2024-06-03 10:27

BERLIN, June 3 (Reuters) - Germany is likely to miss its 2030 greenhouse gas targets, government climate advisors said on Monday, contradicting the climate minister's prediction in March and calling for new policy measures. The Expert Council on Climate Issues, which has independent authority to judge the country's climate performance, said Germany is unlikely to meet its goal to cut 65% of greenhouse gas emissions by 2030 compared to 1990 because sectors such as transport and construction are struggling to meet their targets. Its findings come after Germany just introduced a more flexible climate protection law in April that gives leeway to underperforming sectors such as transport. However, the Climate Protection Act will also require the government to take corrective measures for the 2030 target if the Expert Council on Climate Issues confirms its findings in its next annual report in 2025. In March, Climate Protection Minister Robert Habeck, citing data by the Federal Environment Agency (UBA), said Germany was on track for the first time to meet its climate targets after emissions fell by 10% in 2023. The council, however, said UBA's earlier estimates for almost all economic sectors were too optimistic, adding that Germany will not be on track even after 2030, jeopardizing the country's goal to become climate neutral by 2045. "Against this background, we recommend not waiting for the target to be missed again, but rather examining the timely implementation of additional measures," the council's Chairman Hans-Martin Henning said in a statement. Germany's Climate Protection Act was agreed after months of wrangling by the government coalition of the Social Democrats, Greens and pro-business FDP. The FDP, which leads the transport ministry, campaigned for changes to give some leeway to some individual sectors that consistently fall behind as long as the national CO2 limits were not exceeded. With specific sectors now off the hook, drafting more ambitious climate measures will be the responsibility of the entire government, the reformed law says, without making clear who would be in charge. Even with a more flexible national climate law, Germany will have to meet the European Union targets and risks paying billions of euros for emissions certificates or fines if it fails to do so. Sign up here. https://www.reuters.com/business/environment/germany-likely-miss-2030-climate-goal-government-advisors-say-2024-06-03/

