2025-06-09 08:20

June 9 (Reuters) - Citigroup has pushed back its U.S. rate cut forecast to September from July and now expects three cuts this year instead of four, after a stronger-than-expected May jobs report in an otherwise cooling labor market. The Wall Street brokerage anticipates 75 basis points (bps) of cuts this year in three equal tranches in September, October and December, revising its earlier forecast of 100 bps of cuts. Sign up here. The brokerage also forecast two rate cuts of 25 bps each in January and March of 2026. The Federal Reserve's last rate cut was in December 2024, when it reduced the key lending rate by 25 bps. U.S. non-farm payrolls increased by 139,000 jobs last month after a downwardly revised rise of 147,000 in April, data showed. Economists polled by Reuters had estimated May payrolls to rise by 130,000 jobs. The U.S. central bank is expected to keep interest rates unchanged at its meeting next week, while traders have priced in close to two 25-bps cuts by December. On Friday, Citi lifted its S&P 500 (.SPX) , opens new tab year-end target to 6,300 from 5,800 earlier, expressing renewed optimism in corporate earnings resilience and the accelerating momentum of artificial intelligence-driven growth. The benchmark S&P 500 index closed above 6,000 for the first time since late February on Friday. https://www.reuters.com/business/citigroup-drops-july-rate-cut-bets-us-trims-forecast-75-bps-2025-06-09/

2025-06-09 06:54

June 6 (Reuters) - Uncertainty from Washington's tariff tactics remains rife, but investors realise that whatever U.S. President Donald Trump threatens doesn't tend to last long before he delays or backs down, meaning recent volatility has ebbed. This tendency to U-turn, dubbed the TACO trade - "Trump Always Chickens Out" - has caught on but it's also given investors something to bank on so they can focus on upcoming reads on inflation and trade. Sign up here. Here's a look at what's coming up for world markets from Kevin Buckland in Tokyo, Naomi Rovnick and Amanda Cooper in London and Alden Bentley in New York. 1/ TACOS FOR BREAKFAST The high-voltage volatility that shook markets in April and through May has subsided, with investors becoming accustomed to Trump's on-again-off-again approach to anything from tariffs to personal relationships - the meltdown with erstwhile DOGE chief and Tesla Chief Executive Elon Musk being the latest. Wall Street's fear-gauge, the VIX index, has slipped back below the 20-line that many view as a watermark. Since Trump became the 47th president on January 20, the index has topped 20 on 47 occasions. In the five months prior to that, it breached that level 18 times. In the last month, there have been just seven days when the VIX has popped above 20, compared with every day from April 2 "Liberation Day" to early May. If anything, the TACO trade is taking some spice out of the market. 2/ INFLATION HIDE AND SEEK Investors are hoping any rise in Wednesday's May consumer inflation report won't be as severe as feared, given Trump's erratic trade tactics. Recent data shows inflation falling close to the Federal Reserve's 2% target. Price pressures in manufacturing and services sectors are picking up, however. A good gauge of markets' long-term inflation view indicates only moderate concern. The inflation breakeven rate on five-year Treasury Inflation Protected Securities suggests investors believe the rate will average less than 0.3 percentage points above the target for the next five years. The Fed's most recent Beige Book showed economic activity is weakening, while costs and prices are rising across the different regions - a combination policymakers do not want to see. Traders expect the Fed to make no rate change at its June 18 meeting. 3/ A RARE DISPUTE Washington and Beijing's trade spat has brought a familiar issue back to the surface. China has a stranglehold on global supply of so-called rare earths, critical ingredients in almost every high-tech device out there, from cars to cruise missiles. When China cuts off supply, everything withers. The auto industry is feeling it. Suzuki (7269.T) , opens new tab suspended production of the Swift subcompact, weeks after Ford (F.N) , opens new tab did the same for its Explorer SUV. The White House has blasted Beijing for reneging on tariff rollbacks agreed in Geneva last month, but China is doing the same, lambasting the U.S. over revoked student visas and cutting-edge chip curbs. Chinese trade data on Monday will illuminate what's at stake, while inflation figures that day will show if Beijing's efforts to stoke domestic demand are working. U.S. and Chinese officials are due to meet in London on Monday to discuss trade and defuse the high-stakes dispute. 4/ A NICE BALANCE April trade data for the European Union on June 13 could offer a reasonably clean read on where things stood as Trump's on-off tariffs began to roll out. The EU is firmly in the U.S. president's crosshairs. Trump has said more than once the sole purpose of the EU is to "take advantage" of America, on the grounds that his country boasts a $200 billion trade deficit with the bloc in goods alone, making the EU its second-biggest goods trade partner behind China. EU sales of cars, steel, pharmaceuticals and luxury goods and apparel among other things are big business. Trump on May 23 said he would impose a 50% tariff on all EU imports, only to back down two days later by delaying the duties by a month after a "very nice call" with European Commission President Ursula von der Leyen. 5/ TAX OR OFFEND Britain, often a prime target for bond vigilantes that attack indebted governments for financial mismanagement, has been pushed into these traders' peripheral vision by U.S. budget concerns. The Labour government's first spending review on Wednesday could bring the UK back into the spotlight. Even if finance minister Rachel Reeves manages to slash departmental spending, this will merely highlight how few cost-cutting options she has left, Bank of America says. UK public debt has swelled, leaving Reeves minimal headroom to avoid breaking self-imposed fiscal rules and less able to resist tax hikes. Still, businesses and borrowers still scarred by the gilt market riot after then Prime Minister Liz Truss' 2022 mini-budget may prefer higher taxes if that lowers the odds of bond vigilantes showing up. https://www.reuters.com/business/take-five/global-markets-themes-graphic-2025-06-06/

