2024-06-26 10:02

A look at the day ahead in U.S. and global markets from Mike Dolan In a year supposedly filled with central bank interest rate cuts around the world, the prospect of another G10 policy tightening amid fresh strains of stubborn inflation is just a bit jarring. With U.S. markets anxiously awaiting Friday's update on the Federal Reserve's favored PCE inflation gauge, Australia's dollar jumped 0.5% overnight after inflation there unexpectedly accelerated to a six-month high of 4% in May with core price up for a fourth month. The surprise unnerved money markets and saw futures shift the chances of another Reserve Bank tightening this year to 60% from next to zero prior to the report. Deutsche Bank's economists, for example, quickly shifted their call to see an RBA hike to 4.6% as soon as its next meeting in August. An Aussie outlier perhaps? Along with Japan, another rate rise would make Australia only the second G10 central bank to lift borrowing costs this year - with the Euro zone, Switzerland, Sweden and Canada all having headed the other direction. But Canada too had a sobering inflation update on Tuesday. Consumer price growth there took an unexpected turn and picked up pace to 2.9% in May - stalling what had been pretty consistent disinflation process since start of the year and forcing markets to cut back hopes of another Bank of Canada rate cut next month to below 50%. With a mixed bag of U.S. economic updates this week, the overseas price picture may feed greater caution ahead of PCE release. Well-known Fed hawk Michelle Bowman said holding U.S. policy rates steady "for some time" should be enough to bring inflation under control but the Fed governor also repeated her willingness to raise borrowing costs again if needed. Although Bowman's view probably doesn't represent consensus Fed thinking, it's still an uncomfortable contrast with the near two rate cuts still priced into the futures curve. And Treasury yields have started to nudge higher again in another week of heavy debt sales. Treasury has scheduled $183 billion in coupon debt to be auctioned this week, split between the two-year notes and five- and seven-year notes to be sold on Wednesday and Thursday. So far, the paper has sold with ease. Some $69 billion of 2-year notes were snapped up on Tuesday at a high yield of 4.706% - about 5 basis points below where they were trading at the close of bidding. Briefly befre the auction, the 2-to-10 year yield curve hit minus 52bps - its most inverted of the year. And, Aussie aside, the picture has generally boosted the dollar (.DXY) New Tab, opens new tab - not least against Asia's ailing currency giants the yuan and the yen . China's offshore yuan weakened to a fresh seven-month and has now lost almost 3% since the start of the year. Dollar/yen, meantime, nudged further into what traders consider intervention territory as it topped 160 for the first time since the Bank of Japan last stepped in April. Back on Wall Street, the S&P500 (.SPX) New Tab, opens new tab and Nasdaq (.IXIC) New Tab, opens new tab recovered ground on Tuesday - helped by a near 7% bounceback in AI heavyweight Nvidia (NVDA.O) New Tab, opens new tab following its slightly puzzling peak-to-trough swoon of near 20% from record highs over the past week as the midyear point in 2024 nears. Stock futures were higher before Wednesday's bell. Transport giant FedEx (FDX.N) New Tab, opens new tab rallied 15% in out-of-hours trading overnight as it forecast 2025 profit above analysts' estimates and said it expected planned cost reductions to deliver margin gains. Banking stocks were steady, with the big U.S. lenders expected to show ample capital to weather any renewed turmoil as the Fed releases annual health checks later on Wednesday. The central bank will publish the results of its bank "stress tests", which assess how much cash lenders would need to withstand a severe economic downturn and how much they can return to investors via dividends and share buybacks. Key developments that should provide more direction to U.S. markets later on Wednesday: * US May new home sales * Federal Reserve releases latest U.S. bank stress tests * European Central Bank chief economist Philip Lane speaks * French President Emmanuel Macron meets with Hungarian Prime Minister Viktor Orban at the Elysee Palace in Paris * US Treasury sells $70 billion of 5-year notes, 2-year FRNs * US corporate earnings: Micron Technology, Paychex, General Mills Sign up here. https://www.reuters.com/markets/us/global-markets-view-usa-2024-06-26/

