2024-08-29 14:56

ORLANDO, Florida, Aug 29 (Reuters) - U.S. Treasuries may not be quite as risk-free as they once were, and the dollar's stranglehold on global currency reserves may have loosened, but talk of their demise remains extremely premature. Politicians, investors, and even officials at the Kansas City Fed's Jackson Hole Symposium , opens new tab last week, have debated whether the ballooning U.S. government debt pile is threatening the country's safe-haven status. But America's 'exorbitant privilege' – that is, the U.S. dollar's status as the world's reserve currency – continues to enable the U.S. government to borrow eye-popping amounts at relatively low cost. And the fact remains that no other government debt market or currency comes close to rivaling U.S. Treasuries and the dollar for liquidity and safety. It's tough to see how this could change, meaning the doomsday reckoning of a U.S. debt and dollar crash remains a distant prospect. DANGER AHEAD? That's not to totally dismiss concerns about the path of U.S. fiscal policy. Public debt is now around 100% of GDP and rising. It is projected to breach the current record of 106% of GDP within three years, according to the non-partisan Congressional Budget Office, and reach 122% of GDP by 2034. That will equate to annual deficits of almost $2 trillion or nearly 7% of GDP, well above the 3.7% average seen over the past half century. You don't have to be a 'doomer' or even a mild Cassandra to see warning signs here. But that's where the privilege kicks in. Research this week published by the University of Toronto's Jason Choi, the University of Wisconsin-Madison's Rishabh Kirpalani and Duong Dang, and New York University's Diego Perez highlights the extent of America's 'exorbitant privilege.' In their report 'Exorbitant privilege and the sustainability of U.S. public debt' , opens new tab they note that this special status "increases the maximal sustainable debt by approximately 22% of GDP." In other words, the U.S. government can sustainably borrow as much as 22% of GDP more than it would otherwise be able to if it weren't the supplier of the global reserve currency. With U.S. GDP currently around the $27 trillion mark, that 22% equates to around $6 trillion of extra debt that Washington can issue on a sustained basis at safe rates without significantly increasing the risk of default. Most of this extra headroom is due to the 'convenience yield' offered by Treasuries. In other words, investors benefit from Treasuries' liquidity and use as collateral and are willing to accept lower yields as a result. Today's rates market seems to support this theory. The U.S. Treasury is currently borrowing record amounts - more than half a trillion dollars in bills and bonds this week alone - yet yields across the curve are near their lowest levels this year. UNASSAILABLE DOLLAR With so much debt being issued, it's fair to ask who will continue to buy and at what price? For much of the period between 2000 and 2020, foreign central banks were the main source of demand for Treasuries. This raised concerns that the Treasury market could falter if foreign central banks reduced their purchases and holdings. But these fears have turned out to be unfounded. Foreign central banks' share has fallen, but overseas private sector investors, domestic U.S. funds, and the Fed itself have filled the gap. The Treasury market continues to function smoothly and act as a fundamental bedrock of the global financial system. Similarly, there is little sign of the dollar collapse that some of the more over-caffeinated analysts have warned would inevitably come as central banks diversified their FX reserves holdings. True, the greenback may currently be at a 2024-low, but turn back the clock a couple of years, and it was at a 20-year high. And even though it accounts for less than 60% of global reserves today compared to more than 70% at the turn of the millennium, it is losing ground to currencies with tiny shares like the Australian and Canadian dollars, South Korean won and Nordic currencies, rather than its only viable rival, the euro. Nothing stays the same forever. Just ask the UK, whose currency dominated global markets for over a century only to be eclipsed by the greenback. But investors seeking security, liquidity and safe returns are likely to continue putting their trust in U.S. Treasuries and the dollar – because, at least for now, there is no alternative. (The opinions expressed here are those of the author, a columnist for Reuters.) Sign up here. https://www.reuters.com/markets/us/us-exorbitant-privilege-is-alive-well-2024-08-29/

