2024-06-14 19:09

BRUSSELS, June 14 (Reuters) - The European Union failed on Friday to agree a 14th package of sanctions against Russia, EU diplomats said, as Germany held out over the extent to which EU companies would be responsible for sanctions violations. Officials from the 27 EU countries have been debating for more than a month on a package including a ban on Russian LNG trans-shipments and a plan to make EU operators responsible for sanctions violations by subsidiaries and partners in third countries. Ambassadors were set to discuss and decide on the issue on Friday evening, but the sanctions topic was withdrawn from the meeting agenda at the last moment. The ambassadors are next due to meet on Wednesday. The late Friday meeting had been meant to reach an agreement before a Ukraine peace conference in Switzerland this weekend. Hungary, Russia's closest EU ally, was previously holding out, but appeared willing to accept the sanctions package, which requires EU unanimity. However, EU diplomats said that Germany expressed reservations about the impact on its industry of the clause on third country subsidiaries and partners. Under the sanctions package, the EU was also set to ban from its ports ships that have contributed to Russia's war effort. This could include the transport of goods generating significant revenue for Russia, goods or technology used in the defence and security sector or shipment of fuels outside the G7 price cap system. Sign up here. https://www.reuters.com/world/europe/eus-14th-package-russia-sanctions-held-up-by-germany-diplomats-say-2024-06-14/

2024-06-14 19:05

Loonie trades in a range of 1.3728 to 1.3779 For the week, the loonie gains 0.2% Factory sales and wholesale trade rise in April 10-year yield hits a 4-month low at 3.260% TORONTO, June 14 (Reuters) - The Canadian dollar steadied against its broadly stronger U.S. counterpart on Friday as domestic data showed an increase in factory sales and investors judged that expected Bank of Canada interest rate cuts have been built into the currency's outlook. The loonie was trading nearly unchanged at 1.3740 to the U.S. dollar, or 72.78 U.S. cents, after moving in a range of 1.3728 to 1.3779. The currency posted a modest weekly gain of 0.2% even after hitting on Tuesday its weakest intraday level in nearly two months at 1.3791. "I think USD-CAD is still vulnerable to some upside swings out there but it's not in a hurry," said Amo Sahota, director at Klarity FX in San Francisco. "The market is really focused on U.S. (currency) trade flow right now ... For Canada, the drivers of expecting lower interest rates - that's a checked box." The U.S. dollar (.DXY) New Tab, opens new tab rose against a basket of major currencies as political uncertainty weighed on the euro . The BoC last week became the first G7 central bank to ease monetary policy, cutting its benchmark rate by 25 basis points to 4.75%. Money markets expect another rate cut in July but have also moved to price in two rate cuts this year from the Federal Reserve, after recent data showed a cooling in U.S. inflation. Canadian factory sales grew by 1.1% in April from March on higher sales of motor vehicles, as well as primary metals, Statistics Canada said. Separate data for April showed wholesale trade advancing 2.4%. The price of oil , one of Canada's major exports, settled 0.2% lower at $78.45 a barrel, giving back some of its weekly gain. Canadian bond yields fell across a flatter curve. The 10-year was down 4.3 basis points at 3.285% after earlier touching its lowest since Feb. 2 at 3.260%. Sign up here. https://www.reuters.com/markets/currencies/c-posts-weekly-gain-with-boc-rate-cuts-seen-priced-2024-06-14/

2024-06-14 18:57

June 14 (Reuters) - Federal Reserve Bank of Chicago President Austan Goolsbee on Friday said he was relieved after data this week showed inflation in May had cooled, but he would still like to see "more months" of similar data before cutting interest rates. "Inflation was back down to levels that, if we got a lot of months like this, we would be feeling so much better," Goolsbee told the Iowa Farm Bureau Economic Summit in Ankeny, Iowa. Government data published on Wednesday showed that consumer prices did not rise at all from April to May. The data, which marked the softest consumer inflation reading since July 2022, was released in the middle of the Fed's two-day policy meeting. "My feeling coming out of the meeting was a little bit relief," Goolsbee said. The Fed on Wednesday left its policy rate unchanged in the 5.25%-5.5% range. Fed Chair Jerome Powell said any rate cuts would wait until the central bank gets more confident that inflation is headed toward the Fed's 2% goal, or sees unexpected deterioration in the labor market. Over the last 18 months, Goolsbee said, "We've actually made a lot of progress getting the inflation rate down." He added, "We just got to see more progress" before cutting rates. The Fed, he said, is also keeping an eye on the health of the economy, where signs of pain like loan delinquencies are rising but are not to levels that would be associated with a recession. If inflation continues to ease and the Fed can cut rates, he said, the Fed may be able to avoid recession altogether. Sign up here. https://www.reuters.com/markets/us/feds-goolsbee-says-latest-consumer-price-data-brought-relief-2024-06-14/

