2024-06-21 06:34

MOSCOW, June 21 (Reuters) - A drone crashed into the Ilsky oil refinery in Russia's southern Krasnodar region on Friday, injuring at least two people and causing a small fire, local authorities said. Ukraine has been systematically targeting Russian energy infrastructure to try to disrupt Russia's economy and its ability to fund its military effort. The Ilsky refinery is one of the main fuel producers in southern Russia, with a capacity to refine 6.6 million tonnes of crude (132,000 barrels per day) a year. The head of the local district, Andrei Doroshevsky, said on the Telegram messaging app that the fire has been put out. "This night, the civilian infrastructure of our region was subjected to a massive attack by the criminal Kyiv regime," he said, adding that a drone damaged administrative buildings at the Ilsky oil refinery. The plant had already been hit by drones in February. Separately, regional authorities said on Friday that open fires were doused at oil depots in Tambov and Rostov regions. Sign up here. https://www.reuters.com/world/europe/drone-crashes-into-ilsky-oil-refinery-russias-krasnodar-region-2024-06-21/

2024-06-21 06:21

OSLO/PARIS, June 21 (Reuters) - Europe has clocked a record number of hours of negative power prices this year due to a mismatch between demand and supply as solar power generation soars, potentially helping to shift investment to much needed storage solutions. Wholesale power markets in most of Europe's key economies turned out zero or negative prices for a record number of hours in the first five months of this year at times of low demand. That means producers more frequently have to pay to offload power, or stop their plants. "One could certainly say that, at this point, success is consuming its own offspring," Markus Hagel, energy policy expert at German utility Trianel, told Reuters. Strong hydro and nuclear power generation has played some part in the oversupply, but Europe has also seen a massive expansion of solar power. Installed solar capacity in the European Union more than doubled to 263 GW between 2019 and 2023, according to SolarPower Europe data. In 2023 alone, that is equivalent to an extra 306,000 solar panels being installed every day, the group said. In the day-ahead market, this has seen more European markets experience price drops at the lowest demand point in the middle of the day. Trianel told Reuters the company has invested in 800 megawatt (MW) of photovoltaic capacity and has a project pipeline of 2,000 MW but the lower prices are forcing it to reconsider how it sells the power. Solar has boomed in part because it no longer required subsidies as developers agreed power purchase agreements (PPAs) with buyers at fixed terms pegged to wholesale power market prices. This allowed for a faster and bigger build-out than previous capped volume auctions for government-backed payments. But as prices fall, developers are increasingly turning back to subsidy schemes again, Hagel said. Negative prices are nothing new for Germany, which hosts Europe's biggest capacity of volatile solar and wind power generation, but 2024 is the first year Spain is seeing them, after several years of strong solar power growth. "It is not something that worries us at the moment. What does worry us is that it will be repeated or can be repeated over time," José María González Moya, director general of renewable lobby APPA Renovables, said, adding that new contracts for PPAs are already declining. "And yes, in a way, investment is slowing down. Not stopping, but slowing down," Moya said. Germany and Spain are still leading the PPA market, Jens Hollstein, head of advisory at PPA pricing platform Pexapark, said. However, solar producers were being forced to sell their power at increasing discounts to round-the-clock generators. "The margin is getting thinner," Hollstein said. He expected a slowdown in investments if the development continued. On the flip-side, the power market is now seeing a bigger gap between low and high-priced hours, increasing the incentive to invest in storage, he added. INCREASING BATTERY STORAGE IS KEY The International Energy Agency (IEA) highlighted the urgent need for energy storage in an annual report. "Developers who choose not to co-locate their wind and solar PV power parks alongside battery storage or other sources of flexibility may see a drop in potential revenues during peak generation – hampering profits and discouraging investment," the IEA wrote. The EU estimated that energy storage in the bloc will need to rise more than three-fold from 2022 to 2030, to match projections of a 69% share of renewable energy in its electricity system by then. Norwegian renewable energy producer Statkraft, which operates across Europe, has said it could divest some wind and solar projects, but would likely hold onto its battery assets. "For batteries it will be positive to have greater volatility and also negative prices," CEO Birgitte Ringstad Vartdal said, as batteries can be charged when prices are low while output can be sold when prices are high. "That is one of the reasons why flexible projects will be attractive," Ringstad Vartdal added. Besides storing energy in batteries to deal with periods of excess supply, other options like AI-powered smart grids and meters could also help consumers optimise their electricity use. Domestic end users, plagued by the surge in energy costs in the wake of the Ukraine war, have yet to enjoy lower bills because often they are locked into long term contracts. Only those consumers that have invested in a heat pump, a charger for their electric car, or a storage system, are able to benefit from negative prices, spokesperson for Germany's association of local utilities VKU said. Those on fixed priced contracts will only feel a positive impact from negative power prices once they have pulled down average market prices over the long term. Sign up here. https://www.reuters.com/business/energy/europes-solar-power-surge-hits-prices-exposing-storage-needs-2024-06-21/

