2024-08-30 05:42

U.S. PCE index rises 0.2% in July, in line with forecasts U.S. consumer spending rises in July Dollar set for biggest weekly rise vs yen since mid-June Dollar index on track for worst month since November 2023 NEW YORK, Aug 30 (Reuters) - The U.S. dollar gained on Friday after data showed a key inflation measure came in line with forecasts, while personal spending and income increased, supporting expectations the Federal Reserve will likely cut interest rates by a smaller 25 basis points next month, instead of 50 bps. Some market participants had expected the larger cut next month on the notion that the Fed was behind the curve in terms of easing and should play catchup. U.S. rate futures on Friday implied a 31% chance of a 50 basis-point rate cut next month, down from Thursday's 35% probability, LSEG calculations showed, with the market fully pricing at the September meeting the Fed's first easing in more than four years. Markets have also factored in about 100 bps of cuts by the end of 2024. The dollar rose 0.8% to 146.09 yen after the inflation data , for its largest daily gain in two weeks. It was up 1.2% for the week, on track for its biggest weekly rise since mid-June. But the greenback remained down 2.6% for August, falling for a second straight month versus the Japanese currency. Friday's data showed the personal consumption expenditures (PCE) price index rose 0.2% last month, in line with expectations, after an unrevised 0.1% advance in June. In the 12 months through July, the PCE price index increased 2.5%, matching June's gain. Consumer spending was also 0.5% higher last month after expanding 0.3% in June. "Obviously, we are going to get a rate cut, and I think that whether it's 25 or 50, that's still debatable and that will all depend on next week's employment data," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. "I see three rate cuts and I see the possibility of a half a percent in September, depending on the employment data. If not, it'll be 25-basis-point cut in September and then 50-basis-point cut in December." The dollar index, a gauge of its value against six major peers, climbed to a 10-day high after the inflation data and was last up 0.3% at 101.7 . On the week, it rose 1%, on track for its best weekly performance since early April. This month, however, the index fell 2.6%, its weakest since November last year. The dollar overall continued to benefit from month-end flows, having been sold after Fed Chair Jerome Powell at a Jackson Hole gathering last week gave the clearest signal yet that the U.S. central bank will cut interest rates at the September meeting. Separate economic reports showed that the University of Michigan's monthly consumer sentiment index survey edged up to 67.9 in August from July's eight-month low of 66.4, snapping a four-month slide. U.S. consumers see inflation continuing to moderate in the next year, the survey showed, with a gauge of price growth expectations published on Friday at the lowest level in August since late 2020. The dollar briefly trimmed gains after the report. In other currencies, the euro dipped 0.2% against the dollar to $1.1050 . It has fallen 1.3% this week, on track for its largest weekly loss since April. The euro, however, rose 2.1% in the month of August, for its best monthly showing since November 2023, with the European Central Bank still on track to lower interest rates again next month. The single currency fell to a more than one-week low on Thursday and ended down 0.4% after German inflation cooled more than expected, bolstering investors' expectations of ECB cuts. The Chinese yuan firmed to a 14-month high against the dollar, for its biggest monthly jump since November, amid growing corporate demand for the Chinese currency as expectations heighten for U.S. rate cuts. The onshore yuan strengthened as far as 7.0825 per dollar before last changing hands at 7.0920, on track for a rise of around 1.9% for August. Sign up here. https://www.reuters.com/markets/currencies/dollar-set-snap-5-week-losing-streak-fed-cut-bets-pared-2024-08-30/