2024-06-26 07:42

ATHENS, June 27 (Reuters) - Greek judicial authorities have jailed the captain and first officer of a yacht ahead of a trial on charges of arson over a forest fire on the island of Hydra believed to have been sparked by fireworks, legal sources said. The two men and the entire crew of the yacht have denied any wrondoing. Eleven other crew members were freed on bail and with restrictions. Wildfires are common in the Mediterranean country but they have become more frequent and devastating due to hotter, drier and windier conditions, which scientists link to climate change. Greece has, in recent years, beefed up penalties for arson. The fire, believed to have been triggered by fireworks, broke out on Friday night and devoured nearly 300,000 square metres of the island's pine forest before fire fighters doused the flames early on Saturday. The 13 Greek crew members of the yacht, which was moored 350 metres (383 yards) from the shore when the fire erupted, were arrested on Sunday at a marina near Athens and charged with starting the blaze. All of them reiterated their denial of the charges before an investigating magistrate at the court of Piraeus on Wednesday. The yacht operator, Salaminia Yachting Limited, said it "retains absolute confidence in the integrity and sincerity of the crew members", who deny involvement in the incident, according to a statement cited by the Athens News Agency. A legal source said earlier there was not enough evidence to link the crew with the case and that the captain was the first person to alert authorities about the fire, while other yachts were also in the wider area. The foreign passengers of the yacht have left the country. Witnesses testified that they saw smoke and flames after hearing 15 to 20 loud sounds, similar to firework explosions, at 10:30 p.m. (1930 GMT) on Friday, according to court documents seen by Reuters. A rubber boat sailed towards the yacht as the fire rapidly spread, said one witness, who later saw a fire extinguisher on the yacht's stern. Sign up here. https://www.reuters.com/world/europe/yacht-crew-expected-deny-arson-charges-over-fire-greek-island-2024-06-26/