2024-06-03 10:26

June 3 (Reuters) - OPEC+ agreed on Sunday to extend most of its deep oil output cuts well into 2025 as the group seeks to shore up the market amid tepid demand growth, high interest rates and rising rival U.S. production. Here is what market analysts have said about the announcement: DAAN STRUYVEN, HEAD OF OIL RESEARCH AT GOLDMAN SACHS "While OPEC+ extended all three layers of production cuts, we see the meeting as bearish because 8 OPEC+ countries already signalled to gradually phase out the 2.2mb/d of extra voluntary cuts over 2024Q4-2025Q3, despite recent upside surprises to inventories." "The communication of a gradual unwind reflects a strong desire to bring back production of several members given high spare capacity." "As a result of the bearish meeting, and given recent upside surprises to inventories relative to our expectations, we now see the risks to our $75-90 range for Brent as skewed to the downside." AMARPREET SINGH, ENERGY ANALYST AT BARCLAYS "The OPEC+ meeting outcome was mildly negative relative to our baseline balances view, as the rollover of additional voluntary adjustments through the end of Q3 24 and a slower than expected phase out of these adjustments was more than offset by the extent of the phase out and the revision in UAE's target for next year." "The rollover of the additional voluntary cuts for another quarter and associated commentary from key ministers suggests that it would not be surprising to see the group kick the can further down the road if market conditions do not favor a gradual phase out of production cuts starting Q4 24. KIM FUSTIER, HEAD OF EUROPEAN OIL AND GAS RESEARCH AT HSBC "This outcome was widely expected by the market." "How OPEC+ unwinds its multiple, complex set of cuts – totalling 5.8 mbd in aggregate – remains one of the biggest questions for the oil market. The agreement provides some clarity for the next 19 months but questions remain, including how the 3.66 mbd of collective and first-phase voluntary cuts will be unwound beyond end-2025." OMAR NOKTA, ANALYST AT JEFFERIES "We view this as a modest positive as we had not expected a return of these barrels until later in 2025." "Earlier this year, when Brent prices reached $90/bbl, there had been a growing expectation that these voluntary cuts would start to unwind at some point in 2024, but softer prices since had negated that view. Thus the gradual unwind in October is a positive surprise. Tankers continue to enjoy strong earnings despite OPEC+ implementing cuts since early 2023. Given further non-OPEC supply is coming in 2025, in line with demand growth expectations, a full unwind of the OPEC+ voluntary cuts may be a ways away." CHRISTYAN F MALEK, GLOBAL HEAD OF ENERGY STRATEGY AND HEAD OF EMEA OIL & GAS EQUITY RESEARCH AT JPMORGAN "Increased production from 3Q suggests the alliance is comfortable with current inventory levels and should offer the market a clearer line of sight on OPEC's prevailing confidence in supply/demand fundamentals." "Put simply, if these volume adds are adhered to, that should indicate a healthy outlook for nominations and is thus ultimately bullish demand, even though, in the near term we may see some downward pressure on oil prices. Clearly the challenge for the group will be to hold or cut back if demand doesn't prove as robust and we believe their strong cohesion should allow for greater flexibly, if needed." UBS "The outcome could be seen as slightly bearish for oil for the very near-term but the decisions taken also reduce downside risk in the medium-term in our view." "One takeaway from this weekend's decision is that the group managed to reach a broad agreement in a fairly short period of time, unlike in some other previous meetings, showing cohesion. What could have been a contentious 2H24, given discussions about 2025 production, now carries less risk in our view and the risk of a breakdown of the OPEC+ agreement and disorderly OPEC+ production return a(n even) lower probability event." BILL WEATHERBURN, SENIOR CLIMATE AND COMMODITIES ECONOMIST AT CAPITAL ECONOMICS "The key decision is that around 2.2m bpd of voluntary cuts will be rolled over until the end of September. We expect this, combined with a pick-up in oil demand over the Northern Hemisphere summer, to push the oil market into a deficit over Q3 which could send oil prices towards $90 per barrel." HELIMA CROFT, HEAD OF GLOBAL COMMODITY STRATEGY AND MENA RESEARCH AT RBC CAPITAL MARKETS "While any signal to add back barrels will be seized on by market bears, we think it is important that the taper timeline execution will be data dependent and subject to review at summer’s end." NORBERT RÜCKER, HEAD OF ECONOMICS AND NEXT GENERATION RESEARCH AT JULIUS BAER "This outcome might be rather bearish for the oil market, as production increases are now officially heralded. However, the decision ultimately only acknowledges the obvious. The oil market remained well balanced over the past months despite the petro nations’ massive supply curtailments. Demand growth was offset by supply growth coming from elsewhere, largely the Americas. Losing market share is not in the interest of the petro-nations." Sign up here. https://www.reuters.com/markets/commodities/opec-extends-oil-output-cuts-into-2025-2024-06-03/