2024-08-30 05:37

Dow notches record high close after U.S. inflation data European stocks touch record intraday high Dollar heads for biggest monthly loss since November Gold prices fall as U.S. dollar gains NEW YORK/LONDON Aug 30 (Reuters) - Global stocks edged higher in choppy trading on Friday, making it the fourth consecutive month of gains despite a bout of heavy selling in early August, buoyed by U.S. economic data that has helped the dollar snap a weeks-long losing streak. The U.S. personal consumption expenditures (PCE) price index - which is the Federal Reserve's preferred inflation measure - rose 0.2% in July, according to Commerce Department data released on Friday. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.5% last month, the report showed. The data sets the stage for the Fed to likely begin easing monetary policy from September. The Dow Jones Industrial Average (.DJI) , opens new tab finished up 0.55% to 41,563.08, reaching the second consecutive record high close. Benchmark S&P 500 (.SPX) , opens new tab gained 1.01% to 5,648.40 and the Nasdaq Composite (.IXIC) , opens new tab gained 1.13% to 17,713.62. For the month, the Dow finished up 1.8%, S&P 500 added 2.3%, and the Nasdaq gained 0.6%. Europe's Stoxx index (.STOXX) , opens new tab closed up 0.09% after touching a record intraday high while Britain's FTSE 100 (.FTSE) , opens new tab eased 0.04%. MSCI's world share index (.MIWD00000PUS) , opens new tab rose 0.77%, making it a 2.40% monthly gain. The stunning recovery from an early August sell-off reminiscent of October 1987's "Black Monday" came as traders priced a so-called Goldilocks scenario, in which the U.S. economy keeps growing but not so much as to prevent interest rate cuts. Money markets are confidently pricing the Fed's first 25 basis point cut of this cycle at its September meeting, with a 33% chance of a jumbo 50 bp reduction. The U.S. economy grew faster than initially thought in the second quarter of this year because of strong consumer spending, and corporate profits, a report on Thursday showed. "The last few days we've started out a little stronger and then drifted during the day and in many cases closed either break even or slightly positive or slightly negative," said Tom Plumb, chief executive and portfolio manager at Plumb Funds. "I think that is a sign of a cycle where you start to see people transition to a different environment and it's not positive for the past leaders," he added, referring to the so-called "Magnificent 7" tech stocks that were at the forefront of this year's stock market rally. Government bonds rallied in early August after a weaker-than-expected U.S. jobs report and a surprise Bank of Japan rate hike wreaked chaos in currency carry trades and drove heavy selling of risky assets. The yield on benchmark U.S. 10-year notes , which moves inversely to prices, rose 4.2 basis points on Friday to 3.909%. The 2-year note yield, which typically moves in step with interest rate expectations, rose 2.4 basis points to 3.9165%. "As we're starting to lay out what our expectations are for an environment with lower interest rates, at least lower short term rates... we're already starting to see a change in the shape of the yield curve, which impacts the bond market but also the stock market," Plumb added. EURO FLAT The dollar steadied near a one-week high versus a basket of other major currencies, on track to snap a five-week losing streak although still heading for around a 2.5% monthly loss. Against the yen , the dollar stood at 146.14, set to lose more than 2.5% for the month, as pressure eased on the Japanese currency on the prospect of narrowing interest rate differentials. Core inflation in Japan's capital Tokyo accelerated for a fourth straight month in August, data showed on Friday, with the 2.4% price increase signalling further BoJ rate hikes ahead. The euro was down 0.2% at $1.105, having declined on Thursday after softer-than-expected German inflation data increased bets on further European Central Bank rate cuts. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) , opens new tab rose 0.48% and ended the month 2% higher. Japan's Nikkei (.N225) , opens new tab, following its early August collapse, was down 1.16% for the month after rising 0.74% on Friday. Oil prices fell. Brent crude futures for October delivery , which expire on Friday, settled 1.43% at $78.80 a barrel, marking a decline of 0.3% for the week and 2.4% for the month. U.S. West Texas Intermediate crude futures settled down 3.11% to $73.55, a drop of 1.7% in the week and a 3.6% decline in August. Gold prices weakened but looking at a 2.8% monthly gain. Spot gold lost 0.74% to $2,502.44 an ounce. U.S. gold futures settled 1.3% lower at $2,527.6 Sign up here. https://www.reuters.com/markets/global-markets-wrapup-1-2024-08-30/

