say PMI misrepresented past FDA decisions on IQOS PMI says it discusses its products in accordance with law FDA acknowledges receiving campaigners' letter LONDON, July 16 (Reuters) - Health campaigners have written to U.S. regulators accusing Philip Morris International (PM.N) , opens new tab of misrepresenting past regulatory decisions, seeking to disrupt the launch of its flagship heated tobacco device IQOS in the United States. The world's biggest tobacco company by market value has spent billions of dollars developing the product, which investors see as key to driving future growth. But it needs permission from the U.S. Food and Drug Administration to sell it in the world's second largest tobacco market by revenue. Six anti-tobacco and health groups, including the Campaign for Tobacco-Free Kids, the American Academy of Pediatrics and the American Lung Association, wrote to the FDA to oppose IQOS-related applications PMI has submitted to the agency. "PMI has repeatedly made misleading and deceptive statements wrongly suggesting that the FDA has found that IQOS reduces the risk of disease," the letter , opens new tab, dated June 27 and reviewed by Reuters, said. The campaign groups allege that PMI violated the FDA's orders by suggesting IQOS offered lower risks than cigarettes. Their letter cited four examples of such statements in the United States, the Philippines, Mexico and Kazakhstan. They also said in the letter that upcoming independent studies contradict PMI's findings about how many IQOS users completely switch to the device from cigarettes. Presentations on the studies from the International Tobacco Control Project (ITC) at Canada's University of Waterloo are attached to the letter as exhibits. They show the ITC found a far lower rate of IQOS users had quit smoking in Japan and Korea than estimates from PMI. These factors "directly bear on whether PMI should be permitted to market IQOS" in the United States, the campaigners' letter said. The contents of the letter have not been previously reported. Asked by Reuters to respond to the letter, a PMI spokesperson said the company was proud to discuss the FDA's conclusions on IQOS. The spokesperson did not initially address each example but said some of the language flagged by campaigners was, in the company's view, compatible with the FDA's orders. On Tuesday, the spokesperson added that this was true all of the language cited in the campaigners' letter. "Wherever we discuss our science and our products, we do so in accordance with all applicable laws," the spokesperson said. Reuters could not determine whether the campaigners' letter would change the FDA's approach to IQOS. The agency said it had received the letter and would respond directly to the senders. It did not comment further. Devices like IQOS heat up sticks of ground tobacco without burning them in an attempt to avoid the harmful chemicals released via combustion. The FDA first authorised PMI to sell an older version of IQOS in 2019. It subsequently authorised the company to market it as offering reduced exposure to harmful chemicals versus cigarettes for smokers who completely switch - known as an "exposure modification order". The FDA can also issue a "risk modification order", authorising a company to claim its product reduces the risk of tobacco-related harm and disease. But this is harder to prove, especially without long-term, epidemiological studies. The FDA rejected PMI's previous application to say its older IQOS device results in reduced health risks, saying there wasn't sufficient evidence to support this. PMI applied in 2023 to renew its existing exposure modification orders. Later that year, it also applied to sell and market a newer version of the IQOS device in the same way. The FDA has yet to decide on these applications. Marketing the product as having health benefits compared to traditional cigarettes could help PMI persuade consumers to switch as well as afford it tax benefits versus cigarettes in some U.S. states. PMI is preparing to sell an older IQOS device in four U.S. cities. However, it has said it will not pursue a full U.S. launch until the newer version of its device gets FDA authorisation. SWITCH RATES The campaign groups also cited preliminary data from ITC studies in Japan and Korea, saying it contradicted PMI's findings about how many IQOS users completely switch from cigarettes. The studies have been presented at academic conferences but have not yet been submitted for publication in a journal, ITC researchers told Reuters. As a result, study abstracts have been peer reviewed but the full findings have yet to go through that process. Japan is IQOS' largest market and the introduction of heated tobacco there coincided with an accelerated decline in cigarette sales. PMI estimates more than seven out of 10 of its registered IQOS customers globally have quit cigarettes. A 2023 PMI application to the FDA emphasised that the majority of IQOS users were using IQOS exclusively. However, the ITC's researchers put the percentage of all IQOS users that had quit smoking at just 15% in Japan and 30% in Korea in 2021. Users most commonly used IQOS and cigarettes simultaneously, known as "dual use", often leading to an overall increase in tobacco consumption, the ITC researchers found. PMI pointed to a 2019 Japanese government health survey, where 75% of respondents who reported using heated tobacco said they did not smoke. However, a paper , opens new tab published this year, led by researchers from Georgetown University, highlighted flaws in the government's survey, including changes to the question format that can lead to under-reporting of smoking. Other surveys have also found higher rates of dual use than the government, it said. Sign up here. https://www.reuters.com/business/healthcare-pharmaceuticals/campaigners-target-philip-morris-flagship-heated-tobacco-us-launch-2024-07-16/

