2024-05-22 10:14

Majority of rating actions now going in positive direction Impact of COVID, Ukraine war and rate spike waning However, average EM fiscal deficit seen on the rise LONDON, May 22 (Reuters) - From Brazil, Nigeria and Turkey to even some of the riskiest emerging markets such as Egypt and Zambia, evidence is growing that a decade-long deterioration in sovereign credit ratings has finally started to reverse. Economists watch ratings because they influence a country's borrowing costs and many are now highlighting a turnaround that seems incongruous with the usual warnings about rising debt pressures. According to Bank of America, almost three-quarters of all sovereign rating moves by S&P, Moody's and Fitch this year have been in a positive direction, compared with the almost 100% that went the other way in the first year of the COVID pandemic. With that and the spike in global interest rates now in the rear view mirror, more good news should be coming too. Moody’s now has 15 developing economies on a positive outlook - rating firm parlance for an upgrade watch - one of its highest numbers ever. S&P has 17, while Fitch has its best ratio of positive versus negative outlooks since a post-global financial crisis rebound in ratings in 2011. Fitch's global head of sovereign research Ed Parker said the turnaround has been down to a combination of factors. For some countries it has been a general recovery from COVID and/or the energy price spikes caused by the Ukraine war. Others are seeing country-specific improvements in policymaking, while a core group of junk-rated "frontier" nations are now benefiting from suddenly being able to access debt markets again, he said. Aviva Investors' head of EM hard currency debt, Aaron Grehan, describes the current upgrade wave as a "definitive shift" that has also coincided with a sharp drop in the premiums that emerging markets almost everywhere have had to pay to borrow. "Since 2020, well over 60% of all rating actions have been negative. In 2024, 70% have been positive," Grehan said, adding that Aviva's internal scoring models were similar. DECADE OF DOWNGRADES The awkward reality though is that the current run of upgrades will not make up for the last 10-15 years. Turkey, South Africa, Brazil and Russia all lost coveted investment grade scores during that time, while a deluge of debt almost everywhere apart from the Gulf has left the average EM credit rating more than a notch lower than it used to be. And though some countries argue that developed economies where debt is still surging are being treated more leniently by the rating firms, EM finances are hardly sparkling now. Eldar Vakhitov, a sovereign analyst and "bond vigilante" at M&G Investments points to the International Monetary Fund's recent forecast that the average EM fiscal deficit will edge up to 5.5% of GDP this year. Just a year ago, the assumption was that the 2023 EM fiscal expansion was a one-off that would be fully reversed this year. Now the EM fiscal deficit is expected to remain above 5% of GDP until the end of the Fund’s forecast horizon in 2029. So why all the rating upgrades? "For some countries it is all about the starting point," Vakhitov said, explaining that even though government deficits were still wide, they had at least dropped down from peak COVID levels. A few governments, such as Zambia, are getting a natural lift from coming out of debt restructurings while a number of places are making obvious policy improvements. Turkey, which has already had a couple of upgrades for attacking its inflation problem head on, and Egypt which seems to have shaken off default worries, are both expected to see multi-notch upgrades now, according to market pricing. "Rating agencies tend to be slow though," Vakhitov said, "so it often takes them a lot of time to give upgrades." COUPON PAYMENTS The downgrades have not stopped completely. Moody's and Fitch have both put China on a warning over the last six months, Israel's war has led to its first ever downgrades and Panama has been stripped of one of its investment grades. Three years on from COVID spending splurges and the bills are having to be paid too. EM hard currency debt amortisations and coupon payments are expected to reach an all-time high of $134 billion this year, JP Morgan estimates. That is up by $32 billion from last year, so it is not surprising then that emerging market policymakers are eager to do all they can to get their ratings up and keep borrowing costs down. Indonesia's Finance Minister Sri Mulyani Indrawati explained in London this month how the agencies had doubted her when she told them during COVID that Indonesia would get its deficit back below 3% of GDP within 3 years. "It ended up that we were able to consolidate the fiscal (position) in only two years," she said. "So I always like to say to my rating agency staff, I won the bet, so you have to upgrade my rating!" Sign up here. https://www.reuters.com/markets/emerging-market-credit-ratings-are-finally-looking-up-again-2024-05-22/