2024-06-03 10:03

A look at the day ahead in U.S. and global markets from Mike Dolan June kicks off with a series of big election results around the world - with big landslides unfolding for favoured candidates in Mexico and India - while Wall Street has perked up in a key week for the U.S. labour market. The peso was slightly unnerved by the sheer scale of Claudia Sheinbaum's win in Mexico's presidential election, slipping to a five-week low ahead of Monday's open. Mentored by popular outgoing leader Andres Manuel Lopez Obrador, former mayor of Mexico City Sheinbaum took an historic near 60% of the vote and the ruling coalition was on track for a possible two-thirds super majority in both houses of Congress - allow it to pass constitutional reforms without opposition. On the other side of the world, Indian shares (.NSEI) New Tab, opens new tab set record highs, the rupee gained and bond yields dropped as exit polls indicated a decisive mandate and a third term for Prime Minister Narendra Modi. The polls showed Modi's Bharatiya Janata Party set to increase its 303 seats in the 543-member lower house and likely get a two-thirds majority - also enough to initiate amendments to the constitution. South Africa's rand firmed a touch on Monday, with analysts expecting coalition negotiations to be the main driver after the African National Congress failed to secure a majority for the first time in 30 years last week - gaining as little as 40% of the vote in the final count. European Parliament elections are also due at the end of the week. Back on Wall St, the new month kicked off in a better mood than the wobbly final week of May - in part thanks to a late rally in U.S. stocks (.SPX) New Tab, opens new tab, (.DJI) New Tab, opens new tab, (.IXIC) New Tab, opens new tab on Friday amid hopes the economy and inflation were cooling enough to allow the Federal Reserve ease later this year. Perhaps partly related to month-end re-positioning, the rally marked the biggest daily gain for the Dow Jones blue-chip index this year and dragged the S&P500 into positive territory too. S&P futures were higher again ahead of today's bell. The release of the Fed's favoured PCE inflation gauge was broadly as expected - even though economists argued over which slice of the numbers to focus on. The six-month annualised growth rate of core PCE, for example, rose to 3.2% - its highest since July. But the Dallas Fed's so-called "trimmed mean" PCE inflation cut eased to 2.7% from 3.3% in March. Take your pick. But attention strayed more to details of the report showing a weakening of consumer spending - which accounts for more than two-thirds of U.S. economic activity - and also a cratering of manufacturing business activity in May's Chicago PMI index far below forecasts. ISM's manufacturing survey readings for last month are due out later on Monday - but the week will be dominated Friday's May employment report and several labor market updates ahead of that. In the meantime, the Atlanta Fed's real-time "GDPNow" estimate for U.S. growth this quarter slipped back almost a full percentage point over the week to 2.66%. The full picture has been enough to drag U.S. Treasury yields back further from last week's peaks, even though there's been a worrying re-emergence last week of the so-called "term premium" on holding longer-term debt to its most positive since November. There was little disturbance in crude oil markets , however, from the weekend decision by OPEC+ to extend most of its deep oil output cuts well into 2025 as the group seeks to shore up the market amid tepid demand growth and rising rival U.S. production. The dollar (.DXY) New Tab, opens new tab was higher to start the week - in part as the euro brace's for Thursday's long-telegraphed European Central Bank interest rate cut. The gap between French and German 10-year government bond yields narrowed slightly even after Standard & Poor's cut its rating on France's sovereign debt late Friday - a move market participants said had been widely expected. The downgrade reflects S&P's projection that, contrary to its previous expectations, France's general government debt as a share of GDP will increase as a result of larger-than-expected budget deficits over 2023-2027. European and Asia shares were mostly higher, with China's (.CSI300) New Tab, opens new tab mainland index a notable underperformer yet again. Online fashion firm Shein is preparing to file a prospectus with Britain's Financial Conduct Authority for approval ahead of a potential London float which could value the Chinese-founded firm around 50 billion pounds ($63.70 billion), Sky News reported on Sunday. The confidential filing could take place as soon as the coming week, the report added, citing sources. The fast-fashion company stepped up preparations for its London listing after its attempt to float itself in New York faced regulatory hurdles and pushback from U.S. lawmakers. Key diary items that may provide direction to U.S. markets later on Monday: * US May manufacturing surveys from ISM and S&P Global, April construction spending * US Treasury auctions 3-, 6-month bills Sign up here. https://www.reuters.com/markets/us/global-markets-view-usa-2024-06-03/

2024-06-03 09:43

JAKARTA, June 3 (Reuters) - Bank Indonesia (BI) is not looking at an across-the-board cut in the reserve requirement ratio (RRR) for banks even as it expands a scheme offering relief for lending to certain sectors to support economic growth, a deputy governor said on Monday. From June 1, lending to sectors such as automotive, trade, electricity, gas, and water utilities qualify for the incentives for relief from the 9% RRR rate. Banks can reduce their required reserve levels by up to 4% under the rules, which BI estimates could release up to 115 trillion rupiah ($7.1 billion) of liquidity throughout 2024. "The intention is to provide an incentive to those who lend. If we cut the RRR, it will give liquidity to banks, but they may not channel that towards credit," Deputy Governor Juda Agung said. "We will continue to monitor banks' liquidity levels, credit growth and the direction of interest rate (policy), because this is a policy mix," Juda told reporters. BI has raised interest rates a total of 275 basis points since mid-2022 and increased banks' reserve requirement ratio (RRR) by 550 bps to 9% in its post-pandemic tightening cycle. BI officials have said its policy mix of pairing high interest rates with the liquidity incentive is intended to help weather global financial market volatility, which has weakened the rupiah, without hurting domestic growth too much. For more than a year, the central bank has allowed banks to hold a lower level of reserves for lending to certain sectors, such as property and natural resources processing, and it flagged the expansion of the incentive scheme earlier this year. BI in April delivered a surprise rate hike after the rupiah fell to its lowest since 2020. Governor Perry Warjiyo last month said the rate hike was sufficient to attract capital inflows and stabilise the rupiah, but the currency has since dropped again by more than 1%. ($1 = 16,225 rupiah) Sign up here. https://www.reuters.com/markets/asia/indonesia-cenbank-says-no-outright-rrr-cut-it-expands-loan-incentive-scheme-2024-06-03/