2024-06-14 15:47

Markets spooked by snap French vote French/German yield gap posts biggest jump since 2010 Spending plans stoke comparison with UK's 2022 budget crisis June 17 (Reuters) - As the far right and leftist parties gain momentum ahead of France's surprise parliamentary election, investors are starting to contemplate the risk of a budget crisis at the heart of the euro zone. Marine Le Pen's far-right National Rally party (RN) is leading in opinion polls ahead of the ballot called by President Emmanuel Macron for June 30 and July 7, albeit unlikely to win an absolute majority. Although it has not yet announced its detailed programme, the RN has previously favoured lowering the retirement age, tax cuts and boosting spending. That has exacerbated concerns about fiscal sustainability in the euro zone's second largest economy just weeks after France's high deficit led to a credit rating cut. A newly formed leftist alliance meanwhile said on Friday it wanted to lower the retirement age and tie salaries to inflation, adding to expectations for higher spending under a new government. Polls show the leftist parties coming second behind the RN. Investor reaction was blunt: the risk premium they demand to hold French government bonds over euro zone benchmark Germany rose to the highest since 2017 on Friday at 82 basis points , its biggest weekly jump since at least 2010, according to LSEG data. On Monday it dropped to 75 bps as markets calmed, but was still over 25 bps higher than before the election announcement. "The focus has shifted back to the scope for some kind of near term crisis," said Gordon Shannon, portfolio manager at TwentyFour Asset Management. "You're pricing the risk that you have an event similar to the UK's mini budget," he said, referring to Britain's then-Prime Minister Liz Truss' mini-budget of unfunded tax cuts in 2022 that pummelled gilts and forced the Bank of England to step in to stabilise markets. Finance Minister Bruno Le Maire, urging voters to back Macron's centrist candidates, warned on Friday of the risk of a financial crisis if either the far right or the left wins the election. The cost of insuring France's debt against default jumped on Friday to its highest level since May 2020, while the spillover of rising borrowing costs has knocked banks. Shares in the country's biggest three - BNP Paribas (BNPP.PA) New Tab, opens new tab, Credit Agricole (CAGR.PA) New Tab, opens new tab and Societe Generale (SOGN.PA) New Tab, opens new tab - struggled to recover on Monday after losing between 11-15% last week, the most since March 2023's banking crisis. But the European Central Bank's chief economist Philip Lane on Monday downplayed any need for the ECB to come to France's rescue by buying bonds, saying the market moves were not disorderly, a condition for ECB intervention. ECB sources had earlier told Reuters policymakers had no plan to discuss emergency purchases of French bonds and thought it is for French politicians to reassure spooked investors. The ECB's backstop tool to buy government bonds if warranted requires compliance with parameters like the EU's fiscal rules to limit budget deficits. EURO ZONE RECKONING? Demonstrating how market ructions are already hitting funding plans, a French state-backed agency cancelled a bond sale and France's treasury plans to raise a smaller amount than usual at a bond auction this week. Bond investors are often dubbed vigilantes by analysts for demanding higher returns from governments they perceive as fiscally reckless. "We've already had a stress test in the UK with the mini budget and we had a bit last summer in the U.S. when Treasury yields rose sharply after the Treasury refunding announcement," said Guillermo Felices, global investment strategist at PGIM Fixed Income. "We haven't had this yet in the euro zone." The Institut Montaigne think tank has said the RN's programme for the 2022 parliamentary election would cost more than 100 billion euros -- suggesting a 3.5 percentage-point increase in France's budget deficit -- if fully enacted. That's much higher than estimates New Tab, opens new tab for Truss's tax cuts. RN President Jordan Bardella said on Friday that the party would detail its platform in the coming days and how it would be financed. It has so far been vague about where it stands on fiscal responsibility, other than blaming the outgoing government for straining the public finances. "In an extreme case, the risks could include a Liz-Truss-style blowout in yield spreads," Holger Schmieding, chief economist at private bank Berenberg, said earlier this week. Britain's 10-year yield jumped over 100 bps in less than a week during its budget crisis. There were some early signs that concern over France might spread in the euro zone. Italy's closely-watched risk premium over Germany rose to the highest since February at 159 bps on Friday. Italy last year posted the highest budget deficit-to-GDP ratio in the European Union, at 7.4% of output. Together with France, it is expected to face a European Union excessive deficit procedure requiring it to reduce its structural deficit. The euro hit a 1-1/2-month low against the dollar on Friday and euro zone bank stocks fell 8% last week (.SX7E) New Tab, opens new tab. Others said it had yet to be seen how a potential government that included the RN would act in office. Italy's debt outperformed last year, helped by far right Prime Minister Giorgia Meloni moderating her tone in office. Iain Stealey, international chief investment officer for fixed income at JPMorgan Asset Management, said the RN's spending plans would be curbed by the EU's deficit rules. "The market will also be a key force in keeping National Rally in check, with the party likely to take a more prudent fiscal stance ahead of the 2027 presidential election," he added. Sign up here. https://www.reuters.com/markets/europe/french-election-worries-rekindle-market-memories-uk-budget-rout-2024-06-14/