2024-06-26 07:23

LONDON, June 26 (Reuters) - Thanks in part to former UK Prime Minister Liz Truss' singular contribution to financial stability two years ago, Britain is proving something of an exception among major economies heading for elections this year - there's little or no fiscal or financial controversy. And perhaps the Truss episode is even reining in other G7 countries too by neatly having illustrated exactly what not to do if you want to gain or stay in power and don't want to scare the horses. Even the French far right are softening their tone as weekend polls near - just in case. Following a late 2022 budget farce during the brief tenure of the erstwhile UK Prime Minister - when UK government bonds and sterling almost imploded following a hasty, unfunded tax and spending giveaway - neither major British party now dares to suggest it's veering from the fiscal straight and narrow. And it pitches chastened Britain as something of an outlier among peers heading to the multiple elections this year - despite a likely change of government for the first time in 14 years and what opinion polls suggest will be a landslide 200-seat majority for the opposition Labour Party on July 4. Remarkable in that looming change of government is the fact that Labour offers few fiscal teasers and has relied largely on the mounting unpopularity of the incumbent conservatives - with the latter's lasting signature legacy of Brexit now even rejected by a majority of the electorate who wanted it. For global investors, the change of government appears to be welcomed with open arms. And in a world facing the uncertainty of possible second U.S. presidential term for Donald Trump come November or the far right and far left vying for a parliamentary majority in France over the next fortnight, Britain suddenly seems like an unlikely haven of stability. Despite the prospect of Labour returning with the biggest majority since World War Two, Dutch bank ING described the poll as a 'non-event' for markets - so you get the picture. This outcome has been long expected, appears to ruffles few feathers and may even be welcomed widely by overseas funds as a shift away from the serial economic fractures, financial crises, leadership switches and internal government rebellions. Just 10 days from the election, the Bank of England's trade-weighted sterling index is close to its highest since the Brexit referendum in 2016 - almost 25% up from the nadir of the Truss budget. Historical 30-day volatility of that index is less than a fifth of the peaks it hit two years ago and around the pandemic. It's a similar picture for the blue-chip FTSE100 (.FTSE) New Tab, opens new tab, which is just shy of record highs set last month and clocking one-month volatility less than half its 10-year averages. Ten-year gilts But despite the hit from post-pandemic inflation and Bank of England interest rate rises, yields and volatility have subsided there this year too and the risk premium over Germany has fallen by about 100 basis points from the Truss blowout peaks. 'MERCIFULLY SHORT' Buoyant world markets may have something to do with that picture. But relative UK positioning by global funds has improved markedly even as Labour poll leads mounted. The June global fund manager survey from Bank of America, for example, shows investors a net 12% underweight UK equities - but that's 0.3 standard deviation above the long-term 20-year average. Similarly, only a net 5% of fund managers think the pound is still undervalued - just 0.3 standard deviation below the long-term average valuation. And the view from many overseas investors about a change of government is sanguine at worst. Franklin Templeton Institute Investment Strategist Kim Catechis described the feeling as one of "cautious optimism" - after a torrid decade of Brexit, the pandemic, rising interest rates, five prime ministers and seven finance ministers. Echoing ING's take, Catechis said the 'mercifully short' six week election campaign was "unusual in its blandness". This, he reckons, sidesteps the real issues and perhaps puts off harder decisions needed to disentangle the UK economy from a net of weak growth, weak productivity and high inequality. "Both main parties are ignoring the obvious point - that all remedies will require financing via debt or increased taxes, or both." But the Franklin Templeton strategist said this was not a unique among major economies and said there was a degree of positivity among investors about the likely change of power. "Capital markets appear to be positive about the prospect of a change of government - in the expectation that policy direction will be pro-growth but with a cautious approach to fiscal policy," he said. "The fixed income market recognizes that the Labour Party must be keen to serve two terms because the party's project cannot be delivered in four years - so fiscal orthodoxy is virtually guaranteed." And this along with better relations with the European Union will buoy sterling. "A change of government, the perception of less friction in trade with the EU and ... the expectation of stability and orthodox policy direction could provide further support to sterling this year," he concluded. Long-unloved UK markets may be in for a rare period of political calm even though that may leave them out of step again with most restive peers - though this time for positive reasons. The opinions expressed here are those of the author, a columnist for Reuters Sign up here. https://www.reuters.com/world/uk/out-step-again-uncontroversial-uk-govt-switch-sows-relief-mike-dolan-2024-06-26/

2024-06-26 07:15

JOHANNESBURG, June 26 (Reuters) - The South African rand edged lower on Wednesday, as an announcement on President Cyril Ramaphosa's cabinet appeared imminent amid uncertainty over key appointments in the executive. At 1541 GMT, the rand traded at 18.2450 against the dollar , 0.1% weaker than its previous close. The African National Congress (ANC) lost its parliamentary majority in an election last month for the first time since the end of apartheid three decades ago, forcing it to share power with smaller rivals. Financial markets wait with bated breath over the make up of the new cabinet, after 10 political parties signed up to form a government of national unity(GNU). Ramaphosa and the pro-business Democratic Alliance (DA) are on the verge of reaching an agreement on the composition of the cabinet, local newspaper BusinessDay reported. According to the report, Ramaphosa has concluded talks with the DA - the market favourite - and other signatories of the GNU. "Appointments from the Democratic Alliance could bolster the rand, while familiar ANC names might have the opposite effect," said Zain Vawda, market analyst at OANDA. Markets will keep an eye on key portfolios like finance, trade, industry and competition and small business development, Vawda said. Officials from the ANC and the DA told Reuters that an announcement could come on Wednesday or Thursday with the latter now appearing more likely. Focus is also turning to economic data. South Africa will report monthly producer inflation figures on Thursday while money supply and trade and budget balance data are expected on Friday. "High volatility is expected as market participants navigate a busy economic calendar," said Nkosilathi Dube, a financial market analyst at Trive South Africa. On the stock market, the Top-40 (.JTOPI) New Tab, opens new tab index closed 0.5% lower. South Africa's benchmark 2030 government bond was stronger, with the yield down 3 basis points at 9.825%. Sign up here. https://www.reuters.com/markets/currencies/south-african-rand-weakens-cabinet-announcement-nears-2024-06-26/

