2024-06-07 06:58

DUBAI, June 7 (Reuters) - Saudi Arabia is poised to raise more than $11.2 billion from its secondary offering of oil giant Aramco's shares, after pricing them towards the lower end of a price range at 27.25 riyals ($7.27), people familiar with the matter told Reuters on Friday. Aramco's (2222.SE) New Tab, opens new tab book was covered four to five times near the bottom of the price range of 26.7 to 29 riyals, one of the people said. Aramco did not immediately give a comment. The Saudi government communications office did not immediately respond to a request for comment. Foreign investment, which has repeatedly missed targets, is a key plank of Saudi de facto ruler Crown Prince Mohammed bin Salman's plan to diversify the economy away from oil. The offering is a fresh test of the kingdom's ability to attract overseas cash, though it was not immediately clear to what extent the share sale whet international investor appetite. The plan, dubbed Vision 2030, has poured tens of billions of dollars into projects as varied as electric vehicles and futuristic cities in the desert, mainly via the Public Investment Fund (PIF). Sources and analysts have said the PIF is likely to be a beneficiary of the share sale proceeds, though some have suggested the funds may also partly plug the kingdom's likely budget deficit this year. The pricing is a nearly 4% discount to where Aramco's shares closed on Thursday and gives Aramco a valuation of about $1.76 trillion. Its market capitalisation, according to its Thursday share price, was about $1.83 trillion. The Saudi government is selling a roughly 0.64% stake in Aramco. The offering could then be boosted to 0.7% of the oil giant in a so-called greenshoe option, which allows bankers to use shares to stabilise the price of the offering. If that option is exercised, Aramco would raise roughly $12.36 billion. The world's top oil exporter exercised a greenshoe option after its 2019 initial public offering (IPO) to raise $29.4 billion, which remains the world's largest IPO. The banks on the deal took orders through Thursday and shares are set to start trading next Sunday on Riyadh's Saudi Exchange. The offering is codenamed Project Bond and has been in the works for months as a key step in drawing a broader range of investors after Aramco's record-breaking IPO, sources have said. The deal will be a test of interest in Saudi markets after lukewarm demand from international investors for that IPO amid concerns about a high valuation, Saudi government control and the energy transition away from hydrocarbons. ($1 = 3.7504 riyals) Sign up here. https://www.reuters.com/markets/commodities/saudi-arabia-poised-price-aramco-shares-727piece-sources-say-2024-06-07/

2024-06-07 06:51

CANBERRA, June 7 (Reuters) - Industrial disputes at factories that produce more than half of Australia's sugar could cause cane to be left unharvested if they are not resolved soon, threatening production and exports, people in the industry said. Strikes over pay at eight mills owned by Singapore's Wilmar International (WLIL.SI) New Tab, opens new tab that produce over 2 million metric tons – worth around $1 billion - of sugar a year have delayed the start of cane crushing operations by between two and 13 days, the company's Australian subsidiary said. A ninth mill, owned by Chinese conglomerate COFCO (600737.SS) New Tab, opens new tab, said it had also delayed its start due to strikes and adverse weather. Australia is the world's fourth-largest sugar exporter, shipping around 3.5 million tons a year to markets mostly in Asia. A small reduction in Australian production would tighten supply in Asia but likely have little impact on global prices. But the hold-ups are worrying growers who lined up labour to deliver cane but do not yet threaten overall sugar production in a crushing season that lasts from June to around November, when rains dilute the cane's sugar and make it difficult to harvest. However, longer delays could shorten the processing season and the time available to bring cane from fields. "Everyone's worried about it," said Greg Beashel, CEO of exporter Queensland Sugar. "The cane has to be crushed in a fixed window otherwise you lose sugar content and have weather risk at the end of the year," he said. Start-of-season delays are not unusual and buyers should not yet be alarmed, Beashel said. "But it needs to get resolved pretty soon," he added. Spokespeople for Wilmar Sugar and Renewables, also a major generator of renewable energy from biomass, and for COFCO's Tully Sugar said long strikes would disrupt the crush but hoped pay deals could be struck before that happened. "I am hopeful," a Tully spokesman said. "We need to kick off as soon as possible." Unions at Wilmar are asking for an 18% pay rise over three years and those at Tully want 21%, union officials said. They said they had lowered their requests to help reach deals without disrupting the crush and workers deserved the rises after a period of high inflation and high sugar prices. A former Wilmar worker employed for decades at a mill just south of Townsville said many mill workers did 12-hour shifts in a hot and humid environment, where boilers ran 24 hours a day for most of the crushing season feeding heat and energy to machinery. "There's hot water everywhere. It's hot, noisy and steamy," he said, adding that workers would hold out for higher pay. "People have had enough," he said. Wilmar has offered its workers 14.25% over three and a half years with a signing bonus and Tully 14.25% over three years, the companies said. Unions at Wilmar have suspended industrial action until a vote on June 10-11, when they say the offer will be rejected. Wilmar said it has been informed that strikes will resume after the ballot. Tully said its workers would ballot in the week of June 17. The unions, which oppose Tully's offer, have announced work bans next week, the company said, adding that it intended to suspend employment of any worker who takes part in such actions. Tully plans to start crushing next week and Wilmar will start its first mill on Monday, the companies said. Meanwhile, the sugar industry watches and waits. "It's a headache," said Owen Menkens, a farmer and chairman of the CANEGROWERS industry association. Every mill around Menkens' farm near Townsville is owned by Wilmar. "We've got harvesting crews, casual labour coming in," he said. "The whole community revolves around the mills." "If the delay gets any longer, it's going to be difficult. When the harvest isn't happening, there's no money coming into the district. Every day is crucial." Sign up here. https://www.reuters.com/markets/commodities/sugar-mill-strikes-put-australias-cane-harvest-risk-2024-06-07/