2024-06-14 14:54

DUBROVNIK, Croatia, June 14 (Reuters) - European Central Bank President Christine Lagarde largely dodged a question about turmoil in French financial markets on Friday, merely saying the ECB would deliver on its inflation target. French markets endured another brutal sell-off on Friday as investors cut their positions ahead of a snap election that might give a majority to the far right. Lagarde was asked if the ECB would consider using an emergency bond-buying scheme to support France, after the risk premium on French bonds jumped by the most since 2011. "I'm not going to comment on domestic political situations," she told reporters on the sidelines of a conference in Dubrovnik, Croatia. "I will simply say that it is the duty of the European Central Bank to deliver on its mandate and to keep inflation under control and back to target." The Transmission Protection Instrument, devised in 2022 to stem a sharp fall in Italian government bond prices, allows the ECB to buy unlimited amounts of bonds if a country finds itself under market pressure despite running a sound economic policy. French Finance Minister Bruno Le Maire warned that the euro zone's second-biggest economy was at risk of a financial crisis if the far right won the parliamentary election in the coming weeks. Marine Le Pen's eurosceptic National Rally (RN) is leading in opinion polls following President Emmanuel Macron's surprise decision on Sunday to call a snap election. Le Pen's party is calling for a cut in the state pension age, reductions in energy prices, increased public spending and a protectionist "France first" economic policy. France's banks have also been hit hard. The biggest three - BNP Paribas (BNPP.PA) New Tab, opens new tab, Credit Agricole (CAGR.PA) New Tab, opens new tab and Societe Generale (SOGN.PA) New Tab, opens new tab - have lost between 12% and 16% in value this week, the most since the banking crisis of March 2023. Sign up here. https://www.reuters.com/markets/europe/ecbs-lagarde-dodges-question-about-french-market-turmoil-2024-06-14/

2024-06-14 14:50

June 17 (Reuters) - French stocks and the euro tumbled last week as political uncertainty in France and the possibility of a far-right-dominated parliament spooked investors, while the gap between French and German government borrowing costs soared. Marine Le Pen's eurosceptic National Rally is leading in opinion polls following President Emmanuel Macron's surprise decision to call a snap vote, while France's left-wing parties have formed a new alliance to fight the election. The worry for markets is that a far-right French prime minister could pursue high-spending "France first" economic policies, adding to the country's large debt pile. Some investors have started to talk of the risk of the euro zone breaking up, although that remains a way off. Here are four charts showing how markets have been reacting. French stocks have sold off hard. The blue-chip CAC 40 is at its lowest since January, having shed 6% last week - its biggest weekly drop in over two years. (.FCHI) New Tab, opens new tab "There's an element of 'shoot first, ask questions later' with regards to France," said Tom O'Hara, a portfolio manager on the European equities team at Janus Henderson Investors. "We're focused on global companies that are listed in Europe. Certainly, those that are more domestically exposed, there are going be more question marks about." Midcaps (.CACMS) New Tab, opens new tab, which typically have more exposure to the underlying national economy, fell 9%, the biggest weekly drop since March 2020's pandemic turmoil. Banks have been particularly hard hit. BNP Paribas (BNPP.PA) New Tab, opens new tab, Credit Agricole (CAGR.PA) New Tab, opens new tab and Societe Generale (SOGN.PA) New Tab, opens new tab all lost over 10% last week, losing roughly $19 billion in market cap since the previous Friday's close, based on LSEG data. French government bonds are also under pressure. The difference between French and German 10-year borrowing costs rose to 78 basis points on Friday, the highest since 2017 on an intraday basis and on track for a closing level not seen since the euro zone crisis of 2012. The spread reflects the premium investors demand to hold French government bonds rather than German bonds, the euro zone benchmark. The wider spreads could provide a "tactical buying opportunity," said analysts at UBS, "but we expect investors to take a wait-and-see attitude until there is more clarity on electoral alliances, as well as fiscal policies in the case of a cohabitation - a situation where the prime minister and president are from different parties." It now costs the French government more to borrow money for 10 years than it does the Portuguese government for the first time since at least 2005, according to LSEG Datastream . Spreads are also widening due to a general rush for safe haven assets in Europe and that includes German government bonds. The yield on German Bunds dropped 24 bps last week, its biggest weekly drop since December. "It is going to be a long month for the euro," said Chris Turner, global head of markets at ING. The currency has dropped 1% against the dollar, British pound and Swiss franc last week alone, and is at its lowest against the pound in almost two years. , , Markets are braced for further sharp moves. One-month options volatility for the euro against both the dollar and the pound has jumped to its highest in over a year. , "With opinion polls taking such a toll on the euro and presumably more polls due..., we expect investors will want to manage their euro exposure carefully," said Turner, who reckons the euro could drop towards $1.06 this week, which would be its lowest since November. It's currently at $1.070. The cost of insuring France's debt against default has also rocketed. France's five-year credit default swap widened to 38 basis points (bps) on Friday, having been just 24 bps as of market close on June 7, a week before. These levels are the highest since the pandemic, and prior to that, since the 2017 presidential election, when markets feared Le Pen might be elected France's president. Sign up here. https://www.reuters.com/markets/europe/how-macrons-election-gamble-sowed-panic-french-markets-2024-06-14/