2024-07-16 14:12

WASHINGTON, July 16 (Reuters) - The International Monetary Fund does not see any current market pressure U.S. Treasury debt but has longer-term concerns about the growth of U.S. debt and reliance on short-term financing, IMF Chief Economist Pierre-Olivier Gourinchas said on Tuesday. Gourinchas told a news conference on the IMF's latest global growth forecasts that with growing debt and a reliance on shorter-term funding, there could be vulnerabilities introduced by having to refinance more often. "The fact that the U.S. Treasury has moved towards more short term finance reflect the fact that it's also trying to economize on the cost of funding," Gourinchas said. "It's usually a little bit cheaper on the short end of the curve, but it's also a little bit riskier." Sign up here. https://www.reuters.com/markets/us/imf-sees-no-pressure-us-debt-now-debt-growth-short-term-financing-concern-2024-07-16/

2024-07-16 13:06

TOKYO, July 16 (Reuters) - The International Monetary Fund (IMF) on Tuesday cut Japan's economic growth forecast for this year due, citing temporary auto output disruptions and weak private investment in the first quarter. But the fund offered an optimistic view on consumption due to prospects that the bumper pay hikes offered by firms in this year's "shunto" spring wage negotiations will lift household incomes. "In Japan, the strong shunto wage settlement is expected to support a turnaround in private consumption starting in the second half," the IMF said in an update to its World Economic Outlook report. The IMF said it now expects Japan's economy to expand 0.7% this year, down 0.2 percentage point from its forecast in April, after an 1.9% increase in 2023. It maintained its projection for the economy to grow 1.0% in 2025. Recent weakness in consumption has been cited by some analysts as a factor that could discourage the Bank of Japan (BOJ) from raising interest rates too soon from the current near-zero levels. BOJ Governor Kazuo Ueda has voiced optimism over the outlook for consumption, saying it will likely rebound once wage hikes broaden and boost households' purchasing power. The BOJ will likely trim this year's economic growth forecast in July but project inflation will stay around its 2% target in the next few years, sources have told Reuters, keeping alive the chance of an interest rate hike this month. Japan's economy shrank an annualised 2.9% in January-March due to output disruptions among some automakers and soft consumption blamed in part on rising inflation. Many analysts expect growth to have rebounded in the April-June quarter as auto output disruptions run their course. Sign up here. https://www.reuters.com/markets/asia/imf-cuts-japans-growth-forecast-upbeat-consumption-prospects-2024-07-16/

2024-07-16 12:16

US 10-year Treasury yield hovers near 4-month low Traders price-in 25 bps Fed rate cut in Sept Gold outlook remains positive - analyst July 16 (Reuters) - Gold prices jumped more than 1% to a record high on Tuesday, as investors flocked to the safe-haven asset after comments from Federal Reserve officials cemented expectations of a U.S. interest rate cut in September. Spot gold gained 1.8% to $2,464.82 per ounce by 2:18 p.m. ET (1818 GMT). U.S. gold futures settled 1.6% higher to $2,467.80 per ounce. "Gold surges to new all-time highs despite stronger-than-expected core retail sales data, encouraged by Powell indicating yesterday that the Fed was growing more confident that inflation was back on its way to target," said Tai Wong, a New York-based independent metals trader. "This essentially etches a September cut in stone barring an inflation calamity in the coming weeks." Fed Chair Jerome Powell on Monday said recent inflation data bolstered policymakers' confidence that price pressures are on a sustainable path to remain low, reassuring markets that the U.S. rate cut is on the cards in September. San Francisco Fed Bank President Mary Daly also said "confidence is growing" that inflation is heading toward the U.S. central bank's 2% goal. Lower U.S. interest rates put pressure on the dollar and bond yields, which increases the appeal of non-yielding bullion. Gold prices have risen more than 19% so far this year, after a 13% rise in 2023. "Thanks largely to weakness in economic data, and falling inflationary pressures, bond yields are continuing to remain under pressure," said Fawad Razaqzada, market analyst at City Index. "This is helping to boost the appeal of low- and zero-yielding assets, and thereby keeping the gold outlook positive." Gold's rise came despite a stronger dollar, with the U.S. unit up 0.1% against its rivals, after a reading of retail sales proved to be firmer than expected. Among other metals, spot silver rose 0.8% to $31.25 per ounce, platinum gained 0.3% to $998.25 and palladium climbed 1.1% to $960.51. Sign up here. https://www.reuters.com/markets/commodities/gold-firms-us-rate-cut-optimism-boosts-appeal-2024-07-16/