2025-06-09 06:45

MUMBAI, June 9 (Reuters) - The Reserve Bank of India’s surprise outsized rate cut last week will leave the rupee vulnerable to further depreciation by pressuring already depressed foreign exchange forward premiums, several analysts said on Monday. The rupee has underperformed its Asian peers in 2025 amid weak capital flows. A narrowing interest rate differential — with the U.S. Federal Reserve moving slower than the RBI in cutting rates — suggests the Indian currency may continue to lag. Sign up here. MARKET REACTION The 1-month U.S. dollar/rupee forward premium — typically more sensitive to liquidity conditions — fell to 7.5 paisa, its lowest level since November. Meanwhile, the 1-year premium , which is more responsive to rate differential between the U.S. and India, declined to 1.5250 rupees, marking its lowest level in nearly a year. GRAPHIC: WHY IT'S IMPORTANT A drop in dollar/rupee forward premiums makes the rupee less attractive for carry trades, and diminishes the incentive for exporters to hedge future receivables. At the same time, it raises the likelihood that importers—who typically hedge near-term payment obligations—will step up their hedging activity. The decline in premiums - a less favourable rate differential between the U.S. and India - could leave the rupee open to sharper depreciation. CONTEXT Against the backdrop of benign inflation and the need to support growth, the Reserve Bank of India last Friday delivered a larger-than-expected 50 basis point rate (bps) cut, exceeding the 25 bps anticipated by economists. In a further easing move, the central bank slashed the cash reserve ratio for banks. KEY QUOTES "One thing the rupee had going for it is that it offered attractive carry ... with the 50-bps rate cut from the RBI, carry attraction has been reduced," Mitul Kotecha, head of FX and EM macro strategy Asia at Barclays, adding that in an environment where investors are again focussed on carry, the rupee's appeal has been diminished. Falling premiums can be a "mild added headwind" for the rupee amid globally elevated yields, Dhiraj Nim, FX strategist at ANZ Research, said, and pointed out that if India growth data weaken, there could be scope for one more rate cut. https://www.reuters.com/world/india/india-central-banks-large-rate-cut-squeezes-forward-premiums-leaves-rupee-2025-06-09/