2024-08-29 13:40

Aug 29 (Reuters) - Shares of Salesforce (CRM.N) , opens new tab gained about 4% on Thursday as investors cheered the customer relationship management software maker's upbeat quarterly results and its artificial intelligence push to drive growth. The company has been heavily investing to integrate its AI technologies into existing products, such as its messaging platform Slack, to enhance their capabilities and attract more customers. "We continue to see Salesforce as an under-appreciated AI winner as its differentiated data and early success in creating/deploying GenAI agents," Goldman Sachs analyst Kash Rangan said. Wall Street was concerned that tempered cloud spending would affect Salesforce in a tough economy, but the software-as-a-service (SaaS) firm reported better-than-expected revenue, profit and margins in the second quarter. Salesforce also raised its profit forecast for the year ending January 2025, as margins continue to expand, thanks to its restructuring efforts last year. The stock is trading at 24.49 times that of Wall Street's profit expectations, compared with 52.11 for SaaS peer ServiceNow and cloud contact center firm Five9's (FIVN.O) , opens new tab 13.30, according to LSEG data. Salesforce is set to add about $9 billion to its market capitalization if gains hold. The company's valuation stood at $248 billion as of Wednesday's close. "We think these results alone are not good enough to drive a sustainable rally from here. For that, we need more catalysts, which could come with the new AI solutions," which are set to be showcased at its event Dreamforce and launched in October, Barclays analyst Raimo Lenschow said. Some analysts believe that sustained growth in the coming quarters can come through customer support platform Agentforce, which is not yet commercially available. Sign up here. https://www.reuters.com/technology/salesforce-gains-software-firm-bets-ai-tools-power-growth-2024-08-29/

2024-08-29 13:23

WASHINGTON, Aug 29 (Reuters) - The U.S. economy grew faster than initially thought in the second quarter amid strong consumer spending, while corporate profits rebounded, which should help to sustain the expansion. Gross domestic product increased at a 3.0% annualized rate last quarter, the Commerce Department's Bureau of Economic Analysis said in its second estimate of second-quarter GDP on Thursday. That was an upward revision from the 2.8% rate reported last month. The economy grew at a 1.4% pace in the first quarter. Economists polled by Reuters had forecast GDP would be unrevised at a 2.8% pace. Consumer spending, which accounts for more than two-thirds of the economy, increased at an upwardly revised 2.9% rate. It was previously reported to have grown at a 2.3% pace. That offset downgrades in business investment, exports and private inventory investment. Spending is being supported in part by wage gains, but momentum is slowing as the labor market shifts into lower gear. Personal income increased by $233.6 billion in the second quarter, a downward revision of $4.0 billion from the previous estimate. Corporate profits including inventory valuation and capital consumption adjustments increased $57.6 billion after declining by $47.1 billion in the first quarter. Profits of domestic financial firms increased $46.4 billion, while those of non financial institutions rose $29.2 billion, more than offsetting a $18.0 billion decline in profits from the rest of the world. When measured from the income side, the economy grew at a 1.3% rate last quarter. Gross domestic income (GDI) increased at a 1.3% pace in the January-March quarter. In principle, GDP and GDI should be equal, but in practice they differ as they are estimated using different and largely independent source data. The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.1% rate last quarter after advancing at a 1.4% pace in the first quarter. Sign up here. https://www.reuters.com/markets/us/us-second-quarter-economic-growth-revised-higher-consumer-spending-2024-08-29/