2024-06-07 06:03

LONDON, June 7 (Reuters) - This week's milestone G7 interest rate cuts dispel any notion that hitting 2% inflation targets spot on is a precondition for central bank moves or indeed sensible - and may guide thinking on the Federal Reserve and Bank of England too. The European Central Bank and the Bank of Canada, covering four of the G7 major economies, cut interest rates on Wednesday and Thursday in the first reversals of some two years of policy tightening aimed at reining in post-pandemic inflation spikes. In well-telegraphed moves, both announced the cuts even with headline inflation rates still above 2.0% targets - 2.6% in the euro zone and 2.7% in Canada. "Core" rates excluding energy and food and other volatile prices are just as high. Have they rashly jumped the gun? The reasons are well documented - the central banks continue to insist the targets will be hit, they forecast success on that front over the next year or two and claim policy is being pre-emptive by removing just a notch of restraint on slow-growing economies. But the timing also reveals the degree of latitude central banks see around what might appear like precise targets - and how getting inflation to within one-tenth of one percentage point of a fairly arbitrary goal may be a fool's errand anyway. Many policymakers and economists doubt the wisdom of exact point targeting - citing numerous supply-side distortions in many components of inflation baskets and fretting about wider damage to economies simply in order to ring a 2% bell. Having successfully punctured inflation rates to a quarter of the peaks seen in 2022, the risk of forcing recession and a rise in unemployment just to zap a final half percentage point seems to some an overly high price. That's especially so if - as their own forecasts and financial market pricing seems to suggest - the risk of a significant re-acceleration of inflation is seen to be low. The debate then shifts to degrees of policy "restrictiveness" - judged mainly by how far current policy rates are above assumed "neutral" levels that would no longer bear down on or stimulate economic activity. That in itself leaves a lot of wiggle room for most central banks. Even if there's considerable uncertainty on exactly where those largely theoretical neutral rates lie, most experts agree they are much lower than now - allowing central banks to claim a foot's on the brake even as they pare back borrowing rates. Estimates by ECB New Tab, opens new tab and BoC officials New Tab, opens new tab themselves, and indeed from Fed policymakers New Tab, opens new tab, indicate neutral policy rates have likely crept higher since the COVID-19 pandemic but they are still almost half the current levels. The ECB and BoC were at pains to stress this week that the first cuts don't necessarily presage a series that would wipe out monetary restriction altogether and they continue to monitor everything from sectoral price pressures to wage developments. ROOM TO MANOEUVRE But restriction aside, central banks' formal targets themselves are not always as rigid as they seem either. The Bank of Canada, for example, continually refers to its 2% target in public, but its most recent framework agreement New Tab, opens new tab with government covering the 2022-2026 period refers to the 2% target as a mid-point of a 1%-3% "inflation-control range". As Canadian inflation has already spent some four months below the upper end of that range, it's not hard to see the green light to ease with the local economy slowing sharply. For 18 years, the ECB used to have a target to get inflation "below but close to 2%," but its 2021 strategy review New Tab, opens new tab adopted a more symmetric target around 2% "over the medium term" - which at the time was aimed at addressing years of undershoot and acknowledging that an averaging over the time was better. And even though it nudged up its 2024 and 2025 inflation forecasts a touch while cutting rates on Thursday, the ECB still expects inflation to average as low as 1.9% in 2026. For the Fed, which holds a policy meeting next week, inflation captured by its core PCE gauge is now similar to equivalents faced by the ECB and BoC - but it's hesitating on rate cuts due to a much stronger economy and looser U.S. fiscal stance. However, the U.S. central bank preceded the ECB in a shift of strategy in 2020 toward long-term averaging New Tab, opens new tab of inflation in assessing its target. Although it's publicly sidestepped that approach during the latest battle - with its next review expected some time next year - the whole approach de-emphasizes the idea of hitting 2% precisely at any one point as the only policy trigger. What's more, the Fed's solo 2016-2019 tightening campaign to bring policy rates back up to neutral was also conducted even when core PCE rates languished below 2% for all but two months of that period. In other words, the return to neutral policy rates then didn't require inflation to be bang on target. That same argument could be applied in reverse now. For investors, the bias from here will likely be more restrictive policy on average in the years ahead. But that probably shouldn't prevent some cuts from here. "What is not being openly discussed, certainly by policymakers, is that we might not be able to get back below 2% without a severe recession," said Chris Iggo, chair of the AXA IM Investment Institute, adding that just keeping a lid on inflation here may now see policy rates in a 3%-4% range on a longer-term basis in the U.S. and the United Kingdom and at some 2%-3% in the euro zone. "How far above that range rates go depends on the appetite for forcing inflation back down through engineering a recession, an increase in spare capacity and higher unemployment," he wrote. "Living with inflation a little above the target range has greater social utility than the alternative." The opinions expressed here are those of the author, a columnist for Reuters. Sign up here. https://www.reuters.com/markets/wiggle-room-around-2-inflation-targets-mike-dolan-2024-06-07/