2024-08-30 05:08

Billions of yuan stuck in Russia-China transactions Intermediaries' fees have risen to 6% from near zero - sources Payments between large state companies are coming through MOSCOW, Aug 30 (Reuters) - Some Russian companies are facing growing delays and rising costs on payments with trading partners in China, leaving transactions worth tens of billions of yuan in limbo, Russian sources with direct knowledge of the issue told Reuters. Russian companies and officials for a few months have pointed to delays in transactions after Chinese banks tightened compliance following Western threats of secondary sanctions for dealing with Russia. The sources said the problem has intensified this month. Chinese state banks are shutting down transactions with Russia "en masse" and billions of yuan worth of payments are held up, a source close to the government, who spoke on condition of anonymity, told Reuters. China is Russia's largest trading partner, accounting for a third of Russia's foreign trade last year and supplying items such as vital industrial equipment and consumer goods that help Russia weather Western sanctions. It also provides a lucrative market for many Russian exports that China relies on, from oil and gas to agricultural products. After the U.S. Treasury in June threatened secondary sanctions on banks in China and other countries for dealing with Russia, Chinese banks started to take a very strict stance on transactions, said a source at one of Russia's leading e-commerce platforms. It sells a wide variety of consumer goods imported from China. "At that moment, all cross-border payments to China stopped. We found solutions, but it took about three weeks, which is a very long time, trade volumes fell drastically during that time," said the source. One working solution was to buy gold, move it to Hong Kong and sell it there, depositing cash in a local bank account, the person said. Sources told Reuters that some Russian businesses have been using chains of intermediaries in third countries to handle their transactions and get around compliance checks run by Chinese banks. As a result, costs to process transactions have risen to as much as 6% of transaction payments, from close to zero before, they said. The sources spoke on condition of anonymity because of the sensitivity of the matter. "For many small companies, this means a complete shutdown," another source close to the government said. The Kremlin acknowledged the problem but said that economic cooperation is important for both countries and that solutions will be found. "With such volumes and in such an unfriendly environment, it is impossible to avoid some problematic situations," Kremlin spokesman Dmitry Peskov said in a statement to Reuters. "However, the truly partnership spirit of our relations allows us to discuss and resolve current issues constructively," he said. Transactions with China are not of grave concern to top Russian leadership, however, because payments in priority areas are still proceeding smoothly, and there is political will from both sides, a banking source told Reuters.Bilateral arrangements for large companies, such as Russia's commodity exporters and China's exporters of vital technologies, still work well, whereas smaller companies trading in consumer goods experience problems, sources said. Russian exporters haven't experienced difficulties in receiving payments for commodities that China imports, such as oil or grain, another source close to the Russian government told Reuters. Bilateral trade between Russia and China grew by 1.6% to $137 billion in the first half of 2024, according to China's official customs data, after hitting a record high $240 billion in 2023. "Normal trade between China and Russia is consistent with WTO rules and market principles, is not directed against third parties and is not subject to interference or coercion by third parties," a Chinese foreign ministry spokesman told Reuters. "We firmly oppose any illegal unilateral sanctions and "long-arm jurisdiction" and will take all necessary measures to safeguard our legitimate rights and interests," the spokesman added. Russia's imports from China fell by more than 1% to $62 billion in January-July 2024 due to payment problems, according to China's official statistics. Russia's central bank forecasts the country's total imports from around the world will fall by as much as 3% this year. "Imports will decrease in 2024 due to the strengthening of sanctions barriers related to payments and logistics," the central bank said, although it predicted that the situation would improve in the medium term, according to draft monetary policy guidelines published on Aug. 29.After Russian President Vladimir Putin's visit to China in May, some local Chinese banks without a global business stepped in to handle bilateral payments. They would be out of the reach of Western sanctions enforcers. However, sources pointed out that these banks often had outdated IT systems and lacked staff with the necessary skills. The banking source said that cross-border couriers were shuttling transfer papers across the Russia-China border to get them physically stamped and signed by Chinese bankers. "Until issues with payments are resolved at the state level, we cannot expect a dynamic inflow of investments from China," said Kirill Babaev, head of the China Institute at the Russian Academy of Sciences. Research co-authored by Babaev and released this month highlights the risks posed to Russia's industrial sector where China has become a leading supplier. "In today's situation, payment problems with Chinese banks particularly exacerbate this challenge, as there are no other major suppliers of many types of industrial equipment besides China at present," the research paper said. Large companies in China as well as India are heavily dependent on American and European markets, Dmitry Birichevski, head of the economic department at Russia's foreign ministry, said at a conference in Moscow on Aug. 16. "And they are being told, 'Guys, if you continue to work with Russia, we will cut off your access to our market and choke off your oxygen supply'," he said. Sign up here. https://www.reuters.com/business/finance/russia-payment-hurdles-with-china-partners-intensified-august-sources-say-2024-08-30/