2024-05-22 10:11

FRANKFURT, May 22 (Reuters) - Wages in Germany have been rising faster than expected, casting some doubt on expectations for a continued fall in inflation, the country's central bank said Wednesday. The European Central Bank is all but certain to begin lowering interest rates next month, with President Christine Lagarde saying on Tuesday she was "really confident" inflation was now "under control". But the ECB's biggest shareholder, Germany's Bundesbank, struck a more cautious tone on Wednesday, warning of inflation risks from higher wages as Europe's largest economy recovers. "There are still risks to the fundamental disinflation process," the Bundesbank said in its monthly report. "Wage growth has recently been stronger than expected. This could mean that the still high price pressure on services in particular could last longer." It said collectively agreed earnings, including fringe benefits, rose by 6.2% year-on-year in the first quarter of the year, compared to 3.6% in the last three months of 2023. Excluding one-off payments, collectively agreed wages increased by 3.0% annually in the last quarter, also faster than three months earlier. "This extends the upward trend in real earnings since spring 2021, which has been quite high in a long-term context," the Bundesbank added. The Bundesbank expects German inflation to rise in May from April's 2.4% and hover at slightly higher level in the coming months, mainly due to an unfavourable comparison to last year, when train ticket prices had been slashed and fuel costs had fallen. It also sees Europe's largest economy continuing to recover in the second quarter of the year thanks to a rebound in services. Sign up here. https://www.reuters.com/markets/europe/bundesbank-warns-inflation-risk-wages-rise-more-than-expected-2024-05-22/

2024-05-22 10:10

NEW YORK, May 22 (Reuters) - Jury selection begins on Wednesday in the criminal trial of exiled Chinese businessman Guo Wengui, who U.S. prosecutors have accused of defrauding thousands of investors and supporters out of more than $1 billion. The trial before U.S. District Judge Analisa Torres in Manhattan could last into July. It is expected to touch on sensitive areas, with prosecutors seeking to keep Guo, a fierce critic of China's Communist Party, from eliciting classified information during witness testimony. Guo, who has several aliases including Miles Guo, Miles Kwok and Ho Wan Kwok, has pleaded not guilty to 12 charges including securities fraud, wire fraud, unlawful monetary transactions and conspiracy, including for money laundering. He has been jailed in Brooklyn since his March 2023 arrest, and could face decades in prison if convicted. His age has been reported as 54 and 55, and federal prison records say he is 57. Guo has been a business associate of former U.S. President Donald Trump's onetime adviser Steve Bannon. It was on Guo's $37 million yacht, the Lady May, where Bannon was arrested in 2020 in a separate fraud case. That case ended when Trump pardoned Bannon in the waning hours of his presidency. Bannon had pleaded not guilty. Prosecutors accused Guo and his accomplices of taking advantage of his prolific online presence and hundreds of thousands of followers to cheat investors in a media company, a cryptocurrency ventures and two other fraud schemes. Rather than deliver the promised outsized financial gains, prosecutors said Guo stole money to fund an extravagant lifestyle including a New Jersey mansion, a $3.5 million Ferrari for his son and two $36,000 mattresses. Prosecutors have also sought the forfeiture of the mansion, the yacht, bank accounts, a Bugatti, a Lamborghini and a Rolls Royce. Their case against Guo may have been strengthened when his former chief of staff Yvette Wang pleaded guilty on May 3 to conspiring to commit both wire fraud and money laundering. Her sentencing is scheduled for Sept. 10. SPECIAL MEASURES FOR JURORS Guo left China in 2014 during an anti-corruption crackdown under President Xi Jinping. Officials there accused Guo of bribery, money laundering and other crimes, which he has denied. After moving to the United States, Guo bought a home in the Sherry-Netherland on Manhattan's Fifth Avenue, and drew ardent fans through his criticism of China's government, including by accusing leaders of corruption. At Beijing's request, the global police organization Interpol in April 2017 issued a "red notice" for Guo's arrest. Last month, Torres rejected Guo's bid to dismiss the indictment, saying prosecutors could try to establish a pattern of racketeering at trial. Jurors will be kept anonymous from the public and be partially sequestered. This reflects in part what Torres called the substantial public attention to the case, and Guo's "history of using his organization to harass and threaten those who dare to criticize and oppose him." Torres kept Guo in jail out of concern that if released he would be a serious flight risk and a danger to the community. A federal appeals court upheld her decision last June. Guo filed for Chapter 11 bankruptcy protection in Connecticut in February 2022. That case was later combined with the bankruptcies of other companies he controlled. Torres has rejected Guo's bid to put the bankruptcy cases on hold. The case is U.S. v. Guo, U.S. District Court, Southern District of New York, No. 23-cr-00118. Sign up here. https://www.reuters.com/legal/exiled-chinese-businessman-guo-wengui-goes-trial-fraud-2024-05-22/