2024-06-21 06:11

LONDON, June 21 (Reuters) - Any sustained bet against French government debt can only hinge on a belief in the improbable end of the euro - even if the European Central Bank needs to walk a fine line in how and when it responds. The playbook from the existential euro crisis of 2010-2012 suggests that even if investors feel emboldened enough to speculate about smaller peripheral euro countries being forced to exit the bloc, a euro zone without France most likely means no euro zone at all. In other words, there is no such thing as "Frexit" in isolation - if by Frexit people mean France could leave the currency union while a functioning euro zone still exists. France's central position to the entire construct, for most investors, renders it a binary all-or-nothing outcome. And that's a big punt given the firepower loaded against it. Framed by 2012's pivotal "whatever it takes" moment from then ECB chief Mario Draghi, the ECB has shown repeatedly ever since it will do all in its remit to sustain its only "raison d'etre" as guardian of the single currency and its functioning. Even though the root of the latest French political upheaval and snap election is the rise of far-right and left parties much less favourable to the whole European Union project, membership of the euro per se is likely not up for debate - not even by the far-right that once questioned it. While surveys New Tab, opens new tab on French attitudes towards the EU do show up a mixed bag of dissatisfaction towards various aspects of the Union's workings, more than 70% remained in favour of the single currency through last year. 'HAND IN HAND' That doesn't escape the concern about the French deficit and debt - crystallized by the EU itself this week in kicking off protracted disciplinary procedures against France and others and also by S&P Global in downgrading France's sovereign credit rating to AA- last month. And the spending plans of parties leading opinion polls ahead of the June 30-July 9 assembly election appear ready to throw fuel on the flames rather than chime in with EU rules on lowering the annual deficit to 3% of GDP from the whopping 5.5% last year. But France won't be alone in that among G7 peers. The issue is whether there's a peculiar twist within the euro zone to the wider global angst about mounting public debts. And that rests on what level of risk premium the ECB is likely to tolerate between major member states. For the ECB, the widening French debt spreads relative to Germany has its limits if it were to threaten French debt sustainability, fragment euro credit provision or hamper the smooth working of its monetary policy evenly across the bloc. The latest in a long line of ECB initiatives aimed at curbing what it deems unwarranted speculation against individual euro country's debt is 2022's so-called Transmission Protection Instrument (TPI). ECB chief economist Philip Lane this week made clear he saw no grounds yet for considering TPI as French market repricing to date had been modest and based on reasonable fundamentals. ECB President Christine Lagarde was more cryptic, saying: "Price stability goes hand in hand with financial stability." ECB sources told Reuters it was first for the French government to reassure investors that all fiscal plans were in order and that would need the election to play out first. What's more, activating the TPI is conditional on action on addressing the EU deficit rules and likely stays the ECB's hands for now in using it. So there's a delicate balance to be drawn on how far this can go - even if there are clear limits. "The ECB's intervention mechanisms mean that the eurozone does not face the same existential threats as its sovereign debt crisis of a dozen years ago," asset manager Lombard Odier said this week, adding the "moment of truth" might have to come if further spread widening forces any incoming government to comply with EU deficit demands in order to get the ECB to act. LOOP THE LOOP For all the disturbance - and perhaps reflecting investors awareness of the limits - we're not at critical points yet. Even though the French-German debt spread widened to as much as 77 basis points after the snap election was called - the widest risk premium since 2017 - it's still half the peaks of the 2011-2012 shock. And more significantly for any worries about debt sustainability, nominal French 10-year bond yields have done very little - rising about 15 basis points over the past month to 3.15%, still well below peaks of 3.6% seen only last October. That, so far, likely distinguishes the episode from the 2022 British bond blowout under then Prime Minister Liz Truss that many have evoked as a possible comparison. Demand for French debt at Thursday's latest auction, while affected by the turbulence, showed no sign yet of cratering. Potentially more worrying has been the 10-15% drop in French banking stocks - as national bank stocks have often been the favoured route of euro debt speculation, in part due to the long-feared "doom loop" that could bind the two in a spiral. That doom loop New Tab, opens new tab riffs off the idea that domestic banks hold disproportionately large sovereign debt holdings for regulatory capital and collateral purposes that could hamper their balance sheets in the event of big marked-to-market losses. It was at the heart of the 2010-2012 euro ructions. Fears of a spiral then build if that bank exposure hits their equity and debt financing, liquidity or even solvency, putting the state on the hook for bailout of systemically important banks - further damaging the sovereign debt profile. While a blow - not least to many global investors who had moved overweight euro zone banks lately - the near 20% drop in the French bank stocks over the past month so far just reverses the move higher from March to mid-May. And the latest European Banking Authority stress tests New Tab, opens new tab showed the largest French banks still well insulated even in extreme adverse scenarios assuming a 5.7% drop in French GDP, 9.7% inflation and interest rates at 5.9%. Thorny French politics and debt problems pack a punch - but a euro crisis redux is likely not part of it at the moment. The opinions expressed here are those of the author, a columnist for Reuters Sign up here. https://www.reuters.com/markets/europe/theres-likely-no-such-thing-frexit-mike-dolan-2024-06-21/