2024-08-30 05:05

LONDON, Aug 30 (Reuters) - France's financial assets are stuck in a rut as a political stalemate and policy paralysis take hold, casting a shadow over the outlook for markets and deteriorating public finances. Investors hoping to snap up stocks and bonds battered by President Emmanuel Macron's decision in June to call a surprise election may have a long wait. The election delivered a hung parliament and weeks later France still has only a caretaker prime minister. Macron has slammed the door on a possible leftist government, despite the left bloc winning the most seats in July's second-round vote. Meanwhile, Paris and Brussels remain at loggerheads over France's worsening fiscal situation, and prolonged political uncertainty and possible delay to next year's budget could push back any market recovery. "Potentially, you have the capacity for French politics to look a bit bumpy again over the next few months," said Mark Dowding, chief investment officer at BlueBay Asset Management. Here's a look at how French assets are faring and what's next: 1/ STUCK IN THE MUD France's weak fiscal position looks set to keep government bonds on the back foot. The risk premium, or spread, demanded by holders of French debt over safer German bonds is around 71 basis points (bps). That's higher than the 50 bps seen before the election, but down from 85 bps reached in late June - the highest since the euro zone debt crisis over a decade ago. An S&P sovereign rating downgrade in May and a warning from Moody's in July suggest French borrowing costs will remain relatively high for now. France's debt as a share of its gross domestic product stands at over 100%. Germany's stands at just over 60%. "We think this will be a gradual move wider over time, in-as-much as we think that any move in spreads will be capped below 100 bps, beside a presidential election taking place," BlueBay's Dowding said, referring to the French/German bond gap. 2/ STABILITY, WHERE ARE YOU? French equities have underperformed European counterparts since Macron's June 9 election announcement and an initial post-election relief rally fizzled out. A rebound will remain elusive until the political deadlock breaks, analysts said. The blue-chip CAC 40 (.FCHI) , opens new tab index is 4.6% below levels seen in early June, while Germany's DAX (.GDAXI) , opens new tab is up 2% and the broader European STOXX 600 (.STOXX) , opens new tab is little changed. French mid-caps (.CACMD) , opens new tab, with greater exposure to the domestic economy, are down 8%. "Markets maybe underestimated how difficult the political situation is," said Morningstar European equity strategist Michael Field. "Until we see signs of what a government will look like, and more importantly whether it is strong enough to last the distance, we're probably unlikely to see a recovery in equities." Data from Morningstar Direct showed an estimated 243 billion euro ($270 billion) outflow from French equity and small- and mid-cap funds in June, which has failed to materially recover. 3/ MONEY IN THE BANK French banks have been hit particularly hard, but for some that's also a buying opportunity. Societe Generale (SOGN.PA) , opens new tab, BNP Paribas (BNPP.PA) , opens new tab and Credit Agricole (CAGR.PA) , opens new tab - the big three French banks - are down between 5% and 16% since the June election decision. Europe's bank index is down just 0.6% over the same period (.SX7P) , opens new tab. Morningstar's Field said the international exposure of the big French banks was a buying opportunity. He also warned that prolonged political uncertainty could hurt, while the risks of a widening deficit under a leftist government could spark rising funding costs. "I can certainly see the negatives around banks, but where there is disconnect is around how exposed some banks are," he said. "BNP and SocGen are our favoured plays and they're diversified enough away from that domestic market with their funding being more international, that they can ride through that." 4/ WHAT CRISIS? The euro , which took a brief knock in June, has bounced back and is unperturbed by France's political woes. It hit a 13-month high against a broadly weak dollar earlier this week, with currency traders' focus on the outlook for interest rates. The U.S. Federal Reserve is expected to embark on a series of rate cuts, with the European Central Bank going slower on monetary easing - a positive outcome for the euro. "Political uncertainty might weigh, even in the case of a non-leftist government, but more to limit more euro strength rather than triggering a sell-off," said UniCredit currency strategist Roberto Mialich. ($1 = 0.9015 euros) Sign up here. https://www.reuters.com/markets/europe/frances-political-quagmire-keeps-asset-recovery-bay-2024-08-30/