2024-06-07 05:52

June 7 (Reuters) - The Reserve Bank of India (RBI) kept its key interest rate unchanged on Friday in a widely expected move as robust economic growth continues to provide space to focus on bringing down inflation towards its medium-term target of 4%. The Monetary Policy Committee (MPC), which consists of three RBI and three external members, kept the repo rate (INREPO=ECI) New Tab, opens new tab unchanged at 6.50% for an eighth straight policy meeting. COMMENTARY: SUJAN HAJRA, CHIEF ECONOMIST AND EXECUTIVE DIRECTOR, ANAND RATHI SHARES AND STOCK BROKERS, MUMBAI "Several indications from the governor's speech suggest that the RBI is unlikely to commence rate cuts soon." "However, with two of the six monetary policy committee members advocating for easing, and considering the RBI's expectation of continued falling inflation alongside the current high real interest rates, it appears that the RBI may not maintain the policy rates and liquidity tightening stance for an extended period." "Today's policy is neutral for financial markets in the near term, but the medium-term implications are positive for both the equity and debt markets." ANITHA RANGAN, ECONOMIST, EQUIRUS, MUMBAI "The key reason for maintaining policy rate is the uncertainty on the outlook of domestic inflation led by the food side." "The Indian economy is at an inflection point, with inflation on the right track but work (needs) to be done. The watch is from the global side with last mile inflation remaining arduous globally and geopolitical risks. RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE "The mix of strong growth and above-target inflation does not make a case for a shift to a less-restrictive policy setting as yet, validating our view that rate easing is not on the cards this year. Political developments are not expected to sway the monetary policy direction or outlook." SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM "The RBI did not let up any dovish signals with regards to future policy action and perhaps some signal could come in the August policy once there is some clarity on the new budget, monsoon performance and global interest rate cycle. We continue to see the possibility of one rate cut in the fourth quarter of 2024." KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU "While we agree with the RBI on the inflation front, we are not too convinced about improving growth prospect especially in the light of the result of the recent election wherein on the ground economic reality appeared to be different from what the real GDP data suggested and translated into the ruling government falling way short of the number of seats they expected prior to the results." "We retain our expectation of a policy rate cut only during the fourth quarter with possibility of it being delayed to next year if inflation fails to follow RBI's desired trajectory." MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI "The policy tone was confident on domestic dynamics, with upgrade in FY25 growth and but no change in inflation trends despite near-term food-led risks." "While the RBI took recognition of fluidity of global narratives, the governor insisted that their policy reaction function is driven primarily by domestic dynamics." "However, we note that swift policy turns/pivots in the last two years have been purely influenced by global factors. This suggests that when needed, the aim of financial stability may even precede inflation management." UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI "The split in voting patterns clearly shows the increasing probability towards a pivot in the policies ahead." "However, we believe the robust growth will give enough opportunity for the monetary policy committee to remain on a wait-and-watch mode until better clarity comes from monsoons and quality of expenditure from the Budget." "We see room for stance change in the August policy with a plausible easing from October meeting." Sign up here. https://www.reuters.com/world/india/view-india-cenbank-holds-rates-widely-expected-2024-06-07/