2024-06-21 06:01

LONDON, June 21 (Reuters) - For markets trying to assess how quickly interest rate moves are likely to come, it's all about the data. That puts a closely watched U.S. inflation gauge, Tokyo's CPI index and preliminary June data from some euro zone economies in the spotlight. Central bank meetings in emerging markets and the run-up to elections in Britain and France means there's plenty going on. Here's your week ahead primer in world markets from Ira Iosebashvili in New York, Kevin Buckland in Tokyo, Karin Strohecker and Samuel Indyk in London and Yoruk Bahceli in Amsterdam. 1/ COOL DOWN That long-awaited slowdown in U.S. inflation has been hard to come by, but investors are hopeful, perhaps more so than the Fed officials anticipating just one rate cut this year. Friday's key inflation gauge, the personal consumption expenditures (PCE) price index, should show whether the easing inflation trend is in place. But there's reason for caution. Recent PCE readings have not always conformed to expectations. The most recent, reported on May 31, showed U.S. inflation unexpectedly tracking sideways in April. Another such reading on June 28 could undercut the case for those who believe rate cuts are coming anytime soon. Unlike the Fed, markets are holding out for almost two rate cuts this year. 2/ JURY OUT ON JULY The Bank of Japan has kept the door open to a July rate hike. Markets are not convinced and assign less than 1-in-3 odds to a quarter-point increase. A big reason for that is the BOJ has already said it will also outline quantitative tightening next month. The argument goes that doing too much at once risks roiling bond markets. Of course, the BOJ - like everyone else - is data-dependent. And the data thus far isn't exactly exerting pressure to tighten. Weak consumer spending is a particular worry, and demand-driven inflation has cooled for nine straight months. Some key macro readings in coming days will help shed light on the outlook, with retail sales data due Thursday and Tokyo CPI a day later. The BOJ also releases the minutes of its June meeting on Monday. 3/ INFLATION WATCH Euro zone June inflation data trickles in from Friday with flash prints for France, Italy and Spain. The data will set the tone for a euro zone-wide print on July 2, key for traders trying to gauge how many times the European Central Bank will cut rates this year. The ECB cut rates on June 6, but still strong domestic inflation and wages have raised question marks on how many more will follow. Traders expect one more cut and a roughly 64% chance of a second by year-end, down from nearly 80% before the June meeting. Any upside surprise would sour the mood for investors grappling with fresh political uncertainty after French President Emmanuel Macron called a first round French election on June 30. 4/ CURRENCY EXCHANGE It's funny how quickly times change. While Britain has been a hot spot for political instability for some time, the euro zone has been relatively calm. Yet, it's the snap French parliamentary election that has markets fretting that a majority for the far-right could mean more spending, hurting France's already frail fiscal position. Traders have pushed the euro to one-month lows; further weakness could be in store in the next few days. Sterling meanwhile is benefiting from expectations that a big win for the opposition Labour majority in Britain's July 4 election will bring stability. It's the best performing major currency versus the dollar so far this year and has hit almost two-year highs versus the euro. Ironically, concern that a Liz Truss-style episode, when Britain's plans for unfunded tax cuts in 2022 roiled markets, could be repeated in France helps explain jitters towards the euro. After all, that episode sunk the pound to record lows. 5/ WAITING FOR THE FED A push by many emerging market central banks to front run a global easing cycle has lost momentum as the prospect of near-term Fed rate cuts fades and king dollar weighs on many a currency. Mexico's central bank is expected to keep rates on hold on Thursday. It's grappling with inflation ticking up and election-induced peso volatility after a surprise strong showing of the ruling party coalition in a June 2 ballot that spooked investors. Policymakers in the Philippines - meeting the same day - are set to leave rates at 17-year highs, having flagged their restrictive policy settings as appropriate. And Turkey - a reluctant late joiner to the hiking cycle - is seen sticking with its benchmark rate at 50%, as policymakers still feel the sting of inflation which stood at an eye watering 75% in May. Sign up here. https://www.reuters.com/business/take-five/global-markets-themes-graphic-2024-06-21/