2024-06-03 09:14

LONDON, June 3 (Reuters) - Claudia Sheinbaum has won a landslide victory to become Mexico's first female president, inheriting the project of her mentor and outgoing leader Andres Manuel Lopez Obrador, whose popularity among the poor helped drive her triumph. The ruling coalition was also on track for a possible two-thirds super majority in both houses of Congress, which would allow the coalition to pass constitutional reforms without opposition support. Below is the reaction of analysts to the latest news: JACOBO RODRIGUEZ, FINANCIAL ANALYST, ROGA CAPITAL "It was precisely one of the scenarios that investors did not like (...) The prevailing mood is nervousness, now that Morena and Sheinbaum have an open letter to propose important constitutional changes. Even the president himself has mentioned that before leaving, he may propose a couple of important reforms, so that makes the markets a little nervous." "Right now in the short term, it is an overreaction from the markets that always occurs in the face of adverse scenarios - we should not see more falls, but the reality is that as long as nervousness prevails, the fall may extend. What would we expect? That the president-elect comes out to give some speeches to reassure the market, that would help to calm the nervousness." MARCO OVIEDO, SENIOR STRATEGIST FOR LATIN AMERICA, XP INVESTMENTS "It is being confirmed that Morena will probably have control of Congress and the Chamber of Deputies, while the Senate is yet to be confirmed. (...) Once this is confirmed, I think we will see a little more pressure on the peso and we will see what happens next, because we will have to see what the president's plan will be, what the agenda will be and what Lopez Obrador's influence will be." "[Lopez Obrador] has his agenda very clear. He sent a set of reforms in February that are radical and that is what the market is worried about." "Given the magnitude of the victory, it is clear that this is as the president himself has said - that it is a referendum, it is a 'you are doing well, follow him', so there is no reason why Claudia has to change course." "I believe that the peso will continue to reflect these risks to the extent that it is confirmed that Claudia will continue down this path (...) We will have to see how everything evolves, but the market is not liking it." "It remains to be seen what kind of team, cabinet and role Lopez Obrador will be playing in these months, but I believe - in the short term - that it could go to 19." "Lopez Obrador has become very empowered after this, it is a brutal empowerment." ADRIAN E HUERTA, STRATEGIST, JPMORGAN "Sheinbaum’s acceptance speech was directed towards all Mexicans, and sought to calm down markets by stressing that her administration will guarantee an autonomous central bank, keep the division between economic and political powers, abide by legality and preserve a disciplined fiscal stance. She also mentioned that it would boost private investment, both national and foreign." JIMENA BLANCO, CHIEF ANALYST, VERISK MAPLECROFT "The question we now have is nobody really knows what kind of Sheinbaum they're going to get once she becomes president. She is extremely close to Lopez Obrador, but will she remain that close? Or will she pursue her own agenda? And if she does, she obviously has an interest and also a lot of experience with the energy industry, and maybe the changes we see are not as drastic as we would have seen under Lopez Obrador." "Before the election, everybody had priced in a continuation of similar policies with similar institutional restraints on the executive." ANDRES ABADIA, CHIEF LATAM ECONOMIST, PANTHEON MACROECONOMICS "Sheinbaum's victory is outstanding, granting her a robust mandate to tackle Mexico's key challenges. While her victory was widely anticipated by the markets, which should take the result relatively well, the potential qualified majority could open the door for (her party) Morena to increase concentration of power and pose a threat to institutional checks and balances." "So far, though, the president-elect has struck a more conciliatory tone, promising to build on the "advances" of the outgoing administration while adopting a more investor-friendly approach. In the near term, the main driver for Mexican assets will likely be external conditions, particularly the actions of the Federal Reserve, rather than domestic politics." PIOTR MATYS, SENIOR FX ANALYST, IN TOUCH CAPITAL MARKETS "The peso is underperforming amid seemingly growing concerns amongst investors that by securing supermajority in the lower house the governing coalition could be tempted to implement non-market-friendly policies." JASON TUVEY, DEPUTY CHIEF EMERGING MARKETS ECONOMIST, CAPITAL ECONOMICS "Policy continuity will largely prevail under a Sheinbaum government, particularly when it comes welfare policy. In a speech shortly after the preliminary results were announced, Dr. Sheinbaum stated that her government will 'dedicate public funds to continue President Lopez Obrador’s social programmes'. But she clearly has one eye on reassuring investors who are concerned about the health of Mexico’s public finances, stating that 'our government will be austere… and fiscally responsible'. "One key area of difference with the Amlo (Lopez Obrador) administration is likely to be energy policy. While Dr. Sheinbaum said that she will promote 'energy sovereignty', perhaps a nod to (for now) continuing to provide support for the state oil company Pemex, her environment-friendly credentials shone through as she called for a focus on renewable energy." HASNAIN MALIK, STRATEGY & HEAD OF EQUITY RESEARCH, TELLIMER "Should Sheinbaum's Morena party and its allies secure a two-thirds majority in the lower house of congress and a majority in the upper house... then the divisive constitutional reform agenda, laid out by Lopez Obrador in February 2024 (eg changes to pensions, wages, supreme court) comes sharply into focus and creates downside risk for Mexico asset prices - because they risk sparking large scale protests and, if implemented, they risk undermining the strength of institutions." CHRIS TURNER, GLOBAL HEAD OF MARKETS, ING "The question is whether the Morena party has done so well that it could command a super-majority and try to pursue market non-friendly policies of constitutional reform." Sign up here. https://www.reuters.com/world/americas/analyst-view-mexicos-sheinbaum-secures-landslide-presidential-election-win-2024-06-03/