2024-08-30 05:04

MUMBAI, Aug 30 (Reuters) - The Indian rupee gained slightly on Friday on the back of inflows into local stocks but importers' dollar demand limited the gains. The rupee was at 83.84 against the U.S. dollar as of 10:25 a.m. IST, against its close at 83.87 in the previous session. Despite expectations of inflows related to India's increased weight in MSCI's emerging market equity index, the rupee was unable to gain substantially in the face of "strong dollar demand" from local importers, a foreign exchange trader at a state-run bank said. The higher weightage for Indian equities, effective on Friday, is expected to draw up to $3 billion of inflows, according to Nuvama Alternative and Quantitative Research. Benchmark Indian equity indexes, the BSE Sensex (.BSESN) , opens new tab and Nifty 50 (.NSEI) , opens new tab, touched record highs in early trading and were last up about 0.2% each. The rupee is "likely to trade within a range of 83.75 to 83.90" on the day with a bias towards slight appreciation, Amit Pabari, managing director at FX advisory firm CR Forex, said. The dollar index was little changed at 101.3 while most Asian currencies slipped, save for the offshore Chinese yuan, which was up 0.2% at 7.08, its strongest level since June 2023. Meanwhile, dollar-rupee forward premiums slipped, pressured by an uptick in U.S. bond yields after data released on Thursday quelled concerns about an economic slowdown. The 1-year implied yield was down 2 basis points to 2.14%. U.S. PCE inflation due later on Friday and labour market data due next week are likely to be the key drivers of U.S. rate cut expectations ahead of the Federal Reserve's September meeting. India's GDP data for the April-June quarter will also be released after market hours and is expected to show that economic growth eased to its slowest pace in a year, according to a Reuters poll. Sign up here. https://www.reuters.com/markets/currencies/rupee-rises-equity-inflows-importers-dollar-bids-cap-gains-2024-08-30/

2024-08-30 04:58

MUMBAI, Aug 30 (Reuters) - The Indian rupee may recover more on Friday, helped by the rally in the Chinese yuan and anticipated equity inflows spurred by domestic equities' higher weightage in MSCI's index. The one-month non-deliverable forward indicated the rupee will open flat-to-marginally higher to the U.S. dollar, compared with its close of 83.87 on Thursday, having gained about 0.1%. In the context of how challenging it has been for the rupee, "yesterday's move was decent", a currency trader at a bank said. India's increased weightage in MSCI's emerging market index, effective Friday, is expected to lead to inflows of up to $3 billion, per Nuvama Alternative and Quantitative Research. "I think the inflows and that 84 remains a big hurdle (for dollar/rupee to conquer) lead to small short positions," the trader said. He expects a large of the inflows should materialize on the day, lifting the rupee, potentially to 83.80. YUAN CLIMBS The onshore yuan rose past 7.10 to its highest level this year. The rally came ahead of the U.S. core PCE data for July due later in the day and China's official NBS manufacturing PMI data for August out on Saturday. The U.S. inflation data should lead the markets to further align their expectations of a 25 basis points cut in September, as telegraphed by the Federal Reserve, DBS Research said in a note. However, more than inflation, investors consider labour market data a better gauge for the pace of the Fed's rate-cutting cycle. In that context, U.S. weekly initial jobless claims data on Thursday was largely in line with expectations. The most important data point, however, will be the monthly non-farm payrolls report next Friday. KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.92/96; onshore one-month forward premium at 7 paisa ** Dollar index at 101.38 ** Brent crude futures up 0.2% at $80.1 per barrel ** Ten-year U.S. note yield at 3.86% ** As per NSDL data, foreign investors sold a net $65.2 million worth of Indian shares on Aug. 28 ** NSDL data shows foreign investors bought a net $247.9 million worth of Indian bonds on Aug. 28 Sign up here. https://www.reuters.com/markets/currencies/rupee-biased-upside-expected-equity-inflows-yuans-rally-2024-08-30/