2025-06-09 06:33

LONDON, June 9 (Reuters) - U.S. President Donald Trump's move to double tariffs on aluminium imports heightens the risk of a full-blown scrap war with the European Union. Although they are supposed to be blanket tariffs with no exceptions or exemptions, there is one significant gap in the tariff wall. Sign up here. Aluminium scrap is explicitly excluded on the grounds it constitutes a key raw material for U.S. manufacturers. The Trump administration's decision to lift aluminium tariffs to 25% effective the start of March has already caused U.S. imports of recyclable material to rise. This week's doubling of the tariff rate to 50% could turn the import flow into a flood. The European Union, which is mulling export duties on aluminium recyclables to stop what it terms "scrap leakage", is coming under pressure to move sooner rather than later. US PREMIUM SURGES AGAIN The U.S. Midwest aluminium premium has rocketed to a record $1,325 per metric ton after Wednesday's doubling-down on import tariffs. That's the price U.S. buyers will pay over and above the international price traded on the London Metal Exchange (LME), currently $2,430 per ton for cash metal. What once reflected the cost of transport to get metal to the U.S. Midwest manufacturing hub is now a tariff premium, capturing the fracture of the global aluminium pricing structure. U.S. consumers of aluminium goods will ultimately foot the bill but mid-stream processors are likely to do well. Fabricators converting raw metal to semi-finished goods such as can sheet were the prime beneficiaries of the first Trump administration's 10% tariffs, according to a report by consultancy Harbor Aluminum commissioned by the Beer Institute. Mid-stream processors passed on the tariff, even if the raw material was domestically sourced scrap, Harbor found. The new tariffs will incentivise fabricators not only to maximise their domestic purchases of scrap but to tap overseas markets, where U.S. buyers can now outbid just about anyone else for available material. SCRAP WARS U.S. imports of aluminium recyclable materials jumped to over 80,000 tons in March, the highest monthly volume since 2022. There were sharp increases in supply from Canada and Mexico, the two largest and nearest suppliers to the U.S. market. However, the tariff differential has started to draw material out of Europe, according to the European Aluminium association. Exports from EU countries to the United States spiked in the first quarter of the year, it said. They are only going to accelerate as the transatlantic price gap widens after this week's doubling of tariffs. The EU is facing a "full-blown scrap crisis", according to the association. Director General Paul Voss called on the European Commission to immediately impose a corresponding duty on scrap exports to the United States. The Commission has already identified high aluminium scrap exports as a key hurdle in its ambition to meet the bloc's "Circular Economy" targets. A March "Action Plan" , opens new tab for both the aluminium and steel sectors promised a decision by the third quarter of this year on suitable trade measures, including reciprocal export tariffs on countries "that apply unfair subsidies" to their recycling industries. There's now a sense of urgency that some sort of defensive trade barrier will be required to stem export flows. CHINA EXPOSED Aluminium scrap is a highly globalised marketplace but that looks set to change as Europe figures out how to stop the loss of raw material to the United States. Caught in the middle of this tug-of-war is China, the world's largest aluminium scrap buyer. The country has imported 1.8 million tons in each of the last two years and although it sources much of its material from Asia, it is a significant buyer of both U.S. and European end-of-life scrap. Beijing last year relaxed the purity rules on imports of both copper and aluminium scrap to encourage greater domestic recycling. This is particularly important for China's aluminium sector, where production of primary metal is now close to the government's mandated capacity cap, meaning supply growth will have to come from recycling. Chinese buyers are facing the twin challenge of export restrictions in Europe and competition with U.S. players in their own Asian supply chain. The scrap wars have only just begun. The opinions expressed here are those of the author, a columnist for Reuters. Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn , opens new tab and X , opens new tab. https://www.reuters.com/markets/commodities/us-aluminium-tariffs-threaten-scrap-clash-with-european-union-2025-06-09/