2024-05-22 10:04

A look at the day ahead in U.S. and global markets from Mike Dolan While the inflation and interest rate world continues to throw up unpleasant surprises, it's hard to imagine much of a shift in major indexes on Wednesday as Nvidia's (.NVDA) New Tab, opens new tab earnings drum roll builds through the session before a post-bell release. While it's slightly alarming to have just one firm hold an entire stock market in thrall, the sheer weight of Nvidia in indexes after another near doubling of its share price this year underlines both its own importance as well as that of artificial intelligence narrative at large. Nvidia's stock now has a weighting of over 5% in the S&P 500 (.SPX) New Tab, opens new tab, accounting for 6.5% of the Nasdaq 100 (.NDX) New Tab, opens new tab and 20% of the VanEck Semiconductor exchange trade fund (SMH.O) New Tab, opens new tab. Standing away from the AI torchbearer, the macro backdrop has been less benign over the past 24 hours - even if differing inflation pictures are emerging internationally. Canada's ongoing disinflation surprised positively on Tuesday and spurred June interest rate cut hopes there. But plunging British headline inflation missed forecasts and seemed to put the kibosh on market speculation about a Bank of England move next month. The Reserve Bank of New Zealand held its policy rates, meantime, and gave some hawkish signals about potentially rising 'peak' rates. With the Federal Reserve set the publish minutes of its latest policy meeting later on Wednesday, the latest soundings from Fed officials this week seem to throw cold water over any remaining talk of a U.S. rate cut this summer. On Tuesday, Fed governor Christopher Waller talked of "several more months" of inflation monitoring before being able to act. Cleveland Fed boss Loretta Mester referred to "a few more months". Boston Fed chief Susan Collins reckoned: "It's going to take longer than I had previously thought." The upshot is that Fed futures now don't fully price the first quarter-point move until the November 7 meeting - two days after the U.S. election. Despite a fresh slippage in oil prices , U.S. Treasury yields pushed back higher early on Wednesday - with two-year yields at their highest in over a week. Wednesday's upcoming 20-year bond auction probably hasn't helped. But the April UK inflation miss also colored the darker bond mood in Europe. Even though headline annual consumer price growth of 2.3% is almost a full percentage point below the March reading, and now as close to the BoE's 2% target as makes no difference, it was heavily influenced by big drop in household energy tariffs and above the 2.1% forecast. Worriers pointed to much higher services inflation last month. And even though one-off annual price changes there may be another distortion, 'core' UK CPI inflation is still running at 3.9% - even while annual producer output deflation is simultaneously as deep as 1.6%. The messiness of the overall picture may make the BoE hesitate in easing for a bit longer and money markets effectively wiped out the chances of a June rate cut from 50-50 before the release. In what looks like a possible overreaction, an August cut is now even seen to be in the balance. UK government bond yields jumped to a three-week high and sterling hit its highest in a month . Elsewhere in Europe, markets shivered a bit on concerns about an escalating tit-for-tat trade war between China and other western economies. European automakers (.SXAP) New Tab, opens new tab fell 1.9% to a more-than-three-month low, with shares of Mercedes-Benz (MBGn.DE) New Tab, opens new tab, BMW (BMWG.DE) New Tab, opens new tab and Volkswagen (VOWG_p.DE) New Tab, opens new tab falling. China should raise its import tariffs on large gasoline-powered cars to 25%, a government-affiliated auto research body expert told China's Global Times newspaper as the country faces sharply higher U.S. auto import duties and possibly additional duties to enter the EU. Back on Wall St, stock futures were marginally in the red after notching modest gains on Tuesday. The dollar was firmer. Global stock markets were slightly weaker. Key diary items that may provide direction to U.S. markets later on Wednesday: * US April existing home sales * US corporate earnings: Nvidia, Target, Synopsys, Analog Devices, TJX * Federal Open Market Committee issues minutes from April 30-May 1 meeting; Chicago Fed President Austan Goolsbee speaks * US Treasury sells 20-year bonds Sign up here. https://www.reuters.com/markets/us/global-markets-view-usa-2024-05-22/