2024-06-26 06:57

EEX will no longer buy Nasdaq's Nordic Power business Deal had raised EU competition concerns Traders say axing raises uncertainty June 26 (Reuters) - Exchanges Nasdaq (NDAQ.O) New Tab, opens new tab and the European Energy Exchange (EEX) (T3PA.DE) New Tab, opens new tab, Europe's biggest power bourse, said on Wednesday they have cancelled plans under which the EEX would have purchased Nasdaq's Nordic power trading and clearing business. The deal would have increased EEX's dominance in the European power trading sector even further. Although the deal, which was announced last year, did not meet the standard threshold requirements for an EU anti-trust investigation, some authorities in Nordic member states requested that the EU Commission take a closer look at the case on concerns it could hamper market competition. A preliminary review of that was scheduled to end Wednesday. According to a commission document, concerns were around whether the deal would allow EEX to bundle its products to expand its market share and potentially spike power prices. At present, EEX and Nasdaq Commodities, are the only providers of exchange-based Nordic Power trading and clearing. EEX said it will continue to pursue its own business strategy for the region and related markets independently, without providing any reason for the deal termination. Nasdaq said it will continue to operate its Nordic power trading and clearing business. Last year, the EEX and Nasdaq said the deal posed no significant threat to competition in the Nordics or EU, nor would it eliminate competition between the two companies. Some market participants were concerned about the cancellation of the deal. "The Association of Nordic Energy Traders (NAET) is concerned that this (cancellation) will bring added uncertainty going forward," its chairman Trond Strom told Reuters. While there is some downside to competition from having one dominant exchange, trading venues are "natural" monopolies where liquidity follows liquidity, he added. However, recent Nasdaq rule changes opened up the possibility to close down the clearing house for business reasons and raised questions over the future of Nordic power trading on exchanges, Strom said. "I am certain that the Nordic market will persist, but if Nasdaq wants to leave the market everyone will benefit from that exit being managed in an orderly fashion," he added. A total of 449.1 terawatt hours (TWh) of financial power contracts were traded and cleared on Nasdaq Commodities in 2023, of which 446.8 TWh were Nordic contracts and the remainder German power futures, according to the exchange. This compares with 12.6 TWh of Nordic contracts traded on the EEX. Liquidity in the Nordic financial power market has been under pressure as trading has shifted to short-term spot contracts or bilateral deals due to growing price differences in the region. Sign up here. https://www.reuters.com/business/energy/nasdaq-terminates-deal-transfer-european-power-business-eex-bourse-2024-06-26/