2025-06-09 06:31

EU share of renewables in power generation rose to 47% in 2024 EU requires $1.4 trillion in grid investment by 2040, report says Ratio of investments in renewables and grids has dropped in recent years, IEA says LONDON, June 9 - Europe's ambition to develop cheap, clean energy has recently received a harsh reality check, as power failures and a string of cancelled renewables projects made it clear that the road to inexpensive power will carry a very high price tag. European investments in renewable energy have risen sharply over the past decade as governments have begun implementing policies to reduce greenhouse gas emissions – an effort that sped up after Russia's invasion of Ukraine created an energy price shock. Sign up here. The share of renewables in the EU's power sector rose to 47% in 2024 from 34% in 2019, with a record 168 gigawatts (GW) of solar and 44 GW of wind power capacities installed between 2022 and 2024 alone, according to EU data. In Britain, renewable generation exceeded 50% for the first time in 2024, data showed. But investment in grid infrastructure, including pylons, cables, transformers and battery storage technology, has barely kept up with the rapid change in the power generation mix. Between 40% and 55% of low-voltage lines will exceed the age of 40 by 2030, while their length increased only by 0.8% between 2021 and 2022, according to a European Commission report. The Commission last week issued guidance for developing electricity networks in which it estimated the bloc will require 730 billion euro of investments in power distribution and another 477 billion euro in transmission grid developments by 2040. The underinvestment in grid infrastructure has created strain in many systems, a risk that was laid bare on April 28, with the catastrophic blackout in the Iberian Peninsula. Regulators are still investigating exactly what triggered the collapse of the power systems in Spain and Portugal. But what is known for sure is that the outage was preceded by the disconnection of two solar farms in southern Spain. The Spanish system is heavily reliant on renewables, but the issue was not the energy source itself. Rather, the problem was that the grid system had not been updated to account for the fact that solar-powered plants, unlike those using fossil fuels, do not generate inertia – the kinetic energy created by the rotation of spinning generators – which can help stabilize a grid in the event of power disturbances. To overcome this challenge, operators would need to invest in technologies such as synchronous condensers or batteries that kick in within milliseconds in the event of an outage to offer backup. The Iberian debacle puts a spotlight on the fact that more investment is needed in the mundane, but vital, elements of grid infrastructure. BAD ECONOMICS Another reality check for Europe has been the realization that offshore wind – once heralded as a potential renewables game changer – simply has lousy economics today. Danish offshore wind giant Orsted on May 7 cancelled a major project off the eastern coast of Britain, Hornsey 4, dealing a blow to the country's ambitions to develop 50 GW of clean power capacity by 2050. The recent rise in material costs forced the cancellation, according to Orsted, which had already sunk 5.5 billion Danish crowns ($840.5 million) into the project. And then on May 16, the Dutch government postponed tenders for two offshore wind farms with a total capacity of 2 GW due to a lack of interest from potential bidders. Several companies said they saw no viable business case for the projects, which offered developers no government subsidies. These two cases suggest that capital-intensive projects like offshore wind simply won't make economic sense without more ambitious government policy initiatives. SHORT-TERM THINKING The challenge is not unique to Europe. While worldwide investment in clean technology has risen, the headline figures mask a less rosy picture. The International Energy Agency (IEA) said in a report published on June 5 that global investment in power grids reached a record $390 billion in 2024 and is set to surpass $400 billion in 2025, 20% higher than a decade ago. But spending on power grid upgrades has not kept up. In 2016, about 60 cents were invested in grids for every dollar spent on new generation capacity. That ratio has dropped to less than 40 cents as the costs of renewables has declined, according to the IEA. This imbalance is unsustainable as ageing Western power systems – especially those in Europe – will increasingly experience problems unless trillions are spent in grid upgrades. The investment shortfall partly reflects a fundamental time horizon mismatch. Governments face public pressure every time energy bills – or taxes – rise, so they will struggle to convey to voters the long-term benefits of spending billions in tax dollars to support building modern, low-carbon power systems. But energy companies and utilities seeking to invest in renewables and grids will need long-term policy certainty, and given the challenging economics for many renewables projects, they will often also require generous subsidies. To be sure, the long-term costs of inaction to mitigate climate change will be far higher, and the EU is already spending over 100 billion euros annually on fossil fuels subsidies. But long-term thinking is not an easy sell for politicians in a time of growing populism, nationalism and polarization. Ultimately, if European governments want their populations to have cheap, green energy, they will need to accept the reality that getting there will be more expensive and more government-driven than previously advertised. Enjoying this column? Check out Reuters Open Interest (ROI) , opens new tab, your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis. Markets are moving faster than ever. ROI , opens new tab can help you keep up. Follow ROI on LinkedIn , opens new tab and X. , opens new tab https://www.reuters.com/business/energy/path-cheap-power-will-be-very-expensive-2025-06-09/