2024-05-22 07:42

PERTH, May 22 (Reuters) - BHP's (BHP.AX) New Tab, opens new tab bid for Anglo American (AAL.L) New Tab, opens new tab underlines the growing appetite for energy transition metals like copper from miners who must become more aggressive to secure new projects or risk missing out, investors and mining CEOs said on Wednesday. The bid by the world's biggest listed miner for Anglo is expected to whet appetite for more deals in the sector whether it goes ahead or not, they said. "There is clearly a preference for buying over building because costs have ramped up so much in the past few years," said Ben Cleary of Tribeca Investment Partners, which is an investor in Anglo American. "BHP ... have been telling you for a long time that they love copper. Rio the same. In terms of their portfolio skew they are still very heavily weighted to iron ore ... you are going to see more deals," he said, speaking at the AFR Mining Summit in Perth. Anglo has twice rejected overtures by BHP, whose deadline to make a third offer expires later on Wednesday. Instead, Anglo has pledged to break up its company to lower costs. Whether Anglo's management decide to engage with BHP on Tuesday, investors expect more interest in the sector as copper prices, which hit a record above $11,000 a tonne on Monday, climb and encourage new projects. Rising prices will only make competition for copper assets more intense, said Brett Beatty, partner and managing director Australia, of private equity company Resource Capital Funds. Beatty said he had faced internal questions over whether RCF had overpaid for the 11.9% stake in Botswana's Khoemecau copper mine that it bought for $70 million in 2019. That stake was sold when China's MMG (1208.HK) New Tab, opens new tab bought the mine for $1.88 billion six months ago, making it worth some $224 million, roughly a two-fold return. “It’s a market where you have to take risk and you’ll be rewarded for it, but if you sit on the sidelines you’re going to miss out,” he said. Given that lithium prices have begun to recover from rock bottom lows, for companies with the funding, now is a good time to buy, said Joshua Thurlow, head of lithium at Australian diversified miner Mineral Resources (MIN.AX) New Tab, opens new tab. "M&A's on people’s minds. It’s at that point in the cycle. If you can be counter cyclical ... you could argue this is a good time to do it," he told Reuters. "But also sometimes it takes a lot of gusto and a major balance sheet strengthening process to be able to do it," he added. MinRes embarked on an acquisition spree of significant stakes in Australian lithium developers last year. “As we continue to look around the goldfield and more prospective areas we will continue to make deals if and when possible," he added. Beyond copper and lithium, there is even interest in unloved nickel whose prices have been hit by a surge in Indonesian supply. Wyloo Metals will in coming weeks put its Western Australian nickel operations on care and maintenance. "For us we are trying to see beyond the next 6-12 months to the next 10-15 years," CEO Luca Giacovazzi said. "We are always acquisitive and we are always looking for a longer term opportunity ... As a family office that is really chasing assets that produce yield, it’s an interesting time for us to look at opportunities in the market." Sign up here. https://www.reuters.com/markets/deals/bhp-anglo-prospects-flag-more-ma-ahead-miners-2024-05-22/

2024-05-22 06:58

API reports crude and gasoline stocks rise, sources say UK inflation falls less than expected Fed minutes, EIA inventory report awaited LONDON, May 22 (Reuters) - Oil prices fell on Wednesday, retreating for a third straight day on expectations that the Federal Reserve might keep U.S. interest rates higher for longer due to sustained inflation, potentially affecting fuel use in the world's largest consumer. The market also slipped as U.S. crude oil and gasoline inventories rose last week, according to market sources citing American Petroleum Institute (API) figures on Tuesday. Analysts expected them to decline. Brent crude futures were down 94 cents, or 1.1%, at $81.94 a barrel, while U.S. West Texas Intermediate crude (WTI) dropped 77 cents, or 1%, to $77.89 by 1223 GMT. Both benchmarks shed more than 1% earlier in the session. "The view on the fundamental outlook remains grim," said Tamas Varga of oil broker PVM, adding, "The timing of a Fed rate cut is ambivalent at best". Oil settled about 1% lower on Tuesday. Physical crude markets have been weakening and in another sign that concern of tight prompt supply is easing, the premium of Brent's first-month contract over the second , known as backwardation, is close to its lowest since January. Fed policymakers said on Tuesday the U.S. central bank should wait several more months to ensure that inflation really is back on track towards its 2% target before cutting interest rates. Higher borrowing costs can slow economic growth and pressure oil demand. Investors are awaiting minutes from the Fed's last policy meeting and, following the API data, the latest official U.S. oil inventory figures from the Energy Information Administration (EIA) due later on Wednesday. "The Federal Open Market Committee (FOMC) minutes will be scrutinised for the Fed's assessment of bumpy Q1 inflation and clues on the timing and extent of potential interest rate cuts in 2024," ANZ analysts said in a report. Inflation in Britain fell by less than expected in April and a key core measure barely dropped, figures showed on Wednesday, prompting investors to pull bets on a rate cut next month. Sign up here. https://www.reuters.com/business/energy/oil-slips-third-session-likely-higher-longer-us-rates-2024-05-22/