2024-06-21 05:47

Stocks fall for second straight session U.S. dollar gains, yen weakness eyed Euro zone business recovery slows sharply NEW YORK, June 21 (Reuters) - A gauge of global stocks declined for a second straight session on Friday, weighed down by weakness in technology shares, while the dollar hit its highest level since early May as a gauge of U.S. business activity edged up to a more than two-year high. S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, inched up to 54.6 this month, the highest since April 2022, from a 54.5 reading in May. A reading above 50 indicates expansion. However, while a rebound in employment helped lift the reading, price pressures eased, adding to recent data that has boosted optimism that inflation may be cooling. On Wall Street, the S&P 500 and Nasdaq finished slightly lower as Nvidia (NVDA.O) New Tab, opens new tab shares fell more than 3% as the biggest drag on both indexes and sending the tech sector (.SPLRCT) New Tab, opens new tab lower. Despite the decline, the chipmaker remains up about 155% on the year as an intense rally in AI-related stocks has lifted both indexes to multiple record highs in recent days. "We've had a very strong run, especially in the S&P over the last couple weeks. So not surprised to see things kind of take a pause and settle down,” said Zachary Hill, head of portfolio management at Horizon Investments in Charlotte, North Carolina. The Dow Industrials managed to eke out a small gain, in part driven by a climb in McDonald's (MCD.N) New Tab, opens new tab shares. The Dow ended the week up 1.44%, its biggest weekly percentage gain since mid-May. The S&P rose 0.61% for its third straight weekly advance. The Nasdaq rose only 0.003% on the week, its third straight weekly advance. The Dow Jones Industrial Average (.DJI) New Tab, opens new tab rose 15.57 points, or 0.04%, to 39,150.33, the S&P 500 (.SPX) New Tab, opens new tab lost 8.55 points, or 0.16%, to 5,464.62 and the Nasdaq Composite (.IXIC) New Tab, opens new tab lost 32.23 points, or 0.18%, to 17,689.36. MSCI's gauge of stocks across the globe (.MIWD00000PUS) New Tab, opens new tab fell 2.98 points, or 0.37%, to 801.37 after touching an intraday record of 807.17 on Thursday but was still on track for a third straight week of gains. Other economic data on the housing market showed U.S. existing home sales fell for a third straight month in May as record-high prices and a resurgence in mortgage rates kept potential buyers on the sidelines. European stocks closed lower, pressured by falls in bank stocks and technology shares against a backdrop of economic data showing euro zone business growth slowed sharply this month. The STOXX 600 (.STOXX) New Tab, opens new tab index fell 0.73%, while Europe's broad FTSEurofirst 300 (.FTEU3) New Tab, opens new tab fell 15.59 points, or 0.76%. U.S. Treasury yields briefly inched higher after the data but were largely little changed on the session, with the yield on benchmark U.S. 10-year notes 0.1 basis point higher at 4.255%. The 10-year yield was set for its first weekly climb after two straight declines. The dollar index , which measures the greenback against a basket of major currencies, gained 0.17% to 105.81, with the euro down 0.09% at $1.069. Sterling slightly weakened 0.05% to $1.2649. Against the Japanese yen , the dollar strengthened 0.43% to 159.59. That level had not been seen since late April when Japanese authorities intervened to halt the rapid fall in the currency. Japanese data earlier on Friday indicated the country's demand-led inflation slowed in May, clouding the picture for a rate hike from the Bank of Japan. Bank of Japan Deputy Governor Shinichi Uchida said on Friday the central bank was willing to raise rates if the economy and prices move in line with its forecasts, but signs of weakness remained. In commodities, the stronger dollar helped send oil prices lower, with U.S. crude settling down 0.69% at $80.73 a barrel and Brent off 0.55% on the day to settle at $85.24 per barrel. Both crude benchmarks finished up about 3% on the week, however. Sign up here. https://www.reuters.com/markets/global-markets-wrapup-1-2024-06-21/