2024-06-03 08:41

JOHANNESBURG, June 3 (Reuters) - South Africa's rand was slightly stronger early on Monday, with analysts expecting coalition negotiations to be the main driver this week, after the African National Congress (ANC) failed to secure a majority for the first time in 30 years last week. At 0810 GMT, the domestic currency traded at 18.7325 against the U.S. dollar , up more than 0.2% from Friday. The ANC got 40.2% of the vote on Wednesday, its worst election showing of the democratic era, which means that it will have to strike an agreement with one or more smaller parties to govern, an unprecedented prospect in the country's post-apartheid history. The prospect of an ANC tie-up with more radical parties like the far-left Economic Freedom Fighters (EFF) or former president Jacob Zuma's uMkhonto we Sizwe (MK) has rattled investors, who would prefer a coalition that brings in the pro-business Democratic Alliance (DA). "The rand has staged a recovery from its lows and appears to be unwinding some of the risk... priced in that the ANC would automatically default to forming an alliance with Zuma's MK party or ... (the) EFF," ETM Analytics said in a note. "Investors increasingly realise that the more responsible and productive alliance would likely be between the ANC and the DA." Local media have reported that the DA could be open to entering a cooperation pact with the ANC, supporting it in key decisions in exchange for top jobs in parliament. Political parties have two weeks to work out a deal before the new parliament sits and chooses a president, who would likely still be ANC leader Cyril Ramaphosa, since the ANC remains the biggest force. On the Johannesburg Stock Exchange, the Top-40 index (.JTOPI) New Tab, opens new tab was up roughly 1.2% in early trade. The benchmark 2030 government bond was firmer, while the yield fell 10 basis points to 10.6%. Sign up here. https://www.reuters.com/markets/currencies/south-african-rand-edges-higher-focus-coalition-negotiations-this-week-2024-06-03/