2024-06-07 05:49

NEW YORK/LONDON, June 7 (Reuters) - Global stocks pulled back from an all-time high on Friday after surprisingly strong U.S. monthly jobs data dimmed hopes that the Federal Reserve would soon follow euro zone and Canadian interest rate cuts, causing Treasury yields to shoot higher. The world's largest economy added 272,000 jobs last month, beating the 185,000 hires predicted by economists and derailing an investor consensus that the jobs market had slackened just enough to push consumer prices lower. "This is a strong report, and it suggests that there are no signs of any cracks in the labor market," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. "It's a plus for the economy and a plus for corporate earnings, but it's a negative in terms of the prospects of a rate cut perhaps as early as September." Diminished hopes for a near-term Fed move weighed on stocks, which closed lower after a choppy session. The MSCI's world share index (.MIWO00000PUS) New Tab, opens new tab dropped 0.3%, after touching a record high of 797.48 points. Wall Street finished in the red. The S&P 500 (.SPX) New Tab, opens new tab fell 0.1% after hitting an all-time high of 5,375.08 points. The Dow Jones Industrial Average (.DJI) New Tab, opens new tab edged down 0.2%, and the Nasdaq Composite (.IXIC) New Tab, opens new tab also lost 0.2%. The benchmark 10-year U.S. Treasury yield , a benchmark for borrowing rates globally, leapt over 15 basis points after the jobs report, to 4.4335%, its biggest one-day jump in about two months. The two-year yield, which tracks interest rate expectations , climbed nearly 17 basis points to 4.8868%, following six straight days of declines until Thursday. Bond yields rise as prices fall. Money market pricing just after the payrolls data implied traders saw the Fed only starting to cut rates from their 23-year high of 5.25-5.5% by November. U.S. interest rate futures also lowered the chances of the Fed's cutting rates by 25 basis points in September to 56%, down from around 70% on Thursday, according to LSEG's Fedwatch. A September move had been strongly expected earlier in the day, particularly after the European Central Bank made a widely expected decision to cut its deposit rate from a record 4% to 3.75% on Thursday. The Bank of Canada on Wednesday became the first Group of Seven nation to trim its key policy rate, following cuts by Sweden's Riksbank and the Swiss National Bank. Following the jobs report, euro zone rate pricing also went into reverse, with traders now pricing 55 bps of cuts in the region this year, down from 58 bps before the data. Europe's Stoxx 600 (.STOXX) New Tab, opens new tab share index, which has gained almost 10% year-to-date, lost 0.2%. Euro zone bonds were also lackluster on Friday, with Germany's 10-year Bund yield rising 8 bps to 2.618%. Elsewhere, the dollar rose 0.8% against a basket of currencies, having been set for a weekly loss before the jobs data. The euro dropped 0.8% to $1.0802 a day after a slight gain. Brent crude oil futures lost 0.6% to $79.36 per barrel. The stronger dollar weighed on spot gold , which dropped 3.6% to $2,290.59 an ounce. Sign up here. https://www.reuters.com/markets/global-markets-wrapup-1-2024-06-07/