2024-08-29 13:02

Aug 29 (Reuters) - New vehicle sales in the United States are projected to rise over 4% in August from a year ago, partly boosted by the Labor Day weekend falling within the reporting period, according to a joint report by industry consultants J.D. Power and GlobalData on Thursday. On a seasonally adjusted annualized rate (SAAR) basis, which adjusts for Labor Day timing, sales are expected to stay roughly flat at 15.3 million units. WHY IT IS IMPORTANT Discounts from dealers and manufacturers are rising, while average transaction prices are falling, leading to a slight SAAR growth in August. The industry is also grappling with the effects of reduced leasing activity from three years ago. Fewer leases signed back then mean fewer lessees are returning to dealers to purchase or lease a new vehicle. J.D. Power on Wednesday forecast a slower-than-expected growth rate for EV sales in the first half of 2024 amid competition in the market for gasoline-powered models. BY THE NUMBERS Total new vehicle sales for August, including retail and non-retail transactions, are expected to be up about 4.2% to 1,437,954 units from a year ago. Transaction prices are trending towards $44,039, down $1,895 from a year earlier. Total retailer profit per unit - which includes vehicles gross plus finance and insurance income - is expected to be $2,249, down 33% from August 2023. KEY QUOTES "An increase in the transition to EVs will take time, with several interdependent variables affecting adoption," said Elizabeth Krear, vice president, electric vehicle practice at J.D. Power. "The global demand recovery is showing signs of slowing, with lower volume tempering the outlook for the rest of the year," Jeff Schuster, vice president of research, automotive at GlobalData. Sign up here. https://www.reuters.com/business/autos-transportation/us-auto-sales-set-rise-august-labor-day-weekend-surge-report-shows-2024-08-29/

2024-08-29 12:33

BENGALURU, Aug 29 (Reuters) - Indian conglomerate Reliance Industries (RELI.NS) , opens new tab expects its new energy business to be as profitable as its mainstay oil-to-chemicals segment over the next 5-7 years, Chairman Mukesh Ambani said at a shareholder meeting on Thursday. The company's new energy business consists of solar photovoltaic and fuel cell manufacturing, energy storage and green hydrogen production, among others. "I foresee it becoming as big and profitable over the next 5-7 years, as our O2C (oil-to-chemicals) business, which we had built over the past 40 years," Ambani said. Analysts had been waiting for an outlook for Reliance's new energy business, which has seen heavy investments. Reliance Industries operates the world's biggest refining complex at Jamnagar in western India. The complex houses two refineries with a combined capacity of about 1.4 million barrels per day and is at the core of its oil-to-chemicals operations. The oil-to-chemicals business contributes two-thirds of the Reliance's overall revenue, making it a key profit driver, despite the conglomerate's aggressive expansion into retail, telecom and green energy. In 2021, Reliance Industries announced $10 billion of investments to develop its green energy portfolio and achieve its 2035 net zero carbon goal. On Thursday, Ambani said Reliance is on track to make the planned investments. By the end of this year, the company will commence the production of its solar photo-voltaic modules and will complete the first phase of integrated solar production facilities in the following quarters, Ambani said. The group has leased arid wasteland in Gujarat state to generate about 150 billion units of electricity in the next 10 years, about 10% of India's energy requirements, Ambani said. It is also building transmission infrastructure to bring online solar generation projects in a phased manner from 2026, he said. Ambani said the company has secured land at Kandla port, next to its marine infrastructure at Jamnagar, for the production, storage and shipping of green fuels to local and global markets. ($1 = 83.8630 Indian rupees) Sign up here. https://www.reuters.com/business/energy/indias-reliance-says-new-energy-be-profitable-oil-chemicals-5-7-years-2024-08-29/

2024-08-29 12:15

BENGHAZI, Aug 29 (Reuters) - More than half of Libya's oil production, or around 700,000 barrels per day, was offline on Thursday, as a standoff between rival political factions over the central bank and oil revenue threatens to break a four-year period of relative peace. The crisis over control of the Central Bank of Libya threatens a new bout of instability in a major oil producer, split between eastern and western factions that have drawn backing from Turkey and Russia. Output at oilfields controlled by Waha Oil Company, a subsidiary of the National Oil Corporation, has dropped to 150,000 barrels per day (bpd) from 280,000 bpd, engineers told Reuters on Thursday, adding output was expected to fall further. Production has also been halted or reduced at the Sharara, Sarir, Abu Attifel, Amal and Nafoora fields, engineers have said. That has taken roughly 700,000 bpd of oil output offline, according to Reuters calculations. Libya pumped about 1.18 million bpd in July. Eastern factions have vowed to keep Libya's oil output shuttered until the internationally recognised Presidency Council and Government of National Unity in Tripoli, in the west, return veteran central bank governor Sadiq al-Kabir to his post. Sign up here. https://www.reuters.com/world/africa/around-700000-bpd-libya-oil-output-offline-political-standoff-2024-08-29/