2025-06-09 06:20

SINGAPORE/HONG KONG, June 9 (Reuters) - U.S. President Donald Trump's erratic policies are rattling a currency peg that has withstood the test of time and is seen as an anchor for China and Asia. The Hong Kong dollar has whipsawed from one end of its narrow trading band to the other versus the greenback in just a month. Sign up here. While the latest volatility is not seen as a threat to the four-decade-old peg, the it has had a dramatic impact on interest rates, providing a challenging environment for businesses and investors in the financial hub. The stress on one of the world's best-known currency pegs underscores how volatility in the U.S. dollar under Trump is disrupting even the most stable corners of the market. Interest rates in Hong Kong have tended to move in lockstep with the United States, keeping the Hong Kong dollar - which trades between 7.75 and 7.85 per U.S. dollar - relatively stable. But they have decoupled over the past month as global investors cooled on U.S. assets and fretted about Washington's growing debt pile, while massive capital entered Hong Kong as foreigners flocked to blockbuster share offerings. Chinese investors have also ploughed record amounts of money into Hong Kong-listed stocks. "The pace and speed of inflow was quite surprising," said Raymond Yeung, ANZ's chief economist for Greater China. The volatility forced the Hong Kong Monetary Authority (HKMA), the city's de-facto central bank, to intervene in the foreign exchange market four times in May as the Hong Kong dollar bumped up against the strong end of its trading band. That caused borrowing costs in Hong Kong to plunge to record lows, tempting speculators to short-sell the currency and drive it swiftly to 7.85, the weak end of the band. As Hong Kong rates fell, the gap between U.S. three-month rates and the benchmark in Hong Kong hit a record high last week, based on LSEG data stretching back to 2020. Spreads across other tenors similarly widened. Analysts say it is normal to see an occasional deviation in rates between the Hong Kong dollar and U.S. dollar, but the abrupt moves seen in recent weeks are worrisome for businesses and investors - especially given disruptions to global trade and other uncertainty. "If the gap closes abruptly, then firms and households and the financial system in Hong Kong might suffer from a large interest rate shock, which is not good for financial stability," ANZ's Yeung said. Hong Kong officials have sought to reassure markets that the peg is here to stay, and that despite the increased volatility, there are some benefits to the current low level of rates. The city's leader John Lee told SCMP in an interview published on Monday that the city will maintain its currency's peg to the dollar. HKMA chief Eddie Yue noted the impact of lower interest rates on individuals and corporates would vary, depending on their relative positions in bank deposits and borrowings. "However, looking at it through a macroeconomic lens, lower interest rates should be beneficial to the current economic environment of Hong Kong," he said in a blog post. Lower mortgage rates seem to have helped the economy's flagging property market, with home prices edging up in April to end four months of decline. The government too has used the opportunity to access cheaper borrowing for longer. It issued 30-year bonds, its longest tenor debt, for the first time last month. "It's a good time for Hong Kong to lock in the low funding," said Lei Zhu, head of Asian fixed income at Fidelity International. https://www.reuters.com/business/finance/when-pegs-fly-trump-induced-turbulence-hits-hong-kong-dollar-interest-rates-2025-06-09/