2024-06-07 05:42

China's May exports top forecasts, imports slow Imports data underline weak domestic demand concerns Exports growth suggests hi-tech sectors giving China a boost Western tariffs unlikely to immediately slow exports, analyst says Economists expect fiscal stimulus to help boost domestic demand BEIJING, June 7 (Reuters) - China's exports grew more quickly and for a second month in May, suggesting factory owners are managing to find buyers overseas and providing some relief to the economy as it battles to mount a durable recovery. The jury is still out, however, on whether the export sales are sustainable while a protracted property crisis has led to persistent weakness in domestic demand - a factor highlighted again in last month's imports figures. "China's exports maintained strong year-to-date growth momentum in May, which mainly reflects the continuing large global market share of Chinese goods and renminbi (yuan) exchange advantage, as well as exporters shipping early ahead of tariff increases in export markets," said Bruce Pang, chief China economist at Jones Lang LaSalle. Outbound shipments from the world's second-largest economy grew 7.6% year-on-year in value in May, customs data showed on Friday. But imports increased at a slower 1.8% pace, from a 8.4% jump in the previous month, highlighting the fragility of domestic consumption. The export figure beat a forecast 6.0% increase in a Reuters poll of economists and a 1.5% rise seen in April, though growth was likely also aided by a lower base of comparison, after rising interest rates and inflation in the U.S. and Europe squeezed external demand in the previous year. Over recent months, a flurry of data has shown different parts of the $18.6 trillion economy recovering at varying speeds, heightening uncertainty about the outlook. While first quarter growth blew past forecasts and strong March export and output data suggested improving global demand might aid officials' efforts to get the economy back on an even keel, more recent indicators reflecting soft domestic consumption have eroded much of that earlier optimism. DEPRESSED DOMESTIC DEMAND Indeed, separate data for May on commodities imports also released on Friday highlighted a mixed picture of demand conditions at home, with purchases of crude oil and soybeans down year-on-year, while copper and iron ore saw a solid uptick. A protracted property sector crisis remains the biggest drag on China's economy, with low investor and consumer confidence hurting domestic consumption and undermining business activity. However, Friday's trade data should give authorities some breathing space as they continue their efforts to foster a broad-based economic recovery. Analysts expect China to roll-out more policy support measures in the short term, while a government pledge to boost fiscal stimulus is seen helping shore up domestic demand. The International Monetary Fund last month upgraded its China growth forecast for 2024 in line with Beijing's growth target of "around" 5%, but warned of risks to the economy from the property sector troubles. China's stocks slipped as the better export numbers were eclipsed by a report that U.S. lawmakers pushed to ban Chinese battery firms with ties to Ford and Volkswagen from exporting to the U.S. HI-TECH BOOST Friday's shipments data possibly also suggests a global cyclical upturn in the electronics sector is helping China's sales of components and finished manufactured goods. Integrated circuits exports from the Asian giant increased 28.4% year-on-year in value in May, according to Reuters calculations, in line with robust chip shipments from neighbouring South Korea last month, a leading indicator of China's trade performance in technology sectors. Beijing has come under growing criticism from the West that Chinese industrial overcapacity in technologically advanced and green sectors is flooding markets in the European Union and the United States, an assertion China has refuted and it has accused Washington and the EU of engaging in trade protectionism. China's trade surplus grew to $82.62 billion last month, compared with a forecast of $73 billion and $72.35 in April, which the U.S. has repeatedly highlighted in the past as evidence of one-side trade favouring the Chinese economy. Last month, the Biden administration unveiled steep tariff increases on $18 billion of exports, including a quadrupling of tariffs on Chinese new energy vehicles. The China trade data shows vehicles exports, including chassis, increased 16.6% year-on-year by value last month. "We expect exports to stay strong in the coming months, supported by a weaker real effective exchange rate. Foreign tariffs are unlikely to immediately threaten exports," said Zichun Huang, China economist at Capital Economics. "If anything, they may boost exports at the margins as firms speed up shipments to front-run the duties." Sign up here. https://www.reuters.com/world/china/chinas-may-exports-pick-up-pace-top-forecast-boost-economic-recovery-2024-06-07/