2024-06-21 05:45

NEW YORK, June 21 (Reuters) - The dollar edged higher against other major currencies on Friday, hitting a fresh eight-week high against the yen as data showed a strong U.S. economy and as the Federal Reserve's patient approach to interest-rate cuts stood in contrast to more dovish peers. U.S. business activity hit a 26-month high in June amid a rebound in employment while price pressures subsided considerably, suggesting that a recent slowdown in inflation was likely to be sustained. The dollar index, which measures the currency against six others, was up 0.2% at 105.81 in New York afternoon trading. It had spiked 0.41% overnight, erasing declines for the week, following a second successive rate cut at the Swiss National Bank and hints from the Bank of England of a reduction in August. Thierry Wizman, global FX & rates strategist at Macquarie, in New York sees continued dollar strength as political uncertainty in Europe could eventually sap business and consumer confidence. "Even if the euro or sterling were to rally, I can't imagine it being a strong or durable rally," said Wizman. "I'd be more inclined to sell into that rally and then cover at a lower point." For Matt Weller, head of market research at StoneX, Grand Rapids, Michigan, the Japanese yen will be important for FX traders to watch next week. The U.S. Treasury on Thursday added Japan to a list of countries it is monitoring for potential labelling as a currency manipulator, "a diplomatic warning against additional intervention", said Weller. China is among others on the list. The yen has been under pressure after the Bank of Japan's decision last week to hold off on reducing bond-buying stimulus until its July meeting. The dollar last traded 0.4% stronger at 159.59 yen, after hitting a session high of 159.62. The BOJ, at the behest of Japan's finance ministry, spent some 9.8 trillion yen ($61.64 billion) to pull the currency out of a 34-year trough of 160.245 per dollar, reached on April 29. Japan's top currency diplomat Masato Kanda said on Friday that Tokyo stands ready to take further "resolute" action against "speculative, excessive volatility". Meanwhile, the dollar held its near five-week high against sterling , which remains flat at $1.2649, around its lowest since mid-May. The BoE kept rates on hold this week, but some policymakers said the decision not to cut was "finely balanced". Data on Friday showed UK retail sales rose by more than expected in May, in large part because of milder weather. A separate report showed British business growth slowed to a seven-month low in June, weighed down by nerves about the July 4 general election. The euro was also flat at $1.0697 after a series of preliminary surveys for June showed service-sector activity in France contracted this month, while activity across the German economy slowed. "Overall it seems like the FX market is hesitating to push for any major moves before the French election in late June/early July, as that remains the biggest focus for European FX in particular," said Erik Nelson, macro strategist at Wells Fargo in London. Sign up here. https://www.reuters.com/markets/currencies/dollar-scales-multi-week-highs-other-cenbanks-more-dovish-than-fed-2024-06-21/