2024-06-26 06:47

France has run high deficits for much of past 25 years EU seen taking tougher stance with far-right government France seen moderating spending plans in EU talks FRANKFURT/PARIS, June 26 (Reuters) - "Because it's France" was how Jean-Claude Juncker, European Commission president at the time, explained Brussels' decision in 2016 to give leeway to the large, founder member of the European Union on the bloc's budget rules. That patience continued even as the EU endured a sovereign debt crisis that almost sunk the euro and forced smaller, more indebted nations such as Greece and Portugal to adopt swingeing austerity measures. But any indulgence for French exceptionalism may come to an end if France's snap election produces a eurosceptic, far-right government in Paris that could strain ties with other European capitals and test the very foundations of the euro project. Marine Le Pen's National Rally (RN) insists it would not blow up the French budget. But questions persist about how it would fund costly spending plans within the eurozone's newly minted budget rules and whether the European Central Bank could step in to help if financial markets turn on France. "If a country can just ignore the rules and be helped by the central bank, you'll get a lot of doubts about the future value of the euro and the future cohesion of the euro," said Holger Schmieding, an economist at Berenberg. Such concerns are not on the official agenda of Thursday's EU summit. But with the RN leading polls in the two-round vote starting June 30, they are bound to occupy the minds of President Emmanuel Macron's fellow leaders. Senior German government sources said they were dismayed by Macron's surprise decision to call elections that could usher in an RN-led government. One compared it to former UK premier David Cameron's ill-fated gamble on an "in-out" Brexit referendum. In Italy, with an even bigger debt pile than France, a tinge of Schadenfreude over France's misfortunes is offset by fears that a French crisis could extend across the Alps, said Francesco Galietti of Rome-based political risk consultant Policy Sonar. Otmar Issing, the ECB's first chief economist and one of the euro's architects, compared the debt of Italy and France to "a sword of Damocles hanging over the monetary union", bound to fall unless the problem is tackled. "You can pull the hair by which it is attached but it cannot hold for ever," he said in an interview. Even Greece is not cutting France any slack, with central bank governor Yannis Stournaras stressing that all member states needed to respect EU rules. NO MORE INDULGENCE Polling points to the RN emerging as the largest party, with or without a clear majority to pursue an awkward "cohabitation" with Macron until the 2027 presidential election. France's fiscal credibility is already at stake with the International Monetary Fund questioning how it will reduce a budget deficit running at around 5.1% this year and its credit rating downgraded by two agencies. In truth, France's fiscal sins far pre-date Macron. It has run budget deficits greater than the EU-mandated 3% for most of the 25 years since those rules came into force. Brigitte Granville, economist at London's Queen Mary University and author of "What ails France?", said its rejection in the 1990s of German proposals for more complete political union reflected a desire to retain sovereignty over its finances. She expected the RN, which long ago dropped calls to leave a single currency broadly accepted by French voters, to moderate its plans just enough to please Brussels if it came to power. "They don't have a choice unless they want to leave the euro," Granville said in an interview. RN statements to that effect have reassured investors, who were demanding a premium of just 70 basis points to own 10-year French bonds rather than their safer German counterparts - a far cry from peaks of 190 points for France and nearly 560 points for Italy during the 2011 debt crisis. ECB chief economist Philip Lane told Reuters the moves in the French bond market did not appear "disorderly", meaning they don't meet one of the conditions for the central bank's intervention. CAUTIONARY TALES Observers point to cautionary tales ranging from Greece, where a leftwing government was brought to its knees by financial and political pressure, to Britain, where Prime Minister Liz Truss was forced to resign after unveiling a budget that unnerved investors. Most analysts emphasise the ECB has the tools to stem contagion from a French crisis by buying bonds of other countries that do respect the EU's fiscal framework, meaning Paris might find itself isolated at times of need. "There is, of course, a possibility that Frankfurt would intervene if the problems with France were to have some kind of external negative effects on other countries, like Italy," former ECB policymaker Ewald Nowotny said. An EU official cited Rome as a model for Paris after Prime Minister Giorgia Meloni toned down her anti-EU rhetoric once elected in 2022. This, along with her support for the EU's stance on conflicts in Ukraine and Gaza, has helped Italy keep the Commission and financial markets on-side despite repeatedly raising its deficit forecasts. Jeromin Zettelmeyer, director of the Bruegel economics think tank in Brussels, said RN's rhetoric thus far did not suggest it was seeking a major confrontation with the Commission that could trigger a financial crisis. However he said that if its officials ended up running key ministries, they could hamper EU moves to reform energy markets, advance the green transition and boost the bloc's competitiveness by reforming its capital markets. "If the far-right gets elected that is bad news for EU integration because they would control the government positions involved in most dimensions of EU policy-making,' he said. "The question is whether that is reversible or existential." Sign up here. https://www.reuters.com/markets/currencies/france-may-be-next-test-euros-foundations-2024-06-26/